Propell Corporation S-1

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As Filed with the Securities and Exchange Commission on May 13, 2008
Registration No. 333-_____
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
PROPELL CORPORATION
(Name of small business issuer in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
7384
(primary standard industrial
classification code number)
26-1856569
(I.R.S. Employer Identification No.)
336 Bon Air Center, No. 352
Greenbrae, CA 94904
(415) 747-8775
(Address and telephone number of principal executive offices and principal place of business)
Edward L. Bernstein
Chief Executive Officer
Propell Corporation
336 Bon Air Center, No. 352
Greenbrae, CA 94904
(415) 747-8775
(Name, address and telephone number of agent for service)
Copies to:
Hank Gracin, Esq.
Lehman & Eilen LLP
Mission Bay Office Plaza
Suite 300
20283 State Road 7
Boca Raton, FL 33498
Tel: (561) 237-0804
Fax: (561) 237-0803
Approximate date of commencement of proposed sale to the public: From time to time after the effective date of this
registration statement.
If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act,
please check the following box and list the Securities Act registration statement number of the earlier effective
registration statement for the same offering.
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If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following
box and list the Securities Act registration statement number of the earlier registration statement for the same offering.
If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following
box and list the Securities Act registration statement number of the earlier effective registration statement for the same
offering.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or
a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting
company” in Rule 12b-2 of the Exchange Act.
Large Accelerated filer
Accelerated filer
Non-accelerated filer
Smaller Reporting Company
If the delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box.
Title of each class of securities to be registered
Amount to be
registered(1)
Proposed
maximum
offering price
per share(2)
Common stock, par value $0.001 per share
5,070,310 (4)
$ .50
Total
5,070,310 (4)
Proposed
maximum
Amount of
aggregate offering registration
price
fee (3)
$ 2,535,155
$ 99.63
$ 2,535,155
$ 99.63
(1)
In accordance with Rule 416(a), the registrant is also registering hereunder an indeterminate number of shares
that may be issued and resold resulting from stock splits, stock dividends or similar transactions.
(2)
Estimated in accordance with Rule 457 of the Securities Act of 1933 solely for the purpose of computing the
amount of the registration fee based on the recent sales of unregistered securities. The common stock is
presently not traded on any market and the Registrant makes no representation as to the price at which its
common stock may trade.
(3)
The registration fee is calculated based on $39.30 per $1,000,000
(4)
Represents shares of the registrant’s common stock being registered for resale that have been issued to the
selling stockholders named in this registration statement.
The registrant hereby amends this registration statement on such date or dates as may be necessary to delay
its effective date until the registrant shall file a further amendment which specifically states that this
registration statement shall thereafter become effective in accordance with section 8(a) of the Securities Act of
1933, as amended, or until the registration statement shall become effective on such date as the United States
Securities and Exchange Commission, acting pursuant to said section 8(a), may determine.
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The information in this prospectus is not complete and may be changed. We may not sell these securities until the
registration statement filed with the United States Securities and Exchange Commission is effective. This prospectus
is not an offer to sell these securities and we are not soliciting offers to buy these securities in any state where the
offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED MAY 13, 2008
PRELIMINARY PROSPECTUS
PROPELL CORPORATION
5,070,310 shares of common stock
This prospectus relates to the resale or other disposition of up to 5,070,310 shares of our common stock, $0.001 par
value per share, by certain of our stockholders. These persons, together with their transferees, are referred to
throughout this prospectus as “selling stockholders.”
We issued all of the shares described above in private placement transactions completed prior to the filing of this
registration statement.
We are not selling any shares of our common stock in this offering and therefore will not receive any proceeds from
this offering. Instead, the shares may be offered and sold from time to time by the selling stockholders and/or their
registered representatives at a fixed price of $.50 until our shares are quoted, if ever, on the OTC Bulletin Board or
another exchange or electronic medium and thereafter at prevailing market prices or privately negotiated prices. As a
result of such activities, the selling stockholders may be deemed underwriters as that term is defined in the federal
securities laws.
Our common stock does not presently trade on any exchange or electronic medium. We intend to apply to have our
common stock listed on the OTC Bulletin Board once this prospectus is declared effective. However, no assurance
can be given that our common stock will trade on the OTC Bulletin Board or any other exchange or electronic
medium.
You should consider carefully the risk factors beginning on page four of this prospectus.
Neither the United States Securities and Exchange Commission nor any state securities commission has approved of
these securities or determined that this prospectus is accurate or complete. Any representation to the contrary is a
criminal offense.
The date of this prospectus is _____, 2008
TABLE OF CONTENTS
Page Number
3
Prospectus Summary
Risk Factors
5
Forward-looking statements
11
Where You Can Get More Information
11
Use of Proceeds
11
Description of our Authorized Capital
11
Management?s Discussion and Analysis
12
Our Business
15
Directors and Executive Officers
29
Certain Relationships and Related Party Transactions
31
Litigation
31
Executive Compensation
31
Director Compensation
32
Propell Corporation 2008 Stock Option Plan
32
Security Ownership of Certain Beneficial Owners and Management
34
Selling Stockholders
36
Dilution
38
Determination of Offering Price
38
Plan of Distribution
38
Description of Securities
39
Experts
41
Legal Matters
41
Indemnification of Directors and Officers
41
Financial Statements
F-1
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PROSPECTUS SUMMARY
This summary highlights selected information contained elsewhere in this prospectus. It is not complete and may not
contain all of the information that is important to you. To understand this offering fully, you should read the entire
prospectus carefully. Investors should carefully consider the information set forth under the heading “Risk Factors.”
In this prospectus, the terms “Propell Corporation” “we,” “us,” and “our” refer to Propell Corporation and its wholly
owned subsidiaries Crystal Magic, Inc., Mountain Capital, LLC and Auleron 2005, LLC.
Our Company
We are a recently organized Delaware corporation that is an integrated provider of image-based products and services
for the digital photo and promotional products industries, delivered through multiple channels, including e-commerce
websites, our own proprietary photo kiosks and independent and company owned retail stores.
We were formed from the combination in April and May 2008 of three companies, - Crystal Magic, Inc., Mountain
Capital, LLC (d/b/a Arrow Media Solutions)and Auleron 2005, LLC (d/b/a Auleron Technologies) – that have had a
strong track record in complimentary parts of the personalized image-based product and digital photo industry. The
companies were combined by way of the merger of each of Crystal Magic, Inc., Mountain Capital, LLC and Auleron
2005, LLC with a wholly owned subsidiary of ours with the result that each of Crystal Magic, Inc., Mountain
Capital, LLC and Auleron 2005, LLC survived the merger and became wholly owned subsidiaries of ours.
Crystal Magic’s core business began nearly a decade ago by using proprietary laser technology to create threedimensional laser images engraved inside solid crystal, sold in company-owned stores within Disney and Universal
theme parks, and later expanded to a wide range of image-based merchandise offered in mass market retail. The
company’s founders have long-standing relationships with Disney, Universal Studios and other entertainment
locations.
Today, the Crystal Magic division’s products are sold at Disney World, Disneyland and Universal Studios theme
parks, on a wholesale basis to retailers, to small and large corporate clients, and through our proprietary online system
that allows partners to create “Web Stores on Demand.”
Web Stores on Demand opens up substantial new opportunities and channels for Propell by providing partner ecommerce web sites with the opportunity to easily integrate a photo merchandise online store into their sites with little
effort or cost, and is a key part of Propell’s strategy for 2008 and beyond.
Crystal Magic also has a long track record delivering personalized image-based products to the $19 billion
promotional, incentive and award products industry, delivering quantities anywhere from one unit to over 500,000 in
a single order. Crystal Magic has served these markets since 2001, and sees particular opportunity to leverage its Web
Stores on Demand capabilities to expand its efforts in the promotional products category, where few of our
competitors offer online solutions.
The Arrow Media Solutions division of Propell provides digital photo kiosk solutions for retail. In its traditional
business, Arrow has focused on partners in “nontraditional” channels – retailers who previously had limited presence
in the photo category. For example, through our relationship with AmerisourceBergen, we enable independent drug
stores and small chains to offer photo services comparable with those provided by mass-market chains such as
Walgreens or CVS. For partners, Arrow Media Solution’s kiosks help retailers fulfill a key strategy – driving store
visits and customer loyalty.
Arrow Media Solution’s growth rate accelerated sharply over the last 18 months after securing a relationship with
AmerisourceBergen. AmerisourceBergen, one of the top three health care companies on the Fortune 500 and
currently No. 29 on the Fortune 100, has annual revenues of $61 billion.
The Auleron Technologies division of Propell was founded nearly seven years ago by the same management team
that later created Arrow Media Solutions.
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Originally, Auleron was a service provider to third parties, helping major retail, financial and technology
organizations install new hardware and software in various locations. In the merger of Crystal Magic, Inc., Arrow
Media Solutions and Auleron Technologies, the Auleron Technologies infrastructure has been maintained to serve the
company’s internal needs, making available an on-call network of over 3,500 technicians to service Propell
installations and other initiatives.
This network of technology gives Propell a unique ability to compete with the largest providers of photo kiosks, since
its delivery capabilities meet, and in most cases exceed those offered by even its largest competitors. The ability to
effectively manage this network is a highly effective tool in reassuring large customers that Propell can provide field
support for almost any initiative.
The combined companies generated approximately $5.8 million in the pre-merger calendar year, including $500,000
generated by now-discontinued operations, with gross profits for 2007 of $3.8 million and gross margin percentages
for 2007 of 65%.
Our principal offices are located at 336 Bon Air Center, No. 352, Greenbrae, CA 94904. Our telephone number is
(415) 747-8775.
Selected Financial Data
The following information is derived from and should be read in conjunction with our consolidated audited financial
statements, including the notes thereto, appearing elsewhere in this prospectus. The information set forth below
should also be read in conjunction with “Our Management’s Discussion and Analysis.” Results of operations for the
periods presented are not necessarily indicative of results of operations for future periods.
STATEMENT OF OPERATIONS DATA:
2007
Revenues
Cost of Goods Sold
Operating Expenses
Other income (expenses)
Net Loss
$ 5,831,184
2,013,548
4,490,720
2,960
$ (670,124)
BALANCE SHEET DATA:
2006
$ 6,730,670
2,475,908
5,158,002
76,290
$ (826,950)
As of December 31, 2007
Cash
Total Current Assets
Total Assets
Total Current Liabilities
Long Term Debt
Total Stockholders Equity (Deficit)
$
$
360,053
1,231,902
1,484,591
949,259
912,845
(377,513)
The Offering
Common stock outstanding
13,428,952 shares as of May 8, 2008
Common stock that may be offered by selling
stockholders
Up to 5,070,310 shares
Total proceeds raised by offering
We will not receive any proceeds from the resale or other
disposition of the shares covered by this prospectus by any
selling stockholder.
Risk factors
There are significant risks involved in investing in our
company. For a discussion of risk factors you should
consider before buying our common stock, see “Risk
Factors” beginning on page 5.
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RISK FACTORS
An investment in our securities is highly speculative and involves a high degree of risk. Therefore, in evaluating us
and our business you should carefully consider the risks set forth below, which are only a few of the risks associated
with investing in our common stock. You should be in a position to risk the loss of your entire investment.
We may not be able to retain existing customers or acquire new customers.
Future revenues and profitability depend in large part on our ability to retain our current relationships with our
customers, including Walt Disney Co, AmerisourceBergen and several e-commerce websites. Our relationships with
these customers depend on our satisfactorily performing our contracted services. If we do not successfully retain our
current customers, or market successfully against competitors, our business, financial condition and operating results
could be harmed.
Dependence on a Limited Number of Clients
A significant portion of our kiosk and theme park businesses depend on a limited number of partners. Specifically,
our kiosk business depends largely on our relationship with AmerisourceBergen, and our theme park business
depends largely on our contracts with the Walt Disney Co. and Universal Studios. Our business with
AmerisourceBergen accounted for $1.1 million, or approximately 19% of our consolidated revenues in 2007. Our
business with the Walt Disney Co. accounted for $2,497,786, or approximately 43% of our consolidated revenue in
2007, and our business with Universal Studios accounted for $283,071, or approximately 5% of our consolidated
revenues in 2007. Our agreement with Walt Disney Co. expires in October 2008 While we expect to renew our
agreement with Walt Disney Co. and while our agreements with the other entities do not expire for at least one year
from the date hereof, we can provide no assurance that the agreements with any of these entities will be renewed. The
non-renewal of any of these relationships could have a material adverse effect on our business and results of
operations.
We may not be able to continue as a going concern.
During the year ended December 31, 2007 we had $3,817,636 in gross profit but incurred $4,490,720 of operating
expenses and at December 31, 2007 had an accumulated deficit of $1,192,679. During the year ended December 31,
2006 we had $4,254,762 in gross profit but incurred $5,158,002 in operating expenses, and at December 31, 2006
had an accumulated deficit of $889,883. The opinion of our independent registered accounting firm for our fiscal
years ended December 31, 2006 and December 31, 2007 is qualified subject to substantial doubt as to our ability to
continue as a going concern. See “Report of Independent Registered Public Accounting Firm” and the notes to our
Financial Statements.
We rely on key vendors, suppliers and foreign sourcing.
We have no significant long-term purchase contracts or agreements to ensure continued supply, pricing or access to
raw materials and equipment used in our business. While we believe that alternate sources of third-party providers are
available, it is possible that our vendors might not be able to continue to meet our requirements for services or
supplies, or purchase services or supplies in sufficient quantities or on terms as favorable to us as those currently
available. Also, changing to an alternate vendor or supplier may cause delays, reduced quality or other problems.
We may be adversely affected by actions of competitors.
The market for personalized products, photo kiosks and other digital imaging services is highly competitive and still
emerging. Many of our competitors have substantially greater financial, technical and other resources than we have.
We face competition in personalized products, photo kiosks and other digital imaging services from other direct
marketers, online companies, and competitors in other distribution channels, including much larger companies. Many
of our competitors offer similar products and services. Our ability to compete effectively depends on our ability to
differentiate our services by offering innovative services and products and exemplary customer service and
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experience. Although we believe we are a leader in developing and marketing innovative personalized photo-related
services, photo kiosks and other products, competitors can and do provide similar services and products. There can
be no assurance we will continue to compete effectively through development of innovative services and products or
the provision of exemplary customer service and experience or that we will respond appropriately to industry trends
or to activities of competitors.
We experience fluctuations in quarterly results.
Our quarterly operating results will fluctuate for many reasons, including:
·
·
·
·
·
·
·
·
·
·
·
·
·
·
Seasonality of consumer photographic activity,
Seasonality of the theme parks in which we sell products,
Changes in attendance or consumer spending at these theme parks,
The mix of products we sell,
Promotional activities we conduct,
Price increases by our suppliers,
Our introduction of new products,
Our research and development activities,
Our competitors’ actions,
Fluctuations in the direct-to-consumer market,
Changes in usage of digital services and online commerce,
Changes in the photofinishing industry,
Changes in the promotional products industry,
General economic influences and conditions.
As a result of the above conditions, our operating results for any period do not necessarily indicate the results that can
be expected for any future period. Our operating results in a future period may be below the expectations of public
market analysts and investors which may cause the price of our common stock to decline.
Governmental regulation could harm our business.
Our operations, including our transmission of digital images over the Internet, are subject to regulation by the U.S.
Postal Service, the Federal Trade Commission and various states, local, and private consumer protection and other
regulatory authorities. In general, these regulations govern privacy, the manner in which orders may be solicited, the
form and content of advertisements, information which must be provided to prospective customers, the time within
which orders must be filled, obligations to customers if orders are not shipped within a specified period of time, and
the time within which refunds must be paid if the ordered merchandise is unavailable or returned. Congress has
enacted legislation to specifically regulate online commerce and communications and has addressed such issues as the
transmission of certain materials to children, intellectual property protection, and taxation. Other legislation could
result in additional regulation or prohibition of the transmission of certain types of content over the Internet.
There is no assurance that our common stock will be cleared to trade on the Over-the-Counter Bulletin Board.
We expect that a market maker will file a Form 211 with the National Association of Securities Dealers (the
“NASD”) to have our Common Stock quoted on the OTC Bulletin Board. However, we cannot assure you that our
common stock will ever be quoted on the OTC Bulletin Board or any other exchange or electronic medium.
Trading on the OTC Bulletin Board may be sporadic because it is not a stock exchange, and stockholders
may have difficulty reselling their shares.
We expect that our common stock will be quoted on the OTC Bulletin Board. Trading in stock quoted on the OTC
Bulletin Board is often thin and characterized by wide fluctuations in trading prices, due to many factors that may
have little to do with the our operations or business prospects. Moreover, the OTC Bulletin Board is not a stock
exchange, and trading of securities on the OTC Bulletin Board is often more sporadic than the trading of securities
listed on a quotation system like NASDAQ or a stock exchange like AMEX Accordingly, you may have difficulty
reselling any of the shares you purchase from the selling stockholders.
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Some of our existing stockholders can exert control over us and may not make decisions that are in the best
interests of all stockholders.
As of May 9, 2008, officers, directors, and stockholders holding more than 5% of our outstanding shares collectively
controlled approximately 70% of our outstanding common stock. As a result, these stockholders, if they act together,
would be able to exert a significant degree of influence over our management and affairs and over matters requiring
stockholder approval, including the election of directors and approval of significant corporate transactions.
Accordingly, this concentration of ownership may harm the market price of our shares by delaying or preventing a
change in control of us, even if a change is in the best interests of our other stockholders. In addition, the interests of
this concentration of ownership may not always coincide with the interests of other stockholders, and accordingly,
they could cause us to enter into transactions or agreements that we would not otherwise consider.
We cannot guarantee that an active trading market will develop for our common stock.
There is no public market for our Common Stock and there can be no assurance that a regular trading market for our
Common Stock will ever develop or that, if developed, it will be sustained. Therefore, purchasers of our Common
Stock should have a long-term investment intent and should recognize that it may be difficult to sell the shares,
notwithstanding the fact that they are not restricted securities. We cannot predict the extent to which a trading market
will develop or how liquid a market might become.
There may be future dilution of our common stock.
If we sell additional equity or convertible debt securities, those sales could result in additional dilution to our
stockholders.
We have incurred operating losses in the past and may not be able to sustain profitability in the future. Recent
accounting changes may make it more difficult for us to sustain profitability.
Crystal Magic, Mountain Capital, LLC and Auleron 2005, LLC, which all merged in either April or May 2008
with a subsidiary of ours to form our consolidated company, have periodically experienced operating losses. If we are
unable to produce our products and provide our services at commercially reasonable costs, if revenues decline or if
our expenses exceed our expectations, we may not be able to sustain or increase profitability on a quarterly or annual
basis. Also, we expect to be a publicly traded company, and will therefore be subject to the Sarbanes-Oxley Act of
2002, which will soon require that our internal controls and procedures comply with Section 404 of the SarbanesOxley Act. We expect compliance to be costly and it could impact our results of operations in future periods. In
addition, the Financial Accounting Standards Board now requires us to follow Statement No. 123, “Share Based
Payment,” or SFAS No. 123R. Under SFAS No. 123R, companies must calculate and record in their statement of
operations the cost of equity instruments, such as stock options or restricted stock, awarded to employees for
services. We expect that we will use stock options to attract, incentivize and retain our employees and will therefore
incur the resulting stock-based compensation expense. This will continue to adversely affect our operating results in
future periods.
We have a limited operating history as a combined entity, which makes it difficult to evaluate our business and
prospects for the future.
We have only a limited operating history as a combined entity on which investors can base an evaluation of our
business and future prospects. We face many risks, uncertainties, expenses and difficulties. To address these risks
and uncertainties, we must do the following:
•
maintain and increase our number of customers;
•
maintain and enhance our brand;
•
maintain and grow our website and customer operations;
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•
continue to enhance and innovate in our kiosk offerings to remain competitive;
•
expand our penetration in the promotional products industry;
•
Market and expand our theme park offerings;
•
successfully execute our business and marketing strategy;
•
continue to develop and upgrade our technology and information processing systems;
•
continue to enhance our service to meet the needs of a changing market;
•
provide superior customer service;
•
respond to competitive developments; and
•
attract, integrate, retain and motivate qualified personnel.
We may be unable to accomplish one or more of these things, which could cause our business to suffer.
Interruptions to our information technology systems, availability of retail facilities, kiosk manufacturing,
personalized--product production processes or customer service operations could damage our reputation and
brand and substantially harm our business and results of operations.
The satisfactory performance, reliability and availability of our information technology systems, kiosk
manufacturing, personalized-product production processes and customer service operations are critical to our
reputation, and our ability to attract and retain customers and maintain adequate customer satisfaction. Any
interruptions that result in reduced order fulfillment performance or customer service could result in negative
publicity, damage our reputation and brand and cause our business and results of operations to suffer.
For our theme park sales, we depend in part on third parties to make available and maintain certain aspects of our
retail locations, such as facilities at Disney World, Disneyland and Universal Studios theme parks. Remodeling or
other activities at these theme parks may result in our inability to sell products for the duration of such activities. We
may not be informed in advance or offered other locations to sell our products during such remodeling. Our business
interruption insurance policies do not address all potential causes of business interruptions that we may experience,
and any proceeds we may receive from these policies in the event of a business interruption may not fully compensate
us for the revenues we may lose.
We may have difficulty managing our growth and expanding our operations successfully.
Through the companies that merged to form us in April and May 2008, we have website operations,
manufacturing facilities, business offices and retail locations in Orlando, Florida, Lake Placid, New York and
northern and southern California. Our growth has placed, and will continue to place, a strain on our administrative
and operational infrastructure. Our ability to manage our operations and growth will require us to continue to refine
our operational, financial and management controls, human resource policies and reporting systems.
If we are unable to manage future expansion, we may not be able to implement improvements to our controls,
policies and systems in an efficient or timely manner and may discover deficiencies in existing systems and controls.
Our ability to provide high-quality products, service and customer support could be compromised, which would
damage our reputation and brand and substantially harm our business and results of operations.
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Competitive pricing pressures may harm our business and results of operations.
Demand for our products and services is sensitive to price. Many external factors, including our production and
personnel costs and our competitors’ pricing and marketing strategies, can significantly impact our pricing strategies.
If we fail to meet our customers’ price expectations, we could lose customers, which would harm our business and
results of operations.
The loss of key personnel and an inability to attract and retain additional personnel could affect our ability to
successfully grow our business.
We are highly dependent upon the continued service and performance of our senior management team and key
technical, marketing and production personnel, some of whom have formed critical relationships with the companies
with whom we have contracts. The loss of these key employees, each of whom is “at will” and may terminate his or
her employment relationship with us at any time, may significantly delay or prevent the achievement of our business
objectives.
We believe that our future success will also depend in part on our continued ability to identify, hire, train and
motivate qualified personnel. We face intense competition for qualified individuals from numerous technology,
marketing, financial services, manufacturing and e-commerce companies. We may be unable to attract and retain
suitably qualified individuals who are capable of meeting our growing operational and managerial requirements, or
we may be required to pay increased compensation in order to do so. Our failure to attract and retain qualified
personnel could impair our ability to implement our business plan.
The success of our business depends on continued consumer and retailer adoption of digital photography.
Our growth is highly dependent upon the continued adoption by consumers and retailers of digital photography.
The digital photography market is rapidly evolving, characterized by changing technologies, intense price competition,
additional competitors, evolving industry standards, frequent new service announcements and changing consumer
demands and behaviors. To the extent that consumer adoption of digital photography does not continue to grow as
expected, our revenue growth would likely suffer. Moreover, we face significant risks that, if the market for digital
photography evolves in ways that we are not able to address due to changing technologies or consumer behaviors,
pricing pressures, or otherwise, our current products and services may become less attractive, which would likely
result in the loss of customers, as well as lower net revenues and/or increased expenses.
Our net revenues and results of operations are affected by the level of vacation and other travel by our
customers, particularly in our theme park operations, and any declines or disruptions in the travel industry
could harm our business.
Because vacation and other travel is one of the primary occasions in which our customers visit theme parks as
well as utilize their digital cameras, our net revenues and results of operations are affected by the level of vacation and
other travel by our customers. Accordingly, downturns or weaknesses in the travel industry could harm our business.
Travel expenditures are sensitive to business and personal discretionary spending levels and tend to decline during
general economic downturns. Events or weakness in the travel industry that could negatively affect the travel industry
include price escalation in the airline industry or other travel-related industries, airline or other travel related strikes,
safety concerns, including terrorist activities, inclement weather and airline bankruptcies or liquidations. In addition,
high gasoline prices may lead to reduced travel in the United States. Any decrease in vacation or travel could harm
our net revenues and results of operations.
Maintaining and improving our financial controls and the requirements of being a public company may strain
our resources, divert management’s attention and affect our ability to attract and retain qualified board
members.
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We expect to become a public company. As a public company, we will be subject to the reporting requirements
of the Securities Exchange Act of 1934, the Sarbanes-Oxley Act of 2002 and the rules and regulations of an
exchange or the OTC-Bulletin Board. The requirements of these rules and regulations will likely continue to increase
our legal, accounting and financial compliance costs, make some activities more difficult, time-consuming or costly
and may also place undue strain on our personnel, systems and resources.
The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and
procedures and effective internal control over financial reporting. Significant resources and management oversight are
required to design, document, test, implement and monitor internal control over relevant processes and to, remediate
any deficiencies. As a result, management’s attention may be diverted from other business concerns, which could
harm our business, financial condition and results of operations. These efforts also involve substantial accounting
related costs.
Our stock price may be volatile or may decline regardless of our operating performance.
The market price of our common stock may fluctuate significantly in response to numerous factors, many of
which are beyond our control, including:
•
price and volume fluctuations in the overall stock market;
•
changes in operating performance and stock market valuations of other technology companies generally, or
those in our industry in particular;
•
the financial projections we may provide to the public, any changes in these projections or our failure to
meet these projections;
•
ratings downgrades by any securities analysts who follow our company;
•
the public’s response to our press releases or other public announcements, including our filings with the
SEC;
•
announcements by us or our competitors of significant technical innovations, acquisitions, strategic
partnerships, joint ventures or capital commitments;
•
introduction of technologies or product enhancements that reduce the need for our products;
•
market conditions or trends in our industry or the economy as a whole;
•
the loss of key personnel;
•
lawsuits threatened or filed against us;
•
future sales of our common stock by our executive officers, directors and significant stockholders; and
•
other events or factors, including those resulting from war, incidents of terrorism or responses to these
events.
We may issue preferred stock with greater rights than our common stock.
Our Certificate of Incorporation authorizes the Board of Directors to issue up to 10 million shares of preferred stock,
par value $.001 per share. The preferred stock may be issued in one or more series, the terms of which may be
determined by the Board of Directors at the time of issuance without further action by stockholders, and may include
voting rights (including the right to vote as a series on particular matters), preferences as to dividends and liquidation,
conversion and redemption rights and sinking fund provisions. No preferred stock is currently outstanding and we
have no current plans to issue any preferred stock. However, the issuance of any such preferred stock could
materially adversely affect the rights of holders of our common stock, and therefore could reduce the value of the
common stock.
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FORWARD-LOOKING STATEMENTS
Most of the matters discussed within this prospectus include forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. In some cases
you can identify forward-looking statements by terminology such as “may,” “should,” “potential,” “continue,”
“expects,” “anticipates,” “intends,” “plans,” “believes,” “estimates,” and similar expressions. These statements are
based on our current beliefs, expectations, and assumptions and are subject to a number of risks and uncertainties.
Actual results and events may vary significantly from those discussed in the forward-looking statements.
These forward-looking statements may include, among other things, statements relating to the following matters:
·
our ability to launch new e-commerce initiatives
·
results of our initial roll-outs with partners, such as AmerisourceBergen
·
consumers level of adoption of our initiatives
These forward-looking statements are made as of the date of this prospectus, and we assume no obligation to explain
the reason why actual results may differ. In light of these assumptions, risks, and uncertainties, the forward-looking
events discussed in this prospectus might not occur.
WHERE YOU CAN GET MORE INFORMATION
In accordance with the Securities Act of 1933, we filed with the SEC a registration statement on Form S-1 covering
the securities in this offering. As permitted by rules and regulations of the SEC, this prospectus does not contain all
of the information in the registration statement. For further information regarding both our company and the securities
in this offering, we refer you to the registration statement, including all exhibits and schedules, which you may
inspect without charge at the public reference facilities of the SEC’s Washington, D.C. office, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and on the SEC Internet site at http:\\www.sec.gov.
We expect to be subject to the information and periodic reporting requirements of the Securities Exchange Act of
1934, and in accordance with the Securities Exchange Act of 1934, we expect to file annual, quarterly and special
reports, and other information with the SEC. These periodic reports and other information will be available for
inspection and copying at the regional offices, public reference facilities and website of the SEC referred to above.
You also may request a copy of the registration statement and these filings by writing or calling us at 336 Bon Air
Center, No. 352, Greenbrae, CA 94904, telephone number (415) 747-8775.
USE OF PROCEEDS
We will not receive any proceeds from sale of the shares of common stock covered by this prospectus by the selling
stockholders.
DESCRIPTION OF OUR AUTHORIZED CAPITAL
Our authorized capital consists of 75 million shares of common stock, par value $.001 per share and 10 million
shares of preferred stock, par value $.001 per share. As of May 9, 2008, 13,428,952 shares of our common stock
were outstanding and no shares of our preferred stock were outstanding.
Holders of our common stock have the right to cast one vote for each share of stock in their name on the books of our
company, whether represented in person or by proxy, on all matters submitted to a vote of holders of common stock,
including election of directors. There is no right to cumulative voting in election of directors. Except where a greater
requirement is provided by statute or by the certificate of incorporation, or in the by-laws, the presence, in person or
by proxy duly authorized, of the one or more holders of a majority of the outstanding shares of our common stock
constitutes a quorum for the transaction of business. The vote by the holders of a majority of outstanding shares is
required to effect certain fundamental corporate changes such as liquidation, merger, or amendment of our articles of
incorporation.
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There are no restrictions in our articles of incorporation or by-laws that prevent us from declaring dividends. The
Delaware General Corporation Law does, however, prohibit us from declaring dividends where, after giving effect to
the distribution of the dividend (1) we would not be able to pay our debts as they become due in the usual course of
business or (2) our total assets would be less than the sum of our total liabilities plus the amount that would be
needed to satisfy the rights of stockholders who have preferential rights superior to those receiving the distribution.
We have not declared any dividends, and we do not plan to declare any dividends in the foreseeable future.
Holders of our common stock are not entitled to preemptive rights, and no redemption or sinking fund provisions are
applicable to our common stock. All outstanding shares of our common stock are fully paid and non-assessable.
Certain Anti-Takeover Effects of Law and Certificate of Incorporation
We are subject to the business combination provisions of Section 203 of Delaware corporation law. In
general, such provisions prohibit a publicly held Delaware corporation from engaging in various business
combination transactions with any interested stockholder (in general, a stockholder owning 15% of a corporation’s
outstanding voting securities) for a period of three years after the date of the transaction in which the person became
an interested stockholder, unless:
!
the transaction is approved by the corporation’s board of directors prior to the date the
stockholder became an interested stockholder;
!
upon consummation of the transaction which resulted in the stockholder’s becoming an
interested stockholder, the stockholder owned at least 85% of the shares of stock entitled to
vote generally in the election of directors of the corporation outstanding at the time the
transaction commenced, excluding, for purposes of determining the number of shares
outstanding, those shares owned by (a) persons who are directors and also officers and
(b) employee stock plans in which employee participants do not have the right to determine
confidentiality whether shares held subject to the plan will be tendered in a tender or
exchange offer; or
!
on or after such date, the business combination is approved by the board of directors and
authorized by the affirmative vote of at least 66 2/3% of such outstanding voting stock not
owned by the interested stockholder.
MANAGEMENT’S DISCUSSION AND ANALYSIS
Overview and Background
We are a recently organized Delaware corporation that combined three existing companies -- Crystal Magic, Inc.;
Mountain Capital, LLC (d/b/a Arrow Media Solutions); and Auleron 2005 LLC (d/b/a Auleron Technologies) – with
strong track records in complimentary parts of the photo and personalized product industries. The companies were
combined by way of the merger of each of Crystal Magic, Inc., Mountian Capital, LLC and Auleron 2005, LLC with
subsidiaries of ours with the result that each of Crystal Magic, Inc., Mountain Capital, LLC and Auleron 2005, LLC
survived the merger and became wholly owned subsidiaries of ours. We have a limited operating history as a
consolidated company.
Through this strategic combination, we are now a full-service, fully integrated provider of personalized image-based
products and services, delivered through multiple channels, including e-commerce websites, our own proprietary
photo kiosks, independent resellers and company owned retail stores. We also sell personalized image-based products
to the $19 billion promotional, incentive and award products industry.
Crystal Magic began by using proprietary laser technology to create three-dimensional laser images engraved inside
solid crystal, sold in company-owned stores within Disney and Universal theme parks, and later expanded to a wide
range of image-based merchandise offered in mass market retail. Our Arrow Media Solutions kiosk division provides
digital photo kiosk solutions for various customers, including AmerisourceBergen, one of the top three health care
companies on the Fortune 500 and currently No. 29 on the Fortune 100. Through our Auleron Technologies division,
we maintain an on-call network of over 3,500 contract technicians to service our kiosk installations.
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In addition to our theme park stores and our resellers, we sell our products to small and large corporate clients, on
company-owned and partner-owned kiosks, and through our proprietary web-based ecommerce system called “Web
Stores on Demand” (WSOD). Our WSOD system allows our partners to quickly and simply create ecommerce web
sites featuring their logos or other images, and place this ecommerce site within an existing web site.
Our ecommerce and kiosk initiatives are a key part of our growth strategy for 2008 and beyond, as we grow all our
lines of business. In addition, we intend to acquire other related businesses to help us expand the products and
services we offer and increase our market share.
Critical Accounting Policies
Our discussion and analysis of our financial condition and results of operations are based upon our financials
statements, which have been prepared in accordance with accounting principles generally accepted in the United
States of America. In December 2001, the SEC requested that all registrants discuss their most “critical accounting
policies” in management’s discussion and analysis of financial condition and results of operations. The SEC indicated
that a “critical accounting policy” is one which is both important to the portrayal of the company’s financial condition
and results and requires management’s most difficult, subjective or complex judgments, often as a result of the need
to make estimates about the effect of matters that are inherently uncertain. We believe that the following discussion
involves our most critical accounting policies.
Concentration of Credit Risk
Financial instruments, which potentially subject the Company to concentration of credit risk, consist primarily of trade
receivables. In the normal course of business, the Company provides on-going credit evaluations of its customers
and maintains allowances for possible losses.
The Company maintains its cash in bank deposit accounts, which, at times, may exceed federally insured limits. The
Company has not experienced any losses in such accounts and does not believe it is exposed to any significant credit
risk on cash and cash equivalents.
Cash and Cash Equivalents
Cash includes all cash and highly liquid investments with original maturities of three months or less.
Inventory
A portion of the inventory consists of kiosks and components and is stated at the lower of cost or market using the
FIFO (first in, first out) method.
Property and Equipment
Property and equipment are recorded at cost less accumulated depreciation. Depreciation and amortization on
property and equipment are determined using the straight-line method for book purposes and accelerated methods for
income tax purposes over the ten year estimated useful lives of the assets.
Impairment of Long-Lived Assets
The Company reviews its long-lived assets for impairment when events or changes in circumstances indicated that the
book value of an asset may not be recoverable. The Company evaluates, at each balance sheet date, whether events
and circumstances have occurred which indicate possible impairment. The Company uses an estimate of future
undiscounted net cash flows of the related asset or group of assets over the estimated remaining life in measuring
whether the assets are recoverable. If it is determined that an impairment loss has occurred based on expected cash
flows, such loss is recognized in the statement of operations. In the fourth quarter of 2006 the Company analyzed its
expected cash flows related to its installed software license, and determined that the cash flows would not be
sufficient to recover its investment in that assets, resulting in an impairment. The total amount impaired was $96,621
and was recorded in operating expenses.
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Revenue Recognition
Revenue is recognized when a valid contract or purchase order has been executed or received, services have been
performed or product has been delivered, the selling price is fixed or determinable, and collectability is reasonably
assured.
Compensated Absences
Employees of the Company are entitled to paid vacation depending upon lengths of service and other factors. The
amount of compensation for future vacations cannot be reasonably estimated. Accordingly, no liability has been
recorded in the accompanying financial statements. The Company’s policy is to recognize compensated vacations
when actually paid to employees.
Use of Estimates
The preparation of financial statements is conformity with accounting principles generally accepted in the United
States of America requires management to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.
Significant estimates include the cash flow projections used for the impairment tests, depreciation and amortization.
Recently Issued Accounting Standards
In December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary Assets" (SFAS 153). This
Statement addresses the measurement of exchanges of nonmonetary assets and is effective for nonmonetary asset
exchanges occurring in fiscal years beginning after June 15, 2005. The adoption of SFAS 153 has not had a material
effect on the Company's financial position or results of operations.
In December 2004, FASB issued SFAS No. 123(R), "Share-Based Payment” (“SFAS 123(R)”). SFAS 123(R)
revises FASB Statement No. 123, "Accounting for Stock-Based Compensation,” and supersedes APB Opinion No.
25, "Accounting for Stock Issued to Employees.” SFAS 123(R) focuses primarily on accounting for transactions in
which an entity obtains employee services in share-based payment transactions. SFAS 123(R) requires companies to
recognize in the statement of operations the cost of employee services received in exchange for awards of equity
instruments based on the grant-date fair value of such awards (with limited exceptions). SFAS 123(R) is effective as
of the first reporting period beginning after June 15, 2005. As of the balance sheet date, the Company did not have
an option plan or any share based compensation arrangements with employees. However, should the Company adopt
such a plan in the future it will adopt SFAS 123(R), as of the time the option plan is adopted.
In March 2006, the FASB issued FASB Statement No. 156, “Accounting for Servicing of Financial Assets—an
amendment of FASB Statement No. 140” (“FASB Statement No. 156”). FASB No. 156 amends FASB Statement
No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, with respect
to the accounting for separately recognized servicing assets and servicing liabilities. FASB No. 156 is effective for
years beginning after September 15, 2006. The Company does not believe FASB No. 156 will have a material effect
on the Company’s financial statements.
In June 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes - an
interpretation of FASB Statement No. 109” (“FIN 48”), which clarifies the accounting for uncertainty in income taxes
recognized in an enterprise’s financial statements in accordance with SFAS No. 109, “Accounting for Income
Taxes.” FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition
and measurement of a tax position taken or expected to be taken in a tax return. FIN 48, which is effective for fiscal
years beginning after December 15, 2006, also provides guidance on recognition, classification, interest and penalties,
accounting in interim periods, disclosure, and transition. The Company plans on reviewing its tax situation to
determine whether there are any uncertain tax positions
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In September 2006, the FASB issued Statement No. 157, “Fair Value Measurements” (“FASB No. 157”). FASB
No. 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting
principles (GAAP), and expands disclosures about fair value measurements. FASB No. 157 applies under other
accounting pronouncements that require or permit fair value measurements, the FASB having previously concluded
in those accounting pronouncements that fair value is the relevant measurement attribute. Accordingly, this Statement
does not require any new fair value measurements.
The Company does not expect the adoption of other recently issued accounting pronouncements to have a significant
impact on its results of operations, financial position or cash flow.
Results of Operations
Year ended December 31, 2007 compared to December 31, 2006
We are reporting a $156,826 decrease in net loss to $(670,124) for the year ended December 31, 2007 as compared to
$(826,950) for the prior year. Net sales for fiscal 2007 were $6,035,031, a decrease of $837,047 from fiscal 2006
due primarily to the loss of revenue associated with a key customer that ceased operations during the year.
Cost of goods sold for the year ended December 31, 2007 decreased by $462,360 from $2,013,548 for the year
ended December 31, 2007 to $2,475,908 for the year ended December 31, 2006. The decrease is principally due to
lower cost of goods sold associated with a key customer that ceased operations during the year. Cost of goods sold
as a percentage of revenue for the years ended December 31, 2007 and 2006 was 34.5% and 36.8%, respectively.
The decrease in cost of goods sold as a percentage of revenue is principally due to lower margin business associated
with the key customer that ceased operations during the year.
Operating expenses for the year ended December 31, 2007 decreased by $667,282 from $5,158,002 for the year
ended December 31, 2007 to $4,490,720 for the year ended December 31, 2006. The decrease in general and
administrative expenses is principally due to expenses associated with the key customer that ceased operations during
the year.
Liquidity and Capital Resources
Our continued operations will depend on whether we are able to raise additional funds through various potential
sources, such as equity and debt financing. Such additional funds may not become available on acceptable terms and
there can be no assurance that any additional funding that we do obtain will be sufficient to meet our needs in the long
term. We will continue to fund operations from cash on hand and through the similar sources of capital previously
described. We can give no assurances that any additional capital that we are able to obtain will be sufficient to meet
our needs.
OUR BUSINESS
This prospectus contains certain forward-looking statements within the meaning of Section 27A of the Securities Act
and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements are based on
current expectations, estimates and projections about our industry, management’s beliefs, and assumptions made by
management. Words such as “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” variations
of such words and similar expressions are intended to identify such forward-looking statements. These statements are
not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to
predict. Accordingly, actual results may differ materially from those expressed or forecasted in any such forwardlooking statements. Such risks and uncertainties include those risk factors set forth in this prospectus. We assume no
obligation to update publicly any forward-looking statements, whether as a result of new information, future events or
otherwise.
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DESCRIPTION OF OUR BUSINESS
We are a fully integrated provider of image-based products and services with the mission of leveraging the
fundamental transformation of the digital imaging industry. We deliver our products and services through multiple
channels, including online stores, our own proprietary photo kiosks, independent resellers and company-owned retail
stores.
We have built a diverse revenue model, with all revenue streams sharing a common theme of enabling the
capture and delivery of images and image related products to consumers and businesses – directly to consumers and
small businesses, and in partnership with some of the biggest companies in the United States.
We, along with our partners, market our products online, at retail, and through business-to-business partners
and resellers. Current customers include the Walt Disney Co., AmerisourceBergen (#29 on the Fortune 100), and
leading e-commerce web sites. In addition, Propell’s management has a long track record of delivering a variety of
consumer and photo products, services and logistics to major partners, including the nation’s leading retailers,
including Wal-Mart, Walgreens, CVS and Rite-Aid.
We were formed by combining three companies – Crystal Magic, Inc., Mountain Capital, LLC (d/b/a
Arrow Media Solutions) and Auleron 2005, LLC (d/b/a Auleron Technologies) – that had a strong track record in
complementary parts of the imaging industry, and expanding their capabilities both online and at retail with significant
increases in management and capital resources. The companies were combined by way of the merger of each of
Crystal Magic, Inc., Mountain Capital, LLC and Auleron 2005, LLC with subsidiaries of ours with the result that
each of Crystal Magic, Inc., Mountain Capital, LLC and Auleron 2005, LLC survived the merger and became wholly
owned subsidiaries of ours.
Central to our strategy is providing multiple methods for customer acquisition -- whether through our
proprietary e-commerce web stores, freestanding digital photo kiosks, or our retail partnerships. Our products are
then delivered to consumers via multiple channels, including online and brick and mortar resellers, and company
owned retail locations at Disney World and other theme parks.
On a standalone basis, the combined companies generated approximately $5.8 million in the pre-merger
calendar year, including $500,000 generated by now-discontinued operations, including gross profit for 2007 of $3.8
million and gross margin percentages in 2007 of 65%.
The Crystal Magic Division
Crystal Magic’s core business began nearly a decade ago by using proprietary laser technology to create
three-dimensional laser images engraved inside solid crystal, sold in company-owned stores within Disney and
Universal theme parks, and later expanded to a wide range of image-based merchandise offered in mass market retail.
The company’s founders have long-standing relationships with Disney, Universal Studios and other entertainment
locations.
Today, the Crystal Magic division’s products are delivered at theme parks, on a wholesale basis to retailers,
to small and large corporate clients and through our proprietary online system that allows partners to create “Web
Stores on Demand”.
We believe Web Stores on Demand opens up substantial new opportunities and channels for us by
providing partner web sites with the opportunity to easily integrate a photo merchandise online store into their sites
with little effort or cost, and is a key part of our strategy for 2008 and beyond.
Crystal Magic also has a long track record delivering personalized products to the $18 billion promotional,
incentive and award products industry, delivering quantities anywhere from one unit to over 500,000 in a single
order. Crystal Magic has served these markets since 2001, and sees particular opportunity to leverage its Web Stores
capabilities to expand its efforts in the promotional products category, where few competitors offer online solutions.
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Crystal Magic’s operations run 365 days a year, permitting it to offer all its channels what management
believes to be the most competitive turnaround times in the industry including during the seasonal spikes that
traditionally have resulted in delays and unfilled orders for our competitors. To do so, Crystal Magic has developed
proprietary software and systems that integrate into each of its customers’ data processing systems. Historically,
these systems have permitted the company to integrate with partners serving large chains, such as Walgreens and
CVS, and seamlessly fulfill orders and report back to the retailers’ systems. In addition to its proprietary channels
and systems, Crystal Magic stays highly competitive by sourcing a significant percentage of its raw materials directly
from overseas. Crystal Magic has an unlimited source of raw materials and expects to have no availability issues with
respect to raw materials.
Sales of Crystal Magic’s products and services represented 71% of our 2007 combined sales.
The Arrow Media Solutions Division
Our Arrow Media Solutions division provides digital photo kiosk solutions for retail. Historically, Arrow
Media Solutions has focused partners in “nontraditional” channels – retailers who previously had limited presence in
the photo category. Arrow Media Solutions’ kiosks help retailers fulfill a key strategy – driving store visits and
customer loyalty.
Arrow Media Solution’s growth rate accelerated sharply over the last 18 months after securing a relationship
with AmerisourceBergen. AmerisourceBergen, one of the top three health care companies on the Fortune 500 and
currently No. 29 on the Fortune 100, has annual revenues of $61 billion. We believe that Arrow Media Solutions is a
key part of AmerisourceBergen’s efforts to enable independent pharmacies to compete with large chains, where photo
kiosks are an established source of revenue and customer loyalty.
Arrow Media Solutions places its kiosks on both a “distribution model” and a “placement model.” In the
distribution model, Arrow Media Solutions sells the kiosk solution to the partner at a profit, and then makes
additional revenues by selling supplies and other products to the partner. Most profits from retail sales are retained
by the partner. In the placement model, currently being tested with AmerisourceBergen and other partners, Arrow
Media Solutions bears the cost of providing the kiosk, with the partner paying a monthly maintenance fee and Arrow
Media Solutions receiving all revenues directly, paying a share to the partner. This model requires larger investment
by Arrow but affords the company a much greater share of profits.
Arrow Media Solutions, in partnership with one of the largest photo web sites in the world, is currently
launching a test of kiosks in a variety of locations including retail and corporate settings to strategically establish the
partner’s brand in “offline” locations – brick & mortar retail as opposed to online -- under the placement model.
Sales of Arrow Media Solution’s products and services represented 24% of our 2007 combined sales.
The Auleron Technologies Division
Auleron Technologies was founded nearly seven years ago by the same management team that later created
Arrow Media Solutions. Originally, Auleron was a service provider to third parties, helping major retail, financial and
technology organizations install new hardware and software in various locations. In the merger of Crystal Magic,
Mountain Capital, LLC and Auleron 2005, LLC, the Auleron infrastructure has been maintained to serve the
Company’s internal needs, making available an on-call network of over 3,500 technicians to service Propell
installations and other initiatives.
This capability gives Propell a unique ability to compete with the largest providers of photo kiosks, since its
delivery capabilities meet, and in most cases exceed, those offered by even its largest competitors. The ability to
effectively manage this network is a highly effective tool in reassuring large customers that Propell can provide field
support for almost any initiative.
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Auleron Technologies, under contract to various service providers including Cardtronics, Qualxserv and
nfrastructure Technologies, has performed scores of regional and national installations for large national retailers,
including Costco, CVS, Kroger, Barnes and Noble, Chevron, Duane Reade, Exxon-Mobil, Winn Dixie, Walgreens,
Target, Seven Eleven, CVS and Dollar General.
Market size/opportunity
We were created to acquire and aggregate customers and leverage significant growth trends and
opportunities in the rapidly evolving photo industry as well as related opportunities in the corporate market for
customized products.
Our management team has extensive experience in technology, customer acquisition, ecommerce and retail –
and specifically in the online, kiosk and photo merchandise category, both in serving large retailers and directly to
consumers via the Internet, as well as the $18 billion promotional products market.
We formed our company by joining businesses that already had significant footholds in delivering wholesale
and retail kiosk and photo gift products and services, and combining that with an expansion into providing online
services that stand alone or integrate with the kiosk’s retail solution.
The photography industry has evolved dramatically in the last few years as digital technologies and services
have replaced traditional film processing and online services have grown.
As traditional film processing has
declined, new opportunities, and new demands from consumers, have been created. Retail and online photo printing
– including in-store kiosks – has grown from a $354 million business in 2003 to an estimated $2 billion business in
2007, according to the Photo Marketing Association (PMA), the largest industry trade group.
The following chart shows the spending in the United States on major digital photo categories during the
years 2003 through 2007, with 2006 being estimated and 2007 being projected.
Separately, the “custom products/gifts” category – defined by the Photo Marketing Association as
“personalized calendars, photo books, posters, t-shirts, mugs mouse pads, photo CDs and DVDs ordered at retail or
at online stores” – has grown from $250 million in 2004 to an estimated $951 million in 2007, a nearly fourfold
increase in three years.
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Retail prints from digital cameras – which can be made online, in-store on mini-labs or, increasingly, in-store
using the type of kiosks that Propell offers – grew from 700 million prints in 2003 to nearly 10 billion prints
estimated for 2007, with an increase of 39 percent over 2006. Prints made instantly on kiosks accounted for
approximately one-fourth of online and in-store prints in 2006, or 30 percent of just in-store prints, according to the
Photo Marketing Associations. As online and other channels grow, we expect that kiosk growth will continue to
grow in absolute numbers, although fast growth in online is expected to reduce kiosk printing as a percentage of the
overall market.
The following charts show the change in the methods used for making digital prints and the percentage of
households that ordered or made custom photo products or gifts.
It is important to note that the growth in digital printing is tied directly to growth in photo gifts – a household
with a digital camera is more than four times as likely to create a photo gift, according to the Photo Marketing
Association.
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The online marketplace for image-based products actually spans several categories, including photo sharing
web sites and image merchandise sites. Pure play photo sharing web sites, such as Shutterfly, Kodak Gallery and
Snapfish, are designed for consumers and are optimized for sharing and printing photos, and creating photo
merchandise from those images. Image merchandise sites, such as Zazzle, Cafepress and Threadless, allow artists,
consumers and small businesses to create their own custom web stores featuring selected images that can be
reproduced on a broad variety of merchandise. Social networks, including Flickr, Myspace, and Facebook, have
extensive photo capabilities that are core to their appeal.
Currently, the custom photo gift category is particularly fragmented, with only one major player, the
PhotoThis division of privately held District Photo, provides large-scale fulfillment across a broad category of
products to multiple large customers. Smaller players, including Image Your Photos and EZ Prints, have had limited
success and growth.
We also compete in the promotional products category, also known as advertising specialties. Promotional
products, which include any products used to promote a product, service or company program, including textiles and
other personalized products, constitute a $19 billion category, according to the Promotional Products Association
International (PPAI).
We see significant opportunity given that more than half of distributors in the promotional products category
are small businesses (defined as those under $2.5 million) with limited resources, and fewer than 15 percent use the
Internet for selling, according to the most recent data available from PPAI.
Our Strategy
Overview
Our combined resources permit us to offer a complete, integrated package of image-related products and
services from a single source – delivered to consumers in multiple channels of distribution, both directly and through
partnerships with established corporate players. This provides the opportunity to further monetize our existing
customers by broadening the product offering, enhancing the convenience of ordering (at kiosk, online or at retail),
and expanding presence both online at retail.
Further, the combination gives us the ability to acquire customers – both business partners and consumers -by providing an integrated online, kiosk and fulfillment service, one of the only such fully integrated offerings in
North America.
Specifically, the combination creates a single company that:
·
Brings together one of the digital imaging industry’s most experienced, and seasoned management teams.
·
Leverages additional capital resources to expand each of our existing businesses, and enter new markets,
especially “web stores on demand.”
·
Provides a complete, integrated solution for retail customers, offering a single stop partner providing any or
all of the following:
o
a hardware kiosk that offers a wide variety of image-based prints and gifts that customers can order
in-store
o
a web store that integrates with the same account and permits the customer to order from home
o
a wide variety of products that can be made and delivered by the same company, with low cost and
quick turnaround
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Multiple channels of distribution – through brick and mortar as well as online – further reduce the
company’s risk that variations in any given channel will jeopardize the company’s overall business.
Further, management intends to identify further combinations that will enhance the company’s revenues
through expanded channels and offerings and reduce the company’s overall cost structure.
How we address the competitive opportunity
Management is not aware of any company in the marketplace today that offers as complete an integrated
retailer friendly solution -- one that includes web services, kiosks, in-house product fulfillment, and a nationwide
service network. Management is focused on offering these components – on a standalone basis or integrated as a
complete system -- to nontraditional markets being underserved by its competitors. Examples to date include the
company’s partnership with AmerisourceBergen, Disney, Universal Studios, a leading photo web site, and
Audiostreet.net.
Our new “Web Stores on Demand” service permits artists, consumers and businesses to instantly create an
online store for merchandise featuring their images, with Propell performing all fulfillment, manufacturing, shipping
and billing.
Our kiosks offer a companion web-based service that allows customers to access photos uploaded at the
kiosk, and images uploaded to the web can be accessed from select kiosks.
Our retail operations selling photo crystals at Disney and Universal theme parks have enjoyed consistent
sales despite the limited resources for expansion or marketing. Management believes additional resources will permit
it to generate additional revenues at its theme park operations by permitting updated displays, refreshed and broader
product offerings and additional staff training.
Additionally, our management has deep experience in retail fulfillment category, with its founders including
those who previously created PhotoTLC, one of the largest photo merchandise operations in the US, serving
customers including Walgreens, Wal-Mart, CVS, Rite Aid and Meijer stores.
Finally, through our Crystal Magic operation, we have extensive experience in the promotional products
category. The creation, manufacturing and distribution of promotional products use the same expertise and facilities
as our other product offerings. Management believes the expanded offerings created by our recent merger further
enhance the company’s ability to address the promotional products market, including offering web stores to corporate
customers as well as expanded product line of imaging products and the introduction of kiosks to corporate locations.
We see significant opportunity to expand in promotional products given, as noted earlier, the limited size and
resources of existing players in the category, our lower cost structure (without setup fees or minimums), and the
untapped market for online services in this category.
In each of its partnerships, we seek to maintain branding for our product offerings wherever possible, and
create exclusive partnerships. The company intends to both co-brand (“Powered by Propell”) and build its direct
relationships with consumers so that its own brand can stand alone in specific categories of business, building brand
loyalty at multiple “touch points” (for example, a retail kiosk and web offering) and increasing margins by removing
“middle men.” Given large enough opportunities such as its existing relationship with Disney theme parks, the
company will continue to co-brand or offer its service on a “white label” basis.
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Our product and service offerings
We acquire customers and provide solutions in several categories:
Web solutions (including Web Stores on Demand and Web Direct.)
In Web Stores on Demand (WSOD), we offer a turnkey photo gift web site. With just a few minutes’
work, WSOD permits a partner – whether a rock band, a business, or classroom – to create a complete web store
with up to 200 items of personalized photo merchandise. The partner sets the prices, and we do the rest – we create
the store, make the products on demand, ship them, collect the revenues, and send the partner a check for the profits.
We are currently targeting a number of partnerships for the WSOD service with existing social network and other
web sites with large user bases.
With Web Direct, the company maintains its own online web photo sites where consumers can upload, print
and create gifts with their photos.
The company currently maintains a direct web site for consumers at
www.thebestphotogifts.com, as well as a promotional products web site at www.uspromoproducts.com.
Our Web Stores on Demand, including our transmission of digital images over the Internet, are subject to regulation
by the U.S. Postal Service, the Federal Trade Commission and various states, local, and private consumer protection
and other regulatory authorities. In general, these regulations govern privacy, the manner in which orders may be
solicited, the form and content of advertisements, information which must be provided to prospective customers, the
time within which orders must be filled, obligations to customers if orders are not shipped within a specified period
of time, and the time within which refunds must be paid if the ordered merchandise is unavailable or returned.
Congress has enacted legislation to specifically regulate online commerce and communications and has addressed
such issues as the transmission of certain materials to children, intellectual property protection, and taxation. Other
legislation could result in additional regulation or prohibition of the transmission of certain types of content over the
Internet.
Kiosk solutions
The company offers Arrow Media Solutions-branded and co-branded and partner-branded kiosks through
either a distribution or a placement model. As described earlier, in the distribution model, we sell the kiosk to the
partner at a profit, and then make additional revenues by selling supplies to the partner. Most profits are then retained
by the partner. In the placement model, we bear the cost of providing the kiosk, with the partner paying a monthly
maintenance fee and receiving a commission on sales as an ongoing incentive to assist in the promotion and
expansion of the service.
Consumer photo products
Subsurface laser etched crystal and photo gifts, delivered through web and kiosk, but also through third
party channels.
Retail stores
Our own stores inside of tourist locations, including Disney World, Disneyland and Universal Studios.
Support network
To ensure success in the installations and partnerships, the company’s support division manages a network
of 3,500 contractors who can be on-site to service one of our partners within 48 hours.
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Channels
We deliver our products and services through a diverse set of retail, wholesale and online channels, which
maximizes sales potential while minimizing the risk that any underperforming channel will jeopardize the overall
business.
We break down our major channels as follows:
Web Stores on Demand (WSOD)
The company’s newest initiative, WSOD allows web or corporate partners to create a web site offering over 200
photo gifts in minutes. We plan for the first WSOD offering to launch in the near future.
Web direct
The company operates its own web sites targeting the advertising specialty and consumer markets that sell a broad
spectrum of photo merchandise.
Kiosk Partnerships and Placements
Propell’s Kiosk Solutions division both sells kiosks to retail partners, as well as placing them and retaining
ownership in retail and other brick & mortar settings. (See Resellers and Strategic OEMs sections below).
Theme parks
Primarily subsurface laser crystal, sold by company personnel at retail locations within Disneyland, Disney World
and Universal Studios Orlando.
Resellers – big box
This category includes major mass market retailers such as Walgreens or CVS. Historically, the company has served
this market and selectively may re-enter it, but prefers to target end-users directly without the 30-40 percent overhead
required by this channel.
Resellers – independent
These include small online retailers, independent gift and award stores. The company currently provides photo gifts,
crystals and kiosks to these customers.
Promotional sales
The company’s subsurface crystal products are sold to the promotional products industry, both directly to large
corporate clients and through resellers, for a wide range of end customers including Ford Motor Company, UBS,
Starwood Hotels, Martin Marietta, NASA, and Major League Baseball, NFL and the NBA. The company plans to
expand its photo merchandise and kiosk offerings into this category.
Government sales
Through specialty resellers, the company historically has sold its subsurface products for a wide range of government
and military customers including the Pentagon, Army, Air Force, NASA and the White House. The company will
continue to pursue these opportunities.
Strategic OEMs
In special channels, the company partners strategically to bring a customized offering to market. These include:
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·
AmerisourceBergen. An exclusive partnership in which the company’s kiosk division provides custom
offerings for this Fortune 100 pharmaceutical company and its Good Neighbor Pharmacy and Family
Pharmacy member stores.
·
Online partner. The company’s kiosk division is rolling out a series of tests with one of the leading online
photo sites to provide a cobranded hardware solution to retail locations.
·
Douglas Stewart. The company’s kiosk division is partnering with the largest reseller in the college market to
market a kiosk solution to its network of college bookstores, academic computing centers, and value-added
resellers (VARs).
Key relationships
We currently maintain strategic or distribution relationships with several companies, including the Walt
Disney Co., Universal Studios and AmerisourceBergen.
Walt Disney Co.
Through its Crystal Magic operations, the company has been doing business in Disney theme parks since
1999, with multiple operations now at Disneyland and Disney World.
Crystal Magic has six separate staffed facilities within the Disney parks, including Epcot Center, Magic
Kingdom, Disneyland, California Adventure and Downtown Disney. Including the nine years since Crystal Magic
was founded, Steven Rhodes, Crystal Magic’s founder, has been a supplier to Disney for more than 20 years.
Crystal Magic, Inc. has a revocable license agreement with Disneyland Resort, a Division of Walt Disney
World Co. which enables Crystal Magic to generate portraits and 3-D character, logo and/or name drop (Mickey
Mouse, Minnie Mouse, Donald Duck, Goofy, Pluto) sculpture reproductions inside optically transparent materials at
Disneyland Park, Disney’s California Adventure Park and Downtown Disney. This agreement expires on October
30, 2008, unless renewed.
Crystal Magic, Inc. also has a Concession Agreement with Walt Disney World Co. that grants Crystal
Magic a license to generate guest portraits and 3-D character, logo and/or name drop sculpture reproductions inside
optically transparent material at Epcot and Magic Kingdom located at Walt Disney World Resort. This agreement
expires on October 30, 2008, unless renewed.
Universal
Since 2001, the company has maintained its own facilities as the only supplier of subsurface laser etched
photo crystals at the Universal Orlando Resort’s theme parks.
Through its Crystal Magic operation, the company has staffed locations at Islands of Adventure and
Universal Studios Florida parks, and is in discussion to expand operations to Universal Studios Hollywood location
in California.
As with Disney, including the seven years since Crystal Magic first began business with Universal, Propell
cofounder Steve Rhodes has been a supplier to Universal for more than 20 years.
Crystal Magic, Inc. has an agreement with Universal City Development Partners, L.P. pursuant to which
Crystal Magic may operate multiple carts/kiosks in Universal Studios Florida and Universal Studios Islands of
Adventure. This agreement expires on January 2, 2010, unless renewed.
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AmerisourceBergen
Our Arrow Media Solutions division is the exclusive provider of digital kiosks to AmerisourceBergen, a
$61 billion Fortune 100 company that is among the largest pharmaceutical distributors to the drug store channel in the
US. This division has a Marketing Representative Agreement with AmerisourceBergen Corporation which appoints
Arrow Media Solutions as the exclusive marketing representative for the sale of kiosks to transfer digital images to
customers of AmerisourceBergen Corporation. The agreement is three years in length, with a one year renewal.
AmerisourceBergen has 11,000 pharmacy customers consisting of 3,000 stores in two independent
networks that it manages under the brands Good Neighbor Pharmacy and Family Pharmacy. There are an additional
8,000 independent stores in the ABC customer base.
Online Partner
Through its kiosk solutions division, we have formed a strategic relationship with one of the largest
independent consumer photo websites. In the relationship, we are working with the partner to establish, test and
evaluate a retail program that will permit co-branded kiosks to be located in a variety of nontraditional retail locations
to expand the site’s brand at retail.
Douglas Stewart
The company recently executed an agreement with the Douglas Stewart Co., the leading distributor and
marketer of computer products, consumer electronics and school supplies exclusively serving the education market.
Under this agreement, we will partner with Douglas Stewart to place our kiosks in Stewart channels, which
currently include more than 2,500 college bookstores, academic computing centers, and value-added resellers
(VARs).
Promotional Products Association International (PPAI)
Advertising Specialty Institute (ASI)
Through our Crystal Magic operations, we are a member of both PPAI and ASI, the trade associations that
serve the $18 billion promotional products category.
Through its status as an ASI supplier, we are able to reach over 20,000 distributor companies and over
130,000 distributor salespeople at various trade shows and with other forms of communication during the year.
Photo Marketing Association (PMA)
We are a member of the Photo Marketing Association, the largest trade association representing the $83
billion imaging industry.
PMA represents 20,000 members in over 100 countries, including photo retailers, processors,
manufacturers, labs, and mass market retailers. PMA provides members with research, conducts trade shows,
otherwise helps the worldwide photo imaging community achieve business success and adapt to new technologies.
Laser Design International LLC
Through its Crystal Magic subsidiary, we are one of fewer than 10 U.S. companies that hold a worldwide
license from Laser Design International LLC to the subsurface laser etching technology used in our photo crystal
product line. The agreement is perpetual, until such time as the LDI patent expires.
Our operating results with these key relationships will fluctuate in large part due to the seasonality of
consumer photographic activity and the seasonality of the theme parks in which we sell our products.
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Competition
We have competition in various aspects of our business, including subsurface laser etched crystal, wholesale
and retail photo gifts, photo kiosks and online photo prints and merchandise.
Subsurface etching
The subsurface laser etched crystal portion of the business represented by the Crystal Magic division
competes in a fragmented market. The company’s primary competitors tend to be small or undercapitalized.
We distinguish ourselves from the competition in several ways. Our crystal operation is one of fewer than
10 companies holding a worldwide license from Laser Design International LLC. We have a longstanding
relationship with Disney and Universal Studios permitting us to distribute our products at both companies’ theme
parks. This permits a larger operation than our competitors that run 365 days a year and serve multiple channels of
distribution, including the theme parks, promotional products industry, through resellers, and online.
Photo gifting
The photo merchandise business is fragmented among a number of suppliers. In the wholesale channel, the
only major supplier is the PhotoThis division of traditional photo processor District Photo, along with a number of
smaller players such as EZ Prints and Imagine Your Photos.
Kodak has a modest photo gift operation whose largest customer, we believe, is its own web site at
www.kodakgallery.com as well as the CVS drug chain. Fujicolor Labs, which primarily serves Wal-Mart and the
Longs Drug chain, has a limited in-house photo gift facility but largely outsources to third parties. Many large
chains, including Walgreens, rely on the District Photo service.
On the online side, many of the leading players including Shutterfly, rely on both internal resources and
outsource suppliers. Shutterfly, for instance, has a significant infrastructure to handle gifting and other photo
merchandise internally (along with its extensive in-house photo printing capacity) but relies on others for seasonal
capacity. Both Zazzle and Cafepress maintain internal capacity but do not provide third-party services to retailers.
We historically have served as an outsource supplier to major retailers, and have the infrastructure, software
and systems to handle significant volume across a broad spectrum of photo gifts. In fact, as supplier to PhotoTLC,
formerly the industry leader, our Crystal Magic division supplied a significant percentage of PhotoTLC’s production
for over 19,000 retail locations.
Our order system, unlike those of our competitors, also permits us to serve as an aggregator for major
retailers. In the aggregator model, both our products and designated third-party products can be run through the same
system. This permits, for instance, a retailer to send a single image to us that we can use to manufacture an in-house
product, and then we can also forward that image to a specialty manufacturer of the retailer’s choice if that item is not
made by us. Our system tracks the third-party order as well as our own, and handles all billing and communication
with the retailer. This system meets a complex but very real need for retailers during peak demand periods
(particularly the December holidays), since consumers frequently submit a single photo for a single order that
includes multiple types of product that require separate factories.
While we have in the past used these systems to serve large, mass-market retailers, these capabilities are
equally useful in serving smaller niche markets where the same principles apply. This capability, along with our low
cost, 365-day, quick turnaround operation, gives us significant advantages over more expensive and less nimble
competitors.
We are also the only major player in the category with such diverse channels of distribution, including theme parks,
promotional products, online direct, kiosks, and wholesale to resellers.
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Kiosks
There are a number of competitors in the kiosk industry with a variety of different business models. Major
competitors approach the market from a variety of angles including brand, software and aftermarket service. The
largest competitors in the kiosk space focus on so-called big-box retailers with store counts in excess of 1,000.
These companies, including Kodak and Fuji, use kiosks as a way to extend their brand franchises. They are
less focused on kiosk hardware design and service than on using kiosks to drive customer awareness and large
volumes of paper in the aftermarket. Their kiosk operating systems are designed in a closed loop manner, which
makes them more difficult to service and scale. Due to their size, these companies have been successful at deploying
large numbers of kiosks in stores such as Wal-Mart, Target, CVS and Rite Aid. Together, management estimates that
these companies have an estimated 80,000 units in the field.
Our Arrow Media Solutions division competes with these large players on the basis of superior service,
product design, a willingness to cobrand, and superior uptime – as well as by offering hardware and services
independent of the major photo suppliers who in many ways compete with their own customers. Our kiosks also
offer a second screen for advertising, unlike competitors, and are built modularly, permitting quick and simplified
field service by swapping components.
Smaller competitors, such as Lucidium and Pixel Magic, have been successful in gaining some share of the
big box retail market as well as the non-traditional market. Lucidium is a primarily a software development company
that offers a low-end kiosk product. Hardware design and service is not a core focus for Lucidium.
Other competitors include Witech, Pixology, and to a limited extent Sony and Mitsubishi, who are suppliers
to us but also provide third-party kiosk solutions to some of their own customers.
We have a unique history as a service organization that installs and supports kiosks and other hardware for
Fortune 500 (and smaller) companies nationwide. Through our service division, we have a network of over 3,500
technicians who can respond seven days a week to ensure better uptime than even our largest competitors. This “best
of breed” service offering includes remote monitoring of kiosks, in-house help desk, and a modular hardware design
that permits rapid service in the field.
Online
Competition in online photo and merchandise space takes several forms. Photo sharing web sites are
designed for consumers and are optimized for sharing and printing photos, and creating photo merchandise from
those images. Competitors include Kodak Gallery, Shutterfly, Snapfish, Photobucket, Webshots, and to some extent
Myspace, Facebook and other social networking sites, as well as the web sites of photo retailers such as Walgreens,
Wal-Mart and CVS.
Image merchandise sites allow artists, consumers and small businesses to create their own custom Web
Stores featuring selected images. Competitors include Zazzle, Cafepress and Threadless.
After analyzing existing online players in the photo merchandise category, the company identified a
significant underserved opportunity to partner with key business partners to provide a “webs on demand” service that
most closely competes with the image merchandise companies such as Zazzle and Cafepress, but has significant
advantages in product quality, pricing, ease of setup and turnaround times. In particular, Zazzle and Cafepress focus
on the artist and small-group market, where management believes a large, underserved market exists in partnering
with a broader range of partners including corporate, special interest and medium large organizations.
We see substantial opportunity to compete with existing players in quality and execution.
In addition, we believe we will be the only competitor in the image merchandise category that provides a
complete set of offerings that include web solutions that also integrate with our own kiosk hardware, in-house
manufacturing, and low cost, 365-day operations.
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Forged in our customer service origins (as demanded by large corporate clients and partners such as
Disney), we believe we have built better execution, systems, project management, costing – and utilization of plant
and equipment – than any competitor.
In addition, we have overcome one of the industry’s biggest challenges, which is handling seasonality and
the volume spikes that accompany it. The company’s theme park business, for instance, peaks in the summer months,
while its retail photo gift business peaks in the fourth quarter.
Intellectual property
We have created and licensed a variety of proprietary software, hardware and operational systems that
distinguish it from competitors.
In its subsurface laser crystal business, we are one of fewer than 10 companies with a worldwide license
necessary to manufacture and distribute products based on this technology. The license is perpetual, so long as the
patent remains in force.
In our kiosk business, we have developed a unique, fully integrated system including remote monitoring of
kiosks in the field, help desk and technician-dispatch system. Additionally, we contract for custom kiosk software
development depending on the OEM or retail partner’s needs.
We created our Web Stores on Demand product offering using our own technology, as well as proprietary
manufacturing and image capture systems, customer integration systems for integrating with customer order systems,
and custom EDI development.
Insurance
We have insurance for general commercial liability with the Zurich Group in an amount of $2 million. We
have worker’s compensation insurance with The Hartford in an amount equal to 100% of our payroll for the current
year. We have products and completed operations insurance in the aggregate amount of $2 million.
Operations
The company has offices in Orlando, Fla., Lake Placid, NY (scheduled to relocate to the greater Hartford,
Conn., area in 2008); Brea (Orange County), Calif.; and San Francisco Bay Area.
Activities in the Orlando office include finance, management of the theme park locations, as well as web
store development, subsurface laser and gift manufacturing.
Kiosk sales and marketing is headquartered in the Lake Placid office, with kiosk, design, staging and
assembly in Brea. The field service operation is also headquartered in the Lake Placid office.
The San Francisco office is primarily focused on sales, strategic partnerships and business development.
Laser and gift materials are sourced from overseas. Kiosks are assembled, primarily in Brea, using
components from several outsource vendors including those providing kiosk hardware, computer units, printers and
software.
In addition, we maintain the following company-staffed retail locations in Florida and California:
·
Disney World (Florida)
o
Two locations at Epcot (Disney World Florida):
§
one at the Mouse Gear retail location
§
a 600-sq-ft retail and production facility at the Imagination Institute
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·
·
o
One retail location at Space Mountain in the Magic Kingdom
o
Downtown Disney
Disneyland (California)
o
Retail location at Disney’s California Adventure
o
Retail location within the Disneyland castle.
o
Retail and production facility in Downtown Disney location in World of Disney.
Universal Orlando Resort (Florida)
o
Retail location at Islands of Adventure theme park, in the Trading Company
o
Retail location at Universal Studios Orlando theme park, located in Jimmy Neutron store
DIRECTORS AND EXECUTIVE OFFICERS
The directors, officers and key employees of the company are as follows:
Name
Age
Position
Edward L. Bernstein
56
Chief Executive Officer and President
Steven M. Rhodes
48
Chairman, Chief Financial Officer and Secretary
Paul Scapatici
32
Executive Vice President, General Manager, Kiosk Division
John C. Wolf
57
Executive Vice President, General Manager, Web Stores
Lane Folliott
43
Vice President, Sales, Kiosk Division
James Wallace
32
Vice President, Operations, Kiosk Division
The business experience, principal occupations and employment of each of the above persons during at least the last
five years are set forth below.
EDWARD L. BERNSTEIN. Mr. Bernstein has been our Chief Executive Officer and President since we were
organized in February 2008. Mr. Bernstein has a 25 year track record in founding, financing and growing consumer
technology and entertainment companies. He has raised over $75 million in private capital working with a variety of
venture capital and strategic investors. During 2007 and until February 2008, Mr. Bernstein was a consultant to
Creekside LLC, a consulting firm to early stage technology companies. From 2002 through 2006, Mr. Bernstein
served as President and CEO of PhotoTLC, Inc., providing online and in-store digital photo services and gifts for the
largest retailers in the United States. Prior to his work with PhotoTLC, beginning in 1999, Mr. Bernstein served as
the Chief Executive Officer of Photopoint.com, one of the pioneering digital photo sharing sites. Mr. Bernstein also
serves on the Board of Directors of Silverstar Holdings Ltd., a publicly traded publisher and developer of interactive
entertainment software. Mr. Bernstein received his Bachelor of Arts from the University of Hartford and is a graduate
of Stanford University’s Executive Program.
STEVEN M. RHODES. Mr. Rhodes has been our Chairman and Chief Financial Officer since we were organized
in February 2008. Mr. Rhodes founded Crystal Magic, Inc. in 1999, conceiving of the original concept and product
line and forging long-term relationships with suppliers and distribution partners, most notably Walt Disney Co. and
Universal Studios, as well as a variety of wholesale and retail partners. Mr. Rhodes holds a degree in business
administration from Walsh College and is a member of the American Institute of CPAs.
PAUL SCAPATICI. Mr. Scapatici has been our Executive Vice president and General Manager of our Kiosk
Division since our merger with Mountain Capital, LLC in May 2008. He is a cofounder of our Arrow Media
Solutions division and the original founder of the Auleron Technologies division. Prior to forming Auleron
Technologies, Mr. Scapatici held a senior executive role beginning in 1999 with Network Power Systems, a company
which worked exclusively with National Cash Register. Mr. Scapatici earned his Bachelors of Science in Marketing,
Management from Siena College.
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JOHN C. WOLF. Mr. Wolf has been our Executive Vice President and General Manager of our Web Stores since
we merged with Crystal Magic, Inc. in May 2008, after serving in a similar role at Crystal Magic prior to the merger.
. Mr. Wolf joined our Crystal Magic division as an executive vice president and part owner in 2001. Prior thereto,
Mr. Wolf worked at Alltel Information Services, Inc. (now Fidelity Financial Systems), where he developed the
mortgage industry’s first value added electronic network, the InterChange. Trillions of dollars in financial transactions
have flowed through the InterChange since then.
LANE FOLLIOTT. Mr. Folliott has been our Vice President of Sales, Kiosk Division since our merger with
Mountain Capital, LLC in May 2008, after serving in a similar role at Mountain Capital prior to the merger. Mr.
Folliott has over 20 years of experience in the photo imaging industry. He began as a part owner in 1985 with Direct
Foto, a regional photo fulfillment and distribution company. He spearheaded Direct Foto opening its own photo lab,
which would successfully compete with Kodak, Fuji and Konica Labs. Under Mr. Folliott’s guidance, Direct Foto
grew from a few locations to one of the largest independent wholesale photo finishing labs in the United States.
JAMES WALLACE Mr. Wallace has been our Vice President of Operations, Kiosk Division since our merger with
Mountain Capital, LLC in May 2008, after serving in a similar role at Mountain Capital prior to the merger. Mr.
Wallace joined our Auleron Technologies division in August 2004. As Director of Operations, he directed the project
management team responsible for the deployment of more than 5,000 devices, worth in excess of $5 million. Prior
thereto, beginning in March 2003, Mr. Wallace was Project Control Officer at CGI. At CGI, Mr. Wallace helped
develop the processes and procedures by which the Imagistics IT department was run. Mr. Wallace is a graduate of
the University of North Carolina at Chapel Hill with a Bachelor of Science in Computer Science.
Employees
We currently have 71 full-time employees. We plan to hire an additional 53 employees and six outside consultants in
the next 12 months to support our anticipated growth in 2008 and 2009.
Company Facilities
We currently lease an office in Orlando, Florida, of approximately 6,000 square feet at $0.91 per square foot per
month, and plan to expand to 18,000 square feet in the next six months on similar terms. We believe that if we lost
our lease at these premises, we could promptly relocate within 30 days on similar terms. Our retail facilities occupy
approximately 700 square feet at Disney World in Orlando 100 square feet at Universal Studios in Orlando and
approximately 350 square feet at Disneyland in Anaheim, California. We pay for these spaces via revenue share
agreements with each of the theme parks that are subject to periodic renewal.
We currently lease an office in Lake Placid, New York, of approximately 2,765 square feet at $0.98 per square foot
per month, and are planning to move to a new office in Hartford, Connecticut, by June of 2008. The office will be
approximately 3,500 with a square foot price of $1.25 per month. We believe that if we lost our lease at these
premises, we could promptly relocate within 30 days on similar terms.
We also currently lease offices in Northern and Southern California. Our Southern California office is in Brea and
consists of approximately 3,000 square feet at $0.98 per square foot per month. We believe that if we lost our lease at
these premises, we could promptly relocate within 60 days on similar terms. Our Northern California office is in San
Anselmo and consists of approximately 1,050 square feet at $2.15 per square foot per month. We believe if we lost
our lease at these premises, we could promptly relocate within 30 days on similar terms.
Directors’ Term of Office
Directors will hold office until the next annual meeting of stockholders and the election and qualification of their
successors. Officers are elected annually by our board of directors and serve at the discretion of the board of
directors.
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Director Independence
Our directors, Edward L. Bernstein and Steven M. Rhodes, are not independent because of their positions as
executive officers of our company. We expect to add independent directors to our board in the near future.
Audit Committee and Audit Committee Financial Expert
Our board of directors acts as our audit committee. No member of our board of directors is an “audit committee
financial expert,” as that term is defined in Item 407(d) of Regulation S-K promulgated under the Securities Act.
Upon evaluating our internal controls, our board of directors determined that our internal controls are adequate to
insure that financial information is recorded, processed, summarized and reported in a timely and accurate manner in
accordance with applicable rules and regulations of the SEC. Accordingly, our board of directors concluded that the
benefits of retaining an individual who qualifies as an “audit committee financial expert” would be outweighed by the
costs of retaining such a person.
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
None of our directors and executive officers nor any person who beneficially owns, directly or indirectly, shares
carrying more than 5% of our common stock, nor any members of the immediate family (including spouse, parents,
children, siblings, and in-laws) of any of the foregoing persons, has any material interest, direct or indirect, in any
transaction that we have entered into since our incorporation or any proposed transaction except that our wholly
owned subsidiary Crystal Magic, Inc. has borrowed $204,000 from Lanai Investments, LLC, which is owned by
Steven M. Rhodes and $75,000 from Loco Lobo Investments, LLC, which John Wolf is the manager of. Both of
these loans bear interest at 6% and are due if and when we receive $2 million in equity financing.
LITIGATION
From time to time, we may be involved in various claims, lawsuits, and disputes with third parties, actions incidental
to the normal operations of the business. As of the date of this offering, we are not aware of any material claims,
lawsuits, disputes with third parties or the like that would have any material adverse affect on our business.
EXECUTIVE COMPENSATION
The following table discloses the compensation that was paid to our executive officers in the year ended December
31, 2007 before we completed the merger of Crystal Magic, Inc., Mountain Capital, LLC and Auleron 2005, LLC in
April and May 2008.
SUMMARY COMPENSATION TABLE
Annual Compensation
Salary($)
Bonus($)
Other Annual
Compensation
Securities
Underlying
Options/
SARs
2007
0
0
0
0
0
2007
107,000
0
0
0
0
John Wolf, EVP
2007
156,000
0
0
0
0
Paul Scapatici, EVP
2007
80,000
$6,500
0
0
0
Lane Folliott, VP
James Wallace, VP
___________
2007
2007
74,100
80,000
0
$6,500
$13,125 (1)
0
0
0
0
0
Name and Principal
Position
Year
Edward L. Bernstein, CEO
Steven M. Rhodes, CFO
(1) Represents sales commissions.
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Compensation($)
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DIRECTOR COMPENSATION
We currently do not pay our directors compensation for their service as directors.
PROPELL CORPORATION 2008 STOCK OPTION PLAN
Our board of directors adopted the Propell Corporation 2008 Stock Option Plan (the “Plan”) in April 2008
to promote our long-term growth and profitability by (i) providing our key directors, officers and employees with
incentives to improve stockholder value and contribute to our growth and financial success and (ii) enable us to
attract, retain and reward the best available persons for positions of substantial responsibility. 1,250,000 stock options
were granted in 2008. As described more fully below, the Plan provides for grants of options to purchase specified
numbers of shares of Common Stock at predetermined prices.
The following discussion represents only a summary of certain of the plan terms and is qualified in its entirety by
reference to the complete plan, a copy of which has been filed as an exhibit to the registration statement of which this
prospectus forms a part.
Shares Available; Maximum Awards; Participants. A total of 5,000,000 shares of the Company’s Common
Stock has been reserved for issuance upon exercise of options granted pursuant to the Plan. The Plan allows the
Company to grant options to employees, officers and directors of the Company and its subsidiaries; provided that
only employees of the Company and its subsidiaries may receive incentive stock options under the Plan. The
Company has granted a total of 1,250,000 options as of the date of this prospectus.
Stock Option Features. Under the Plan, options to purchase the Company’s Common Stock may take the form of
incentive stock options (“ISOs”) under Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”)
or nonqualified stock options (“NQSOs”). As required by Section 422 of the Code, the aggregate fair market value
(as defined in the Plan) of shares of Common Stock (determined as of the date of grant of the ISO) with respect to
which ISOs granted to an employee are exercisable for the first time in any calendar year may not exceed $100,000.
The foregoing limitation does not apply to NQSOs.
Initially, each option will be exercisable over a period, determined by the Board of Directors of the
Company, in its discretion, of up to ten years from the date of grant. Options may be exercisable during the option
period at such time, in such amounts, and in accordance with such terms and conditions and subject to such
restrictions as are determined by the Board and set forth in option agreements evidencing the grant of such options.
The exercise price of options granted pursuant to the Plan is determined by the Board, in its discretion; provided
that the exercise price of an ISO may not be less than 100% of the fair market value (as defined in the Plan) of the
shares of the Company Common Stock on the date of grant. The exercise price of options granted pursuant to the
Plan is subject to adjustment as provided in the Plan to reflect stock dividends, splits, other recapitalizations or
reclassifications or changes in the market value of the Company Common Stock. In addition, the Plan provides that,
in the event of a proposed change in control of the Company (as defined in the Plan), the Board of Directors is to take
such actions as it deems appropriate to effectuate the purposes of the Plan and to protect the grantees of options,
which action may include (i) acceleration or change of the exercise dates of any option; (ii) arrangements with
grantees for the payment of appropriate consideration to them for the cancellation and surrender of any option; and
(iii) in any case where equity securities other than Common Stock are proposed to be delivered in exchange for or
with respect to Common Stock, arrangements providing that any option shall become one or more options with
respect to such other equity securities. Further, in the event the Company dissolves and liquidates (other than
pursuant to a plan of merger or reorganization), then notwithstanding any restrictions on exercise set forth in the Plan
or any grant agreement pursuant thereto (i) each grantee shall have the right to exercise his option at any time up to ten
days prior to the effective date of such liquidation and dissolution; and (ii) the Board of Directors may make
arrangements with the grantees for the payment of appropriate consideration to them for the cancellation and
surrender of any option that is so canceled or surrendered at any time up to ten days prior to the effective date of such
liquidation and dissolution. The Board of Directors also may establish a different period (and different conditions) for
such exercise, cancellation, or surrender to avoid subjecting the grantee to liability under Section 16(b) of the
Exchange Act.
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The shares purchased upon the exercise of an option are to be paid for by the optionee in cash or cash equivalents
acceptable to the Board. In addition, the Plan allows for broker-assisted cashless exercises in the discretion of the
Board of Directors.
Except as permitted pursuant to Rule 16b-3 under the Exchange Act, and in any event in the case of an ISO, an
option is not transferable except by will or the laws of descent and distribution. In no case may the options be
exercised later than the expiration date specified in the option agreement.
Plan Administration. The Plan will be administered by the Board of Directors, or a committee of the board if so
approved by the board, in accordance with the provisions of Rule 16b-3.
The Board of Directors will decide when and to whom to make grants, the number of shares to be covered by the
grants, the vesting schedule, the type of awards and the terms and provisions relating to the exercise of the awards.
The Board may interpret the Plan and may at any time adopt such rules and regulations for the Plan as it deems
advisable. The Board of Directors may at any time amend or terminate the Plan and change its terms and conditions,
except that, without stockholder approval, no such amendment may (i) materially increase the maximum number of
shares as to which awards may be granted under the Plan; (ii) materially increase the benefits accruing to Plan
participants; or (iii) materially change the requirements as to eligibility for participation in the Plan.
Accounting Effects. Under current accounting rules, neither the grant of options at an exercise price not less than
the current fair market value of the underlying Common Stock, nor the exercise of options under the Plan, is expected
to result in any charge to the earnings of the Company.
Certain Federal Income Tax Consequences. The following is a brief summary of certain Federal income tax
aspects of awards under the Plan based upon the Federal income tax laws in effect on the date hereof. This summary
is not intended to be exhaustive and does not describe state or local tax consequences.
Incentive Stock Options. An optionee will not realize taxable income upon the grant of an ISO. In addition, an
optionee will not realize taxable income upon the exercise of an ISO, provided that such exercise occurs no later than
three months after the optionee’s termination of employment with the Company (one year in the event of a termination
on account of disability). However, an optionee’s alternative minimum taxable income will be increased by the
amount that the fair market value of the shares acquired upon exercise of an ISO, generally determined as of the date
of exercise, exceeds the exercise price of the option. If an optionee sells the shares of Common Stock acquired upon
exercise of an ISO, the tax consequences of the disposition depend upon whether the disposition is qualifying or
disqualifying. The disposition of the shares is qualifying if made more than two years after the date the ISO was
granted and more than one year after the date the ISO was exercised. If the disposition of the shares is qualifying, any
excess of the sale price of the shares over the exercise price of the ISO would be treated as long-term capital gain
taxable to the option holder at the time of the sale. If the disposition is not qualifying, i.e., a disqualifying disposition,
the excess of the fair market value of the shares on the date the ISO was exercised over the exercise price would be
compensation income taxable to the optionee at the time of the disposition, and any excess of the sale price of the
shares over the fair market value of the shares on the date the ISO was exercised would be capital gain.
Unless an optionee engages in a disqualifying disposition, the Company will not be entitled to a deduction with
respect to an ISO. However, if an optionee engages in a disqualifying disposition, the Company generally will be
entitled to a deduction equal to the amount of compensation income taxable to the optionee.
Nonqualified Stock Options. An optionee will not realize taxable income upon the grant of an NQSO. However,
when the optionee exercises the NQSO, the difference between the exercise price of the NQSO and the fair market
value of the shares acquired upon exercise of the NQSO on the date of exercise is compensation income taxable to the
optionee. The Company generally will be entitled to a deduction equal to the amount of compensation income taxable
to the optionee.
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Employment Agreements
We entered into three year employment agreements on April 10, 2008 with Edward L. Bernstein, Steven M.
Rhodes and John C. Wolf. The agreement with Mr. Bernstein provides for a $160,000 base salary with six months
severance if he is terminated for reasons other than Cause, or if Mr. Bernstein terminates for Good Reason, all as
defined in the employment agreement. The agreement also provides for a grant of 500,000 stock options to purchase
500,000 shares at $.50 per share with vesting over three years.
The agreement with Mr. Rhodes provides for a $160,000 base salary with six months severance if he is
terminated for reasons other than Cause, or if Mr. Rhodes terminates for Good Reason, all as defined in the
employment agreement. We have agreed to refinance any debt that Mr. Rhodes has personally guaranteed within one
year of his termination unless we terminate Mr. Rhodes for Cause. The agreement also provides for a grant of
100,000 stock options to purchase 100,000 shares at $.50 per share with vesting over three years.
The agreement with Mr. Wolf provides for a $160,000 base salary with six months severance if he is
terminated for reasons other than Cause, or if Mr. Wolf terminates for Good Reason, all as defined in the employment
agreement. The agreement also provides for a grant of 100,000 stock options to purchase 100,000 shares at $.50 per
share with vesting over three years.
We entered into three year employment agreements on May 6, 2008 with Paul Scapatici, James Wallace and
Lane Folliott.
The agreement with Mr. Scapatici provides for a $125,000 base salary with six months severance if he is
terminated for reasons other than Cause, or if Mr. Scapatici terminates for Good Reason, all as defined in the
employment agreement. The agreement also provides for a grant of 125,000 stock options to purchase 125,000 shares
at $.50 per share with vesting over three years.
The agreement with Mr. Wallace provides for a $125,000 base salary with six months severance if he is
terminated for reasons other than Cause, or if Mr. Scapatici terminates for Good Reason, all as defined in the
employment agreement. The agreement also provides for a grant of 125,000 stock options to purchase 125,000 shares
at $.50 per share with vesting over three years.
The agreement with Mr. Folliott provides for a $125,000 base salary with six months severance if he is
terminated for reasons other than Cause, or if Mr. Scapatici terminates for Good Reason, all as defined in the
employment agreement. The agreement also provides for a grant of 125,000 stock options to purchase 125,000 shares
at $.50 per share with vesting over three years.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table indicates how many shares of our common stock were beneficially owned as of May 9,
2008, by (1) each person known by us to be the owner of more than 5% of our outstanding shares of common stock,
(2) our directors, (3) our executive officers, and (4) our directors and executive officers as a group. In general,
“beneficial ownership” includes those shares a director or executive officer has sole or shared power to vote or
transfer (whether or not owned directly) and rights to acquire common stock through the exercise of stock options or
warrants that are exercisable currently or become exercisable within 60 days. Except as indicated otherwise, the
persons name in the table below have sole voting and investment power with respect to all shares shown as
beneficially owned by them. We based our calculation of the percentage owned on 13,428,952 shares outstanding on
May 9, 2008. The address of each of the directors and executive officers listed below is c/o Propell Corporation, 336
Bon Air Center, No. 352, Greenbrae, CA 94904.
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Table of Contents
Number of Shares
Beneficially Owned
Name
Edward L. Bernstein
Percent of
Class
650,000 (1)
4.84%
3,730,224 (2)
27.77%
Paul Scapatici
353,382 (3)
2.63%
John C. Wolf
1,288,776 (4)
9.60%
Lane Folliott
265,047 (5)
1.97%
James Wallace
265,047 (6)
1.97%
Joseph W. and Patricia G. Abrams Family Trust
737,625 (7)
5.50%
1,325,125 (8)
9.87%
6,552,476
48.79%
Steven M. Rhodes
James Graham
All officers and directors as a group
(6 persons)
_____________________________
(1)
Mr. Bernstein received these shares upon conversion of a convertible promissory note. Mr. Bernstein signed
a lock-up agreement that prohibits him from offering, selling, contracting to sell, pledging or otherwise
disposing of these shares until April 1, 2009.
(2)
Mr. Rhodes received these shares in exchange for shares he owned in Crystal Magic, Inc. in the merger of
Crystal Magic, Inc. with us. Mr. Rhodes signed a lock-up agreement that prohibits him from offering, selling,
contracting to sell, pledging or otherwise disposing of these shares until April 1, 2009.
(3)
Mr. Scapatici received these shares in exchange for membership interests he owned in Mountain Capital, LLC
and Auleron 2005, LLC in the merger of those entities with us. Mr. Scapatici signed a lock-up agreement that
prohibits him from offering, selling, contracting to sell, pledging or otherwise disposing of these shares until
April 1, 2009.
(4)
Mr. Wolf received these shares in exchange for shares he owned in Crystal Magic, Inc. in the merger of
Crystal Magic, Inc. with us. Mr. Wolf signed a lock-up agreement that prohibits him from offering, selling,
contracting to sell, pledging or otherwise disposing of these shares until April 1, 2009.
(5)
Mr. Folliott received these shares in exchange for membership interests he owned in Mountain Capital, LLC
and Auleron 2005, LLC in the merger of those entities with us. Mr. Folliott signed a lock-up agreement that
prohibits him from offering, selling, contracting to sell, pledging or otherwise disposing of these shares until
April 1, 2009.
(6)
Mr. Wallace received these shares in exchange for membership interests he owned in Mountain Capital, LLC
and Auleron 2005, LLC in the merger of those entities with us. Mr. Wallace signed a lock-up agreement that
prohibits him from offering, selling, contracting to sell, pledging or otherwise disposing of these shares until
April 1, 2009.
(7)
These shares were received upon conversion of a convertible promissory note.
(8)
Mr. Graham received these shares in exchange for membership interests he owned in Mountain Capital, LLC
and Aulron 2005, LLC in the merger of those entities with us. Mr. Graham signed a lock-up agreement that
prohibits him from offering, selling, contracting to sell, pledging or otherwise disposing of these shares until
April 1, 2009.
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Table of Contents
SELLING STOCKHOLDERS
The table below sets forth the name of each person who is offering for resale shares of common stock covered by this
prospectus, the number of shares of common stock beneficially owned by each person, the number of shares of
common stock that may be sold in this offering, and the number of shares of common stock each person will own
after the offering, assuming they sell all of the shares offered.
The shares of common stock being offered in this prospectus (including shares issuable upon the conversion of
convertible promissory notes) were issued in private placement transactions by us, each of which was exempt from
the registration requirements of the Securities Act of 1933, as amended, pursuant to Section 4(2) of the Securities
Act.
Because the selling stockholders may offer all, some, or none of their shares of our common stock, we cannot
provide a definitive estimate of the number of shares that the selling stockholders will hold after this offering.
Other than as indicated, none of the selling stockholders has at any time during the past three years acted as one of
our employees, officers, or directors or otherwise had a material relationship with us.
For purposes of the following table, beneficial ownership is determined in accordance with the rules of the Securities
and Exchange Commission. In computing the number of shares beneficially owned by a selling stockholder and the
percentage ownership of that selling stockholder, shares of common stock issuable through the exercise of stock
options or warrants that are exercisable currently or become exercisable within 60 days, and upon the conversion of
promissory notes that are presently convertible or may be converted within 60 days. Each selling stockholder’s
percentage of ownership in the following table is based on 13,428,952 shares of common stock outstanding as of
May 9, 2008.
Shares beneficially owned prior to
the offering
Selling Stockholder (1)
Number
Percent
Number of
common shares
registered in this
prospectus
Shares beneficially owned
after the offering
Number
Percent
Bao Phung
5,000
*
5,000
0
0%
Bobby Aldridge
3,000
*
3,000
0
0%
Desmond Chan
Don Prestage
4,000
12,500
*
*
4,000
12,500
0
0
0%
0%
Doug Froese
10,000
*
10,000
0
0%
Chester Peter Aldridge
20,000
*
20,000
0
0%
1,000
*
1,000
0
0%
25,000
750
*
*
25,000
750
0
0
0%
0%
Todd Wiemer
2,000
*
2,000
0
0%
Tony Shapiro
3,500
*
3,500
0
0%
Steven Shum
37,500
*
37,500
0
0%
Cynthia D. Wuthmann Family Trust
Robert R. Darcy
2,500
25,000
*
*
2,500
25,000
0
0
0%
0%
Ken Delahousssaye
Larry Wiebe
Marv Thielmann
Diana K. Darcy
Avztim LLC
Cascade Capital Corporation
Mark Kalow
Montoya Family Trust
Lorraine Lusted Trust
5,000
*
5,000
0
0%
30,000
*
30,000
0
0%
3,500
*
3,500
0
0%
52,500
115,000
*
*
52,500
115,000
0
0
0%
0%
3,500
*
3,500
0
0%
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Shares beneficially owned
prior to the offering
Selling Stockholder (1)
Mark S. Litwin Trust
Mike Hart
Number
Number of
common shares
registered in this
prospectus
Percent
Shares beneficially owned
after the offering
Number
Percent
10,500
10,000
*
*
10,500
10,000
0
0
0%
0%
Michael Troy
4,500
*
4,500
0
0%
Megan Troy
2,500
*
2,500
0
0%
Edward Troy
2,500
*
2,500
0
0%
Julia Keidel
Werner Keidel
2,500
2,500
*
*
2,500
2,500
0
0
0%
0%
Paul Jakab
6,000
*
6,000
0
0%
Phil Schlein
4,000
*
4,000
0
0%
Thomas Spence
1,000
*
1,000
0
0%
55,000
15,000
*
*
55,000
15,000
0
0
0%
0%
Joan Vogelesang
3,500
*
3,500
0
0%
Linda Trilling
5,000
*
5,000
0
0%
Kagan Family Trust
9,500
*
9,500
0
0%
50,000
105,000
*
*
50,000
105,000
0
0
0%
0%
Harry Fox
10,000
*
10,000
0
0%
Matthew Abrams
50,000
*
50,000
0
0%
Sarah Abrams
Eight Family Trust u/t/a/ 11/8/99
Chester Aldridge
C. James Jensen
David E. Gold
50,000
*
50,000
0
0%
Joseph W. and Patricia G. Abrams Family
Trust
737,625
5.50%
737,625
0
0%
David N. Baker
650,125
4.84%
650,125
0
0%
Frank Baillargeon
22,310
*
22,310
0
0%
1,000,000
400,000
7.45%
3.00%
1,000,000
400,000
0
0
0%
0%
Pharaoh Limited
400,000
3.00%
400,000
0
0%
Robert M. Mayes and Laura L. Mayes
Living Trust
200,000
1.49%
200,000
0
0%
Janet B. Jackson and Charles R Jackson
300,000
2.23%
300,000
0
0%
100,000
0
0%
150,000
0
0%
Mara Gateway Associates LP
Core Fund, L.P.
Pensco Trust Company FBO Mark S.
Litwin Roth IRA
Jensen Children’s Trust
Brian J. Jensen Trust “B”
100,000
150,000
1.12%
50,000
50,000
0
0%
Jerry Chatel
100,000
100,000
0
0%
Daniel David Tomkins Separate Property
Trust
100,000
100,000
0
0%
Phillip and Tracy Swan
100,000
100,000
0
0%
40,000
40,000
0
0%
Keith M. Metzger and Loring Casartelli
Trust
*
Represents less than 1%.
(1)
None of the selling stockholders had a material relationship with us other than as a stockholder at any time
within the past two years, has ever been one of our officers or directors and is not a broker-dealer or affiliated
with a broker-dealer, except that Joseph Abrams and David N. Baker have acted as consultants to the
company. Mr. Baker is a principal and 50% owner of Core Fund Management L.P., the general partner of
Core Fund, L.P.
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Table of Contents
DILUTION
The common stock to be sold by the selling stockholders is common stock that is currently issued and outstanding.
Accordingly, there will be no dilution to our existing stockholders.
DETERMINATION OF OFFERING PRICE
There currently is no established trading market for our common stock. The fixed offering price of $.50 in this
prospectus was arrived at by evaluating our recent sales of unregistered securities and the overall valuation of our
company.
PLAN OF DISTRIBUTION
The selling stockholders and any of their respective pledgees, donees, assignees, and other successors-in-interest
may, from time to time, sell any or all of their shares of common stock on any stock exchange, market or trading
facility on which the shares are traded or in private transactions. These sales may be at fixed or negotiated prices.
We have agreed, subject to certain limits, to bear all costs, expenses, and fees of registration of the shares of our
common stock offered by the selling stockholders for resale. However, any brokerage commissions, discounts,
concessions, or other fees, if any, payable to broker-dealers in connection with any sale of shares of common stock
will be borne by the selling stockholders selling those shares or by the purchasers of those shares.
On our being notified by a selling stockholder that any material arrangement has been entered into with a brokerdealer for the sale of shares through a block trade, special offering, exchange distribution, or secondary distribution,
or a purchase by a broker or dealer, a supplement to this prospectus will be filed, if required, pursuant to Rule 424(b)
under the Securities Act, disclosing the following:
·
the name of each such selling stockholder and of any participating broker-dealer
·
the number of securities involved
·
the price at which such securities were sold
·
the commissions paid or discounts or concessions allowed to any broker-dealer, where applicable
·
that any broker-dealer did not conduct any investigation to verify the information set out or incorporated
by reference in this prospectus
·
other facts material to the transaction.
The selling stockholders may use any one or more of the following methods when selling shares:
·
directly as principals
·
ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers
·
block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell
a portion of the block as principal to facilitate the transaction;
·
purchases by a broker-dealer as principal and resale by the broker-dealer for its account
·
an exchange distribution in accordance with the rules of the applicable exchange
·
privately negotiated transactions
·
short sales that are in compliance with the applicable laws and regulations of any state or the United
States
·
broker-dealers may agree with the selling stockholders to sell a specified number of such shares at a
stipulated price per share
·
a combination of any such methods of sale
·
any other method permitted pursuant to applicable law
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Table of Contents
The selling stockholders may also sell shares under Rule 144 under the Securities Act, if available, rather than under
this prospectus.
Any sales of the shares may be effected through the OTC Bulletin Board if our shares become quoted on the OTC
Bulletin Board, in private transactions or otherwise, and the shares may be sold at market prices prevailing at the time
of sale, at prices related to prevailing market prices, or at negotiated prices.
The selling stockholders may also engage in short sales against the box, puts and calls, and other transactions in our
securities or derivatives of our securities and may sell or deliver shares in connection with these trades. The selling
stockholders may pledge their shares to their brokers under the margin provisions of customer agreements. If a
selling stockholder defaults on a margin loan, the broker may, from time to time, offer and sell the pledged shares. We
believe that the selling stockholders have not entered into any agreements, understandings or arrangements with any
underwriters or broker-dealers regarding sale of their shares other than ordinary course brokerage arrangements, nor
is there an underwriter or coordinating broker acting in connection with the proposed sale of shares by the selling
stockholders.
Broker-dealers engaged by the selling stockholders may arrange for other brokers-dealers to participate in sales. If the
selling stockholders effect sales through underwriters, brokers, dealers or agents, such firms may receive
compensation in the form of discounts, concessions or commissions from the selling stockholders or the purchasers
of the shares for whom they may act as agent, principal or both in amounts to be negotiated. Those persons who act
as broker-dealers or underwriters in connection with the sale of the shares may be selected by the selling stockholders
and may have other business relationships with, and perform services for, us. The selling stockholders do not expect
these commissions and discounts to exceed what is customary in the types of transactions involved.
Any selling stockholder or broker-dealer who participates in the sale of the shares may be deemed to be an
“underwriter” within the meaning of section 2(11) of the Securities Act. Any commissions received by any
underwriter or broker-dealer and any profit on any sale of the shares as principal may be deemed to be underwriting
discounts and commissions under the Securities Act.
The anti-manipulation provisions of Rules 101 through 104 of Regulation M promulgated under the Exchange Act
may apply to purchases and sales of shares of common stock by the selling stockholders. In addition, there are
restrictions on market-making activities by persons engaged in the distribution of the common stock.
Under the securities laws of certain states, the shares may be sold in those states only through registered or licensed
brokers or dealers. In addition, in certain states the shares may not be able to be sold unless our common stock has
been registered or qualified for sale in that state or an exemption from registration or qualification is available and is
complied with.
We are required to pay expenses incident to the registration, offering, and sale of the shares under this offering. We
estimate that our expenses will total approximately $50,000. We have agreed to indemnify certain selling stockholders
and certain other persons against certain liabilities, including liabilities under the Securities Act, and to contribute to
payments to which those selling stockholders or their respective pledgees, donees, transferees or other successors in
interest may be required to make in respect thereof. Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons, we have been advised that in the
opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is therefore,
unenforceable.
DESCRIPTION OF SECURITIES
Our Common Stock
Authorized and Outstanding
Our authorized capital consists of 75 million shares of common stock, par value $.001 per share and 10 million
shares of preferred stock, par value $.001 per share. As of May 9, 2008, 13,428,952 shares of our common stock
were outstanding. No shares of our preferred stock are outstanding. We had 69 record holders of our common stock
as of May 9, 2008. No shares of our common stock are currently eligible for sale under Rule 144 of the Rules and
Regulations promulgated under the Securities Act of 1933.
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Table of Contents
Voting Rights
Holders of our common stock have the right to cast one vote for each share of stock in their name on the books of our
company, whether represented in person or by proxy, on all matters submitted to a vote of holders of common stock,
including election of directors. There is no right to cumulative voting in election of directors. Except where a greater
requirement is provided by statute or by the articles of incorporation, or in the by-laws, the presence, in person or by
proxy duly authorized, of the one or more holders of a majority of the outstanding shares of our common stock
constitutes a quorum for the transaction of business. The vote by the holders of a majority of outstanding shares is
required to effect certain fundamental corporate changes such as liquidation, merger, or amendment of our articles of
incorporation.
Dividends
Our payment of dividends, if any, in the future rests within the discretion of the Board of Directors and will depend,
among other things, upon our earnings, capital requirements and financial condition, as well as other relevant factors.
We have not paid any dividends since our inception and do not intend to any cash dividends in the foreseeable future,
but intend to retain all earnings, if any, for use in our business. There are no restrictions in our articles of
incorporation or by-laws that restrict us from declaring dividends. However, the Delaware General Corporation Law
does prohibit us from declaring dividends where, after giving effect to the distribution of the dividend (1) we would
not be able to pay our debts as they become due in the usual course of business or (2) our total assets would be less
than the sum of our total liabilities plus the amount that would be needed to satisfy the rights of stockholders who
have preferential rights superior to those receiving the distribution. We have not declared any dividends, and we do
not plan to declare any dividends in the foreseeable future.
Preemptive Rights
Holders of our common stock are not entitled to preemptive rights, and no redemption or sinking fund provisions are
applicable to our common stock. All outstanding shares of our common stock are, and the units of common stock
sold in the offering will when issued be, fully paid and non-assessable.
Our Transfer Agent
We plan to retain a transfer agent in the near future.
Crystal Magic, Inc. Preferred Stock
The Certificate of Incorporation of Crystal Magic, Inc. authorizes 10,000 shares of Class A preferred stock, par value
$.01 per share. All 10,000 shares are issued to Steven M. Rhodes, our Chief Financial Officer. The holder of the
Class A preferred stock votes on all matters with the holders of the Crystal Magic, Inc. common stock on a one
thousand votes per share basis. The shares of preferred stock rank equivalent with respect to liquidation to all classes
of the Crystal Magic, Inc. common stock. The holder of the preferred stock shall not be entitled to participate in any
dividends declared on Crystal Magic, Inc.’s common stock. We have an option to purchase these shares of preferred
stock at $.10 per share over the next 99 years provided that either: (i) Mr. Rhodes gives his written consent; (ii)
certain debt of Crystal Magic that Mr. Rhodes is the guarantor of is first retired; (iii) that debt is modified so that Mr.
Rhodes is no longer the guarantor; or (iv) that debt is modified so that the primary obligor on the debt is us rather
than Crystal Magic.
40
Table of Contents
EXPERTS
The audited financial statements of Propell Corporation as of January 31, 2008 and the related statements of
operations, stockholders’ deficit and cash flows for the period from January 29, 2008 (date of inception) to January
31, 2008 included in this prospectus have been so included in reliance on the report of Maddox Ungar Silberstein,
PLLC, independent registered accountants, given on the authority of said firm as experts in accounting and auditing.
The combined audited financial statements as of December 31, 2007 and December 31, 2006 and the related
combined statements of operations and accumulated deficit and members’ equity (deficit), and cash flows for the
years then ended included in this prospectus have been so included in reliance on the report of Maddox Ungar
Silberstein, PLLC, independent registered accountants, given on the authority of said firm as experts in accounting
and auditing.
No expert or counsel named in this registration statement as having prepared or certified any part of this statement or
having given an opinion upon the validity of the securities being registered or upon other legal matters in connection
with the registration or offering of the common stock was employed on a contingency basis, or had, or will receive, in
connection with the offering, a substantial interest, direct or indirect, in us. Nor was any such person connected with
us as a promoter, managing or principal underwriter, voting trustee, director, officer, or employee.
LEGAL MATTERS
The validity of our common stock offered hereby will be passed upon for us by Lehman & Eilen LLP, Boca Raton,
Florida.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Our directors and officers are indemnified as provide by the Delaware General Corporation Law and our Certificate
of Incorporation. Section 145 of the Delaware General Corporation Law provides that a director or officer is not
individually liable to the corporation or its stockholders or creditors for any damages as a result of any act or failure to
act in his capacity as a director or officer unless it is proven that (1) his act or failure to act constituted a breach of his
fiduciary duties as a director or officer and (2) his breach of those duties involved intentional misconduct, fraud or a
knowing violation of law.
This provision is intended to afford directors and officers protection against and to limit their potential liability for
monetary damages resulting from suits alleging a breach of the duty of care by a director or officer. As a consequence
of this provision, stockholders of our company will be unable to recover monetary damages against directors or
officers for action taken by them that may constitute negligence or gross negligence in performance of their duties
unless such conduct falls within one of the foregoing exceptions. The provision, however, does not alter the
applicable standards governing a director’s or officer’s fiduciary duty and does not eliminate or limit the right of our
company or any stockholder to obtain an injunction or any other type of non-monetary relief in the event of a breach
of fiduciary duty.
Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors,
officers or persons controlling the registrant pursuant to the foregoing provisions, the registrant has been informed
that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as
expressed in the Act and is therefore unenforceable.
41
Table of Contents
PROPELL CORPORATION FINANCIAL STATEMENTS
TABLE OF CONTENTS
JANUARY 31, 2008
Report of Independent Registered Public Accounting Firm
F-2
Balance Sheet as of January 31, 2008
F-3
Statement of Operations for the Period from January 29, 2008 (date of inception) to January 31, 2008
F-4
Statement of Stockholders' Deficit as of December 31, 2008
F-5
Statement of Cash Flows for the Period from January 29, 2008 (date of inception) to January 31, 2008
F-6
Notes to Financial Statements
F-7 – F- 8
F-1
Table of Contents
Maddox Ungar Silberstein, PLLC CPAs and Business Advisors
Phone (248) 203-0080
Fax (248) 281-0940
30600 Telegraph Road, Suite 2175
Bingham Farms, MI 48025-4586
www.maddoxungar.com
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors
Propell Corporation
Greenbrae, California
We have audited the accompanying balance sheet of Propell Corporation (a development stage company) as of
January 31, 2008 and the related statements of operations, stockholders’ deficit and cash flows for the period
from January 29, 2008 (date of inception) to January 31, 2008. 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 the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. The Company has determined that it is not
required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our
audit included consideration of internal control over financial reporting as a basis for designing audit procedures
that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of
the Company’s internal control over financial reporting. Accordingly, we express no such opinion. 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 Propell Corporation as of January 31, 2008, and the results of its operations and cash flows for the
period from January 29, 2008 (date of inception) to January 31, 2008, in conformity with U.S. generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming that the Company will continue as a going
concern. As discussed in Note 4 to the financial statements, the Company has limited working capital, has not
yet received revenue from sales of products or services, and has incurred losses from operations. These factors
raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans with
regard to these matters are described in Note 4. The accompanying financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ Maddox Ungar Silberstein PLLC
Maddox Ungar Silberstein, PLLC
Bingham Farms, Michigan
March 10, 2008
F-2
Table of Contents
PROPELL CORPORATION
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
As of January 31, 2008
ASSETS
Current Assets
Cash and equivalents
$
100
TOTAL ASSETS
$
100
$
2,500
100
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current Liabilities
Accrued Expenses
Loan Payable – Related Party
TOTAL LIABILITIES
2,600
Stockholders’ Deficit
Preferred Stock – $.001 par value, 10,000,000 shares
authorized, -0- shares issued and outstanding
Common Stock – $.001 par value, 90,000,000 shares
authorized, -0- shares issued and outstanding
Deficit accumulated during the development stage
Total stockholders’ deficit
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT
See accompanying notes to financial statements.
F-3
0
0
(2,500)
(2,500)
$
100
Table of Contents
PROPELL CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
Period from January 29, 2008 (Inception) to January 31, 2008
Period from
January 29,
2008
(Inception) to
January
31, 2008
Revenues
$
Expenses :
Professional fees
-0-
2,500
Net Loss
$
(2,500)
Net loss per share:
Basic and diluted
$
(0.00)
Weighted average shares outstanding:
Basic and diluted
0
See accompanying notes to financial statements.
F-4
Table of Contents
PROPELL CORPORATIONN
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS’ DEFICIT
Period from January 29, 2008(Inception) to January 31, 2008
Additional
paid-in
capital
Common stock
Shares
Amount
Issuance of Common Shares
Deficit
accumulated
during the
development
stage
$
-
-
Net loss for the period
-
$
-
Balance, January 31, 2008
-
$
-
$
-
$
-
$
(2,500)
$
See accompanying notes to financial statements.
F-5
Total
$ (2,500)
(2,500)
$
(2,500)
Table of Contents
PROPELL CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
Period from January 29, 2008 (Inception) to January 31, 2008
Period from
January 29,
2008
(Inception) to
January
31, 2008
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss
Change in non-cash working capital items
Increase in accrued expenses
$
(2,500)
2,500
CASH FLOWS USED BY OPERATING ACTIVITIES
-
CASH FLOWS FROM FINANCING ACTIVITIES
Loan from related party
100
NET INCREASE IN CASH
100
Cash, beginning of period
Cash, end of period
$
100
$
-0-
$
-0-
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid
Income taxes paid
See accompanying notes to financial statements.
F-6
Table of Contents
PROPELL CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
Period from January 29, 2008 (Inception) to January 31, 2008
NOTE 1 – SUMMARY OF ACCOUNTING POLICIES
Nature of Business
Propell is a fully integrated provider of personalized products and services, delivered through multiple channels,
including online stores, its own proprietary photo kiosks, photo imaging locations, and independent and
company-owned retail stores.
Development Stage Company
The accompanying financial statements have been prepared in accordance with the Statement of Financial
Accounting Standards No. 7 ”Accounting and Reporting by Development-Stage Enterprises”. A developmentstage enterprise is one in which planned principal operations have not commenced or if its operations have
commenced, there has been no significant revenues there from.
Cash and Cash Equivalents
Propell considers all highly liquid investments with maturities of three months or less to be cash equivalents. At
January 31, 2008 the Company had $100 of unrestricted cash to be used for future business operations.
Fair Value of Financial Instruments
Propell’s financial instruments consist of cash.
Income Taxes
Income taxes are computed using the asset and liability method. Under the asset and liability method, deferred
income tax assets and liabilities are determined based on the differences between the financial reporting and tax
bases of assets and liabilities and are measured using the currently enacted tax rates and laws. A valuation
allowance is provided for the amount of deferred tax assets that, based on available evidence, are not expected to
be realized.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date the financial statements and the reported amount of
revenues and expenses during the reporting period. Actual results could differ from those estimates.
Recent Accounting Pronouncements
Propell does not expect the adoption of recently issued accounting pronouncements to have a significant impact
on the Company’s results of operations, financial position or cash flow.
F-7
Table of Contents
PROPELL CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
Period from January 29, 2008 (Inception) to January 31, 2008
NOTE 2 – LOAN PAYABLE – RELATED PARTY
Propell received a loan in the amount of $100 at inception from Crystal Magic, Inc. which was used to open up its
corporate bank account. The loan is non-interest bearing, due on demand, and unsecured. Crystal Magic, Inc. is
controlled and managed by a person who is CFO and Chairman of the Board of Propell.
NOTE 3 – INCOME TAXES
For the period ended January 31, 2008, Propell has incurred net losses and, therefore, has no tax liability. The net
deferred tax asset generated by the loss carry-forward has been fully reserved. The cumulative net operating loss
carry-forward is $2,500 at January 31, 2008, and will expire in the year 2028.
The cumulative tax effect at the expected rate of 34% of significant items comprising our net deferred tax amount is as
follows:
2008
Deferred tax asset attributable to:
Net operating loss carryover
Valuation allowance
Net deferred tax asset
$
$
850
(850)
-
NOTE 4 – LIQUIDITY AND GOING CONCERN
Propell has limited working capital and has not yet received revenues from sales of products or services. These
factors create substantial doubt about the Company’s ability to continue as a going concern. The financial statements
do not include any adjustment that might be necessary if the Company is unable to continue as a going concern.
The ability of Propell to continue as a going concern is dependent on the Company generating cash from the sale of
its common stock and/or obtaining debt financing and attaining future profitable operations. Management’s plans
include selling its equity securities and obtaining debt financing to fund its capital requirement and ongoing
operations; however, there can be no assurance the Company will be successful in these efforts.
F-8
Table of Contents
CRYSTAL MAGIC, INC.
MOUNTAIN CAPITAL, LLC D/B/A
ARROW MEDIA SOLUTIONS
AULERON 2005, LLC FINANCIAL STATEMENTS
TABLE OF CONTENTS
DECEMBER 31, 2007 and 2006
Report of Independent Registered Public Accounting Firm
F-10
Combined Balance Sheets as of December 31, 2007 and 2006
F-11
Combined Statements of Operations for the Years Ended December 31, 2007 and 2006
F-12
Combined Statement of Owners’ Equity
F-13
Combined Statements of Cash Flows for the Years Ended December 31, 2007 and 2006
F-14
Notes to Financial Statements
F-15 – F-23
Additional Information
Report of Independent Registered Public Accounting Firm On Combining Information
F-24
Combining Balance Sheet as of December 31, 2007
F-25
Combining Balance Sheet as of December 31, 2006
F-26
Combining Schedule of Operations for the Year Ended December 31, 2007
F-27
Combining Schedule of Operations for the Year Ended December 31, 2006
F-28
F-9
Table of Contents
Maddox Ungar Silberstein, PLLC CPAs and Business Advisors
Phone (248) 203-0080
Fax (248) 281-0940
30600 Telegraph Road, Suite 2175
Bingham Farms, MI 48025-4586
www.maddoxungar.com
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
Crystal Magic, Inc.
Mountain Capital, LLC
Auleron 2005, LLC
Orlando, FL
Lake Placid, NY
We have audited the accompanying combined balance sheets of Crystal Magic, Inc., a Florida Corporation, and
Mountain Capital, LLC d/b/a Arrow Media Solutions and Auleron 2005, LLC, New York Limited Liability
Companies, as of December 31, 2007 and 2006, and the related combined statements of operations and
accumulated deficit and members’ equity (deficit), and cash flows for the years then ended. These financial
statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audits to obtain reasonable assurance
about whether the financial statements are free of material misstatement. The Company has determined that it is
not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.
Our audits included consideration of internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such
opinion. An audit includes examining on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial
position of Crystal Magic, Inc., Mountain Capital, LLC d/b/a Arrow Media Solutions, and Auleron 2005, LLC,
as of December 31, 2007 and 2006 and the results of its operations and its cash flows for the years then ended,
in conformity with accounting principles generally accepted in the United States.
The accompanying financial statements have been prepared assuming that the Company will continue as a going
concern. As discussed in Note 11 to the financial statements, the Company has incurred losses from operations
and is in need of additional capital to grow its operations so that it can become profitable. These factors raise
substantial doubt about the Company’s ability to continue as a going concern. Management’s plans with regard
to these matters are described in Note 11. The accompanying financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
/s/ Maddox Ungar Silberstein, PLLC
Maddox Ungar Silberstein, PLLC
Bingham Farms, Michigan
February 29, 2008
F-10
Table of Contents
CRYSTAL MAGIC, INC.
MOUNTAIN CAPITAL, LLC d/b/a ARROW MEDIA SOLUTIONS
AULERON 2005, LLC
COMBINED BALANCE SHEETS
FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006
2007
ASSETS
Current Assets
Cash and Cash Equivalents
Accounts Receivable:
Trade, Net
Officers
Related Party
Inventories
Prepaid Expenses and Taxes
Deposits-Current
Investments
Total Current Assets
$
Property and Equipment, Net
Other Assets
Security Deposit
Deposits-Long Term
TOTAL ASSETS
360,053
2006
$
543,919
425,584
5,583
0
421,080
10,615
8,987
0
1,231,902
514,090
5,583
0
694,741
15,682
14,758
119,823
1,908,596
209,972
122,053
17,120
25,597
2,000
8,601
$
1,484,591
$
2,041,250
$
687,455
0
63,748
0
182,056
0
16,000
949,259
$
599,272
5,000
64,944
72,000
69,841
1,999,288
0
2,810,345
LIABILITIES AND OWNERS' DEFICIT
Current Liabilities
Accounts Payable:
Trade
Related Party
Accrued Expenses and Taxes
Deferred Revenue
Notes Payable-Current
Note Payable-Related Party
Lanai Investments Bridge Loan
Total Current Liabilities
Long Term Liabilities
Notes Payable
Total Liabilities
OWNERS' DEFICIT
Capital Stock
Paid in Capital
Accumulated Deficit
Members' Equity (Deficit)
Total Owners' Deficit
TOTAL LIABILITIES AND OWNERS' DEFICIT
$
912,845
895,082
1,862,104
3,705,427
10,000
132,576
(1,192,679)
672,590
(377,513)
10,000
132,576
(889,883)
(916,870)
(1,664,177)
1,484,591
The accompanying notes are an integral part of the financial statements.
F-11
$
2,041,250
Table of Contents
CRYSTAL MAGIC, INC.
MOUNTAIN CAPITAL, LLC d/b/a ARROW MEDIA SOLUTIONS
AULERON 2005, LLC
COMBINED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006
2007
Gross Revenues
$
5,831,184
2006
$
6,730,670
Cost of Goods Sold
2,013,548
2,475,908
Gross Profit
3,817,636
4,254,762
Operating Expenses
4,490,720
5,158,002
Operating (Loss)
(673,084)
(903,240)
2,960
76,290
Other Income and (Expense)
Net (Loss)
$
(670,124)
$
(826,950)
The accompanying notes are an integral part of the financial statements.
F-12
Table of Contents
CRYSTAL MAGIC, INC.
MOUNTAIN CAPITAL, LLC d/b/a ARROW MEDIA SOLUTIONS
AULERON 2005, LLC
COMBINED STATEMENT OF OWNERS’ EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006
Common Stock
Beginning Balance
January 1, 2006
Shares
Amount
Additional
Paid in
Capital
45,713
$ 10,000
$ 132,576
Net (Loss) for the Year
Ended
December 31, 2006
Accumulated
Deficit
Members'
Equity
(Deficit)
$ (669,988)
$ (421,532)
$ (948,944)
(219,895)
(607,055)
(826,950)
116,217
116,217
(4,500)
(4,500)
(889,883)
(916,870)
(1,664,177)
(302,796)
(367,328)
(670,124)
1,956,788
1,956,788
$ 672,590
$ (377,513)
Plus: Member
Contributions
Less: Member Distributions
Balance
December 31, 2006
45,713
10,000
132,576
Net (Loss) for the Year
Ended
December 31, 2007
Total
Plus: Member
Contributions
Balance
December 31, 2007
45,713
$ 10,000
$ 132,576
$ (1,192,679)
The accompanying notes are an integral part of the financial statements.
F-13
Table of Contents
CRYSTAL MAGIC, INC.
MOUNTAIN CAPITAL, LLC d/b/a ARROW MEDIA SOLUTIONS
AULERON 2005, LLC
COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006
2007
2006
Cash Flows from Operating Activities
Net (Loss) for the Period
$
(670,124)
$
(826,950)
Adjustments to Reconcile Net Loss to
Net Cash Used in Operating Activates
Depreciation Expense
Amortization
Changes in Assets and Liabilities
(Increase) Decrease in Accounts Receivable
Trade
Related Party
(Increase) Decrease in Prepaid Expenses and Taxes
(Increase) Decrease in Deposits
Decrease in Inventory
Increase in Accounts Payable
Trade
Related Party
Increase (Decrease) in Deferred Revenue
(Decrease) in Accrued Expenses and Taxes
Net Cash Provided By (Used In) Operating Activities
44,500
0
25,771
96,621
88,505
(8,887)
5,067
(26,345)
273,662
(45,017)
18,500
(15,682)
177,077
565,375
88,183
3,886
(72,000)
(1,196)
(274,749)
100,250
5,000
36,000
(54,398)
82,547
(132,418)
119,823
(12,595)
(69,716)
(92,323)
(162,039)
0
(42,500)
(20,022)
16,000
0
150,000
0
0
103,478
116,788
0
(108,096)
0
(25,869)
0
116,217
(4,500)
94,540
(183,866)
15,048
543,919
528,871
Cash Flows from Investing Activities
Purchases of Property and Equipment
(Increase) Decrease in Investments
Net Cash Used In Investing Activities
Cash Flows from Financing Activities
Notes Payable-Borrowing
Notes Payable-Repayments
Liberty National and 9/11 Disaster Loans
Increase in Bridge Loan
USF Deferred Rent
Loan Proceeds-Village of Lake Placid
Member Contributions
Member Distributions
Net Cash Provided by Financing Activities
Net Increase (Decrease) in Cash and Cash Equivalents
Cash and Cash Equivalent-Beginning Balance
Cash and Cash Equivalents-Ending Balance
$
360,053
The accompanying notes are an integral part of the financial statements.
F-14
$
543,919
Table of Contents
CRYSTAL MAGIC, INC.
MOUNTAIN CAPITAL, LLC, d/b/a ARROW MEDIA SOLUTIONS
AULERON 2005, LLC
NOTES TO THE COMBINED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Crystal Magic, Inc. (”CM”) was formed as a Florida Corporation on April 10, 1998, and is headquartered in
Orlando, Florida. Its primary business is to provide personalized subsurface etched photo crystal and subsurface
etched promotional products. CM is one of the largest subsurface etching companies in North America and
owns and operates retail kiosks and displays in theme parks (Disneyworld (3), Disneyland (3), and Universal
Orlando (2)). CM utilizes the distribution channel of more than 20,000 distributors that are members of the
Advertising Specialty Institute and/or the Promotional Products Association International organizations for its
custom awards and gift products.
Mountain Capital, LLC d/b/a Arrow Media Solutions (“Arrow”) is a New York State Limited Liability Company
which assembles and distributes free standing kiosks which produce pictures and related products and services
using various input media such as camera digital memory cards, CD’s etc. Arrow’s, management,
administrative, and service personnel are currently headquartered in Lake Placid, New York with its assembly,
warehouse and marketing operations in Brea, California.
Auleron 2005, LLC (“Auleron”) is a New York State Limited Liability Company which performs a variety of
technology services for customers throughout North America using independent subcontractors who are
coordinated and directed through its Project Management Organization in Lake Placid, NY. The company’s sole
office is in Lake Placid, NY.
Basis of Presentation
The combined financial statements include the accounts of CM, Arrow, and Auleron in order to present the
financial position and results of operations of these companies essentially as if the group had merged together
and were a single company with different branches or divisions. All significant intercompany accounts and
transactions have been eliminated in combination.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand and cash in banks.
Accounts Receivable
The Companies consider accounts receivable at December 31, 2007 to be fully collectible; accordingly, no
allowance for doubtful accounts is required. If amounts become uncollectible, the uncollectible amounts will be
charged against operations when that determination is made. For the years ended December 31, 2007 and 2006
the Companies recognized bad debt expense of $540 and $3,691 respectively.
Inventory
Inventory consists principally of kiosks, kiosk components, and engraved or engravable crystal and is stated at
the lower of cost or market using the FIFO (first in, first out) method.
F-15
Table of Contents
CRYSTAL MAGIC, INC.
MOUNTAIN CAPITAL, LLC, d/b/a ARROW MEDIA SOLUTIONS
AULERON 2005, LLC
NOTES TO THE COMBINED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Property & Equipment
Property and equipment are stated at cost less accumulated depreciation or amortization. Depreciation of property
and equipment are computed principally by the straight-line method based upon estimated lives of assets ranging
between five to seven years. Depreciation for the years ended December 31, 2007 and 2006 was $54,157 and
$31,436, respectively.
Upon retirement, sale, or other disposition of property and equipment, the costs and accumulated depreciation are
eliminated from the accounts, and any resulting gain or loss is included in results from operations.
Impairment of Long-Lived Assets
The Companies review their long-lived assets for impairment when events or changes in circumstances indicated
that the book value of an asset may not be recoverable. The Companies evaluate, at each balance sheet date,
whether events and circumstances have occurred which indicate possible impairment. The Companies use an
estimate of future undiscounted net cash flows of the related asset or group of assets over the estimated
remaining life in measuring whether the assets are recoverable. If it is determined that an impairment loss has
occurred based on expected cash flows, such loss is recognized in the statement of operations. In the fourth
quarter of 2006 Arrow analyzed its expected cash flows related to its installed software license, and determined
that the cash flows would not be sufficient to recover its investment in that assets, resulting in an impairment. The
total amount impaired was $96,621 and was recorded in operating expenses.
Financial Instruments
Financial instruments consist primarily of accounts receivable and obligations under accounts payable and
accrued expenses. The carrying amounts of accounts receivable, accounts payable, and accrued expenses
approximate fair value because of the short maturity of those instruments.
The Companies have applied certain assumptions in estimating these fair values. The use of different
assumptions or methodologies may have a material effect on the estimates of fair values.
Revenue and Cost Recognition
Revenue is recognized when a valid contract or purchase order has been executed or received, services have been
performed or product has been delivered, the selling price is fixed or determinable, and collectability is
reasonably assured.
Compensated Absences
Employees of the Companies are entitled to paid vacation depending upon lengths of service and other factors.
The amount of compensation for future vacations cannot be reasonably estimated. Accordingly, no liability has
been recorded in the accompanying financial statements. The Companies recognize compensated vacations when
actually paid to employees.
F-16
Table of Contents
CRYSTAL MAGIC, INC.
MOUNTAIN CAPITAL, LLC, d/b/a ARROW MEDIA SOLUTIONS
AULERON 2005, LLC
NOTES TO THE COMBINED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income Taxes
CM is an S Corporation for income tax purposes. Consequently, Federal income taxes are not payable by CM.
Stockholders are taxed individually on their shares of the Company's earnings. Accordingly, the financial
statements do not reflect a provision for income taxes related to CM.
Federal and State income taxes have not been provided in these financial statements since Arrow and Auleron are
taxed as partnerships for income tax purposes. The results of operations and credits, if any, are passed onto the
members of the respective Companies and are included on the tax returns of each member.
Loss Per Share
During the years ended December 31, 2007 and 2006, CM had no stock options or securities convertible into
any form of equity outstanding. Therefore, the calculation of Loss Per Share is equal to the number of common
shares outstanding during the respective fiscal years.
Also, during the years ended December 31, 2007 and 2006 there were no transactions that either reduced or
increased the total number of outstanding shares. Therefore, the weighted average number of shares used to
calculate Loss per Share equals the number of shares outstanding for the fiscal years presented.
Recently Issued Accounting Standards
In December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary Assets" (SFAS 153). This
Statement addresses the measurement of exchanges of nonmonetary assets and is effective for nonmonetary asset
exchanges occurring in fiscal years beginning after June 15, 2005. The adoption of SFAS 153 has not had a
material effect on the Company's financial position or results of operations.
In December 2004, FASB issued SFAS No. 123(R), "Share-Based Payment” (“SFAS 123(R)”). SFAS 123(R)
revises FASB Statement No. 123, "Accounting for Stock-Based Compensation,” and supersedes APB Opinion
No. 25, "Accounting for Stock Issued to Employees.” SFAS 123(R) focuses primarily on accounting for
transactions in which an entity obtains employee services in share-based payment transactions. SFAS 123(R)
requires companies to recognize in the statement of operations the cost of employee services received in exchange
for awards of equity instruments based on the grant-date fair value of such awards (with limited exceptions).
SFAS 123(R) is effective as of the first reporting period beginning after June 15, 2005. As of the balance sheet
date, the Company did not have an option plan or any share based compensation arrangements with employees.
However, should the Company adopt such a plan in the future it will adopt SFAS 123(R), as of the time the
option plan is adopted.
In March 2006, the FASB issued FASB Statement No. 156, “Accounting for Servicing of Financial Assets—an
amendment of FASB Statement No. 140” (“FASB Statement No. 156”). FASB No. 156 amends FASB
Statement No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities, with respect to the accounting for separately recognized servicing assets and servicing liabilities.
FASB No. 156 is effective for years beginning after September 15, 2006. The Company does not believe FASB
No. 156 will have a material effect on the Company’s financial statements.
F-17
Table of Contents
CRYSTAL MAGIC, INC.
MOUNTAIN CAPITAL, LLC, d/b/a ARROW MEDIA SOLUTIONS
AULERON 2005, LLC
NOTES TO THE COMBINED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Recently Issued Accounting Standards (continued)
In June 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes - an
interpretation of FASB Statement No. 109” (“FIN 48”), which clarifies the accounting for uncertainty in income
taxes recognized in an enterprise’s financial statements in accordance with SFAS No. 109, “Accounting for
Income Taxes.” FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48, which is
effective for fiscal years beginning after December 15, 2006, also provides guidance on recognition,
classification, interest and penalties, accounting in interim periods, disclosure, and transition. The Companies are
not aware of any uncertain tax positions at December 31, 2007.
In September 2006, the FASB issued Statement No. 157, “Fair Value Measurements” (“FASB No. 157”).
FASB No. 157 defines fair value, establishes a framework for measuring fair value in generally accepted
accounting principles (GAAP), and expands disclosures about fair value measurements. FASB No. 157 applies
under other accounting pronouncements that require or permit fair value measurements, the FASB having
previously concluded in those accounting pronouncements that fair value is the relevant measurement attribute.
Accordingly, this Statement does not require any new fair value measurements.
In September 2006, the SEC issued Staff Accounting Bulletin 108 (“SAB 108”), which expresses the Staff's
views regarding the process of quantifying financial statement misstatements. The bulletin was effective at fiscal
year-end 2006. The implementation of this bulletin had no impact on the results of operations, cash flows or
financial position of the Companies.
In October 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position (“FSP”)
Financial Accounting Standard (“FAS”) 123(R)-5, Amendment of FSP FAS 123(R)-1, (“FSP FAS 123(R)-5”)
to address whether a change to an equity instrument in connection with an equity restructuring should be
considered a modification for the purpose of applying FSP No. FAS 123(R)-1, Classification and Measurement
of Freestanding Financial Instruments Originally Issued in Exchange for Employee Services under FAS
Statement No 123(R) (“FSP FAS 123(R)-1”). FSP FAS 123(R)-1 states that financial instruments issued to
employees in exchange for past or future services are subject to the provisions of SFAS 123(R) unless the terms
of the award are modified when the holder is no longer an employee. In FSP FAS 123(R)-5, the FASB staff
concluded that changes to the terms of an award that are made solely due to an equity restructuring are not
considered modifications as described in FSP FAS 123(R)-1 unless the fair value of the award increases, antidilution provisions are added, or holders of the same class of equity instruments are treated unequally. FSP FAS
123(R)-5 is effective for the first reporting period beginning after October 10, 2006. The adoption of FSP FAS
123(R)-5 did not have a material impact on the results of operations, cash floes or financial position of the
Companies.
F-18
Table of Contents
CRYSTAL MAGIC, INC.
MOUNTAIN CAPITAL, LLC, d/b/a ARROW MEDIA SOLUTIONS
AULERON 2005, LLC
NOTES TO THE COMBINED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Recently Issued Accounting Standards (continued)
On February 15, 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and
Liabilities” (SFAS No. 159). Under this Standard, the Company may elect to report financial instruments and
certain other items at fair value on a contract-by-contract basis with changes in value reported in earnings. This
election is irrevocable. SFAS No. 159 provides an opportunity to mitigate volatility in reported earnings that is
caused by measuring hedged assets and liabilities that were previously required to use a different accounting
method than the related hedging contracts when the complex provisions of SFAS No. 133 are not met. SFAS
No. 159 is effective for years beginning after November 15, 2007. The Companies do not believe it will have an
impact on the combined financial statements.
In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations” (“SFAS 141R”). SFAS
141R amends SFAS 141 and provides guidance for recognizing and measuring identifiable assets and goodwill
acquired, liabilities assumed, and any non-controlling interest in the acquiree. It also provides disclosure
requirements to enable users of the financial statements to evaluate the nature and financial effects of the business
combination. SFAS 141R will be effective for fiscal years beginning on or after December 15, 2008 and will be
applied prospectively.
In December 2007, the FASB issued SFAS No. 160, “Non-Controlling Interests in Consolidated Financial
Statements—an amendment of ARB No. 51” (“SFAS 160”). SFAS 160 requires that ownership interests in
subsidiaries held by parties other than the parent, and the amount of consolidated net income, be clearly
identified, labelled and presented in the consolidated financial statements. It also requires once a subsidiary is
deconsolidated, any retained non-controlling equity investment in the former subsidiary be initially measured at
fair value. Sufficient disclosures are required to clearly identify and distinguish between the interests of the parent
and the interests of the non-controlling owners. SFAS 160 is effective for fiscal years beginning on or after
December 15, 2008 and requires retroactive adoption of the presentation and disclosure requirements for existing
minority interests. All other requirements shall be applied prospectively. The adoption of this statement is not
expected by the Companies to have a significant effect on future reported financial position or results of
operations.
The Companies do not expect the adoption of other recently issued accounting pronouncements to have a
significant impact on their results of operations, financial position or cash flow.
NOTE 2 - PROPERTY & EQUIPMENT
Property and equipment are summarized as follows:
December 31,
2007
Office Equipment
Laser Equipment
3D Scanning Equipment
Furniture, Fixtures and Equipment
Retail Fixtures
Less: Accumulated Depreciation
Property & Equipment, Net
$
167,844
709,693
42,820
79,157
22,147
(811,689)
209,972
$
F-19
Table of Contents
CRYSTAL MAGIC, INC.
MOUNTAIN CAPITAL, LLC, d/b/a ARROW MEDIA SOLUTIONS
AULERON 2005, LLC
NOTES TO THE COMBINED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006
NOTE 3 – RELATED PARTY TRANSACTIONS
On December 28, 2007, CM entered into a short term stockholder loan for bridge financing involved with taking
the company public. The interest rate of the loan is 6% per annum and the note is payable simultaneous with the
closing of any financing that exceeds five hundred thousand ($500,000) unless the shareholder consents to an
extension of the maturity date.
As of December 31, 2007 and 2006, Arrow had shared payroll, office expenses and rent with Auleron in the
amount of $168,952 and $97,623, respectively. Arrow also contracted services from Auleron in the amount of
$34,895 in 2007 and $43,785 in 2006.
NOTE 4 – SUPPLEMENTAL CASH FLOW INFORMATION
Interest expense paid on all indebtedness amounted to $58,566 and $58,700 for the years ending December 31,
2007 and 2006, respectively. Amounts paid for income taxes totalled $-0- for the years ending December 31,
2007 and 2006.
Non-cash financing transactions during 2006 consisted of the conversion of a note payable of $1,956,788 into
equity.
NOTE 5 – OPERATING LEASE AGREEMENTS
CM commenced leasing its corporate facility on January 1, 2005 for three years providing for two additional
three year options. The lease contains a provision for payment of additional rent for operating expenses up to a
maximum of $0.95 per square foot with annual cap increases of 10% per year on said additional rent.
On March 1, 2007, Arrow entered into a lease agreement to rent office and warehouse space in Brea, California.
The term is three years without any renewal options. The lease expense for 2007 was $31,350. The three year
commitment requires annual lease payments of $34,200, $35,232 and $36,288 and expires on February 28,
2010.
On October 15, 2004, Auleron entered into a lease agreement to rent office and warehouse space in Lake Placid,
NY. The initial term was for one and a half years and extended for an additional three year with no further
renewal options – commencing on November 15, 2004 and scheduled to expire on May 14, 2009. On October
1, 2005, Auleron entered into a lease agreement to rent office space in Lake Placid, NY. The initial term was for
two years and had an extension option for an additional two years – commencing on October 1, 2005, and
expiring on September 30, 2007. On January 5th, 2007, the Company sent a letter to the landlord informing of
their intentions to not extend the lease, and was released of its obligation by the landlord effective May 31, 2007.
The combined lease expense under these two leases for 2006 was $45,922; of which Auleron paid $16,698 and
Arrow paid $29,224. The combined lease expense under these two leases for 2007 was $45,084; of which
Auleron paid $11,221 and Arrow paid $33,863.
F-20
Table of Contents
CRYSTAL MAGIC, INC.
MOUNTAIN CAPITAL, LLC, d/b/a ARROW MEDIA SOLUTIONS
AULERON 2005, LLC
NOTES TO THE COMBINED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006
NOTE 5 – OPERATING LEASE AGREEMENTS (CONTINUED)
Minimum annual rents for the next five years are as follows:
Year Ending:
December 31, 2008
December 31, 2009
December 31, 2010
December 31, 2011
December 31, 2012
Amount:
$ 79,000
$ 71,376
$ 83,546
$ 48,954
$ 50,422
NOTE 6 – ACCRUED EXPENSES AND TAXES
Accrued expenses and taxes consisted of the following at December 31:
2007
Accrued expenses
Accrued payroll taxes
Accrued sales tax
Total
2006
$ 56,554
$ 62,774
552
347
6,642
1,823
$ 63,748
$ 64,944
NOTE 7 – LOANS PAYABLE
The table below summarizes the loans payable at December 31, 2007.
December 31, 2007
Current Long Term
CM - SBA - Orlando National Bank Note 94-1-S279 – This note is secured by all
inventories, accounts receivable, equipment. This note requires monthly interest and
principal payments with an interest rate of 6.75%. The note matures November 1, 2012
$51,136
$231,243
CM - SBA - Orlando National Bank Note 94-1-S308 – This note is secured by all
inventories, accounts receivable, equipment. This note requires monthly interest and
principal payments with an interest rate of 6.25%. The note matures May 1, 2010
$58,703
$84,185
CM - SBA - Orlando National Bank Note 94-1-S309 – This note is secured by all
inventories, accounts receivable, equipment. This note requires monthly interest and
principal payments with an interest rate of 6.25%. The note matures January 1, 2011
$35,677
$76,429
CM - Disaster Loan 5114784007 – This note is secured by all inventories, accounts
receivable, equipment. This note requires monthly interest and principal payments with
an interest rate of 4.09%. The note matures May 1, 2032
$16,488
$391,040
Auleron - Village of Lake Placid - Development loan awarded to the creating jobs in
Lake Placid, NY. The interest rate is fixed at 5% with a term of 5 years commencing on
June 1, 2007. Payments are interest only for the first 12 months ($625/mo), and the final
48 months based on an equal amortization schedule ($3,454/mo).
$20,052
$129,948
F-21
Table of Contents
CRYSTAL MAGIC, INC.
MOUNTAIN CAPITAL, LLC, d/b/a ARROW MEDIA SOLUTIONS
AULERON 2005, LLC
NOTES TO THE COMBINED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006
NOTE 7 – LOANS PAYABLE (CONTINUED)
Future principal payments under note payable obligations as of December 31, 2007 and for each of the remaining
years and in the aggregate are as follows:
Year Ending
December 31, 2008
2009
2010
2011
2012
Thereafter
Total
Amount
$
182,056
206,988
171,913
117,302
87,286
329,356
$ 1,094,901
At December 31, 2006, Arrow had a note payable to a member, James Graham, in the original principal amount
of $1,999,288. The note was non-interest bearing until January 1, 2008, and was secured via a UCC filing on the
Arrow’s assets. On December 31, 2007, the entire $1,956,788 unpaid balance of the note was converted into
member’s equity and the UCC filing was amended, releasing Arrow of its obligations under this loan.
NOTE 8 – CONVERSION OF DEBT TO MEMBERS’ EQUITY
As discussed in Note 7, on December 31, 2007, pursuant to the terms of an agreement, James Graham converted
$1,999,288 of loans into members’ contribution to equity in return for additional units of membership in Arrow.
NOTE 9 – OTHER INCOME AND (EXPENSE)
Other income and (expense) consisted of the following at December 31:
2007
Interest Income
Miscellaneous Income
Miscellaneous Expense
Total Other Income
2006
$ 9,173
21
(6,234)
$ 2,960
$
4,262
72,028
0
$ 76,290
NOTE 10 – COMMITMENTS AND CONTINGENCIES
The Companies may become or are subject to investigations, claims or lawsuits ensuing out of the conduct of
their business. The Companies do not believe they are presently involved in any investigations, claims or
lawsuits and therefore have not provided any contingencies for these items.
F-22
Table of Contents
CRYSTAL MAGIC, INC.
MOUNTAIN CAPITAL, LLC, d/b/a ARROW MEDIA SOLUTIONS
AULERON 2005, LLC
NOTES TO THE COMBINED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006
NOTE 11 – GOING CONCERN
The accompanying financial statements have been prepared assuming that the Companies will continue as a going
concern. The Companies have incurred losses and have not yet obtained the capital needed to achieve
management’s plans and support its operations and there is no assurance that the Companies will be able to raise
such financing. These factors raise substantial doubt about the Companies ability to continue as a going concern.
Management intends to raise additional capital and is seeking to implement other strategies to meet operational
goals and generate cash from operations to pay obligations and implement the business plan.
F-23
Table of Contents
Maddox Ungar Silberstein, PLLC CPAs and Business Advisors
Phone (248) 203-0080
Fax (248) 281-0940
30600 Telegraph Road, Suite 2175
Bingham Farms, MI 48025-4586
www.maddoxungar.com
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ON COMBINING INFORMATION
To the Board of Directors
Crystal Magic, Inc.
Mountain Capital, LLC
Auleron 2005, LLC
Orlando, FL
Lake Placid, NY
Our report on the audits of the combined financial statements of Crystal Magic, Inc., Mountain Capital, LLC
d/b/a Arrow Media Solutions, and Auleron 2005, LLC for 2007 and 2006 appears on page 1. Those audits were
made for the purpose of forming an opinion on the combined financial statements taken as a whole. The
combining information in Schedules I, II, III, and IV is presented for purposes of additional analysis of the
combined financial statements rather than to present the financial position, results of operations, and cash flows
of the individual companies. Such information has been subjected to the auditing procedures applied in the audits
of the combined financial statements and, in our opinion, is fairly stated in all material respects in relation to the
combined financial statements taken as a whole.
/s/ Maddox Ungar Silberstein, PLLC
Maddox Ungar Silberstein, PLLC
Bingham Farms, Michigan
February 29, 2008
F-24
Table of Contents
CRYSTAL MAGIC, INC.
MOUNTAIN CAPITAL, LLC, d/b/a ARROW MEDIA SOLUTIONS
AULERON 2005, LLC
COMBINING BALANCE SHEET
FOR THE YEAR ENDED DECEMBER 31, 2007
Mountain
Capital,
LLC
Auleron
2005, LLC
10,850
$ 151,716
$ 197,487
97,844
0
0
183,418
8,542
8,987
309,641
272,311
575
0
237,662
2,073
0
664,337
55,429
5,008
8,887
0
0
0
266,811
157,614
35,836
16,522
209,972
0
25,597
15,120
0
2,000
0
17,120
25,597
$ 492,852
$ 715,293
$ 285,333
$ 1,484,591
$ 525,263
0
56,791
162,104
16,000
760,158
$ 86,227
8,887
6,009
0
0
101,123
$ 75,965
0
948
0
0
76,913
782,797
0
150,000
932,797
Capital Stock
Paid in Capital
Accumulated Deficit
Members' Equity
10,000
132,576
(1,192,679)
0
0
0
0
614,170
0
0
0
58,420
10,000
132,576
(1,192,679)
672,590
TOTAL LIABILITIES AND
EQUITY (DEFICIT)
$ 492,852
$ 715,293
$ 285,333
$ 1,484,591
Crystal
Magic, Inc.
Eliminations
Combined
ASSETS
Current Assets
Cash and Cash Equivalents
Accounts Receivable:
Trade, Net
Officers
Related Party
Inventories
Prepaid Expenses and Taxes
Deposits-Current
Total Current Assets
Property and Equipment, Net
Other Assets
Security Deposit
Deposits-Long Term
TOTAL ASSETS
$
(8,887)
$ 360,053
0
425,584
5,583
0
421,080
10,615
8,987
1,231,902
LIABILITIES AND EQUITY
(DEFICIT)
Current Liabilities
Accounts Payable:
Trade
Related Party
Accrued Expenses and Taxes
Notes Payable-Current
Lanai Investments Bridge Loan
Total Current Liabilities
(8,887)
$ 687,455
0
63,748
162,104
16,000
929,307
Long Term Liabilities
Notes Payable
Total Liabilities
EQUITY (DEFICIT)
F-25
Table of Contents
CRYSTAL MAGIC, INC.
MOUNTAIN CAPITAL, LLC, d/b/a ARROW MEDIA SOLUTIONS
AULERON 2005, LLC
COMBINING BALANCE SHEETFOR THE YEAR ENDED DECEMBER 31, 2006
Crystal
Magic, Inc.
ASSETS
Current Assets
Cash and Cash Equivalents
Accounts Receivable:
Trade, Net
Officers
Inventories
Prepaid Expenses and Taxes
Deposits-Current
Investments
Total Current Assets
Property and Equipment, Net
Other Assets
Security Deposit
Deposits-Long Term
TOTAL ASSETS
Mountain
Capital,
LLC
Auleron
2005, LLC
Eliminations
Combined
$ 118,824
$ 322,442
$ 102,653
181,198
0
171,720
15,014
14,758
119,823
621,337
216,455
575
523,021
0
0
0
1,062,493
116,437
5,008
0
668
0
0
224,766
$ 543,919
0
514,090
5,583
694,741
15,682
14,758
119,823
1,908,596
71,435
30,262
20,356
122,053
0
8,601
0
0
2,000
0
2,000
8,601
$ 701,373
$ 1,092,755
$ 247,122
$ 2,041,250
$ 420,646
0
63,111
0
69,841
0
553,598
$
83,832
5,000
0
0
0
1,999,288
2,088,120
$ 94,794
0
1,833
72,000
0
0
168,627
$ 599,272
5,000
64,944
72,000
69,841
1,999,288
2,810,345
895,082
0
0
895,082
10,000
132,576
(889,883)
0
0
0
0
(995,365)
0
0
0
78,495
10,000
132,576
(889,883)
(916,870)
$ 701,373
$ 1,092,755
$ 247,122
$ 2,041,250
LIABILITIES AND EQUITY
(DEFICIT)
Current Liabilities
Accounts Payable:
Trade
Related Party
Accrued Expenses and Taxes
Deferred Revenue
Notes Payable-Current
Note Payable-Related Party
Total Current Liabilities
Long Term Liabilities
Notes Payable
Total Liabilities
EQUITY (DEFICIT)
Capital Stock
Paid in Capital
Accumulated (Deficit)
Members' Equity (Deficit)
TOTAL LIABILITIES AND
EQUITY (DEFICIT)
F-26
Table of Contents
CRYSTAL MAGIC, INC.
MOUNTAIN CAPITAL, LLC, d/b/a ARROW MEDIA SOLUTIONS
AULERON 2005, LLC
COMBINING SCHEDULE OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2007
Crystal
Magic, Inc.
Gross Revenues
Mountain
Capital, LLC
Auleron
2005, LLC
Eliminations
$ 4,129,130
$ 1,403,305
$ 502,596
761,432
937,603
314,513
2,013,548
Gross Profit
3,367,698
465,702
188,083
3,817,636
Operating Expenses
3,676,338
806,736
211,493
Operating Income (Loss)
(308,640)
(341,034)
(23,410)
(673,084)
Other Income (Expense)
5,844
(6,219)
3,335
2,960
(347,253)
$ (20,075)
$ (670,124)
Cost of Goods Sold
Net Income (Loss)
$ (302,796)
$
F-27
$ (203,847)
Combined
(203,847)
$ 5,831,184
4,490,720
Table of Contents
CRYSTAL MAGIC, INC.
MOUNTAIN CAPITAL, LLC, d/b/a ARROW MEDIA SOLUTIONS
AULERON 2005, LLC
COMBINING SCHEDULE OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2006
Crystal
Magic, Inc.
Gross Revenues
Mountain
Capital, LLC
Auleron
2005, LLC
Eliminations
$ 4,517,411
$ 1,539,178
$ 815,489
754,045
1,258,956
462,907
2,475,908
Gross Profit
3,763,366
280,222
352,582
4,254,762
Operating Expenses
3,987,523
840,237
471,650
Operating Income (Loss)
(224,157)
(560,015)
(119,068)
(903,240)
Other Income (Expense)
4,262
57,611
14,417
76,290
$ (219,895)
$ (502,404)
$ (104,651)
$ (826,950)
Cost of Goods Sold
Net Income (Loss)
F-28
$ (141,408)
Combined
(141,408)
$ 6,730,670
5,158,002
Table of Contents
Part II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13
Other Expenses of Issuance and Distribution
We will pay all expenses in connection with the registration and sale of the common stock by the selling stockholders.
The estimated expenses of issuance and distribution are set forth below:
Registration fees
$
99.63
Legal fees
$
30,000
Accounting fees
$
10,000
Miscellaneous
$
900.37
Total estimated costs of offering
$
41,000
Item 14. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law provides that a director or officer is not individually
liable to the corporation or its stockholders or creditors for any damages as a result of any act or failure to act in his
capacity as a director or officer unless it is proven that (1) his act or failure to act constituted a breach of his fiduciary
duties as a director or officer and (2) his breach of those duties involved intentional misconduct, fraud or a knowing
violation of law.
This provision is intended to afford directors and officers protection against and to limit their potential
liability for monetary damages resulting from suits alleging a breach of the duty of care by a director or officer. As a
consequence of this provision, stockholders of our company will be unable to recover monetary damages against
directors or officers for action taken by them that may constitute negligence or gross negligence in performance of
their duties unless such conduct falls within one of the foregoing exceptions. The provision, however, does not alter
the applicable standards governing a director’s or officer’s fiduciary duty and does not eliminate or limit the right of
our company or any stockholder to obtain an injunction or any other type of non-monetary relief in the event of a
breach of fiduciary duty.
Item 15. Recent Sales of Unregistered Securities
In March 2008, we issued 100,000 shares to The Guild for advertising and marketing work performed on
our behalf. This offering and sale of shares of our common stock qualified for exemption under Section 4(2) of the
Securities Act of 1933 since the issuance by us did not involve a public offering. The offering was not a public
offering as defined in Section 4(2) because the offer and sale was made to only one entity and because of the manner
of the offering. In addition, the investor had the necessary investment intent as required by Section 4(2) since it
agreed to, and received, share certificates bearing a legend stating that such shares are restricted. This restriction
ensured that these shares will not be immediately redistributed into the market and therefore be part of a public
offering. This offering was done with no general solicitation or advertising by the Registrant. Based on an analysis of
the above factors, the Registrant has met the requirements to qualify for exemption under Section 4(2) of the
Securities Act of 1933 for this transaction.
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In March 2008, we issued $22,780 in convertible promissory notes to 43 noteholders. These promissory
notes converted by their terms upon the merger of our company with Crystal Magic, Inc., Mountain Capital, LLC and
Auleron 2005, LLC into 2,278,000 shares of our common stock. The offering and sale of the promissory notes and
the shares of common stock qualified for exemption under Section 4(2) of the Securities Act of 1933 since the
issuance by us did not involve a public offering. The offering was not a public offering as defined in Section 4(2)
because the offer and sale was made to an insubstantial number of persons and because of the manner of the offering.
In addition, the investors had the necessary investment intent as required by Section 4(2) since they agreed to, and
received, share certificates bearing a legend stating that such shares are restricted. This restriction ensured that these
shares will not be immediately redistributed into the market and therefore be part of a public offering. This offering
was done with no general solicitation or advertising by the Registrant. Based on an analysis of the above factors, the
Registrant has met the requirements to qualify for exemption under Section 4(2) of the Securities Act of 1933 for this
transaction.
On April 10, 2008, we issued 7,608,602 shares of our common stock to nine individuals in exchange for
securities upon the mergers of Crystal Magic, Inc., Mountain Capital, LLC and Auleron 20005, LLC with us. This
offering and sale of shares of our common stock qualified for exemption under Section 4(2) of the Securities Act of
1933 since the issuance by us did not involve a public offering. The offering was not a public offering as defined in
Section 4(2) because the offer and sale was made to an insubstantial number of persons and because of the manner of
the offering. In addition, the investors had the necessary investment intent as required by Section 4(2) since they
agreed to, and received, share certificates bearing a legend stating that such shares are restricted. This restriction
ensured that these shares will not be immediately redistributed into the market and therefore be part of a public
offering. This offering was done with no general solicitation or advertising by the Registrant. Based on an analysis of
the above factors, the Registrant has met the requirements to qualify for exemption under Section 4(2) of the
Securities Act of 1933 for this transaction.
Item 16. Exhibits
3.1
Certificate of Incorporation
3.2
Certificate of Amendment to Certificate of Incorporation
3.3
By-Laws
4.1
2008 Stock Option Plan
5.1
Opinion of Lehman & Eilen LLP Re: Legality of Shares
10.1
Patent License Agreement between Crystal Magic, Inc. and Laser Design International, LLC dated May 6,
2007
10.2
Revocable License Agreement between Crystal Magic, Inc. and Disneyland Resort dated November 18, 2002
10.3
First Amended to Revocable License Agreement between Crystal Magic, Inc, and Disneyland Resort dated
November 10, 2005
10.4
Concession Agreement between Crystal Magic, Inc. and Walt Disney World Co. dated December 7, 1999
10.5
Amended and Restated Concession Agreement between Crystal Magic, Inc. and Walt Disney World Co., and
Walt Disney World Hospitality and Recreation Corporation dated March 26, 2002
10.6
Amendment No. 2 to Amended and Restated Concession Agreement between Crystal Magic, Inc., Walt
Disney World Co. and Walt Disney World Hospitality and Recreation corporation dated March 31, 2006
10.7
Letter Agreement between Crystal Magic, Inc. and Universal City Development Partners, L.P. dated August
17, 2000
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10.8
Amendment Number One to License Agreement between Crystal Magic, Inc. and Universal City
Development dated January 1, 2001
10.9
Marketing Representative Agreement between Mountain Capital, LLC and AmerisourceBergen
Corporation dated July 7, 2006
10.10
Consulting Agreement between Mountain Capital, LLC and Shutterfly, Inc. dated November 1, 2007
10.11
Crystal Magic, Inc. SBA Disaster Loan Control No. 9TFL-00512 dated December 19, 2001
10.12
Crystal Magic, Inc. SBA Loan No. PLP 399-356-4007 dated October 5, 2000
10.13
Crystal Magic, Inc. SBA Loan No. PLP 399-236-4004 dated October 4, 2000
10.14
Crystal Magic, Inc. SBA Loan No. PLP 309-109-4009 dated July 29, 1999
10.15
Operating Agreement between Crystal Magic, Inc. and Cashman Enterprises, Inc dated September 7, 2001.
10.16
Subsurface Etching and Servicing Agreement between Crystal Magic, Inc. and Laser Crystal Works, L.P.
dated August 1, 2003
10.17
Subsurface etching and Servicing Agreement between Crystal Magic, Inc. and Laser Crystal Works, L.P.
dated April 26, 2003
10.18
Retail Product License Agreement between Crystal Magic, Inc. and NBA Properties, Inc. dated October
23, 2007
10.19
Note Modification Agreement between Crystal Magic, Inc. and Liberty National Bank dated May 12, 2004.
10.20
Employment agreement between the Registrant and John Wolf
10.21
Employment agreement between the Registrant and Jim Wallace
10.22
Employment agreement between the Registrant and Paul Scapatici
10.23
Employment agreement between the Registrant and Lane Folliott
10.24
Employment agreement between the Registrant and Edward L. Bernstein
10.25
Employment agreement between the Registrant and Steven Rhodes
23.1
Consent of Maddox Ungar Silberstein, PLLC
23.2
Consent of Lehman & Eilen LLP (included in Exhibit 5.1 opinion)
Item 17. Undertakings
The undersigned registrant hereby undertakes that it will:
(1)
File, during any period in which it offers or sells securities, a post- effective amendment to this registration
statement to:
(i)
Include any prospectus required by section 10(a)(3) of the Securities Act;
(ii)
Reflect in the prospectus any facts or events which, individually or together, represent a fundamental
change in the information in the registration statement. Notwithstanding the foregoing, any increase
or decrease in volume of securities offered (if the total dollar value of
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securities offered would not exceed that which was registered) and any deviation from the low or
high end of the estimated maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) (§ 230.424(b) of this chapter) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the maximum aggregate
offering price set forth in the ‘‘Calculation of Registration Fee’’ table in the effective registration
statement; and
(iii)
Include any additional or changed material information on the plan of distribution.
(2)
For determining liability under the Securities Act, treat each post-effective amendment as a new registration
statement of the securities offered, and the offering of the securities at that time to be the initial bona fide
offering.
(3)
File a post-effective amendment to remove from registration any of the securities that remain unsold at the end
of the offering.
Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the ‘‘Act’’) may be permitted to
directors, officers and controlling persons of the small business issuer pursuant to the foregoing provisions, or
otherwise, the small business issuer has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.
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SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable
grounds to believe that it meets all of the requirements of filing on Form S-1 and authorized this registration statement
to be signed on its behalf by the undersigned, in Greenbrae, CA on May 12, 2008.
PROPELL CORPORATION
By:
/s/ Edward L. Bernstein
Edward L. Bernstein
Chief Executive Officer
(principal executive officer)
By:
/s/ Steven M. Rhodes
Steven M. Rhodes
Chief Financial Officer
(principal financial and accounting officer)
In accordance with the requirements of the Securities Act of 1933, this registration statement has been signed by the
following persons in the capacities and on the dates indicated.
Date:
May 12, 2008
By:
/s/ Edward L. Bernstein
Edward L. Bernstein
Director and Chief Executive Officer
(principal executive officer)
Date:
May 12, 2008
By:
/s/ Steven M. Rhodes
Steven M. Rhodes
Director and Chief Financial Officer
(principal financial and accounting officer)
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EXHIBIT INDEX
3.1
Certificate of Incorporation
3.2
Certificate of Amendment to Certificate of Incorporation
3.3
By-Laws
4.1
2008 Stock Option Plan
5.1
Opinion of Lehman & Eilen LLP Re: Legality of Shares
10.1
Patent License Agreement between Crystal Magic, Inc. and Laser Design International, LLC dated May 6, 2007
10.2
Revocable License Agreement between Crystal Magic, Inc. and Disneyland Resort dated November 18, 2002
10.3
First Amended to Revocable License Agreement between Crystal Magic, Inc, and Disneyland Resort dated
November 10, 2005
10.4
Concession Agreement between Crystal Magic, Inc. and Walt Disney World Co. dated December 7, 1999
10.5
Amended and Restated Concession Agreement between Crystal Magic, Inc. and Walt Disney World Co., and
Walt Disney World Hospitality and Recreation Corporation dated March 26, 2002
10.6
Amendment No. 2 to Amended and Restated Concession Agreement between Crystal Magic, Inc., Walt Disney
World Co. and Walt Disney World Hospitality and Recreation corporation dated March 31, 2006
10.7
Letter Agreement between Crystal Magic, Inc. and Universal City Development Partners, L.P. dated
August 17, 2000
10.8
Amendment Number One to License Agreement between Crystal Magic, Inc. and Universal City Development
dated January 1, 2001
10.9
Marketing Representative Agreement between Mountain Capital, LLC and AmerisourceBergen Corporation
dated July 7, 2006
10.10 Consulting Agreement between Mountain Capital, LLC and Shutterfly, Inc. dated November 1, 2007
10.11 Crystal Magic, Inc. SBA Disaster Loan Control No. 9TFL-00512 dated December 19, 2001
10.12 Crystal Magic, Inc. SBA Loan No. PLP 399-356-4007 dated October 5, 2000
10.13 Crystal Magic, Inc. SBA Loan No. PLP 399-236-4004 dated October 4, 2000
10.14 Crystal Magic, Inc. SBA Loan No. PLP 309-109-4009 dated July 29, 1999
10.15 Operating Agreement between Crystal Magic, Inc. and Cashman Enterprises, Inc dated September 7, 2001.
10.16 Subsurface Etching and Servicing Agreement between Crystal Magic, Inc. and Laser Crystal Works, L.P. dated
August 1, 2003
10.17 Subsurface etching and Servicing Agreement between Crystal Magic, Inc. and Laser Crystal Works, L.P. dated
April 26, 2003
10.18 Retail Product License Agreement between Crystal Magic, Inc. and NBA Properties, Inc. dated
October 23, 2007
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10.19 Note Modification Agreement between Crystal Magic, Inc. and Liberty National Bank dated May 12, 2004.
10.20 Employment agreement between the Registrant and John Wolf
10.21 Employment agreement between the Registrant and Jim Wallace
10.22 Employment agreement between the Registrant and Paul Scapatici
10.23 Employment agreement between the Registrant and Lane Folliott
10.24 Employment agreement between the Registrant and Edward L. Bernstein
10.25 Employment agreement between the Registrant and Steven Rhodes
23.1
Consent of Maddox Ungar Silberstein, PLLC
23.2
Consent of Lehman & Eilen LLP (included in Exhibit 5.1 opinion)
II-7
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
CA PHOTO ACQUISITION CORP.
FIRST: The name of the corporation is: CA Photo Acquisition Corp.
SECOND: The address of its registered office in the State of Delaware is to be located at The Corporation
Trust Center, 1209 Orange Street, in the City of Wilmington, County of New Castle. The name of its registered agent
at such address is The Corporation Trust Company.
THIRD: The purpose of the corporation is to engage in any lawful act or activity for which corporations
may be organized under the General Corporation Law of Delaware.
FOURTH: The total number of shares of stock which the corporation shall have authority to issue is
SEVENTY FIVE MILLION (75,000,000) shares of Common Stock, par value $.001 per share (the “Common
Stock”) and TEN MILLION (10,000,000) shares of Preferred Stock, par value $.001 per share (the “Preferred
Stock”).
The Preferred Stock of the corporation shall be issued by the Board of Directors of the corporation in one or
more classes or one or more series within any class and such classes or series shall have such voting powers, full or
limited, or no voting powers, and such designations, preferences, limitations or restrictions as the Board of Directors
of the corporation may determine, from time to time.
The holders of the Common Stock are entitled to one vote for each share held at all meetings of stockholders
(and written actions in lieu of meetings). There shall be no cumulative voting.
Shares of Common Stock and Preferred Stock may be issued from time to time as the Board of Directors
shall determine and on such terms and for such consideration as shall be fixed by the Board of Directors.
FIFTH: The name and mailing address of the sole incorporator is as follows:
NAME
MAILING ADDRESS
Hank Gracin
Lehman & Eilen LLP
Mission Bay Office Plaza
Suite 300
20283 State Road 7
Boca Raton, Florida 33498
SIXTH: In furtherance and not in limitation of the powers conferred by statute, the Board of Directors is
expressly authorized to make, alter or repeal the By-laws of the corporation.
SEVENTH: Meetings of stockholders may be held within or without the State of Delaware, as the By-laws
may provide. The books of the corporation may be kept (subject to any provisions contained in the statutes) outside
the State of Delaware at such place or places as may be designated from time to time by the Board of Directors or in
the By-laws of the corporation. Elections of directors need not be by written ballot unless the By-laws of the
corporation shall so provide.
EIGHTH: Whenever a compromise or arrangement is proposed between this corporation and its creditors or
any class of them and/or between this corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary way of this corporation or of any
creditor or stockholder thereof or on the application of any receiver or receivers appointed for this corporation under
the provisions of Section 291 of Title 8 of the Delaware General Corporation Law or on the application of trustees in
dissolution or of any receiver or receivers appointed for this corporation under the provisions of Section 279 of Title
8 of the Delaware General Corporation Law order a meeting of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of this corporation, as the case may be, to be summoned in such manner as the
said court directs. If a majority in number representing three-fourths in value of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of this corporation, as the case may be, agree to any compromise
or arrangement and to any reorganization of this corporation as a consequence of such compromise or arrangement,
the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said
application has been made, be binding on all the creditors or class of creditors, and/or on all the stockholders or class
of stockholders, of this corporation, as the case may be, and also on this corporation.
NINTH: The corporation reserves the right to amend, alter, change or repeal any provision contained in this
certificate of incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.
TENTH: The corporation shall to the fullest extent permitted by Section 145 of the Delaware General
Corporation Law, as the same may be amended or supplemented, or by any successor thereto, indemnify and
reimburse any and all persons whom it shall have the power to indemnify under said Section from and against any
and all of the expenses, liabilities or other matters referred to in, or covered by said Section. Notwithstanding the
foregoing, the indemnification provided for in this Article TENTH shall not be deemed exclusive of any other rights
to which those entitled to receive indemnification or reimbursement hereunder may be entitled under any By-law of
the corporation, agreement, vote of stockholders or disinterested directors or otherwise.
2
ELEVENTH: No director of this corporation shall be personally liable to the corporation or any of its
stockholders for monetary damages for breach of a fiduciary duty as a director, except for liability (i) for any breach
of a director's duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General
Corporation Law as the same exists or hereafter may be amended or (iv) for any transaction from which the director
derived an improper benefit. If the Delaware General Corporation Law hereafter is amended to authorize the further
elimination or limitation of the liability of directors, then liability of a director of the corporation, in addition to
limitation on personal liability provided herein, shall be limited to the fullest extent permitted by the amended
Delaware General Corporation Law. Any repeal or modification of this paragraph by the stockholders of the
corporation shall be prospective only, and shall not adversely affect any limitation on the personal liability of directors
of the corporation existing at the time of such repeal or modification.
IN WITNESS WHEREOF, I, the undersigned, being the incorporator hereinbefore named, hereby declare
and certify the facts herein stated are true, and accordingly have hereunto set my hand this 29th day of January, 2008.
/s/Hank Gracin
Hank Gracin
Sole Incorporator
3
EXHIBIT 3.2
CERTIFICATE OF AMENDMENT
TO
CERTIFICATE OF INCORPORATION
OF
CA PHOTO ACQUISITION CORP.
CA Photo Acquisition Corp., a corporation organized and existing under and by virtue of the General
Corporation Law of the State of Delaware DOES HEREBY CERTIFY:
with:
FIRST: That the Certificate of Incorporation is herby amended by replacing ARTICLE FIRST in its entirety
“FIRST: The name of the corporation is Propell Corporation.”
SECOND: That the foregoing amendment was duly adopted in accordance with the provisions of Section
228 and 242 of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, said the Corporation has caused this certificate to be signed by Edward L.
Bernstein, its President, and attested to by Steven M. Rhodes, its Secretary, this 10th day of March, 2008.
CA PHOTO ACQUISITION CORP.
ATTEST:
By: /s/ Steven M. Rhodes
Name: Steven M. Rhodes
Title: Secretary
By: /s/ Edward L. Bernstein
Name: Edward L. Bernstein
Title: President
EXHIBIT 3.3
BY-LAWS
OF
CA PHOTO ACQUISITION CORP.
ARTICLE I
STOCKHOLDERS
Section 1.1 Annual Meetings. An annual meeting of stockholders shall be held for the election of Directors
at such date, time and place either within or without the State of Delaware as may be designated by the Board of
Directors from time to time. Any other proper business may be transacted at the annual meeting.
Section 1.2 Special Meetings. Special meetings of stockholders may be called at any time by the Chairman
of the Board, if any, the Vice Chairman of the Board, if any, or the President to be held at such date, time and place
either within or without the State of Delaware as may be stated in the notice of the meeting. A special meeting of
stockholders shall be called by the Secretary upon the written request, stating the purpose of the meeting, of
stockholders who together own of record a majority of the outstanding shares of each class of stock entitled to vote at
such meeting.
Section 1.3 Notice of Meetings. Whenever stockholders are required or permitted to take any action at a
meeting, a written notice of the meeting shall be given which shall state the place, date and hour of the meeting, and,
in the case of a special meeting, the purpose or purposes for which the meeting is called. Unless otherwise provided
by law, the written notice of any meeting shall be given not less than ten nor more than sixty days before the date of
the meeting to each stockholder entitled to vote at such meeting. If mailed, such notice shall be deemed to be given
when deposited in the United States mail, postage prepaid, directed to the stockholder at such stockholder's address as
it appears on the records of the Corporation.
Section 1.4 Adjournments. Any meeting of stockholders, annual or special, may adjourn from time to time
to reconvene at the same or some other place, and notice need not be given of any such adjourned meeting if the time
and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting the
Corporation may transact any business which might have been transacted at the original meeting. If the adjournment
is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice
of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting.
Section 1.5 Quorum. At each meeting of stockholders, except where otherwise provided by law or the
certificate of incorporation or these by-laws, the holders of a majority of the outstanding shares of each class of stock
entitled to vote at the meeting, present in person or represented by proxy, shall constitute a quorum. For purposes of
the foregoing, two or more classes or series of stock shall be considered a single class if the holders thereof are
entitled to vote together as a single class at the meeting. In the absence of a quorum the stockholders so present may,
by majority vote, adjourn the meeting from time to time in the manner provided by Section 1.4 of these by-laws until
a quorum shall attend. Shares of its own capital stock belonging on the record date for the meeting to the Corporation
or to another corporation, if a majority of the shares entitled to vote in the election of directors of such other
corporation is held, directly or indirectly, by the Corporation, shall neither be entitled to vote nor be counted for
quorum purposes; provided, however, that the foregoing shall not limit the right of the Corporation to vote stock,
including but not limited to its own stock, held by it in a fiduciary capacity.
Section 1.6 Organization. Meetings of stockholders shall be presided over by the Chairman of the Board, if
any, or in the absence of the Chairman of the Board by the Vice Chairman of the Board, if any, or in the absence of
the Vice Chairman of the Board by the President, or in the absence of the President by a Vice President, or in the
absence of the foregoing persons by a chairman designated by the Board of Directors, or in the absence of such
designation by a chairman chosen at the meeting. The Secretary, or in the absence of the Secretary an Assistant
Secretary, shall act as secretary of the meeting, but in the absence of the Secretary and any Assistant Secretary the
chairman of the meeting may appoint any person to act as secretary of the meeting.
Section 1.7 Voting; Proxies. Unless otherwise provided in the certificate of incorporation, each stockholder
entitled to vote at any meeting of stockholders shall be entitled to one vote for each share of stock held by such
stockholder which has voting power upon the matter in question. If the certificate of incorporation provides for more
or less than one vote for any share on any matter, every reference in these by-laws to a majority or other proportion of
stock shall refer to such majority or other proportion of the votes of such stock. Each stockholder entitled to vote at a
meeting of stockholders or to express consent or dissent to corporate action in writing without a meeting may
authorize another person or persons to act for such stockholder by proxy, but no such proxy shall be voted or acted
upon after three years from its date, unless the proxy provides for a longer period. A duly executed proxy shall be
irrevocable if it states that it is irrevocable and if, and only as long as, it is coupled with an interest sufficient in law to
support an irrevocable power. A stockholder may revoke any proxy which is not irrevocable by attending the meeting
and voting in person or by filing an instrument in writing revoking the proxy or another duly executed proxy bearing
a later date with the Secretary of the Corporation. Voting at meetings of stockholders need not be by written ballot
and need not be conducted by inspectors unless the holders of a majority of the outstanding shares of all classes of
stock entitled to vote thereon present in person or by proxy at such meeting shall so determine. At all meetings of
stockholders for the election of directors a plurality of the votes cast shall be sufficient to elect. With respect to other
matters, unless otherwise provided by law or by the certificate of incorporation or these by-laws, the affirmative vote
of the holders of a majority of the shares of all classes of stock present in person or represented by proxy at the
meeting and entitled to vote on the subject matter shall be the act of the stockholders, provided that (except as
otherwise required by law or by the certificate of incorporation) the Board of Directors may require a larger vote upon
any such matter. Where a separate vote by class is required, the affirmative vote of the holders of a majority of the
shares of each class present in person or represented by proxy at the meeting shall be the act of such class, except as
otherwise provided by law or by the certificate of incorporation or these by-laws.
Section 1.8 Fixing Date for Determination of Stockholders of Record. In order that the Corporation may
determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof,
or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend
or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion
or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a
record date, which shall not be more than sixty nor less than ten days before the date of such meeting, nor more than
sixty days prior to any other action. If no record date is fixed: (1) the record date for determining stockholders entitled
to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day
on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which
the meeting is held; (2) the record date for determining stockholders entitled to express consent to corporate action in
writing without a meeting, when no prior action by the Board is necessary, shall be the day on which the first written
consent is expressed; and (3) the record date for determining stockholders for any other purpose shall be at the close
of business on the day on which the Board adopts the resolution relating thereto. A determination of stockholders of
record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board may fix a new record date for the adjourned meeting.
Section 1.9 List of Stockholders Entitled to Vote. The Secretary shall prepare and make, at least ten days
before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of
each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the
meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within
the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of
the meeting during the whole time thereof and may be inspected by any stockholder who is present.
-2-
Section 1.10 Consent of Stockholders in Lieu of Meeting. Any action required by law to be taken at any
annual or special meeting of stockholders of the Corporation, or any action which may be taken at any annual or
special meeting of such stockholders, may be taken without a meeting, without prior notice and without a vote, if a
consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not
less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which
all shares entitled to vote thereon were present and voted. Prompt notice of the taking of the corporate action without a
meeting by less than unanimous written consent shall be given to those stockholders who have not consented in
writing.
ARTICLE II
BOARD OF DIRECTORS
Section 2.1 Powers; Number; Qualifications. The business and affairs of the Corporation shall be managed
by or under the direction of the Board of Directors, except as may be otherwise provided by law or in the certificate
of incorporation. The Board shall consist of one or more members, the number thereof to be determined from time to
time by the Board. Directors need not be stockholders.
Section 2.2 Election; Term of Office; Resignation; Removal; Vacancies. Each director shall hold office until
the annual meeting of stockholders next succeeding his or her election and until his or her successor is elected and
qualified or until his or her earlier resignation or removal. Any director may resign at any time upon written notice to
the Board of Directors or to the President or the Secretary of the Corporation. Such resignation shall take effect at the
time specified therein, and unless otherwise specified therein no acceptance of such resignation shall be necessary to
make it effective. Any director or the entire Board of Directors may be removed, with or without cause, by the
holders of a majority of the shares then entitled to vote at an election of directors; except that, if the certificate of
incorporation provides for cumulative voting and less than the entire Board is to be removed, no director may be
removed without cause if the votes cast against his or her removal would be sufficient to elect him or her if then
cumulatively voted at an election of the entire Board, or, if there be classes of directors, at an election of the class of
directors of which he or she is a part. Whenever the holders of any class or series of stock are entitled to elect one or
more directors by the provisions of the certificate of incorporation, the provisions of the preceding sentence shall
apply, in respect to the removal without cause of a director or directors so elected, to the vote of the holders of the
outstanding shares of that class or series and not to the vote of the outstanding shares as a whole. Unless otherwise
provided in the certificate of incorporation or these by-laws, vacancies and newly created directorships resulting from
any increase in the authorized number of directors elected by all of the stockholders having the right to vote as a
single class or from any other cause may be filled by a majority of the directors then in office, although less than a
quorum, or by the sole remaining director. Whenever the holders of any class or classes of stock or series thereof are
entitled to elect one or more directors by the provisions of the certificate of incorporation, vacancies and newly created
directorships of such class or classes or series may be filled by a majority of the directors elected by such class or
classes or series thereof then in office, or by the sole remaining director so elected.
Section 2.3 Regular Meetings. Regular meetings of the Board of Directors may be held at such places
within or without the State of Delaware and at such times as the Board may from time to time determine, and if so
determined notice thereof need not be given.
Section 2.4 Special Meetings. Special meetings of the Board of Directors may be held at any time or place
within or without the State of Delaware whenever called by the Chairman of the Board, if any, by the Vice Chairman
of the Board, if any, by the President or by any two directors. Reasonable notice thereof shall be given by the person
or persons calling the meeting.
Section 2.5 Participation in Meetings by Conference Telephone Permitted. Unless otherwise restricted by
the certificate of incorporation or these by-laws, members of the Board of Directors, or any committee designated by
the Board, may participate in a meeting of the Board or of such committee, as the case may be, by means of
conference telephone or similar communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in a meeting pursuant to this by-law shall constitute presence in person
at such meeting.
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Section 2.6 Quorum; Vote Required for Action. At all meetings of the Board of Directors one-third of the
entire Board shall constitute a quorum for the transaction of business. The vote of a majority of the directors present
at a meeting at which a quorum is present shall be the act of the Board unless the certificate of incorporation or these
by-laws shall require a vote of a greater number. In case at any meeting of the Board a quorum shall not be present,
the members of the Board present may adjourn the meeting from time to time until a quorum shall attend.
Section 2.7 Organization. Meetings of the Board of Directors shall be presided over by the Chairman of the
Board, if any, or in the absence of the Chairman of the Board by the Vice Chairman of the Board, if any, or in the
absence of the Vice Chairman of the Board by the President, or in their absence by a chairman chosen at the meeting.
The Secretary, or in the absence of the Secretary an Assistant Secretary, shall act as secretary of the meeting, but in
the absence of the Secretary and any Assistant Secretary the chairman of the meeting may appoint any person to act as
secretary of the meeting.
Section 2.8 Action by Directors Without a Meeting. Any action required or permitted to be taken at any
meeting of the Board of Directors, or of any committee thereof, may be taken without a meeting if all members of the
Board or of such committee, as the case may be, consent thereto in writing, and the writing or writings are filed with
the minutes of proceedings of the Board or committee.
Section 2.9 Compensation of Directors. The Board of Directors shall have the authority to fix the
compensation of directors.
ARTICLE III
COMMITTEES
Section 3.1 Committees. The Board of Directors may, by resolution passed by a majority of the whole
Board, designate one or more committees, each committee to consist of one or more of the directors of the
Corporation. The Board may designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a
member of a committee, the member or members thereof present at any meeting and not disqualified from voting,
whether or not such member or members constitute a quorum, may unanimously appoint another member of the
Board to act at the meeting in place of any such absent or disqualified member. Any such committee, to the extent
provided in the resolution of the Board, shall have and may exercise all the powers and authority of the Board in the
management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be
affixed to all papers which may require it; but no such committee shall have power or authority in reference to
amending the certificate of incorporation, adopting an agreement of merger or consolidation, recommending to the
stockholders the sale, lease or exchange of all or substantially all of the Corporation's property and assets,
recommending to the stockholders a dissolution of the Corporation or a revocation of dissolution, removing or
indemnifying directors or amending these by-laws; and, unless the resolution expressly so provides, no such
committee shall have the power or authority to declare a dividend or to authorize the issuance of stock.
Section 3.2 Committee Rules. Unless the Board of Directors otherwise provides, each committee designated
by the Board may adopt, amend and repeal rules for the conduct of its business. In the absence of a provision by the
Board or a provision in the rules of such committee to the contrary, a majority of the entire authorized number of
members of such committee shall constitute a quorum for the transaction of business, the vote of a majority of the
members present at a meeting at the time of such vote if a quorum is then present shall be the act of such committee,
and in other respects each committee shall conduct its business in the same manner as the Board conducts its business
pursuant to Article II of these by-laws.
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ARTICLE IV
OFFICERS
Section 4.1 Officers; Election. As soon as practicable after the annual meeting of stockholders in each year,
the Board of Directors shall elect a President and a Secretary, and it may, if it so determines, elect from among its
members a Chairman of the Board and a Vice Chairman of the Board. The Board may also elect one or more Vice
Presidents, one or more Assistant Vice Presidents, one or more Assistant Secretaries, a Treasurer and one or more
Assistant Treasurers and such other officers as the Board may deem desirable or appropriate and may give any of
them such further designations or alternate titles as it considers desirable. Any number of offices may be held by the
same person.
Section 4.2 Term of office; Resignation; Removal; Vacancies. Except as otherwise provided in the
resolution of the Board of Directors electing any officer, each officer shall hold office until the first meeting of the
Board after the annual meeting of stockholders next succeeding his or her election, and until his or her successor is
elected and qualified or until his or her earlier resignation or removal. Any officer may resign at any time upon written
notice to the Board or to the President or the Secretary of the Corporation. Such resignation shall take effect at the
time specified therein, and unless otherwise specified therein no acceptance of such resignation shall be necessary to
make it effective. The Board may remove any officer with or without cause at any time. Any such removal shall be
without prejudice to the contractual rights of such officer, if any, with the Corporation, but the election of an officer
shall not of itself create contractual rights. Any vacancy occurring in any office of the Corporation by death,
resignation, removal or otherwise may be filled for the unexpired portion of the term by the Board at any regular or
special meeting.
Section 4.3 Chairman of the Board. The Chairman of the Board, if any, shall preside at all meetings of the
Board of Directors and of the stockholders at which he or she shall be present and shall have and may exercise such
powers as may, from time to time, be assigned to him or her by the Board and as may be provided by law.
Section 4.4 Vice Chairman of the Board. In the absence of the Chairman of the Board, the Vice Chairman of
the Board, if any, shall preside at all meetings of the Board of Directors and of the stockholders at which he or she
shall be present and shall have and may exercise such powers as may, from time to time, be assigned to him or her by
the Board and as may be provided by law.
Section 4.5 President. In the absence of the Chairman of the Board and Vice Chairman of the Board, the
President shall preside at all meetings of the Board of Directors and of the stockholders at which he or she shall be
present. The President shall be the chief executive officer and shall have general charge and supervision of the
business of the Corporation and, in general, shall perform all duties incident to the office of president of a corporation
and such other duties as may, from time to time, be assigned to him or her by the Board or as may be provided by
law.
Section 4.6 Vice Presidents. The Vice President or Vice Presidents, at the request or in the absence of the
President or during the President's inability to act, shall perform the duties of the President, and when so acting shall
have the powers of the President. If there be more than one Vice President, the Board of Directors may determine
which one or more of the Vice Presidents shall perform any of such duties; or if such determination is not made by
the Board, the President may make such determination; otherwise any of the Vice Presidents may perform any of
such duties. The Vice President or Vice Presidents shall have such other powers and shall perform such other duties
as may, from time to time, be assigned to him or her or them by the Board or the President or as may be provided by
law.
Section 4.7 Secretary. The Secretary shall have the duty to record the proceedings of the meetings of the
stockholders, the Board of Directors and any committees in a book to be kept for that purpose, shall see that all
notices are duly given in accordance with the provisions of these by-laws or as required by law, shall be custodian of
the records of the Corporation, may affix the corporate seal to any document the execution of which, on behalf of the
Corporation, is duly authorized, and when so affixed may attest the same, and, in general, shall perform all duties
incident to the office of secretary of a corporation and such other duties as may, from time to time, be assigned to him
or her by the Board or the President or as may be provided by law.
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Section 4.8 Treasurer. The Treasurer shall have charge of and be responsible for all funds, securities,
receipts and disbursements of the Corporation and shall deposit or cause to be deposited, in the name of the
Corporation, all moneys or other valuable effects in such banks, trust companies or other depositories as shall, from
time to time, be selected by or under authority of the Board of Directors. If required by the Board, the Treasurer shall
give a bond for the faithful discharge of his or her duties, with such surety or sureties as the Board may determine.
The Treasurer shall keep or cause to be kept full and accurate records of all receipts and disbursements in books of
the Corporation, shall render to the President and to the Board, whenever requested, an account of the financial
condition of the Corporation, and, in general, shall perform all the duties incident to the office of treasurer of a
corporation and such other duties as may, from time to time, be assigned to him or her by the Board or the President
or as may be provided by law.
Section 4.9 Other Officers. The other officers, if any, of the Corporation shall have such powers and duties
in the management of the Corporation as shall be stated in a resolution of the Board of Directors which is not
inconsistent with these by-laws and, to the extent not so stated, as generally pertain to their respective offices, subject
to the control of the Board. The Board may require any officer, agent or employee to give security for the faithful
performance of his or her duties.
ARTICLE V
STOCK
Section 5.1 Certificates. Every holder of stock in the Corporation shall be entitled to have a certificate signed
by or in the name of the Corporation by the Chairman or Vice Chairman of the Board of Directors, if any, or the
President or a Vice President, and by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant
Secretary, of the Corporation, certifying the number of shares owned by such holder in the Corporation. If such
certificate is manually signed by one officer or manually countersigned by a transfer agent or by a registrar, any other
signature on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose
facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate is issued, it may be issued by the Corporation with the same effect as if such person were such
officer, transfer agent or registrar at the date of issue.
Section 5.2 Lost, Stolen or Destroyed Stock Certificates; Issuance of New Certificates. The Corporation
may issue a new certificate of stock in the place of any certificate theretofore issued by it, alleged to have been lost,
stolen or destroyed, and the Corporation may require the owner of the lost, stolen or destroyed certificate, or such
owner's legal representative, to give the Corporation a bond sufficient to indemnify it against any claim that may be
made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new
certificate.
ARTICLE VI
MISCELLANEOUS
Section 6.1 Fiscal Year. The fiscal year of the Corporation shall be determined by the Board of Directors.
Section 6.2 Seal. The Corporation may have a corporate seal which shall have the name of the Corporation
inscribed thereon and shall be in such form as may be approved from time to time by the Board of Directors. The
corporate seal may be used by causing it or a facsimile thereof to be impressed or affixed or in any other manner
reproduced.
Section 6.3 Waiver of Notice of Meetings of Stockholders, Directors and Committees. Whenever notice is
required to be given by law or under any provision of the certificate of incorporation or these by-laws, a written
waiver thereof, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed
equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except
when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or convened. Neither the business to be
transacted at, nor the purpose of, any regular or special meeting of the stockholders, directors, or members of a
committee of directors need be specified in any written waiver of notice unless so required by the certificate of
incorporation or these by-laws.
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Section 6.4 Indemnification of Directors, Officers and Employees. The Corporation shall indemnify to the
full extent authorized by law any person made or threatened to be made a party to any action, suit or proceeding,
whether criminal, civil, administrative or investigative, by reason of the fact that such person or such person's testator
or intestate is or was a director, officer or employee of the Corporation or serves or served at the request of the
Corporation any other enterprise as a director, officer or employee. For purposes of this by-law, the term
“Corporation” shall include any predecessor of the Corporation and any constituent corporation (including any
constituent of a constituent) absorbed by the Corporation in a consolidation or merger; the term "other enterprise"
shall include any corporation, partnership, joint venture, trust or employee benefit plan; service "at the request of the
Corporation" shall include service as a director, officer or employee of the Corporation which imposes duties on, or
involves services by, such director, officer or employee with respect to an employee benefit plan, its participants or
beneficiaries; any excise taxes assessed on a person with respect to an employee benefit plan shall be deemed to be
indemnifiable expenses; and action by a person with respect to an employee benefit plan which such person
reasonably believes to be in the interest of the participants and beneficiaries of such plan shall be deemed to be action
not opposed to the best interests of the Corporation.
Section 6.5 Interested Directors; Quorum. No contract or transaction between the Corporation and one or
more of its directors or officers, or between the Corporation and any other corporation, partnership, association or
other organization in which one or more of its directors or officers are directors or officers, or have a financial
interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or committee thereof which authorizes the contract or transaction,
or solely because his or her or their votes are counted for such purpose, if: (1) the material facts as to his or her
relationship or interest and as to the contract or transaction are disclosed or are known to the Board or the committee,
and the Board or committee in good faith authorizes the contract or transaction by the affirmative votes of a majority
of the disinterested directors, even though the disinterested directors be less than a quorum; or (2) the material facts as
to his or her relationship or interest and as to the contract or transaction are disclosed or are known to the
stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of
the stockholders; or (3) the contract or transaction is fair as to the Corporation as of the time it is authorized, approved
or ratified, by the Board, a committee thereof or the stockholders. Common or interested directors may be counted in
determining the presence of a quorum at a meeting of the Board or of a committee which authorizes the contract or
transaction.
Section 6.6 Form of Records. Any records maintained by the Corporation in the regular course of its
business, including its stock ledger, books of account and minute books, may be kept on, or be in the form of, punch
cards, magnetic tape, photographs, microphotographs or any other information storage device, provided that the
records so kept can be converted into clearly legible form within a reasonable time. The Corporation shall so convert
any records so kept upon the request of any person entitled to inspect the same.
Section 6.7 Amendment of By-Laws. These by-laws may be amended or repealed, and new by-laws
adopted, by the Board of Directors, but the stockholders entitled to vote may adopt additional by-laws and may
amend or repeal any by-law whether or not adopted by them.
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EXHIBIT 4.1
PROPELL CORPORATION
2008 STOCK OPTION PLAN
______________________________________
1. Purpose. The purpose of this Plan is to advance the interests of Propell Corporation, a Delaware corporation
(the “Company”), by providing an additional incentive to attract, retain and motivate highly qualified and competent
persons who are key to the Company, including key employees, consultants, independent contractors, Officers and
Directors, and upon whose efforts and judgment the success of the Company and its Subsidiaries is largely
dependent, by authorizing the grant of options to purchase Common Stock of the Company and other related benefits
to persons who are eligible to participate hereunder, thereby encouraging stock ownership in the Company by such
persons, all upon and subject to the terms and conditions of this Plan.
2. Definitions. As used herein, the following terms shall have the meanings indicated:
(a)
“Board” shall mean the Board of Directors of the Company.
(b)
“Cause” shall mean any of the following:
(i)
a determination by the Company that there has been a willful, reckless or grossly
negligent failure by the Optionee to perform his or her duties as an employee of the Company;
(ii)
any conduct by the Optionee that either results in his or her conviction of a felony
under the laws of the United States of America or any state thereof, or of an equivalent crime under the laws of any
other jurisdiction;
(iii)
a determination by the Company that the Optionee has committed an act or acts
involving fraud, embezzlement, misappropriation, theft, breach of fiduciary duty or material dishonesty against the
Company, its properties or personnel;
(iv)
any act by the Optionee that the Company determines to be in willful or wanton
disregard of the Company’s best interests, or which results, or is intended to result, directly or indirectly, in improper
gain or personal enrichment of the Optionee at the expense of the Company;
(v)
a determination by the Company that there has been a willful, reckless or grossly
negligent failure by the Optionee to comply with any rules, regulations, policies or procedures of the Company, or
that the Optionee has engaged in any act, behavior or conduct demonstrating a deliberate and material violation or
disregard of standards of behavior that the Company has a right to expect of its employees; or
(vi)
if the Optionee, while employed by the Company and for two years thereafter,
violates a confidentiality and/or noncompete agreement with the Company, or fails to safeguard, divulges,
communicates, uses to the detriment of the Company or for the benefit of any person or persons, or misuses in any
way, any Confidential Information; provided, however, that, if the Optionee has entered into a written employment
agreement with the Company which remains effective and which expressly provides for a termination of such
Optionee’s employment for “cause,” the term “Cause” as used herein shall have the meaning as set forth in the
Optionee’s employment agreement in lieu of the definition of “Cause” set forth in this Section 2(b).
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(c)
“Change of Control” shall mean the acquisition by any person or group (as that term is
defined in the Exchange Act, and the rules promulgated pursuant to that act) in a single transaction or a series of
transactions of fifty percent (50%) or more in voting power of the outstanding stock of the Company and a change
of the composition of the Board of Directors so that, within two years after the acquisition took place, a majority of
the members of the Board of Directors of the Company, or of any corporation with which the Company may be
consolidated or merged, are persons who were not directors or officers of the Company or one of its Subsidiaries
immediately prior to the acquisition, or to the first of a series of transactions which resulted in the acquisition of fifty
percent (50%) or more in voting power of the outstanding stock of the Company.
(d)
(e)
appointed, the Board.
(f)
(g)
“Code” shall mean the Internal Revenue Code of 1986, as amended.
“Committee” shall mean the stock option committee appointed by the Board or, if not
“Common Stock” shall mean the Company’s Common Stock, no par value per share.
“Director” shall mean a member of the Board.
(h)
“Employee” shall mean any person, including officers, directors, consultants and
independent contractors employed by the Company or any parent or Subsidiary of the Company within the meaning
of Section 3401(c) of the regulators promulgated thereunder.
(i)
“Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.
(j)
“Fair Market Value” of a Share on any date of reference shall be the Closing Price of a
share of Common Stock on the business day immediately preceding such date, unless the Committee in its sole
discretion shall determine otherwise in a fair and uniform manner. For this purpose, the “Closing Price” of the
Common Stock on any business day shall be (i) if the Common Stock is listed or admitted for trading on any United
States national securities exchange, or if actual transactions are otherwise reported on a consolidated transaction
reporting system, the last reported sale price of the Common Stock on such exchange or reporting system, as
reported in any newspaper of general circulation, (ii) if the Common Stock is quoted on The Nasdaq Stock Market
(“Nasdaq”), or any similar system of automated dissemination of quotations of securities prices in common use, the
mean between the closing high bid and low asked quotations for such day of the Common Stock on such system, or
(iii) if neither clause (i) nor (ii) is applicable, the mean between the high bid and low asked quotations for the
Common Stock as reported by the National Quotation Bureau, Incorporated if at least two securities dealers have
inserted both bid and asked quotations for the Common Stock on at least five of the 10 preceding days. If the
information set forth in clauses (i) through (iii) above is unavailable or inapplicable to the Company (e.g., if the
Company’s Common Stock is not then publicly traded or quoted), then the “Fair Market Value” of a Share shall be
the fair market value (i.e., the price at which a willing seller would sell a Share to a willing buyer when neither is
acting under compulsion and when both have reasonable knowledge of all relevant facts) of a share of the Common
Stock on the business day immediately preceding such date as the Committee in its sole and absolute discretion shall
determine in a fair and uniform manner.
2
the Code.
(k)
“Incentive Stock Option” shall mean an incentive stock option as defined in Section 422 of
(l)
“Non-Statutory Stock Option” or “Nonqualified Stock Option” shall mean an Option
which is not an Incentive Stock Option.
(m)
“Officer” shall mean the Company’s chairman, president, principal financial officer,
principal accounting officer (or, if there is no such accounting officer, the controller), any vice-president of the
Company in charge of a principal business unit, division or function (such as sales, administration or finance), any
other officer who performs a policy-making function, or any other person who performs similar policy-making
functions for the Company. Officers of Subsidiaries shall be deemed Officers of the Company if they perform such
policy-making functions for the Company. As used in this paragraph, the phrase “policy-making function” does not
include policy-making functions that are not significant. Unless specified otherwise in a resolution by the Board, an
“executive officer” pursuant to Item 401(b) of Regulation S-K (17 C.F.R. § 229.401(b)) shall be only such person
designated as an “Officer” pursuant to the foregoing provisions of this paragraph.
(n)
“Option” (when capitalized) shall mean any stock option granted under this Plan.
(o)
“Optionee” shall mean a person to whom an Option is granted under this Plan or any
person who succeeds to the rights of such person under this Plan by reason of the death of such person.
(p)
“Plan” shall mean this 2008 Stock Option Plan of the Company, which Plan shall be
effective upon approval by the Board, subject to approval, within 12 months of the date thereof by holders of a
majority of the Company’s issued and outstanding Common Stock of the Company.
(q)
“Share” or “Shares” shall mean a share or shares, as the case may be, of the Common
Stock, as adjusted in accordance with Section 10 of this Plan.
(r)
“Subsidiary” shall mean any corporation (other than the Company) in any unbroken chain
of corporations beginning with the Company if, at the time of the granting of the Option, each of the corporations
other than the last corporation in the unbroken chain owns stock possessing 50 percent or more of the total combined
voting power of all classes of stock in one of the other corporations in such chain.
3. Shares and Options. Subject to adjustment in accordance with Section 10 hereof, the Company may issue up
to five million (5,000,000) Shares from Shares held in the Company’s treasury or from authorized and unissued
Shares through the exercise of Options issued pursuant to the provisions of this Plan. If any Option granted under
this Plan shall terminate, expire, or be canceled, forfeited or surrendered as to any Shares, the Shares relating to such
lapsed Option shall be available for issuance pursuant to new Options subsequently granted under this Plan. Upon
the grant of any Option hereunder, the authorized and unissued Shares to which such Option relates shall be reserved
for issuance to permit exercise under this Plan. Subject to the provisions of Section 14 hereof, an Option granted
hereunder shall be either an Incentive Stock Option or a Non-Statutory Stock Option as determined by the Committee
at the time of grant of such Option and shall clearly state whether it is an Incentive Stock Option or Non-Statutory
Stock Option. All Incentive Stock Options shall be granted within 10 years from the effective date of this Plan.
3
4. Limitations. Options otherwise qualifying as Incentive Stock Options hereunder will not be treated as
Incentive Stock Options to the extent that the aggregate Fair Market Value (determined at the time the Option is
granted) of the Shares, with respect to which Options meeting the requirements of Code Section 422(b) are
exercisable for the first time by any individual during any calendar year (under all stock option or similar plans of the
Company and any Subsidiary), exceeds $100,000.
5. Conditions for Grant of Options.
(a)
Each Option shall be evidenced by an option agreement that may contain any term deemed
necessary or desirable by the Committee, provided such terms are not inconsistent with this Plan or any applicable
law. Optionees shall be those persons selected by the Committee from the class of all regular Employees of the
Company or its Subsidiaries, including Employee Directors and Officers who are regular or former regular
employees of the Company, Directors who are not regular employees of the Company, as well as consultants to the
Company. Any person who files with the Committee, in a form satisfactory to the Committee, a written waiver of
eligibility to receive any Option under this Plan shall not be eligible to receive any Option under this Plan for the
duration of such waiver.
(b)
In granting Options, the Committee shall take into consideration the contribution the
person has made, or is expected to make, to the success of the Company or its Subsidiaries and such other factors as
the Committee shall determine. The Committee shall also have the authority to consult with and receive
recommendations from Officers and other personnel of the Company and its Subsidiaries with regard to these
matters. The Committee may from time to time in granting Options under this Plan prescribe such terms and
conditions concerning such Options as it deems appropriate, provided that such terms and conditions are not more
favorable to an Optionee than those expressly permitted herein; provided further, however, that to the extent not
cancelled pursuant to Section 9(b) hereof, upon a Change in Control, any Options that have not yet vested, may, in
the sole discretion of the Committee, vest upon such Change in Control.
(c)
The Options granted to employees under this Plan shall be in addition to regular salaries,
pension, life insurance or other benefits related to their employment with the Company or its Subsidiaries. Neither
this Plan nor any Option granted under this Plan shall confer upon any person any right to employment or
continuance of employment (or related salary and benefits) by the Company or its Subsidiaries.
6. Price. The exercise price per Share of any Option shall be any price determined by the Committee but in no
event shall the exercise price per Share of any Option be less than the Fair Market Value of the Shares underlying
such Option on the date such Option is granted and, in the case of an Incentive Stock Option granted to a 10%
stockholder, the per Share exercise price will not be less than 110% of the Fair Market Value. Re-granted Options, or
Options which are canceled and then re-granted covering such canceled Options, will, for purposes of this Section 6,
be deemed to have been granted on the date of the re-granting.
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7. Exercise of Options.
(a)
An Option shall be deemed exercised when (i) the Company has received written notice of
such exercise in accordance with the terms of the Option, (ii) full payment of the aggregate option price of the Shares
as to which the Option is exercised has been made, (iii) the Optionee has agreed to be bound by the terms,
provisions and conditions of any applicable stockholders’ agreement, and (iv) arrangements that are satisfactory to
the Committee in its sole discretion have been made for the Optionee’s payment to the Company of the amount that
is necessary for the Company or the Subsidiary employing the Optionee to withhold in accordance with applicable
Federal or state tax withholding requirements. Unless further limited by the Committee in any Option, the exercise
price of any Shares purchased pursuant to the exercise of such Option shall be paid in cash, by certified or official
bank check, by money order, with Shares or by a combination of the above; provided, however, that the Committee
in its sole discretion may accept a personal check in full or partial payment of any Shares. The Company in its sole
discretion may, on an individual basis or pursuant to a general program established by the Committee in connection
with this Plan, lend money to an Optionee to exercise all or a portion of the Option granted hereunder. If the exercise
price is paid in whole or part with the Optionee’s promissory note, such note shall (i) provide for full recourse to the
maker, (ii) be collateralized by the pledge of the Shares that the Optionee purchases upon exercise of such Option,
(iii) bear interest at a rate no less than the rate of interest payable by the Company to its principal lender, and
(iv) contain such other terms as the Committee in its sole discretion shall require.
(b)
No Optionee shall be deemed to be a holder of any Shares subject to an Option unless and
until a stock certificate or certificates for such Shares are issued to such person(s) under the terms of this Plan. No
adjustment shall be made for dividends (ordinary or extraordinary, whether in cash, securities or other property) or
distributions or other rights for which the record date is prior to the date such stock certificate is issued, except as
expressly provided in Section 10 hereof.
(c)
Any Option may, in the discretion of the Committee, be exercised pursuant to a “cashless”
or “net issue” exercise. In lieu of exercising the Option as specified in subsection (a) above, the Optionee may pay in
whole or in part with Shares, the number of which shall be determined by dividing (a) the aggregate Fair Value of
such Shares otherwise issuable upon exercise of the Option minus the aggregate Exercise Price of such Option by
(b) the Fair Value of one such Share, or the Optionee may pay in whole or in part through a reduction in the number
of Shares received through the exercise of the Option equal to the quotient of the (a) aggregate Fair Value of all the
Shares issuable upon exercise of the Option minus the aggregate Exercise Price of such Option (b) divided by the
Fair Value of one such share. If the exercise price is paid in whole or in part with Shares, the value of the Shares
surrendered shall be their Fair Market Value on the date the Option is exercised.
8. Exercisability of Options. Any Option shall become exercisable in such amounts, at such intervals, upon
such events or occurrences and upon such other terms and conditions as shall be provided in an individual Option
agreement evidencing such Option, except as otherwise provided in Section 5(b) or this Section 8.
(a)
The expiration date(s) of an Option shall be determined by the Committee at the time of
grant, but in no event shall an Option be exercisable after the expiration of 10 years from the date of grant of the
Option.
5
(b)
Unless otherwise expressly provided in any Option as approved by the Committee,
notwithstanding the exercise schedule set forth in any Option, each outstanding Option, may, in the sole discretion of
the Committee, become fully exercisable upon the date of the occurrence of any Change of Control, but, unless
otherwise expressly provided in any Option, no earlier than six months after the date of grant, and if and only if
Optionee is in the employ of the Company on such date.
(c)
The Committee may in its sole discretion accelerate the date on which any Option may be
exercised and may accelerate the vesting of any Shares subject to any Option or previously acquired by the exercise
of any Option.
9.
Termination of Option Period.
(a)
Unless otherwise expressly provided in any Option, the unexercised portion of any Option
shall automatically and without notice immediately terminate and become forfeited, null and void at the time of the
earliest to occur of the following:
(i)
three months after the date on which the Optionee’s employment is terminated for
any reason other than by reason of (A) Cause, (B) a mental or physical disability (within the meaning of Section
22(e) of the Code) as determined by a medical doctor satisfactory to the Committee, or (C) death;
for Cause;
(ii)
immediately upon the termination by the Company of the Optionee’s employment
(iii)
one year after the date on which the Optionee’s employment is terminated by
reason of a mental or physical disability (within the meaning of Code Section 22(e)) as determined by a medical
doctor satisfactory to the Committee or the later of three months after the date on which the Optionee shall die if such
death shall occur during the one-year period specified herein; or
(iv)
the later of (a) one year after the date of termination of the Optionee’s
employment by reason of death of the employee, or (b) three months after the date on which the Optionee shall die if
such death shall occur during the one year period specified in Subsection 9(a)(iii) hereof.
(b)
The Committee in its sole discretion may, by giving written notice (“cancellation notice”),
cancel effective upon the date of the consummation of any corporate transaction described in Subsection 10(d)
hereof, any Option that remains unexercised on such date. Such cancellation notice shall be given a reasonable period
of time prior to the proposed date of such cancellation and may be given either before or after approval of such
corporate transaction.
6
(c)
Upon termination of Optionee’s employment as described in this Section 9, or otherwise,
any Option (or portion thereof) not previously vested or not yet exercisable pursuant to Section 8 of this Plan or the
vesting schedule set forth in such Option shall be immediately canceled.
10. Adjustment of Shares.
(a)
If at any time while this Plan is in effect or unexercised Options are outstanding, there
shall be any increase or decrease in the number of issued and outstanding Shares through the declaration of a stock
dividend or through any recapitalization resulting in a stock split, combination or exchange of Shares (other than any
such exchange or issuance of Shares through which Shares are issued to effect an acquisition of another business or
entity or the Company’s purchase of Shares to exercise a “call” purchase option), then and in such event:
(i)
appropriate adjustment shall be made in the maximum number of Shares available
for grant under this Plan, so that the same percentage of the Company’s issued and outstanding Shares shall continue
to be subject to being so optioned;
(ii)
appropriate adjustment shall be made in the number of Shares and the exercise
price per Share thereof then subject to any outstanding Option, so that the same percentage of the Company’s issued
and outstanding Shares shall remain subject to purchase at the same aggregate exercise price; and
(iii)
such adjustments shall be made by the Committee, whose determination in that
respect shall be final, binding and conclusive.
(b)
Subject to the specific terms of any Option, the Committee may change the terms of
Options outstanding under this Plan, with respect to the option price or the number of Shares subject to the Options,
or both, when, in the Committee’s sole discretion, such adjustments become appropriate by reason of a corporate
transaction described in Subsection 10(d) hereof, or otherwise.
(c)
Except as otherwise expressly provided herein, the issuance by the Company of shares of
its capital stock of any class, or securities convertible into or exchangeable for shares of its capital stock of any class,
either in connection with a direct or underwritten sale, or upon the exercise of rights or warrants to subscribe therefor
or purchase such Shares, or upon conversion of obligations of the Company into such Shares or other securities,
shall not affect, and no adjustment by reason thereof shall be made with respect to, the number of or exercise price of
Shares then subject to outstanding Options granted under this Plan.
(d)
Without limiting the generality of the foregoing, the existence of outstanding Options
granted under this Plan shall not affect in any manner the right or power of the Company to make, authorize or
consummate (i) any or all adjustments, reclassifications, recapitalizations, reorganizations or other changes in the
Company’s capital structure or its business; (ii) any merger or consolidation of the Company or to which the
Company is a party; (iii) any issuance by the Company of debt securities, or preferred or preference stock that would
rank senior to or above the Shares subject to outstanding Options; (iv) any purchase or issuance by the Company of
Shares or other classes of common stock or common equity securities; (v) the dissolution or liquidation of the
Company; (vi) any sale, transfer, encumbrance, pledge or assignment of all or any part of the assets or business of
the Company; or (vii) any other corporate act or proceeding, whether of a similar character or otherwise.
7
(e)
The Optionee shall receive written notice within a reasonable time prior to the
consummation of such action advising the Optionee of any of the foregoing. The Committee may, in the exercise of
its sole discretion, in such instances declare that any Option shall terminate as of a date fixed by the Board and give
each Optionee the right to exercise his or her Option.
11. Transferability. No Option or stock appreciation right granted hereunder shall be sold, pledged, assigned,
hypothecated, disposed or otherwise transferred by the Optionee other than by will or the laws of descent and
distribution, unless otherwise authorized by the Board, and no Option or stock appreciation right shall be exercisable
during the Optionee’s lifetime by any person other than the Optionee.
12. Issuance of Shares. As a condition of any sale or issuance of Shares upon exercise of any Option, the
Committee may require such agreements or undertakings, if any, as the Committee may deem necessary or advisable
to assure compliance with any such law or regulation including, but not limited to, the following:
(i)
a representation and warranty by the Optionee to the Company, at the time any
Option is exercised, that he is acquiring the Shares to be issued to him for investment and not with a view to, or for
sale in connection with, the distribution of any such Shares; and
(ii)
an agreement and undertaking to comply with all of the terms, restrictions and
provisions set forth in any then applicable stockholders’ agreement relating to the Shares, including, without
limitation, any restrictions on transferability, any rights of first refusal and any option of the Company to “call” or
purchase such Shares under then applicable agreements, and
(iii)
any restrictive legend or legends, to be embossed or imprinted on Share
certificates, that are, in the discretion of the Committee, necessary or appropriate to comply with the provisions of any
securities law or other restriction applicable to the issuance of the Shares.
13. Stock Appreciation Rights. The Committee may grant stock appreciation rights to Employees, either or
tandem with Options that have been or are granted under the Plan or with respect to a number of Shares on which an
Option is not granted. A stock appreciation right shall entitle the holder to receive, with respect to each Share as to
which the right is exercised, payment in an amount equal to the excess of the Share’s Fair Market Value on the date
the right is exercised over its Fair Market Value on the date the right was granted. Such payment may be made in cash
or in Shares valued at the Fair Market Value as of the date of surrender, or partly in cash and partly in Shares, as
determined by the Committee in its sole discretion. The Committee may establish a maximum appreciation value
payable for stock appreciation rights.
14. Restricted Stock Awards. The Committee may grant restricted stock awards under the Plan in Shares or
denominated in units of Shares. The Committee, in its sole discretion, may make such awards subject to conditions
and restrictions, as set forth in the instrument evidencing the award, which may be based on continuous service with
the Company or the attainment of certain performance goals related to profits, profit growth, cash-flow or shareholder
returns, where such goals may be stated in absolute terms or relative to comparison companies or indices to be
achieved during a period of time.
8
15. Administration of this Plan.
(a)
This Plan shall be administered by the Committee, which shall consist of not less than two
Directors. The Committee shall have all of the powers of the Board with respect to this Plan. Any member of the
Committee may be removed at any time, with or without cause, by resolution of the Board and any vacancy
occurring in the membership of the Committee may be filled by appointment by the Board.
(b)
Subject to the provisions of this Plan, the Committee shall have the authority, in its sole
discretion, to: (i) grant Options, (ii) determine the exercise price per Share at which Options may be exercised,
(iii) determine the Optionees to whom, and time or times at which, Options shall be granted, (iv) determine the
number of Shares to be represented by each Option, (v) determine the terms, conditions and provisions of each
Option granted (which need not be identical) and, with the consent of the holder thereof, modify or amend each
Option, (vi) defer (with the consent of the Optionee) or accelerate the exercise date of any Option, and (vii) make all
other determinations deemed necessary or advisable for the administration of this Plan, including re-pricing,
canceling and regranting Options.
(c)
The Committee, from time to time, may adopt rules and regulations for carrying out the
purposes of this Plan. The Committee’s determinations and its interpretation and construction of any provision of
this Plan shall be final, conclusive and binding upon all Optionees and any holders of any Options granted under this
Plan.
(d)
Any and all decisions or determinations of the Committee shall be made either (i) by a
majority vote of the members of the Committee at a meeting of the Committee or (ii) without a meeting by the
unanimous written approval of the members of the Committee.
(e)
No member of the Committee, or any Officer or Director of the Company or its
Subsidiaries, shall be personally liable for any act or omission made in good faith in connection with this Plan.
16. Incentive Options for 10% Stockholders. Notwithstanding any other provisions of this Plan to the contrary,
an Incentive Stock Option shall not be granted to any person owning directly or indirectly (through attribution under
Section 424(d) of the Code) at the date of grant, stock possessing more than 10% of the total combined voting power
of all classes of stock of the Company (or of its Subsidiary) at the date of grant unless the exercise price of such
Option is at least 110% of the Fair Market Value of the Shares subject to such Option on the date the Option is
granted, and such Option by its terms is not exercisable after the expiration of 10 years from the date such Option is
granted.
17. Interpretation.
(a)
This Plan shall be administered and interpreted so that all Incentive Stock Options granted
under this Plan will qualify as Incentive Stock Options under Section 422 of the Code. If any provision of this Plan
should be held invalid for the granting of Incentive Stock Options or illegal for any reason, such determination shall
not affect the remaining provisions hereof, and this Plan shall be construed and enforced as if such provision had
never been included in this Plan.
9
(b)
This Plan shall be governed by the laws of the State of Delaware.
(c)
Headings contained in this Plan are for convenience only and shall in no manner be
construed as part of this Plan or affect the meaning or interpretation of any part of this Plan.
(d)
Any reference to the masculine, feminine, or neuter gender shall be a reference to such
other gender as is appropriate.
(e)
Time shall be of the essence with respect to all time periods specified for the giving of
notices to the company hereunder, as well as all time periods for the expiration and termination of Options in
accordance with Section 9 hereof (or as otherwise set forth in an option agreement).
18. Amendment and Discontinuation of this Plan. Either the Board or the Committee may from time to time
amend this Plan or any Option without the consent or approval of the stockholders of the Company; provided,
however, that, except to the extent provided in Section 9, no amendment or suspension of this Plan or any Option
issued hereunder shall substantially impair any Option previously granted to any Optionee without the consent of
such Optionee.
19. Termination Date. This Plan shall terminate ten years after the date of adoption by the Board of Directors
10
Exhibit 5.1
LEHMAN & EILEN LLP.
Mission Bay Office Plaza
Suite 300
20283 State Road 7
Boca Raton, FL 33498
Tel: (561) 237-0804
Fax: (561) 237-0803
May 12, 2008
The Board of Directors
Propell Corporation
336 Bon Air Center, No. 352
Greenbrae, CA 94904
Re:
Registration Statement on Form S-1
Gentlemen:
At your request, we have examined the Registration Statement on Form S-1 (the “Registration
Statement”) to which this letter is attached as Exhibit 5.1 filed by Propell Corporation, a Delaware
corporation (the “Company”), that is intended to register under the Securities Act of 1933, as amended
(the “Securities Act”), 5,070,310 shares of the Company’s common stock which are issued and
outstanding (the “Shares”).
We have examined originals or certified copies of such corporate records of the Company and
other certificates and documents of officials of the Company, public officials and others as we have
deemed appropriate for purposes of this letter. We have assumed the genuineness of all signatures, the
authenticity of all documents submitted to us as originals, the conformity to authentic original documents
of all copies submitted to us as conformed and certified or reproduced copies.
Based on the foregoing, we are of the opinion that the Shares have been duly authorized and are
validly issued, fully paid and non-assessable.
We consent to the use of this opinion as an Exhibit to the Registration Statement and to the use
of our name in the prospectus constituting a part thereof.
Very truly yours,
/s/ Lehman & Eilen LLP
Lehman & Eilen LLP
Exhibit 10.1
PATENT LICENSE AGREEMENT
This Agreement by and between Laser Design International, LLC (“LDI”) and Crystal Magic, Inc
(“Crystal Magic” or “Licensee”) is entered into as of May 6, 2007 (hereinafter the “Effective date”).
WHEREAS LDI is the assignee and patentholder of U.S. Patent No. 5,206,496 and the reexamination
certificate 5,206,496 C1, pursuant to an agreement with Diageo Scotland Ltd dated February 20, 2003; and
WHEREAS Crystal Magic desires to obtain a non-exclusive license under the Licensed Patents (defined
below) and LDI desires to grant to Crystal Magic a non-exclusive license to these patents according to the terms and
conditions set forth below:
NOW THEREFORE, in view of the above premises and the following mutual covenants and promises, the
parties hereto agree as follows:
Incorporation of Recitals. The recitals set forth above are hereby incorporated as a part of this Agreement.
ARTICLE I
DEFINITIONS
1.1.
The “496 patent” shall mean United States Patent No, 5,206,496 to Clement et al. issued on or
about April 27, 1993, Reexamination Certificate No. 5,206,496 C1, and any foreign counterparts thereto. The ‘496
patent is sometimes referred to herein as the “Licensed Patents”
1.2.
“Net Sates” shall mean the proceeds actually received by Licensee or its affiliates from the sale,
lease, or other disposition of Laser Subsurface Engraving Product, as hereinafter defined, as delivered to the
purchaser by Licensee and its Affiliates, before sales tax and excepting added items not described by the Licensed
Patents sold as accessories for payment actually received by Licensee (such as display bases and presentation
boxes), reduced by any units of such products returned to and accepted by Licensee or its Affiliates to the extent that
the purchase price of such units has been refunded. For sales of licensed products to an Affiliate, sister company,
parent company, controlling company, subsidiary, or entity otherwise related to the Licensee (hereinafter “Related
Company), the higher of the Related Company’s purchase or sale price for each item will be included in Net Sales;
provided however that the Net Sales to such Related Company shall not be recognized for royalty calculations until
sold by the Related Company to a non-Related Company and shall then be recognized as a sale at the higher of the
Related Company’s purchase or sale price.
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1.3.
“Laser Subsurface Engraving Machine” shall mean any laser marking device whose
construction or method of operation falls within the claims of the Licensed Patents.
1.4.
“Laser Subsurface Engraving Product” shall mean objects that contain internal decorative or
indicative images that have been created inside a transparent medium with a Laser Subsurface Engraving Machine,
as described in the claims of the Licensed Patents.
1.5.
“Affiliates” shall mean, respectively, a corporation or other entity that controls or is controlled
by LDI or Licensee.
1.6.
“Improvement” shall mean any modification of or improvement to a Laser Subsurface
Engraving Machine which enhances its operability, effectiveness, capability, or efficiency in making Laser
Subsurface Engraving Products under the claims of the Licensed Patents.
ARTICLE II
LICENSE GRANT AND RELEASE
2.1.
License of the Licensed Patents. Subject to Licensee’s compliance with all material terms of this
Agreement LDI grants to Licensee under the Licensed Patents a non-exclusive, non-transferable, royalty-bearing
license to make, use, offer for sale, sell, lease, or, otherwise dispose of Laser Subsurface Engraving Product, For the
purpose of this Agreement, all terms are deemed material with the exception of the terms governed by the following
sections; 8.3, 8.4, 8.5, and 8.6. Compliance with non-material terms may be enforced (subject to the notice and cure
requirements of section 6.2) through binding arbitration, with the prevailing party recovering its costs and attorneys
fees. The license granted hereunder does not extend to providing manfacturing, etching or engraving services to
third parties on a fees for service basis unless said third party is itself licensed.
2.2,
Norwood Consent, LDI represents that Norwood Operating Company has reconveyed any
exclusive rights it once held in the ‘496 patent to LDI and that LDI is able to grant the licenses granted hereunder
without the consent of any third party.
2.3,
Covenant Not to Sue. Subject to Licensee’s compliance with the terms of this Agreement,
LDI shal not assert any claim or action against Licensee, its distributors, or direct or indirect customers for practicing
any method or process within the scope of the Licensed Patents, in making, using, or selling any Laser Subsurface
Engraving Product for which all applicable royalties have been paid to LDI under this Agreement
2.4.
No Implied Licenses. Except as expressly stated in this Article II, no other rights or licenses are
granted to Licensee or any other entity, express or implied, by virtue of this Agreement.
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2.5.
Improvements, Licensee shall promptly inform LDI of any Improvements. LDI shall have a
right of first refusal to obtain a non-exclusive royalty” free license from Licensee for any accepted Improvement. If
LDI fails to either refuse or accept any Improvement within ninety (90) days after being informed by Licensee of the
Improvement, then LDI shall be deemed to have rejected the offer of the license.
Should LDI acquire additional patent rights which would be infringed by practicing under the Licensed
Patents, LDI will offer to Licensee a license of such rights at no additional cost.
2.6.
Insurance. Licensee will throughout the term of this Agreement maintain product liability
insurance of such nature and such amount as LDI shall reasonably consider appropriate and shall so state to
Licensee. Licensee shall further produce copies of all insurance certificates and renewal certificates to LDI within
thirty days of receipt of the same.
ARTICLE III
CONSIDERATION
3.1.
License Transfer Fee. The Parties agree that Licensee has already paid a license transfer fee as
part of the litigation settlement associated with this license agreement
3.2.
Royalty Payments and Statements Licensee is obligated to pay royalties (in United States
dollars), as follows.
a)
a minimum royalty of $25,000 per year; plus
b)
in any year in which the sum of (i) 2.75% of Net Sales from locutions or through
channels other than Disney or Universal Studios locations plus (ii) 0.4% of Net Sales from locations on
Disney or Universal Studios properties, exceeds $25,000, the amount of such excess to a maximum of
$35,000.
Such royalties, including payments required in order to meet minimum royalty requirements, will be
calculated and paid on a calendar quarterly basis, within 30 days of the end of the quarter. In the event that Licensee
ceases distribution of Laser Subsurface Engraving Product, the minimum royalty obligation set forth herein shall
terminate pro rated as of the point in time when distribution ceased.
For all sales by Licensee not in United States dollars, the total of Net Sales shall be converted into United
States dollars using the currency conversion rates listed in the Wall Street Journal published on the last day of the
calendar quarter or the day closest to the end of the calendar quarter for which royalty payments are calculated.
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33.
Records; Audits.
a)
Within thirty (30) days after the end of each calendar quarter. Licensee will provide LDI
with a written report in spreadsheet format containing the data used by Licensee to determine its royalty payment to
LDI for such quarter, including, without limitation, the quantity, price, product number, and product description of
all royalty-bearing produce and any other information that may be reasonably requested by LDI from time to time
for Licensor to determine whether Licensor is paying the correct amount of royalties. Such a report shall be provided
even if Licensee pays only the minimum royalty required under this Agreement, Licensee shall maintain the records
from which such reports were created and any additional records required in order to verify the accuracy of any such
reports for a period of three years following the termination of this License.
b)
LDI will have the right, during normal business hours and upon at least fifteen (15) days
prior notice, to inspect Licensee’s facilities and audit Licensee’s records relating to Licensee’s activities pursuant to
this Agreement in order to verify that Licensee has paid to LDI the correct amounts owed under this Agreement and
has otherwise complied with the terms of this Agreement. The audit will be conducted at LDI’s expense, unless the
audit reveals that Licensee has underpaid the amounts owed to LDI by 10 percent (10%) or more in any quarter, in
which case Licensee will reimburse LDI for all costs and expenses incurred by LDI in connection with such audit
Such audits will be conducted no more than once in any calendar year and may cover any period of time for which
royalties may have been due under this License. If Licensee fails to pay LDI any amounts shown by any such audit
to be owing within ten (10) days after notice thereof, then LDI may immediately terminate Licensees rights under his
License.
3.4.
Late Payments; Attorneys’ Fees. Licensee agrees to pay LDI a late charge of five percent
(5%) of any amounts not paid by Licensee when due, including of any sums identified in an audit pursuant to
section 3.3. In addition, interest wilt be due and payable on past due amounts at the rate of one percent (1%) per
month. Licensee agrees to pay attorneys fees in the event of any successful court action undertaken for collection.
3.5
Most Favored Royalty. In the event that LDI later executes a new license of the Licensed
Patents to any other person, granting substantially the same rights on substantially the same terms where Licensee
concurrently has rights under this Agreement, and said license contains more favorable royalty terms than those
enjoyed by Licensee, LDI shall promptly notify Licensee and the royalty rate provided in paragraph 3.2 shall be
reduced by fifty (50) percent of the difference effective as of the date the more favored license is granted.
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ARTICLE IV
LIMITED WARRANTY AND INDEMNITY
4.1
EXCEPT AS EXPRESSLY STATED IN THIS ARTICLE IV, NO OTHER WARRANTIES
OR REPRESENTATIONS ARE GIVEN BY LDI UNDER THIS AGREEMENT, including but not limited to,
any warranty or representation: (a) as to the validity of the Licensed Patents; (b) that any manufacture, importation,
sale, lease, use, or other disposition of Laser Subsurface Engraving Product will be free from infringement of
another party’s intellectual property rights; (c) that LDI will enforce any intellectual property rights it may have in
the Licensed Patents against third parties, or (d) as to the quality of merchantability, or fitness for a particular
purpose of any Laser Subsurface Engraving Product
LDI will keep Licensee reasonably informed as to any final rulings in legal or government proceedings
which affect the claims of the Licensed Patents.
4.2
Licensee shall defend, indemnify, and hold harmless LDI and its directors, officers, employees,
and Affiliates, from and against any claims, liabilities, actions, costs or damages (including fees of attorneys and
other professionals) arising from product liability claims related to Licensee’s manufacture) use, sale or distribution
of Laser Subsurface Engraving Produce provided LDI gives Licensee notice of such claim, provides reasonable
cooperation and assistance in connection with such claim, and does not agree to any settlement without Licensee’s
consent.
4.3
Licensee will provide reasonable cooperation and assistance to LDI in connection with any
litigation concerning the Licensed Patents brought by or against a third party, including but not limited to any action
or claim involving alleged infringement of the Licensed Patents. Said cooperation shall include but not be limited to
a) joining as a named party, if necessary; and b) furnishing relevant evidence and testimony, all at the expense of
LDI or other party initiating the action. Any monetary award or damages resulting from such action shall be
accorded to the party bringing the action unless otherwise agreed by the parties.
4.4.
LDI represents and warrants that LDI has sufficient ownership interest in the Licensed Patents
to grant the licenses that are granted under this Agreement
ARTICLE V
PATENT NOTICES
Licensee will mark each Laser Subsurface Engraving Product or its packaging as well as sales brochures
with a notice of U.S. Patent No. 5,206,496 or the numbers of other of The Licensed Patents as applicable.
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ARTICLE VI
TERM AND TERMINATION
6.1.
Term. In exchange for LDI’s covenant not sue contained in paragraph 2.3, the obligation to pay
royalties under the terms of this Agreement shall continue until the earliest of (l) the expiration of the terms of all the
Licensed Patents, (2) after all possibility of appeal has been exhausted for any final judgment or judgments which
collectively declare all claims of the Licensed Patents invalid, or (3) termination in accordance with paragraph 6.2,
below.
6.2.
Termination.
a)
If there should occur a material breach, default or noncompliance by one party (the “Defaulting
Party”) of or with any term or condition hereof followed by written notice from the other party (the “Non-Defaulting
Party”) of such breach, default or noncompliance and the failure of the Defaulting Party to remedy or correct such
breach, default or noncompliance within sixty (60) days after receipt, of such notice, then in addition to any other
remedy available at law or in equity or under this Agreement, the Non-Defaulting Party may, at its election,
terminate this Agreement.
b)
LDI may, at its election, terminate this Agreement upon Licensee’s bankruptcy or
reorganization for the benefit of creditors.
c)
Licensee may terminate this Agreement by notifying LDI in writing that Licensee and all
of its affiliates are no longer conducting sales or manufacturing activities which fall within the claims of the Licensed
Patents,
6.3.
In the event that this Agreement is terminated in accordance with this Article VI, then the license
rights granted to Licensee by this Agreement shall immediately terminate, except that Licensee shall have the right to
sell any completed units of in existence as of the date of termination, subject to, and provided Licensee has at all
times complied with, its obligations to pay royalties and submit to audit in accordance with this Agreement. The
provisions of Articles 1, 3, 4, 5, 7, and 8 and Sections 2.2 and 2.5 and any liability arising from breach of this
Agreement will survive termination of this Agreement except that if Licensee terminates the agreement pursuant to
Section 6.2(c) then Licensee shall no longer be obligated to submit Statements under Section 3.2 as long as it does
not conduct manufacturing or sales activities which would otherwise trigger an obligation to pay royalties under
Section 3.2.
ARTICLE VII
LIMITATION OF LIABILITY
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IN NO EVENT SHALL ANY PARTY BE LIABLE TO ANY OTHER PARTY OR ANY OTHER
PERSON FOR ANY SPECIAL, INDIRECT, INCIDENTAL, PUNITIVE OR CONSEQUENTIAL DAMAGES
OF ANY KIND, INCLUDING BUT NOT LIMITED TO, LOSS OF PROFITS OR DAMAGES TO THE
OTHER PARTY’S BUSINESS REPUTATION HOWEVER CAUSED AND ON ANY THEORY OF
LIABILITY, WHETHER IN AN ACTION FOR CONTRACT, STRICT LIABILITY OR TORT (INCLUDING
NEGLIGENCE) OR OTHERWISE, WHETHER OR NOT THE OTHER PARTY HAS BEEN ADVISED OF
THE POSSIBILITY OF SUCH DAMAGE AND NOTWITHSTANDING THE FAILURE OF ESSENTIAL
PURPOSE OF ANY REMEDY.
ARTICLE VIII
GENERAL
8.1.
No waiver. No waiver by LDI, express or implied, of any breach of any term condition, or
obligation of this Agreement by Licensee shall be construed as a waiver of any subsequent breach of that term,
condition or obligation, or of any other term, condition, or obligation of this Agreement of the same or different
nature.
8.2.
No Assignment or Sublicensing; No Transfer of Machines Without Permission. Licensee
shall not assign or otherwise transfer, by contract, operation of law, or otherwise, without the specific written
consent of LDI, this Agreement or any license light granted hereunder or any interest herein, or grant any sublicense
for any purpose under this Agreement, and any such assignment, transfer or sublicense shall be null and void. Said
written consent of LDI shall not be unreasonably withheld or denied.
Licensee shall not sell, transfer, lease, franchise, or otherwise dispose of any Laser Subsurface Engraving
Machine which it may own or operate, however acquired, to any other entity without prior specific written
permission from LDI, said permission not to be unreasonably withheld or denied. LDI may refuse permission for
any such transfer to an entity which does not have proper rights to practice under the Licensed Patents.
8.3.
Governing Law. This Agreement shall be construed under the laws of the State of California
and the United States of America as though entered into between two parties residing in California to be performed
wholly within California. All parties to this Agreement specifically consent to the jurisdiction of the courts of the
U.S. District Court, Northern District of California, and the courts of Santa Clara County, California for purposes of
enforcing this Agreement
8.4.
Complete Agreement. This Agreement sets forth the entire understanding between the parties
and supersedes all prior discussions, representations, and agreements between them as to me subject matter of this
Agreement. This Agreement cannot be modified or amended except in a writing signed by duly authorized
representatives of Licensee and LDI.
CONFIDENTIAL
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Patent License Agreement
8.5
Export Control. Licensee shall be responsible for ensuring it complies with all laws and
regulations of the country in which it operates, imports from, or to which it exports products.
8.6
Notices. A notice, request, or statement hereunder shall be deemed to be sufficiently given or
rendered when sent by certified mail and addressed to such address as may be specified by written notice.
8.7.
Taxes, Licensee shall pay all taxes and other charges that may be Imposed by any Governmental
unit as a result of the performance of this Agreement, including but not limited to capital, property, turnover excise
use, sales, and income taxes or other charges imposed by such Governmental unit, other than income taxes levied
against LDI.
8.8.
Resolution of Disputes. Except as provided below, any dispute between the parties which
arises from this Agreement and cannot be resolved informally between the parties shall be referred to the Northern
District of California court wherein the original litigation which gave rise to this License was inducted unless
otherwise agreed by all of the parties. In the event that this Agreement is terminated pursuit to Article VI, LDI may
undertake any and all legal actions to collect any royalties or other monies owed to them under this Agreement and
LDI shall be free to undertake any and all legal actions for patent infringement including but not limited to actions to
prevent Licensee, its affiliates, or distributors from unlicensed manufacture, distribution, or sale activities that would
otherwise infringe any claim of the Licensed Patents and to recoup damages for such activities. LDI shall at all times
be free to undertake my and all legal actions to prevent or stop infringement by Licensee, its affiliates, or distributors
of any rights in the Licensed Patents not granted to Licensee.
IN WITNESS THEREOF, the parties haves executed this Agreement.
FOR LDI:
LASERDESIGN INTERNATIONAL, LLC
By: BRIAN D: LIDICOAT
Its: President
Date: October 14, 2007
FOR CRYSTAL MACIC, INC:
Crystal Magic, Inc.
/s/ Steven M. Rhodes
Its: Presidcent
Date: October 14, 2007
CONFIDENTIAL
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Exhibit 10.2
REVOCABLE LICENSE AGREEMENT
(CRYSTAL MAGIC)
THIS REVOCABLE LICENSE AGREEMENT (“Agreement”), is made and entered into as of
November 18th, 2002 by and between CRYSTAL MAGIC, INC., a Florida corporation (“Crystal”) and
DISNEYLAND® RESORT, A DIVISION OF WALT DISNEY WORLD CO., a Florida corporation,
(“Disney”) (Crystal and Disney referred To individually as a “Party” and collectively, as the “Parties”).
WITNESSETH
WHEREAS, Disney owns and operates the entertainment, recreation and lodging complex known as the
Disneyland® Resort (the “Resort”) which currently includes Disneyland® park and Disney’s California
Adventure™ park (individually, the “Park ” and collectively, the “Parks” ) , Downtown Disney® District
(“Downtown Disney”) (individually a “Location” and collectively, the “Locations”), and related facilities all
located in Anaheim, California;
WHEREAS, Crystal is engaged in the generation of portraits and 3-D character, logo and/or name drop
(Mickey Mouse, Minnie Mouse;, Donald Duck, Goofy, Pluto, Disney’s California Adventure™ Park icons as
approved in advance by Disney and the Disney Merchandise Brand department), sculpture reproductions inside
optically transparent material (i.e., a crystal glass cube) (collectively, the “Inventory”) and the entertainment and
show aspects associated therewith (collectively the “Services”); and
WHEREAS, Crystal desires to license space in the Parks and in Downtown Disney to provide the Services
and sell the Inventory, and Disney and Crystal desire that this Agreement apply to Crystal’s license of space in such
licensed areas in the manner hereinafter described and on terms hereinafter provided.
NOW, THEREFORE, in consideration of the terms, covenants and conditions herein contained, and other
good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Parties hereto
agree as follows:
1.
TERM OF AGREEMENT.
The term of this Agreement shall commence as of October 1, 2002 and continue through and including
October 30, 2008 (the “Term”), unless earlier terminated as provided herein. Neither Party shall be obligated to
extend the Term. Crystal hereby acknowledges and agrees that during the Term, the Parks and Downtown Disney
and their surrounding areas may undergo major construction and renovation and agrees that such construction and
renovation will not constitute a breach by Disney of its obligations under this Agreement.
2.
GRANT OF NON-EXCLUSIVE LICENSE.
Subject to the terms and provisions of this Agreement, Disney hereby grants to Crystal a non-exclusive
revocable license to enter upon and use the Locations (as defined below) for the sole purpose of providing the
Services and producing and selling the Inventory to guests of the Resort, The “Locations” shall mean those certain
areas at the Parks and Downtown Disney where Crystal shall provide the Services and sell the Inventory, as
designated by Disney in its sole and absolute discretion. Disney shall be the owner of the Locations and the contents
therein, except for the Crystal Property (as defined in Section 20). Notwithstanding anything herein to the contrary,
Crystal shall not, without the prior written consent of Disney in each instance, which consent may be granted or
withheld in Disney’s sole and absolute discretion, mortgage or grant a security interest in either this Agreement or
the Locations, CRYSTAL ACKNOWLEDGES AND AGREES THAT THE LICENSE GRANTED
HEREUNDER DOES NOT CONSTITUTE A LEASEHOLD INTEREST OR OTHER INTEREST IN LAND.
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3.
PERMITTED USE: OPERATION OF LOCATIONS.
(a)
The Locations shall be used by Crystal to provide the Services and produce and sell the Inventory
and for customers to view the “show” aspects of Inventory creation and for no other purpose whatsoever. Crystal
shall provide, at its sole cost and expense, (i) the Services and the Inventory; and (ii) except for the shelving loaned
to Crystal by Disney, all of the equipment and supplies, including additions thereto and replacements and renewals
thereof, necessary to produce and sell the Inventory at the Locations (collectively, “Equipment”) as set forth on
Exhibit C. attached hereto and fully made a part hereof. Subject to Disney’s approval, which approval Disney may
grant or withhold in Disney’s sole and absolute discretion, Crystal shall upgrade and replace, at Crystal’s sole
expense. Crystal’s Inventory and Equipment as necessary to ensure the Locations continually produce first-class
products and services. Notwithstanding anything herein to the contrary, Crystal shall not, without the prior written
consent of Disney in each instance, which consent Disney may grant or withhold in Disney’s sole and absolute
discretion, mortgage or grant a security interest in or suffer to permit any encumbrance to be placed on this
Agreement, any Location, the Equipment or the Inventory. Crystal shall have full responsibility and obligation for
the operation of the Locations and for all direct costs (calculated pursuant to Section 5(f) hereinbelow) incurred by
Disney for Crystal’s operation including, but not limited to, the provision of custodial service, merchandise bags and
other guest service expense items. All Equipment and Inventory provided by Crystal at any time during the Term of
this Agreement is subject to Disney’s prior written approval, which approval may be granted or withheld in
Disney’s sole and absolute discretion. Crystal shall be responsible for the daily care and maintenance of the
equipment and supplies necessary to handle the sale of the Inventory (e.g., sales register) at the Locations, the costs
of which shall be borne by Crystal.
(b)
Disney, at its sole cost and expense, shall provide trash pickup and reasonable amounts of
utilities (other than telephone) to certain locations within the Locations for the Term of this Agreement, subject to
any interruptions that may occur due to construction and/or renovation of the Locations and/or causes beyond
Disney’s control. In no event shall Disney be liable or responsible for any interruption or disruption of utility
service, and Crystal hereby waives any and all claims against Disney for any loss, damage and/or expense arising
out of, and/or incurred in connection with, any such interruption and/or disruption. Crystal shall not make
connection to the utilities except by or through existing outlets.
(c)
All freight, handling and similar charges or costs incurred in connection with the shipment of the
Inventory, equipment and supplies to the Locations shall be borne by Crystal. Crystal shall bear the risk of loss for,
and shall procure and maintain adequate insurance against, any delays and/or damages to the Inventory, equipment
and/or supplies during shipment.
(d)
During the Term, Crystal shall be responsible, at its sole cost and expense, to provide
telephone/data service (including. without limitation, high speed internet connections such as DSL, etc,). Crystal
shall, at its sole cost and expense, provide the Services and the Inventory at the Locations in a safe and efficient
manner and in compliance with all applicable laws, rules, regulations and ordinances and shall keep the Locations
free from trash and debris. Crystal shall be responsible, at its sole cost and expense, for obtaining any and all
licenses and permits required for the operation of its business at the Locations.
(e)
Disney shall have the right to approve, in its reasonable discretion, the prices charged by Crystal
for-the Services and the Inventory. All proposed changes to the pricing must be approved by Disney in writing in
advance in Disney’s reasonable discretion. Notwithstanding the foregoing, except for the calendar year 2003,
Crystal shall have the right to increase the prices charged by Crystal for Inventory up to ten percent (10%) in any
calendar year during the Term without obtaining the prior written approval of Disney.
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(f)
Disney will provide all uniforms for Crystal and its employees. Crystal acknowledges and agrees
that Crystal has no ownership rights in the uniforms. Crystal shall return the uniforms to Disney for cleaning and
maintenance as Disney may require during the Term. Crystal shall keep such uniforms clean and professional at all
times in accordance with Disney’s safety and appearance standards, the condition of which shall be acceptable to
Disney, in its sole and absolute discretion, or to any other persons or entities designated by Disney to make such
determination, in their sole and absolute discretion, whenever Crystal or its employees are performing the Services.
Upon expiration or sooner termination of this Agreement, Crystal shall immediately return the uniforms to Disney.
Crystal will be responsible for reimbursing Disney for Disney’s uniform cleaning, maintenance and /or
replacement costs for Crystal and Crystal’s employees upon receipt of a monthly invoice from Disney. To
the extent any of the uniforms are lost or substantially damaged, as determined by Disney in its sole and absolute
discretion. Crystal agrees to reimburse Disney for the replacement costs of such uniforms at fair market value.
Crystal shall cause its employees to wear Disneyland® Resort nametags, to display Disneyland® Resort parking
stickers on their vehicles, and to obtain Disneyland® Resort identification cards, and Disney may charge Crystal for
such nametags, parking stickers, and identification cards pursuant to Disney’s standard terms and prices set for such
items, which terms and prices are subject to change without notice. Crystal’s employees shall be responsible for
paying Disney for the replacement cost of lost nametags, parking stickers and identification cards.
(h)
Crystal shall, at its sole cost and expense, maintain the Locations to Disney’s specifications and
standards, including, without limitation, janitorial, pest control, warehousing and laundry.
(i)
Crystal shall comply with and abide by, and shall cause its agents, employees, invitees and
licensees to comply with and abide by, all rules, policies and standards of Disney (including, without limitation,
those grooming standards outlined in the Disney Look brochure, and background checks of employees) with respect
to the Locations or any portion thereof of which Crystal has received notice. Crystal shall cause its employees and
agents to comply with and abide by the rules of conduct and appearance standards established by Disney for its own
employees. Crystal shall cause its agents, invitees and licensees to comply with all rules and standards that Disney
uses when Disney hires employees including, without limitation, necessary background checks of such employees
prior to employment. Disney may, from time to time during the Term of this Agreement and in its sole and absolute
discretion, make changes in, additions to and deletions from Disney’s rules, policies and standards. Disney shall
give prior written notice to Crystal of any such changes, additions or deletions. In no event shall Disney’s failure to
advise Crystal in advance of any such change, addition or deletion relieve Crystal of its obligation to comply
therewith. Disney shall have the right to deny access to the Locations to any employee of Crystal who, in Disney’s
sole and absolute discretion, does not meet applicable standards and/or comply with applicable rules or policies.
Employees of Crystal shall, at Crystal’s sole cost and expense, participate in Disney-sponsored orientation and
training programs prior to beginning employment and on a periodic basis thereafter as deemed appropriate by
Disney in its sole and absolute discretion. Disney shall have the right to deny access to the Park to any employee of
Crystal who, in Disney’s sole discretion, does not meet applicable standards or comply with applicable rules or
policies. Disney shall permit Crystal’s employees working at the Locations to use all employee facilities at the Parks
and to park in the applicable Disneyland® Resort employee parking areas if such employees have Disney parking
stickers.
(j)
Crystal acknowledges that the employees used by Crystal to operate its business at the Locations
are employees of Crystal and not employees of Disney. When hiring such employees for the Locations, Crystal, at
its sole cost and expense, shall comply with all rules and standards that Disney uses when Disney hires employees
including, without limitation, necessary background checks of such employees prior to employment. Crystal shall be
responsible for all salaries, employee benefits, social security taxes, federal and state unemployment insurance and
any and all similar taxes relating to its employees and for Workers ’ Compensation coverage with respect thereto
pursuant to applicable law and shall file all required returns and reports with respect to the foregoing. Crystal shall
defend, indemnify and hold Disney and all of its parent, subsidiary, related and affiliated companies and the officers,
directors, agents, employees and assigns of each, harmless from and against any and all claims for such salary, tax
and/or benefit payments. Neither Crystal nor Crystal’s employees shall be entitled to participate in, or to receive, any
of Disney’s employee benefit or welfare plans, specifically including, but not limited to, coverage under Disney’s
Worker’s Compensation program, and neither Crystal nor Crystal’s employees shall be deemed an agent of Disney
for purposes of this Agreement. Disney may (if requested by Crystal), but shall not be required to, assist Crystal in
its hiring efforts for the Locations. Disney shall have no obligation whatsoever to compensate Crystal or Crystal’s
employees on account of any damages and/or injuries which may be sustained as a result of or in the course of
performance of Crystal’s Services hereunder. The indemnification provisions contained in this paragraph shall
survive, indefinitely, the expiration or earlier termination of this Agreement and shall not be limited by the amount of
any insurance required to be maintained hereunder.
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(k)
Crystal shall not sell food or beverages in the Locations. Crystal shall not offer for sale or
otherwise distribute any merchandise other than the Inventory at or from the Locations without the express prior
written consent of Disney, which consent Disney may grant or withhold in its sole and absolute discretion. Crystal
shall not offer for sale or otherwise distribute any merchandise similar to merchandise sold by Disney at other
locations in the Resort. Disney shall have the right to approve, in its reasonable discretion, the prices charged by
Crystal for any Inventory offered for sale from the Locations.
(I)
Disney shall have the right to approve the design and quality of the Services and the Inventory,
including, without limitation, theming, packaging, quality, safety, quantity and appropriateness, which approvals
Disney may grant or withhold in its sole and absolute discretion; provided, however, that nothing contained in this
sentence shall relieve Crystal of its obligation to ensure that all Inventory produced, sold and/or offered for sale in
the Locations is in compliance with applicable federal and state law as well as local codes. Disney shall have the
right to provide any signage and additional equipment at Crystal’s sole expense as deemed necessary in Disney’s
sole and absolute discretion.
(m)
Crystal shall produce and provide the Inventory for sale at the Locations on each day the
applicable Park and/or Downtown Disney is open during the hours specified by Disney from time to time (unless
otherwise Instructed or approved by Disney). Upon request by Disney, Crystal shall provide the Services and the
Inventory during certain events held at the Parks and Downtown Disney, including, without limitation, private
parties and Grad Nites. Crystal acknowledges that these events may be held after the scheduled closing time of the
applicable Park and/or Downtown Disney.
(n
Disney may close either Park and/or Downtown Disney, or both Parks and/or Downtown
Disney, and/or portions thereof (and may instruct Crystal to close the Locations, or portions thereof), for up to forty
five (45) days per calendar year during the Term hereof (“Excused Closings”), which may or may not be
consecutive, for any maintenance, repair and/or rehabilitation of the applicable Park and/or Downtown Disney
(and/or for any construction, maintenance, repair and/or rehabilitation within the applicable Park and/or Downtown
Disney which affects the operation of the Locations) which Disney deems necessary or desirable, in its sole and
absolute discretion, and for such other business reason as Disney deems appropriate, in its sole and absolute
discretion. Any Excused Closings of the applicable Park and/or Downtown Disney, the Locations or portions
thereof as aforesaid shall be without claim by or compensation to Crystal. Prior to the expiration of the Term of this
Agreement, a determination will be made as to whether Disney has caused the Locations to be closed to the public
after the opening thereof in excess of the number of days permitted under this paragraph (hereinafter referred to as a
“Non-excused Closing”), If there has been a Non-excused Closing, Disney shall grant to Crystal an extension of
the Term with respect to Crystal’s operation of the Locations for a period of time equivalent to the period of such
Non-excused Closing, such extension to constitute Crystal’s sole remedy as a result thereof.
(o)
Crystal shall place no signs, posters or similar materials in or about the Locations or Locations
without the prior written approval of Disney, which approval Disney may grant or withhold in its sole and absolute
discretion.
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(p)
Disney shall have access to the Locations and all portions thereof at all reasonable times for
purposes of inspecting the operation, sanitation and maintenance thereof and reviewing the level of Crystal’s
compliance with its obligations under this Agreement and with all applicable laws.
(q)
Disney shall have the right to approve the design and quality of all items, if any, selected by
Crystal for use in the sale of the Inventory and the operation of the Locations such as equipment, fixtures,
decorations, signage, etc., which approval Disney may grant or withhold in its sole and absolute discretion.
4.
THIRD PARTY AGREEMENTS.
(a)
Disney shall have the right to enter into agreements with third parties pursuant to which said third
parties are identified in signage, on magazines and/or otherwise in and/or at the Locations, and any fees payable by
any said third party shall be for Disney’s account. Should Crystal enter into any agreements with third parties
pursuant to which said third parties are so identified, which it may do only with the prior express written approval of
Disney (which approval Disney may grant or withhold in its sole and absolute discretion), then any fees collected
from any said third party shall be for Disney’s account. Nothing herein contained shall be deemed to authorize
Crystal to grant to third parties any of the rights granted to it by Disney pursuant to this Agreement.
(b)
Crystal recognizes that certain agreements entered into by Disney with third parties contain
provisions obligating the use and/or availability of said third parties’ products and/or services, and/or restricting the
use and/or availability of products and/or services which compete with said third parties, in the Parks, the Locations
and/or in the Locations. Accordingly, Crystal shall, if requested by Disney, conform its use of, the merchandise sold
in, and the operation of the Locations in accordance with provisions agreed to by Disney in such agreements with
third parties. Disney may, in its sole and absolute discretion, hereafter enter into any agreements with third parties
which contain such commitments affecting the Locations, and Crystal shall, if requested by Disney, conform its use
of, the merchandise sold in, and the operation of the Locations with such provisions at Disney’s cost.
5.
FEE FOR SERVICES/OTHER PAYMENTS,
(a)
Crystal’s compensation for the Services shall be based solely on the Services provided.
(b)
All sales at the Locations are to be handled by Disney’s personnel whether on-site or by mail
order or drop shipping. Crystal shall not accept any money from guests but shall refer all sales transactions,
including, without limitation, special orders and mail orders, to Disney personnel for processing through cash
registers in accordance with Disney’s standard sales procedures.
(c)
Disney shall collect the compensation from the guests and shall pay to Crystal a fee (“Fee”) of
sixty percent (60%) of gross revenues from retail sales from the Locations, less applicable sales, use, excise or other
taxes. Disney shall retain the remaining gross revenues from retail sales from the Locations. The term “gross
revenues from retail sales from the Locations” is defined as “all monies and other things of value received by, or
paid to, Disney and all credit extended by Disney, arising upon, out of or in connection with the Locations during
the Term, plus the amount of any applicable sales, use, excise or other Taxes, less the amount of any of Crystal’s
merchandise and/or products which are returned to Disney or replaced by Disney, less the amount of any refunds
made by Disney in connection with the Locations, less the amount of any cancelled orders for Crystal’s merchandise
or products, and less the amount of any shipping charges for merchandise and/or products shipped to guests”. The
Fee shall be payable within fifteen (15) business days of the close of previous fiscal month’s retail sales; however,
six (6) months after the commencement of the Term, Disney agrees to reevaluate whether, based on Disney’s
financial system upgrade, Disney can pay the Fee to Crystal on a weekly or bi-weekly schedule.
5
(d)
Disney shall maintain complete and accurate records evidencing the gross revenues from retail
sales from the Locations. Disney agrees to make available to Crystal once each calendar year, upon thirty (30) days’
prior written request by Crystal, a full, permanent and accurate set of Disney’s accounting books and records
relating solely to gross revenues from retail sales from the Locations. Crystal will have the right, at its sole cost and
expense, to audit said books and records. Disney agrees to keep all such books and records for at least three (3)
years following the expiration or sooner termination of this Agreement.
(e)
Disney reserves the exclusive right, throughout the Term hereof, to have sole control over the
Locations and Crystal shall have no rights or interest therein, which control may include, but is not limited to:
admission to the Parks and Downtown Disney and to the various facilities therein and to approve, in its reasonable
discretion, the rates and prices for the services and merchandise at the Locations, all of which shall be for Disney’s
account, the establishment of the hours of operation at the Locations which need not be the same as the hours of
operation of the Parks or Downtown Disney or the various facilities therein, the establishment of the schedule for
maintenance, repair and rehabilitation of the Locations, the promulgation of strict standards and rules for the
appearance, sanitation, cleanliness and maintenance of the Locations and for the conduct, courteousness and
appearance of persons employed therein, and the promulgation of strict standards and rules for the preservation of
good order with respect to the Locations and for the health, comfort and convenience of the patrons and guests
thereof. At all times, Crystal shall have no rights or interest, implied or otherwise, in any revenues realized from the
Locations (other than from the sale of the Inventory), the sale of food, beverage, merchandise or any other items
offered or the various facilities therein.
(f)
Any services of Disney’s personnel which are subject to reimbursement by Crystal shall be
invoiced at Disney’s direct costs for such services (i.e. payroll costs, including, without limitation, payroll taxes and
fringe benefit costs) (at the Disney composite rate, as computed annually) plus overhead items directly related to
those services, such as supervision, small tools, owned equipment, training, etc, (expressed as a percentage of direct
labor costs and recomputed annually) plus twenty percent (20%) of all direct labor costs to cover administrative
overhead. Materials shall be invoiced at net cost to Disney, plus three percent (3%) thereof to cover overhead. Any
other services performed on behalf of Disney by any person not a party to this Agreement shall be billed at net cost
to Disney, plus five percent (5%) to cover overhead.
(g)
Disney shall be entitled to reduce by the same percentages that Disney does so for its own
employees (provided, however that the highest percentage shall not exceed thirty-five (35%)), the sales price of
Inventory sold to employees of Disney and of its parent, subsidiary, related and affiliated companies, and Disney
shall reduce by the following percentages the sales price of merchandise and/or services in any Disney-owned and
operated retail shop sold to Crystal employees if Disney does so for its own employees with respect to the same
merchandise and/or services and in the same retain shop. Said percentages are currently as follows:
(i)
all employees who have at least three (3) years of service based on their hire date (and
their spouses), who are currently receiving a thirty-five percent (35%) reduction shall continue to receive a
thirty-five percent (35%) reduction; and
(ii)
all other employees not otherwise described above and their spouses shall receive a
twenty percent (20%) reduction; provided, however, that if any of Crystal’s employees are already receiving
a thirty-five percent (35%) reduction as discussed in subsection (i) above, such employee shall continue to
receive a thirty-five percent (35%) reduction.
6.
MAINTENANCE AND REPAIR.
(a)
Disney’s obligation to provide the Locations, as set forth in Section 2, shall include the obligation
to routinely clean and maintain the surrounding area of the Locations, at Disney’s sole cost and expense. Crystal
shall be responsible for the maintenance costs of and all other costs and expenses for all items and elements in the
Locations, including, but not limited to, the following: equipment, supplies, signs, decorations, and Crystal’s
Property (as defined in Section 20 below).
6
(b)
Unless otherwise approved by Disney, Disney shall provide all repair and rehabilitation of the
Locations which it reasonably deems necessary or desirable, in its sole and absolute discretion, at Crystal’s sole cost
and expense, except for those items which are at Disney’s expense pursuant to Section 6(a). If the Parties determine
that a major rehabilitation of the Locations is required, then Disney shall perform the work and Crystal shall
reimburse Disney for all costs and expenses incurred by Disney in connection with such repair and/or rehabilitation,
in accordance with Section 5(f) above. Disney may, but shall not be required to, permit Crystal to provide some or
all of such repair and rehabilitation work, provided that any such repair or rehabilitation work shall be subject to
such conditions as Disney may establish in its sole and absolute discretion.
7.
SALES TAX.
Amounts retained by Disney or paid to Disney under this Agreement may be subject to tax. Accordingly,
the applicable sales, use, excise or other taxes on such amounts shall be deducted from Crystal’s Fee and retained by
Disney or paid to Disney by Crystal, as appropriate. Crystal shall be responsible for and shall pay any and all
personal property taxes and/or assessments on Crystal’s Property, the Inventory, and the Equipment.
8.
WARRANTIES.
Crystal hereby represents and warrants to Disney:
(a)
that Crystal has the experience and skill to operate its business as required hereunder;
(b)
that Crystal shall comply with all applicable federal, state and local laws and regulations,
including, without limitation, all professional registrations, the comprehensive operating plan therefor prepared by
Crystal and having the prior approval of Disney, which approval Disney may withhold in its sole and absolute
discretion, and such rules, regulations and standards as Disney may establish from time to time, and that Crystal
shall provide Disney, on an annual basis during the Term of this Agreement, copies of any applicable business
licenses including, but not limited to, its City of Anaheim Business License to evidence such compliance;
(c)
that Crystal shall operate its business in a manner consistent with the quality of the operation of
the Parks Downtown Disney and shall provide its customers that same professional level of customer service as the
Parks and Downtown Disney accord their guests;
(d)
hereunder;
that Crystal is adequately financed to meet any financial obligation it may be required to incur
(e)
that Crystal is not, and will not be, under any disability, restriction or prohibition with respect to
Crystal’s right to fully perform hereunder in accordance with the terms and conditions of the Agreement;
(f)
that Crystal has the requisite power and authority to execute, deliver and perform its obligations
under this Agreement, that all consents, approvals, notices and/or filings with any other person (including, without
limitation, shareholders and/or affiliates) required for the execution, delivery and performance of its obligations
under this Agreement have been obtained or waived, without violation or breach of any applicable law and/or
agreement, understanding and/or arrangement to which it is a party and/or by which its property is bound:
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(g)
that Crystal shall provide the Inventory and otherwise perform the Services hereunder in
accordance with generally accepted professional standards, and that all Inventory and Services shall be in good taste
with due regard to Disney’s reputation and standards as determined by Disney in its sole and absolute discretion;
and
(h)
that the Inventory shall not contain any images which are profane, obscene, insulting or
otherwise unsuitable for family-oriented entertainment including, but not limited to, any images which portray any
Disney character in such a manner, as determined by Disney in its sole and absolute discretion.
All representations and warranties made by Crystal in this Agreement shall survive the expiration or earlier
termination of this Agreement,
9.
PROMOTIONAL RIGHTS OF DISNEY.
Notwithstanding any other provision of this Agreement to the contrary, Disney and. its parent, related,
affiliated, and subsidiary companies shall have the right to photograph, take motion pictures of, televise, make
miniatures of and/or otherwise reproduce in any manner and/or through any media the Inventory, the Locations or
any portion thereof, and to display, use, sell, license and/or exploit in any manner any such pictures and/or other
reproductions for any purpose whatsoever, commercial and/or otherwise, connected with promoting, advertising
and/or publicizing the Inventory and/or the Locations. Crystal shall obtain, for Disney’s benefit, releases, clearances
and/or other instruments from its employees necessary to permit Disney to make and use and/or permit to be made
and used any photographs, motion pictures and/or other reproductions for any of the purposes herein provided. The
provisions of this section shall survive the expiration or sooner termination of this Agreement.
10.
USE OF DISNEY NAME.
Crystal acknowledges and agrees that it shall acquire no interest in any copyrights, trademarks, service
marks, other intellectual property or intellectual property rights of Disney, its parent, or any of its related, affiliated
or subsidiary companies. Without limiting the generality of the foregoing, except to the extent permitted above by
this Agreement, Crystal shall acquire no right to use, and shall not use the name “Disney” (either alone or in
conjunction with or as part of any other word or name), “Disneyland,” “Disney’s California Adventure,”
“Downtown Disney”, “Disneyland Hotel,” “Disney’s Paradise Pier Hotel” or “Disney’s Grand Californian Hotel”
or any fanciful characters (such as, but not limited to, Mickey Mouse), designs or other intellectual property of
Disney or any of its parent, related, affiliated or subsidiary companies; (a) in any of Crystal’s advertising, publicity
or promotion; (b) to express or imply any endorsement by Disney of Crystal’s business or Inventory; or (c) in any
other manner or for any purpose whatsoever (whether or not similar to the uses prohibited by Sections 10(a) and
10(b) hereinabove). The provisions of this Section 10 shall survive the expiration or earlier termination of this
Agreement.
11.
INSURANCE: INDEMNIFICATION.
(a)
Crystal shall provide and keep in force during the Term of this Agreement:
(i)
a policy or policies of Commercial General Liability Insurance (including products
liability and contractual coverage) and Automobile Liability Coverage (for all vehicles), with minimum limits of Two
Million Dollars ($2,000,000) and One Million Dollars ($1,000,000), respectively, combined single limit per
occurrence, protecting Crystal, Disney, Disney’s parent, related, affiliated and subsidiary companies and the
officers, directors, agents, employees and assigns of each, from any and all losses and/or liability resulting from
personal injury, death and/or property damage (i) arising from and/or occurring in and/or about the Locations and/or
(ii) by reason of the operation and/or maintenance of the same and/or (iii) by reason of the use, consumption, sale
and/or offer for sale of the Inventory therein and/or therefrom and/or (iv) from and/or in connection with the
performance of the Services hereunder and/or out of any act and/or omission of Crystal, its officers, directors,
agents and/or employees;
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(ii)
All-Risk Extended Coverage Property Damage insurance, or Crystal may self-insure for the coverage
required under this subsection, for Crystal’s Property and Equipment within the Locations, all on a replacement
cost basis;
(iii)
Workers’ Compensation insurance, as required by law, covering all persons employed by Crystal in
connection with the performance of the Services of any nature in and/or about the Locations, and employers’
liability insurance with minimum limits of One Million Dollars ($1,000,000) per occurrence with respect to any
employee not covered by Workers’ Compensation;
(iv)
Fire legal liability insurance in the amount of Two Hundred Fifty Thousand Dollars ($250,000) per
occurrence covering any damage to or destruction of the Locations and/or loss of its contents, from whatever
cause; provided, however, that Disney shall have the right, from time to time, to require Crystal to increase the
amount of such insurance to the amount of the deductible on any fire and extended coverage policy Disney
maintains in respect of the Locations;
(v)
Professional Liability insurance (including, without limitation, contractual coverage), with a minimum
limit of One Million Dollars ($1,000,000), protecting it and Disney from errors and omissions of Crystal in
connection with the performance of Crystal’s services hereunder during and for a period of at least three (3) years
after the expiration or earlier termination of this Agreement (including, without limitation, an endorsement covering
the indemnification provisions herein); and
(vi)
such further insurance as Disney may request, upon written notice by Disney to Crystal, in adequate
amounts, against reasonable and foreseeable risks commonly insured against in the case of similar operations.
All such insurance policies shall be issued by responsible companies approved by Disney, which approval Disney
may grant or withhold in Disney’s sole and absolute discretion, who have a BEST Guide rating of at least B+VII
or better. Certificates of insurance (or copies of policies, if required by Disney) shall be furnished by Crystal or its
insurance agent to Disney at the address listed below, and such policies shall include Disney, its parent, and all
affiliated, subsidiary and related companies as additional insureds and contain a waiver of subrogation against
additional insureds (The additional insured requirement shall apply to all coverages except Workers’ Compensation
and Employer’s Liability. The waiver of subrogation shall apply to all coverages). All policies shall require thirty
(30) days’ unrestricted prior written notice to Disney of any cancellation thereof or change affecting coverage
thereunder at the following address;
DISNEYLAND RESORT
Attn: Vice President, Merchandise
1313 South Harbor Boulevard
Anaheim, CA 92803
(b)
Crystal shall indemnify, defend (at Disney’s request with counsel acceptable to Disney), and hold
Disney and its parent, related, affiliated and subsidiary companies and the officers, directors, agents, employees
and assigns of each, harmless from and against any and all claims, suits, demands, damages, causes of action,
losses, liabilities, costs and expenses (whether based on tort, breach of contract, patent and/or copyright
infringement, product liability and/or otherwise), including, without limitation, attorneys’ fees and costs and other
costs of litigation (collectively, “Losses”), arising in any way from and/or out of and/or based on Crystal’s use
and/or operation of the Locations; the falsity of any warranties set out herein; the use, consumption, sale and/or
offer for sale of the Inventory therein and/or therefrom; any act and/or omission of Crystal, its officers, directors,
agents and/or employees; and/or any breach and/or alleged breach of any of Crystal’s representations, warranties,
obligations and/or agreements hereunder. The provisions of this Section 1 l(b) shall survive, indefinitely, the
expiration or earlier termination of this Agreement and the indemnities set forth in this Agreement shall not be
limited by the amount of insurance required to be maintained hereunder.
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12.
RIGHT TO RELOCATE.
Disney shall have the right to relocate the Locations, or any portion thereof, within the Parks and/or Downtown
Disney due to redevelopment and/or enhancement of either or both Parks and/or Downtown Disney and/or for
other business reasons in Disney’s sole and absolute discretion, provided that:
(a)
The new Locations need not be the same size, dimension and configuration as the current Locations, or
portion thereof, but shall be reasonably acceptable to Crystal;
(b)
The physical relocation of Crystal’s Equipment and decorations within the Locations, or portion thereof,
shall be accomplished by Crystal at its sole cost and expense; and
(c)
Disney gives Crystal at least three (3) days’ notice of Disney’s intention to relocate the Locations, or
portion thereof.
13.
TERMINATION.
(a)
During the Term of this Agreement, either Party may terminate and cancel this Agreement for its own
convenience and for any or no reason upon not less than thirty (30) days’ prior written notice of termination to the
other Party. Any notice, of termination or otherwise, of this Agreement by either Party shall be in writing and,
unless a later effective time is set forth therein, shall be effective upon deposit thereof in the U.S. mail, registered or
certified mail, or, if otherwise delivered, upon receipt thereof by the other Party hereto. The provisions of Sections
3(j), 5, 6, 7, 8, 9, 10, 11, 18, 20, 25, 29, 30, 32 and 33 shall survive the expiration or earlier termination of this
Agreement
(b)
Disney may immediately cancel and terminate this Agreement if any license or permit required by
applicable law for the operation of Crystal’s business at the Locations or any part thereof (including, but not limited
to, business licenses, health permits, etc.) is suspended or revoked through no fault of Disney or if Crystal
breaches its obligations under Section 10.
(c)
Except as otherwise specifically provided herein, either Party may cancel and terminate this Agreement if
the other Party shall fail to perform any other term, covenant or condition hereof on its part to be performed and
such non-performance shall continue for a period of twenty-four (24) hours after notice thereof to the Party so
failing to perform (or if such performance cannot be accomplished reasonably within such twenty-four (24) hour
period, said Party has not in good faith commenced such performance within such twenty-four (24) hour period
and has not thereafter diligently proceeded to completion of the cure).
(d)
Upon the termination of this Agreement, Crystal shall pay Disney any sums due it in the same manner as
provided in Section 5 hereof, pursuant to applicable laws, and Crystal shall immediately and peaceably vacate and
surrender the Locations. The parties shall further reconcile between themselves any amounts due and owing to each
other under this Agreement up to the date of said termination. The rights and remedies set forth in this Section 13
shall constitute the sole rights and remedies of each party as a result of the other party’s breach hereof.
(e)
Upon the expiration or earlier termination of this Agreement, for whatever reason, Crystal shall assign to
Disney, to the extent permitted by law (and shall execute any and all documents necessary to effect such
assignment) any and all licenses and permits obtained by Crystal in connection with its operation of the Locations,
at no cost to Disney,
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(f)
Crystal hereby irrevocably waives any right to injunctive relief or right of recision, and hereby agrees that
Crystal’s sole and exclusive remedy in the event of any breach and/or alleged breach, termination and/or
cancellation of this Agreement by Disney shall be an action for monetary damages.
(g)
Any termination of this Agreement by Disney shall be without prejudice to any other rights, remedies
and/or defenses available to Disney under this Agreement, under law, in equity and/or otherwise.
14.
CASUALTY LOSS.
In the event of a casualty loss resulting in substantial damage to, or destruction of, the Locations, or any portion
thereof, Disney shall have the option of restoring the same at its own cost and expense (except for Crystal’s
Property which Crystal shall replace at its sole cost and expense) or of terminating this Agreement without liability
or obligation to Crystal.
15.
CRYSTAL’S INSOLVENCY.
Notwithstanding anything to the contrary contained in the Agreement, either (a) the appointment of a receiver to
take possession of all or substantially all of the assets of Crystal, or (b) a general assignment is made by Crystal for
the benefit of creditors, or (c) any petition filed by Crystal under the Federal Bankruptcy Act or the insolvency law
of any state, or (d) any petition filed against Crystal under the Federal Bankruptcy Act or the insolvency law of any
state, which appointment, assignment or petition is nor discharged within ninety (90) days of the date on which the
petition is filed, the assignment is made, or the appointment is made shall entitle Disney to cancel the Agreement,
immediately upon notice to Crystal.
16.
ABANDONMENT.
Crystal shall not vacate or abandon the Locations at any time during the Term. If Crystal shall abandon, vacate or
surrender any of the Locations, or be dispossessed by process of law, or otherwise, any personal property
belonging to Crystal and left at the Locations shall be deemed abandoned, at the option of Disney, except such
property as may be mortgaged to Disney. After receipt by Crystal of written notice of abandonment the absence of
Crystal and its agents from the Locations or the failure of Crystal to be open for business in accordance with
Section 3 hereof for seven (7) consecutive business days shall conclusively be deemed an abandonment.
17.
UNLAWFUL OCCUPANCY.
Notwithstanding anything to the contrary contained in the Agreement, if through no fault or lack of diligence on the
part of Crystal, Crystal is unable to obtain, retain or renew any of the legal approvals, conditional use permits or
other governmental approvals needed for its lawful occupancy of the Locations for the permitted use hereunder, or
if following the execution of this Agreement a new law, governmental regulation or zoning or regulatory condition
shall be enacted which shall have the effect of materially restricting or taxing Crystal’s proposed operations in the
Locations for the permitted use, Crystal may, in either such event, terminate this Agreement upon seven (7) days’
prior written notice to Disney and upon such termination, Disney shall have no further liability or obligation to
Crystal whatsoever in connection with this Agreement.
18.
DETERMINATION OF DISPUTES.
Except as otherwise provided herein, any dispute, difference, claim and/or counterclaim between Crystal and
Disney arising out of and/or in connection with this Agreement, and/or arising out of and/or in any way connected
with the Locations and/or its operation and/or maintenance shall be submitted to the Superior Court in and for the
County of Orange, California (or if the Superior Court shall not have jurisdiction over the subject matter thereof,
then to such other court in Orange County having subject matter jurisdiction) for trial and determination. The
Parties hereby consent to the jurisdiction of such courts. Crystal consents to the service of process outside of the
State of California pursuant to the requirements of such court in any matter so to be submitted to it and expressly
waives all rights to a trial by jury regarding any such matters.
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19.
FORCE MAJEURE.
If the performance by either Party of its respective non-monetary obligations under this Agreement is delayed or
prevented in whole or in part by acts of God, fire, floods, storms, explosions, accidents, epidemics, war, civil
disorders, strikes and/or other labor difficulties, shortages and/or failure of supply of materials, labor, fuel, power,
equipment, supplies and/or transportation, and/or by any law, rule, regulation, order and/or other action adopted
and/or taken by any national, regional and/or local governmental authority and/or by any other cause not reasonably
within its control, whether or not specifically mentioned herein (“Force Majeure”), it shall be excused, discharged
and released of performance to the extent such performance or obligation is so limited or prevented by such cause
without liability of any kind provided that such Party shall give prompt notice of the existence, anticipated effect
and anticipated duration of the Force Majeure, and act with reasonable diligence to minimize its effect and duration.
Nothing herein contained shall be construed as requiring Disney to accede to any demands of labor or labor
unions, suppliers or others not a party hereto. A revocation or suspension by a governmental authority of a license
or permit required for the operation of the Locations or any portion thereof shall not be an event of Force Majeure
if an act and/or omission of Crystal gave rise thereto.
20.
OWNERSHIP AND DISPOSITION OF PROPERTY.
(a)
Crystal has no rights of ownership in or to the Locations, the Locations or the contents thereof; provided,
however, that Crystal shall hold title to and be the owner of all personal property within the Locations and/or any
storage areas at the Locations brought by Crystal, including, without limitation, the Equipment and Inventory (the
“Crystal Property”) subject to the limitations hereinafter set forth:
(i)
All of the property, including, without limitation, the Crystal Property, which is an integral part of the
Locations shall remain in and part of such Locations during the Term of this Agreement; provided, however, that
Crystal may, from time to time, replace its Inventory and/or Equipment with more updated or modern versions of
the same or similar type, subject to Disney’s approval, which approval may be granted or withheld in Disney’s
sole and absolute discretion.
(ii)
Except as provided herein, none of the Crystal Property created, designed, manufactured or assembled
for Crystal by Disney, its parent, related, affiliated and/or subsidiary companies, shall be moved from the Locations
or assigned, sold, pledged or mortgaged by Crystal, and Crystal shall not have the right to otherwise use or transfer
any copyrights, proprietary rights or information of Disney to said Crystal Property.
(iii)
Notwithstanding Crystal’s ownership of the Crystal Property, Disney shall retain the right to otherwise
use, in any manner it deems appropriate, the patent rights, copyrights, ideas, inventions, know-how and other
confidential and proprietary rights and information relating to the Crystal Property created, designed, manufactured
and/or assembled for Crystal by Disney, its parent, related, affiliated and/or subsidiary companies.
(b)
Crystal shall bear all risk of loss of (including, without limitation, theft), and/or damage to, the Crystal
Property. Crystal hereby waives, on its own behalf and on behalf of anyone claiming by, through and/or under it
(whether by way of subrogation and/or otherwise), any rights it may now have and/or hereafter have against
Disney, its parent, and/or any related, affiliated and subsidiary companies of Disney arising out of said loss and/or
damage.
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(c)
Crystal shall remove the Crystal Property at its sole cost and expense upon the expiration or earlier
termination of this Agreement and repair any damage to Disney’s property and/or the Locations resulting from
such removal unless such damage is caused solely by Disney. If Crystal shall fail to so remove the Crystal
Property, Disney may, at its option, either remove and dispose of any or all of the same at Crystal’s expense or
retain the same, in which latter event all right, title and interest therein shall pass to and vest in Disney.
21.
CHANGE OF NAMES, SUCCESSORS AND ASSIGNS.
(a)
Crystal recognizes that Disney would not have entered into this Agreement but for the favorable
reputation of Crystal and its name. Accordingly, Disney shall have the right to terminate this Agreement by giving
written notice of termination to Crystal if, at any time during the Term, Disney reasonably believes that the public
acceptance and/or popularity of Crystal’s corporate name, trade name and/or reputation should become impaired, if
Crystal should become involved in matters which could detract therefrom, and/or if Crystal’s business and/or
nature reasonably changes from that in existence as of the date of this Agreement.
(b)
Crystal shall have no right to license, sub-license, lease or assign any of its rights hereunder, nor shall the
same be assignable by operation of law, without the prior written consent of Disney, which consent Disney may
grant or withhold in its sole and absolute discretion. If the ability to control Crystal shall pass from Steven Rhodes,
either voluntarily or by operation of law, to any other person, firm or corporation (other than, in the event of the
death of Steven Rhodes, to his executor or administrator and then to his heirs), such transfer shall be deemed an
assignment of this Agreement requiring the prior written approval of Disney.
(c)
This Agreement shall inure to the benefit of and be binding upon Disney’s successors and assigns, and
Disney shall have the right to pledge, hypothecate, create a security interest in, assign and/or otherwise transfer any
or all of its rights under this Agreement, including, without limitation, the right to mortgage and/or create a security
interest in the Locations and/or the Locations, the fees to be derived by Disney pursuant to this Agreement and/or
revenues to be derived by Disney from admission and/or entry fees and charges.
22.
CONDEMNATION.
If the Locations and/or the Locations shall be taken or condemned for any public or quasi-public use or purpose, or
if the use thereof shall be so taken or condemned for any period of time by right of eminent domain or by purchase
in lieu thereof, then this Agreement shall terminate as of the date of the vesting of title (or possession, if title is not
taken) in the condemning authority. Crystal shall not be entitled to share in any award to Disney as a result of the
taking.
23.
WAIVERS.
Any failure by either Party to insist upon or enforce performance by the other Party of any of the provisions of this
Agreement or to exercise any rights or remedies under this Agreement or otherwise by law shall not be construed
as a waiver or relinquishment of such Party’s right to assert or rely upon the provision, right, or remedy in that or
any other-instance; rather the provision, right, or remedy shall be and remain in full force and effect.
24.
NOTICES.
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If to Crystal:
Attn: Steven Rodes
2120 Hidden Pine Lane
Apopka, FL 32712
Crystal Magic, Inc.
If to Disney:
Attn: Vice President Merchandise
700 W. Ball Road
Anaheim, California 92802
Disneyland Resort
With a copy to:
Attn: Office of Counsel
1313 South Harbor Blvd.
Anaheim, California 92803
Disneyland Resort
or to such other address as either Party may direct by notice given to the other as hereinabove provided.
25.
NONDISCLOSURE OF CONFIDENTIAL INFORMATION
Crystal may, during the course of providing the Services hereunder, have access to and/or acquire confidential
and/or proprietary information of and/or relating to, Disney, its parent, related, affiliated and/or subsidiary
companies and/or information of advantage and/or value to Disney, its parent, related, affiliated and/or subsidiary
companies and which is not accessible or known by the general public. Any such information, regardless of form,
acquired by Crystal in the course of providing its services herein, whether or not receipt of such confidential
information is inadvertently obtained shall not be used, published or divulged, in any form, (i) by Crystal to any
other person, firm or corporation, (ii) in any advertising or promotion regarding Crystal, or (iii) in any manner or
connection whatsoever without first having obtained Disney’s prior written permission, which permission Disney
may grant or withhold in its sole and absolute discretion. Crystal agrees that any suggestions, ideas, information,
documents or things which it discloses to Disney shall not be subject to an obligation of confidentiality by Disney,
and Disney shall not be liable for any use or disclosure thereof, unless there is a prior written agreement to the
contrary between the Parties. The provisions of this Section shall survive the expiration or earlier termination of
this Agreement.
26.
SIGNATURE AUTHORITY/NO OFFER.
The person who executes this Agreement on behalf of either party hereto expressly represents and warrants that
he/she has full and complete authority to do so, knowing that the other party intends to rely solely thereon. This
document does not constitute an offer by any Party to the other Party. When executed by any Party, it shall
constitute an offer by said Party to the other Party irrevocable for a period of five (5) days after receipt by the other
Party and, upon execution by all Parties, and delivery to all Parties, shall constitute a binding agreement between
the Parties.
27.
ENTIRE AGREEMENT.
The provisions contained herein constitute the entire agreement between the Parties, with respect to the subject
matter hereof and supersede any prior negotiations, agreements, understandings and/or arrangements between the
Parties with respect to the subject matter hereof. Further, no statement or inducement with respect to the subject
matter hereof by either Party or by any agent or representative of either Party which is not contained in this
Agreement shall be valid or binding as between the Parties. This Agreement may not be amended except by a
subsequent written agreement executed by the Parties hereto.
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28.
SEVERABIUTY.
If any term, provision, covenant or condition of this Agreement is held by a court of competent jurisdiction to be
invalid, void or otherwise unenforceable, the remainder of the provisions shall remain in full force and effect.
29.
GOVERNING LAW.
This Agreement is made in and shall be governed by the laws of the State of California applicable to contracts
made and to be fully performed in California without regard to any choice of law provisions thereof. Any legal
proceeding of any nature brought by either Party against thy other to enforce any right or obligation under this
Agreement, or arising out of any matter pertaining to this Agreement shall be submitted for trial, without jury,
before the Superior Court in and for Orange County, California; or, if the Superior Court does not have
jurisdiction, then before the United States District Court for the Central District of California; or, if neither of such
courts shall have Jurisdiction, then before any other court sitting in Orange County, California, having subject
matter jurisdiction. The Parties hereby consent to the jurisdiction of such court and to the service of process outside
the State of California pursuant to the requirements of such court in any matter so to be submitted to it, and
expressly waive all rights to trial by jury regarding any such matters.
30.
EXCEPT FOR THE INDEMNITY IN SECTION 11(b) AND EXCEPT FOR PERSONAL INJURY
(INCLUDING, WITHOUT LIMITATION, DEATH) AND PROPERTY DAMAGE, IN NO EVENT SHALL
DISNEY BE LIABLE TO CRYSTAL UNDER OR IN CONNECTION WITH THIS AGREEMENT FOR
ANY LOSS OF PROFIT OR ANY OTHER COMMERCIAL DAMAGE, INCLUDING, WITHOUT
LIMITATION, INCIDENTAL, CONSEQUENTIAL, SPECIAL, EXEMPLARY, PUNITIVE OR OTHER
DIRECT OR INDIRECT DAMAGES OF ANY NATURE, FOR ANY REASON, INCLUDING, WITHOUT
LIMITATION, THE BREACH OF THIS AGREEMENT OR ANY EXPIRATION OR EARLIER
TERMINATION OF THIS AGREEMENT, WHETHER SUCH LIABILITY IS ASSERTED ON THE BASIS
OF CONTRACT, TORT (INCLUDING, WITHOUT LIMITATION, NEGLIGENCE AND/OR STRICT
LIABILITY) OR OTHERWISE, EVEN IF DISNEY HAS BEEN WARNED OF THE POSSIBILITY OF
SUCH DAMAGE OCCURRING. THE PROVISIONS OF THIS SECTION 30 SHALL SURVIVE THE
EXPIRATION OR EARLIER TERMINATION OF THIS AGREEMENT.
31.
NO AGENCY.
In the performance of Crystal’s Services hereunder, Crystal shall be an independent contractor and not an agent,
employee, partner or joint venturer of Disney or its parent, related, affiliated or subsidiary companies, and Crystal
shall not interfere with Disney’s operations.
32.
BROKER AND COMMISSION.
All negotiations relating to this Agreement have been conducted by and between Disney and Crystal without the
intervention of any person or other party as agent or broker. Disney and Crystal represent and warrant to each
other that there are and will be no broker’s commissions or fees payable in connection with this Agreement by
reason of their respective dealings, negotiations or communications.
33.
LICENSE TO USE DISNEY CHARACTERS.
(a)
Disney hereby grants to Crystal a revocable, non-transferable, royalty-free, non-exclusive license to use
the characters identified on Exhibit A, attached hereto and fully made a part hereof, only on the merchandise
identified on Exhibit A. Crystal acknowledges that Disney has adopted the Code of Conduct for Manufacturers
(the “Code”) set forth on Exhibit B. attached hereto and fully made a part hereof, If Crystal, at any time, desires to
utilize a third party to manufacture or produce any of the merchandise identified on Exhibit A, Crystal will notify
Disney of the names and physical street addresses of such third parties (individually, a “Third Party” and
collectively, the “Third Parties”). Disney shall have the right, in its sole and absolute discretion, to approve in
writing all of the Third Parties. If Disney does not approve in writing any Third Party, Crystal shall not use such
Third Party to manufacture or produce the merchandise identified on Exhibit A. If Disney approves a Third Party
in writing. Crystal may use such Third Party to manufacture or produce the merchandise identified on Exhibit A.
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(b)
To the extent Crystal wishes to manufacture or produce any of the merchandise identified on Exhibit A
itself. Crystal shall adopt the Code and shall evidence such adoption by executing a copy of the Code and
delivering the originally executed copy of the Code to Disney prior to Crystal’s commencement of the manufacture
or production of the merchandise identified on Exhibit A.
(c)
Disney shall have the right, in its sole and absolute discretion, to withdraw its approval of any Third
Party at any time. If Disney withdraws its approval of any Third Party, Crystal shall immediately stop using such
Third Party to manufacture or produce the merchandise identified on Exhibit A. provided, however, that Crystal
shall be permitted to sell all of such merchandise in its inventory, unless Disney requires otherwise in writing to
Crystal.
(d)
Disney shall have the right to evaluate and monitor Crystal to ensure that Crystal is only using Third
Parties approved by Disney hereunder to manufacture and produce the merchandise identified on Exhibit A
including, but not limited to, on-site inspections of the Locations and reviews of Crystal’s books and records.
(e)
Crystal shall not sell or use the merchandise identified on Exhibit A at any other location or for any
purpose other than in connection with the Locations, unless approved by Disney, which approval Disney may
grant or withhold in its sole and absolute discretion. Upon the expiration or earlier termination of this Agreement,
Crystal shall return to Disney any remaining inventory of such merchandise.
34.
MISCELLANEOUS.
The GENERAL TERMS AND CONDITIONS attached to this Agreement are hereby fully incorporated herein by
reference.
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be duly executed effective as of the
day and year first above written.
CRYSTAL MAGIC, INC.
DISNEYLAND RESORT, A DIVISION OF, WALT DISNEY
WORLD CO.
By (Signature): /s/ Steven M. Rhodes
Name: Steven M. Rhodes
Title: President
By (Signature):
Name:Michael J. Griggs
Titles: Vice President, Store Operations/Merchandise
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GENERAL TERMS AND CONDITIONS
A.
Control of the Premises. Nothing in this Agreement is intended or shall be deemed or construed to grant
to or confer upon Crystal any rights whatsoever in respect of the Locations, including, without limitation, rights in
connection with the closing, alteration, discontinuance, condemnation or casualty loss thereof. Accordingly,
without limiting the generality of the foregoing, Disney shall have ultimate and unfettered control over the
Locations.
B.
No Represent at ion or Warranties by Disney. Disney makes no representations or warranties whatsoever
in connection with this Agreement, including, without limitation, the condition of the Locations, their suitability for
the use described herein or for any other use, the visibility of the Locations to the guests of the Premises, the
profitability of the Services to be provided at the Locations or the success or failure of the Services to be provided
at the Locations.
C.
Participants. Crystal acknowledges that Disney and its parent, related, affiliated and subsidiary companies
are parties to certain participant agreements and that Disney and its parent, related, affiliated and subsidiary
companies may enter into additional participant agreements in the future, Crystal agrees to comply with the
provisions of such participant agreements as they exist from time to time, Disney shall disclose the relevant
provisions of such agreements to Crystal.
D.
Licenses. Crystal and its employees shall be licensed as required by law. Crystal shall obtain and maintain
throughout the Term, all professional, occupational, equipment, and other licenses and permits required by law to
perform the Services and shall provide copies of such licenses to Disney upon request.
E.
Disney Orientation/Guest Surveys/Meetings. Crystal and its employees shall enroll in, at Crystal’s
expense, and complete the Orientation class and any other Disney class that Disney deems necessary prior to
commencement of the Services or at any time thereafter as Disney may determine in its sole and absolute
discretion. Crystal and its employees shall, if requested by Disney: (i) conduct or participate in guest evaluation and
experience surveys at periodic intervals relating to the Premises and/or the Concession and (ii) attend meetings
called by Disney.
F.
Parking Passes/ID Cards. Disney shall provide Crystal and its employees with parking passes and ID
cards to gain admission to the Premises and to cast parking near the Locations. Upon the expiration or sooner
termination of this Agreement, Crystal shall return to Disney all parking passes and ID cards issued to Crystal and
its employees pursuant to this Agreement.
G.
Additional Services/Disney Standard. Crystal shall pay Disney for any and all services provided by
Disney which are requested by Crystal, including, without limitation, the installation of water lines and fixtures,
electricity lines and sanitary sewer. In addition, to the extent Disney determines that Crystal needs additional
equipment to provide the Services, including, without limitation, lightning rods, Disney shall have the option of
either requiring Crystal to acquire and install such equipment at Crystal’s sole cost and expense or acquiring and
installing such equipment itself and then billing Crystal for such equipment and installation. Further, to the extent
Disney determines that any of the equipment, supplies, signage or any other items or materials used by Crystal in
connection with the Services do not satisfy the Disney standard, as determined by Disney from time to time,
Disney shall have the option of either requiring Crystal to bring such equipment, supplies, signage or any other
items or materials into compliance at Crystal’s sole cost and expense or taking whatever actions are required, as
determined by Disney in its sole and absolute discretion, to bring such equipment, supplies, signage or any other
kerns or materials into compliance and then billing Crystal for such actions.
H.
Late Charges. Any amounts payable by Crystal pursuant to this Agreement which are not paid when due
shall bear interest from the date due until the date paid at the lesser of the maximum rate allowed by law or the
annual rate of eighteen percent (18%) and such interest shall be payable on demand. Crystal shall be responsible
for all costs and expenses that Disney, or its designee, may incur in collecting any amount due from Crystal
hereunder or in enforcing any of Disney’s other rights or remedies under this Agreement, including, without
limitation, attorneys’ fees and fees of other professionals.
I.
Guest Claims. Crystal shall promptly inform Disney of any guest claims or complaints and any such
claims or complaints will be handled exclusively by Disney’s personnel in accordance with Disney’s policies and
procedures then existing.
J.
Change of Location. Disney reserves the right to change the location of the Locations at which Crystal
performs the Services upon seven (7) days’ prior notice to Crystal. Additionally, Disney reserves the right to
introduce new vendors at any location at the Locations who may or may not be in direct competition with Crystal.
K.
Personal Property. All personal property placed upon the Locations by Crystal or any of its employees
(including, but not limited to, inventory, Equipment and supplies) shall remain Crystal’s or its employees’
property, and shall be placed upon the Premises at Crystal’s or its employees’ sole risk. Disney shall not be
responsible for any loss (including, without limitation, theft) of or damage to any of Crystal’s or its employees’
personal property on the Locations, except to the extent such loss or damage was caused solely by the gross
negligence or willful misconduct of Disney. If requested by Disney, Crystal shall give Disney prompt written
notice or any occurrence, incident or accident occurring on the Locations that causes, or threatens to cause, damage
or loss to the Locations or any property contained therein.
17
L.
Crystal’s Employees.
i.
Crystal’s employees, if any, shall be under Crystal’s direct supervision and control. In addition, Crystal
shall comply with, and Crystal shall ensure that each of its employees complies with, all of Disney’s standards,
rules, and regulations which may be in effect from time to time and applicable to employees of entities sponsoring
attractions or corporate displays at the Disneyland® Resort, or any part thereof, including, but not limited to, the
rules of conduct and personal appearance standards established by Disney for its own employees.
ii.
Crystal and its employees, shall: (a) not insult use offensive or profane language or gestures toward or in
the presence of, or argue with or be discourteous to, any guests of the Locations, or any of Disney’s employees or
representatives; (b) not use, possess or be under the influence of alcohol, narcotics, drugs or other hallucinatory
agents while on Disney’s premises; and (c) otherwise comply with any and all rules and regulations promulgated
by Disney from time to time for the protection and safety of Disney’s guests and for their comfort and
convenience.
iii.
Crystal hereby assumes, and releases Disney from, any and all risks to Crystal and its employees in
connection with the Services. Accordingly, Disney shall have no obligation whatsoever to compensate Crystal, or
its employees, on account of any injuries or property damage which Crystal, or its employees, may sustain as a
result of the performance of the Services hereunder, except to the extent such injuries or damage were caused
solely by the gross negligence or willful misconduct of Disney, and Crystal hereby waives, on its own behalf and
on behalf of any persons claiming by, through or under Crystal, any and all rights of recovery which Crystal., or
its employees, may now or hereafter have against Disney on account of any such injury or property damage
sustained by Crystal, or its employees, as a result of the performance of the Services. The provisions of this
Section shall survive the expiration or sooner termination of this Agreement.
iv.
Any persons that assist Crystal in the performance of the Services shall be Crystal’s employees and not
the employees of Disney or its parent, related, affiliated or subsidiary companies, and they, as well as Crystal, shall
not be entitled to participate in any of Disney’s employee benefit or welfare plans, or to receive any of Disney’s
employee benefits. Crystal will pay all salaries and all social security taxes, federal and state unemployment
insurance and any and all similar taxes relating to Crystal and its employees. Crystal shall provide to Disney, upon
request, evidence that Crystal and its employees possess valid visas, passports or other documentation to enable
Crystal and its employees, respectively, to perform the Services.
v.
Crystal acknowledges that Disney has a policy relating to criminal background checks, which policy is
applicable to all prospective new employees and certain existing employees of Disney and its parent related,
affiliated and subsidiary companies employed in connection with the Disneyland Resort, as well as all prospective
new employees and certain existing employees of third panics operating businesses in the Disneyland Resort.
Accordingly, Crystal agrees that, with respect to all prospective new employees of Crystal employed in connection
with the Locations and certain existing employees of Crystal that may be assigned to work in the Locations from
time to time during the Term, Crystal will conduct, at its own expense, criminal background checks in compliance
with the requirements and procedures set forth in such policy, as the same may be amended from time to time
during the Term. Crystal shall comply with such requirements and procedures to the minimum extent set forth in
the policy, and Crystal may, consistent with all applicable laws, wish to conduct more comprehensive or inclusive
employee criminal background searches on its own accord. Crystal shall, at Crystal’s expense, comply with all
laws applicable to the initial retrieval and subsequent use and disclosure of the information it obtains from
conducting such criminal background checks (including, without limitation, the Fair Credit Reporting Act).
P.
Representations and Warranties. Crystal hereby warrants and represents to Disney that: (i) Crystal has the
experience, staff, skill and authority to perform the Services; (ii) Crystal shall comply with all applicable federal,
state and local laws, rules, regulations, codes, statutes, ordinances, and orders of any governmental or regulatory
authority relating to safety; (iii) Crystal is adequately financed to meet any financial obligation Crystal may be
required to incur hereunder; (iv) Crystal has obtained all licenses and permits required to observe and perform the
terms, covenants, conditions and other provisions on its part to be observed or performed under this Agreement;
(v) any material or work product provided by Crystal under this Agreement shall not infringe upon any patent,
trademark or copyright, or otherwise violate the rights of, any person, firm or corporation; (vi) Crystal has obtained
and will maintain during the Term, all necessary licenses; consents, permissions and releases (including, without
limitation, any necessary licenses from third parties for the artwork which is used in Crystal’s performance of the
Services), and will timely make all payments to third parties, that may be required to provide the Services; (vii) to
the extent Crystal is a corporation. Crystal is duly organized, validly existing and in good standing in its state of
incorporation, (viii) in providing the Services. Crystal shall use good moral judgment; (ix) there is no actual or
potential conflict of interest between the Services to be performed by Crystal under this Agreement and Crystal’s
family, business, financial or other interests, and Crystal shall immediately notify Disney of any actual or potential
conflict of interest of which Crystal becomes aware during the Term; and (x) Crystal will not engage any current
employee of Disney or any of its parent, related, affiliated or subsidiary companies or any person who was
employed by Disney or any of its parent, related, affiliated or subsidiary companies within the past twelve (12)
months to perform any part of the Services.
Q.
Year 2000. Crystal represents and warrants to Disney that any equipment and software, including,
without limitation, any embedded software, necessary for Crystal to fulfill its obligations under this Agreement will
process dates correctly prior to, during and after the calendar year 2000. This shall include, but not be limited to,
century recognition, calculations that accommodate same century and multicentury formulas and date values, and
interface values that reflect the century. In the event Crystal becomes aware that any such equipment or software
will not or does not process data containing any date subsequent to the year 1999 correctly, Crystal shall
immediately notify Disney of that fact and promptly correct or replace the equipment or software to eliminate such
immediately notify Disney of that fact and promptly correct or replace the equipment or software to eliminate such
processing problem. If Crystal fails to correct or replace any equipment or software that does not meet the
foregoing warranty within a reasonable period of time, Disney shall have the right (but not the obligation) to
correct or replace the inadequate equipment and software at Crystal’s expense and receive full reimbursement from
Crystal for the costs incurred.
18
R.
Recordation of this Agreement. This Agreement shall not be recorded.
S.
Liens.
i.
The Locations shall nor be subjected to liens of any nature by reason of Crystal’s construction, alteration,
repair, restoration, replacement or by reason of any other act or omission of Crystal (or of any person claiming by,
through or under Crystal). All persons dealing with Crystal are hereby placed on notice that such persons shall not
look to Disney or to Disney’s credit or assets for payment or satisfaction of any obligations incurred in connection
with the construction, alternation, repair, restoration, replacement, use or reconstruction of the Locations by or on
behalf of Crystal. Crystal has no power, right or authority to subject Disney to any lien or claim of lien including,
but not limited to, mechanics or other materialmen’s liens. Crystal shall not create or permit to be created any lien,
encumbrance or charge against the Locations or any part thereof.
ii.
To secure the payment of all compensation due and to become due hereunder and the faithful performance
of this Agreement by Crystal, Crystal hereby gives to Disney an express first and prior contract lien and security
interest on all property (including, without limitation, Crystal’s merchandise, inventory, supplies. Equipment, etc.,)
which may be placed in the Locations, and also, upon all proceeds of any insurance which may accrue to Crystal
by reason of destruction of or damage to any such property. Such property shall not be removed from the
Locations without the prior written approval of Disney (which approval may be granted or withheld by Disney in
its sole and absolute discretion) until all arrearages in compensation then due to Disney hereunder shall first have
been paid. If requested by Disney, Crystal shall execute and deliver to Disney, Uniform Commercial Code
Financing Statements in sufficient form so that when properly filed, the security interest hereby given shall
thereupon be perfected.
T.
Regulatory Inspection Reports. Crystal shall deliver to Disney, immediately following receipt by Crystal,
copies of any inspection or evaluation report, or any notice of violation of or failure to comply with any law, rule or
regulation applicable to the Locations or the performance of Crystal’s Services at the Locations, which is delivered
to Crystal by any governmental authority.
19
EXHIBIT A
Merchandise: Guest portraits with 3-D Disney characters, logos and/or name drop, and sculptured reproductions
inside optically transparent material (crystal glass), as approved by Disney.
3-D Disney characters, logos and/or name drop and sculptured reproductions inside optically transparent material
(crystal glass); as approved by Disney.
Light Bases and Stands with or without 3-D Disney characters, logos and/or name drop, as approved by Disney.
Other items as approved by Disney.
Characters: Mickey Mouse, Minnie Mouse, Donald Duck, Goofy, Pluto, Disney’s California Adventure™ Park
icons and any other Disney character, logo, graphic, icon, name drop and/or art that is approved in advance, by
Disney and the Disney Merchandise Brand department.
20
EXHIBIT B
CODE OF CONDUCT FOR MANUFACTURERS
At The Walt Disney Company, we are committed to:
a standard of excellence in every aspect of our business and in every comer of the world;
ethical and responsible conduct in all of our operations;
respect for the rights of all individuals; and
respect for the environment.
We expect these same commitments to be shared by all manufacturers of Disney merchandise. At a minimum, we
require that all manufacturers of Disney merchandise meet the following standards:
Child Labor
Manufacturers will not use child labor.
The term “child” refers to a person younger than 15 (or 14 where local law allows) or, if
higher, the local legal minimum age for employment or the age for completing compulsory
education.
Manufacturers employing young persons who do not fall within the definition of “children”
will also comply with any laws and regulations applicable to such persons.
Involuntary
Labor
Manufacturers will not use any forced or involuntary labor, whether prison, bonded, indentured
or otherwise.
Coercion and Manufacturers will treat each employee with dignity and respect, and will not use corporal
punishment, threats of violence or other forms of physical, sexual, psychological or verbal
Harassment
harassment or abuse.
Nondiscrimination Manufacturers will not discriminate in hiring and employment practices, including salary,
benefits, advancement, discipline, termination or retirement, on the basis of race, religion,
age, nationality, social or ethnic origin, sexual orientation, gender, political opinion or
disability.
Association
Manufacturers will respect the rights of employees to associate, organize and bargain
collectively in a lawful and peaceful manner, without penalty or interference.
Health and
Safety
Manufacturers will provide employees with a safe and healthy workplace in compliance with all
applicable laws and regulations, ensuring at a minimum reasonable access to potable water and
sanitary facilities; fire safety; and adequate lighting and ventilation. Manufacturers will also
ensure that the same standards of health and safety are applied in any housing that they provide
for employees.
Compensation We expect manufacturers to recognize that wages are essential to meeting employees’ basic
needs. Manufacturers will, at a minimum, comply with all applicable wage and hour laws and
regulations, including those relating to minimum wages, overtime, maximum hours, piece rates
and other elements of compensation, and provide legally mandated benefits. Except in
extraordinary business circumstances, manufacturers will not require employees to work more
than the lesser of (a) 48 hours per week and 12 hours overtime or (b) the limits on regular and
overtime hours allowed by local law or, where local law does not limit the hours of work, the
regular work week plus 12 hours overtime. In addition, except in extraordinary business
circumstances, employees will be entitled to at least one day off in every seven-day period.
Manufacturers will compensate employees for overtime hours at such premium rate as is
legally required or, if there is no legally prescribed premium rate, at a rate at least equal to the
regular hourly compensation rate.
Where local industry standards are higher than applicable legal requirements, we expect
manufacturers to meet the higher standards.
21
Protection of
the
Environment
Other Laws
Manufacturers will comply with all applicable environmental laws and regulations.
Manufacturers will comply with all applicable laws and regulations, including those
pertaining to the manufacture, pricing, sale and distribution of merchandise. All references to
“applicable laws and regulations” in this Code of Conduct include local and national codes,
rules and regulations as well as applicable treaties and voluntary industry standards.
22
EXHIBIT C
FIXTURES AND EQUIPMENT
As part of this Agreement, Crystal shall provide the following Equipment if requested by Disney:
1.
Laser safety provisions:
ANSI Class IV laser system
Interlocked and labeled enclosure per ANSI ZI36.1
Keyswitch and emergency stop
2.
Laser Subsystem:
Ultra GRM 1064, standard specifications
Wavelength: 1064 nm (Nd: YAG fundamental)
3.
Positioner Subsystem:
Stepper-driven 3-axis positioning system with motors, drives, and indexer
4.
System Controller:
PC-platform including, but not limited to
Intel PII-350 MHz or better processor
128 MB RAM
10 GB internal mass storage (hard drive)
1.44MB removable mass Storage (floppy drive)
Multi-protocol network card
Frame grabber card
17” color monitor
Keyboard
RS-232 serial interface
Operating system: Windows 98
5.
Video Display System:
Color CCD camera and macro lens
Incandescent “top light”
Visible red targeting diode laser
Video output signal
Crystal shall provide the following fixtures at its sole cost and expense for each Location;
1.
Freestanding themed floor fixture (including, without limitation, installation of same)
23
Exhibit 10.3
FIRST AMENDMENT
TO
REVOCABLE LICENSE AGREEMENT
THIS FIRST AMENDMENT to Revocable License Agreement (this “First Amendment”) is effective as
of November 10, 2005 (“Effective Date”), by and between DISNEYLAND RESORT, a division of Walt Disney
World Co, (“Disney”), and CRYSTAL MAGIC, INC. (“Crystal”).
RECITALS
WHEREAS, Disney and Crystal have previously entered into that certain Revocable License Agreement,
effective as of November 18, 2002, relating to the granting of a license by Disney to Crystal for Crystal to use
certain retail space within an area of Disneyland® park known as Star Trader to operate a retail shop on the terms
and conditions provided therein (collectively the “Agreement”), and
WHEREAS, Disney and Crystal desire to amend the Agreement as provided in this First Amendment.
NOW, THEREFORE, in consideration of the mutual agreements contained herein and in the Agreement,
and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged,
Disney and Crystal hereby agree as follows:
1.
Definition of Terms. All capitalized terms used in this First Amendment without being defined
herein shall have the meanings given to them in the Agreement.
2.
Change of Location. Crystal’s former Location at Star Trader has been eliminated, and Crystal’s
new Location shall be at the Castle Shop (“New Location”).
3.
Permitted Use: Operation of Locations, The 5th sentence in subsection 3 (a) is hereby deleted:
“Crystal shall have full responsibility and obligation for the operation of the Locations and for all direct costs
(calculated pursuant to Section 5(f) hereinbelow) incurred by Disney for Crystal’s operation including, but not
limited to, the provision of custodial service, merchandise bags and other guest service expense items” and replaced
with the following:
“Crystal shall have full responsibility and obligation for the operation of the Locations and for all direct
costs (calculated pursuant to Section 5(f) hereinbelow) incurred by Disney for Crystal’s operation including, but not
limited to, the provision of custodial service, merchandise bags, register supplies, credit card fees and other guest
service expense items.”
4.
Fee for Services/Other Payments. Section 5 shall be amended by deleting subsections (b) through
(g) and replacing them with the following:
“(b)
For the New Location, Disney shall be entitled to that sum (“Disney’s Share of Gross
Revenues” (i) equivalent to sixty percent (60%) of all Gross Revenues from retail sales from the New
Location less applicable sales, use, excise or other taxes. Crystal shall be entitled to the remainder of all
Gross Revenues from retail sales from the New Location during the Term (such remainder being “Crystal’s
Share of Gross Revenues”), The term “Gross Revenues” is defined as all revenues received by, or paid to.
Crystal or to any other person, corporation or other entity for the use, account or benefit of Crystal
Page 1
from whatever source (including, without limitation, (x) the actual sales price, whether wholly or partially for cash,
on credit, or otherwise, for all goods, wares, merchandise and services of any kind, and (y) all other receipts) arising
upon, out of or in connection with all business conducted on, in and from the New Location, whether for wholesale,
retail, cash, credit, trade-ins or otherwise (including, but not limited to, sales made by mail or telephone although
said sales may be filled elsewhere), or other electronic service or interactive media (e.g., the Internet); all deposits not
refunded to purchasers, all orders taken on, in and from the New Location although said orders may be filled
elsewhere. Each sale on credit (including, without limitation, sales paid for with Disney Dollars) shall be treated as a
sale for the full price in cash during the month in which such sale is initially made, without reserve or deduction for
inability or failure to collect, and irrespective of the time when Crystal actually receives payment (whether full or
partial) from its customer or any applicable credit or credit card agency. Gross Revenues of any sublessee,
concessionaire or licensee shall be treated as if made by Crystal (provided, however, nothing contained herein shall
be deemed Disney’s consent to any sublessee, concessionaire or licensee). The following are excluded from Gross
Revenues: (1) the proceeds from the sale of any items not sold to the public in the ordinary course of business of the
New Location; (2) the amount of any retail sales or excise taxes; and (3) the amount of any shipping charges for
Inventory shipped to guests. Unless expressly set forth in this Agreement, any policies or practices established by
Crystal from time to time with respect to providing Inventory at discounted prices or without charge shall require the
prior approval of Disney, which approval may be granted or withheld in Disney’s sole and absolute discretion. If
Crystal fails to receive prior approval from Disney, unless expressly set forth in this Agreement, Crystal’s normal
charge for the Inventory so discounted or given without charge shall be used in the computation of Gross Revenues.
(c)
For the New Location, Crystal’s Share of Gross Revenues shall be paid to Crystal on a monthly basis,
with deductions taken for costs and expenses incurred by Disney for Crystal operation as outlined in Section 3(a), in
the manner set forth below unless otherwise requested by Disney.
(d)
For the New Location, Crystal shall, on a daily basis, turn in to Disneyland Resort Currency Services, or
its designee, all monies collected from sales of the Inventory, and Crystal shall reconcile such monies with
appropriate point of sale documentation (i.e., register receipts).
(i)
Disney’s representatives shall collect and compute by totaling register receipts, on a daily basis, all
revenues from Inventory sales. Disney shall be responsible for the security of all currency after its collection
by Disney. Disney shall provide to Crystal all cash control services necessary to support its operation at the
New Location which services shall include supporting all cash, credit card and personal check functions.
(ii)
Within twenty (20) business days of the end of each fiscal month, Disney shall furnish Crystal a
monthly statement in writing, for the Term of this Agreement, showing the aggregate amount of currency
collected from the sale of the Inventory in connection with the New Location during the preceding calendar
month from all sources, Disney’s Share of Gross Revenues, Crystal’s Share of Gross Revenues and the
total number of sales of Inventory in connection with the New Location from all sources. Each such
statement shall include a payment to Crystal of Crystal’s Share of Gross Revenues payable for each
reporting month.
Page 2
(e)
Disney reserves the exclusive right, throughout the Term hereof, to have sole control over the Now
Location and Crystal shall have no rights or interest therein, which control may include, but is not limited to;
admission to Disneyland® park and to the various facilities therein and to charge such rates and prices for the
services and merchandise of the New Location as it may determine from time to time in its sole and absolute
discretion, all of which shall be for Disney’s account, the establishment of the hours of operation of the New
Location which need not be the same as the hours of operation of Disneyland® park or the various facilities therein,
the establishment of the schedule for maintenance, repair and rehabilitation of the New Location, the promulgation of
strict standards and rules for the appearance, sanitation, cleanliness and maintenance of the New Location and for the
conduce courteousness and appearance of persons employed therein, and the promulgation of Strict standards and
rules for the preservation of good order with respect to the New Location and for the health, comfort and
convenience of the patrons and guests thereof. At all times, Crystal shall have no rights or interest, implied or
otherwise, in any revenues realized from the New Location (other than from the sale of the Inventory), the sale of
food, beverage, merchandise or any other items offered or the various facilities therein.
(f)
For all Locations, any services of Disney’s personnel which are subject to reimbursement shall be invoiced
at Disney’s direct costs for such services (i.e. payroll costs, including, without limitation, payroll taxes and fringe
benefit costs) (at Disney’s composite rate, as computed annually) plus overhead items directly related to those
services, such as supervision, small tools, owned equipment, training, etc, (expressed as a percentage of direct labor
costs and recomputed annually) plus twenty percent (20%) of all direct labor costs to cover administrative overhead.
Materials shall be invoiced at net cost to Disney, plus three percent (3%) thereof to cover overhead. Any other
services performed on behalf of Disney by any person not a party to this Agreement shall be billed at net cost to
Disney, plus five percent (5%) to cover overhead.
(g)
Crystal shall accept all major credit cards issued to the general public in payment for Inventory sold at the
New Location.
(h)
Crystal shall reduce by twenty percent (20%), the sales price of Inventory sold to employees of The Walt
Disney Company from all Locations, and Disney shall reduce by the following percentages the sales price of
merchandise and/or services in any Disney-owned and operated retail shop sold to Crystal’s employees other than
by employee credit card if Disney does so for its own employees with respect to the same merchandise and/or
services and in the same retain shop. Said percentages are currently as follows:
(i)
all employees hired prior to January 1, 1998 date shall receive a thirty-five percent (35%)
reduction; and
(ii)
all other employees not otherwise described above shall receive a twenty percent (20%) reduction;
provided, however, that if any of Crystal’s employees are already receiving a thirty-five percent (35%)
reduction as discussed in subsection (i) above, such employee shall continue to receive a thirty-five percent
(35%) reduction.”
Page 3
5.
Sales Tax. Section 7 is hereby amended by adding the following;
“As to the New Location, amounts retained by Disney or paid to Disney under this Agreement may be
subject to tax. Accordingly, the applicable sales, use, excise or other taxes on such amounts shall be
deducted from Crystal’s Share of Gross Revenues for the New Location and retained by Disney or paid to
Disney by Crystal as appropriate. Crystal shall be responsible for and shall pay any and all personal
property taxes and/or assessments on Crystal’s Property, the Inventory, and the Equipment in connection
with the New Location.”
6.
Insurance: Indemnification. The last sentence of this Section 11(b) is hereby deleted and replaced
with the following:
“The provisions of this Section 11(b) shall survive, indefinitely, the expiration or earlier termination of this
Agreement, shall not be limited by the amount of insurance required to be maintained hereunder or maintained by
Crystal, and shall extend to claims occurring after the expiration or earlier termination of this Agreement as well as
to claims occurring “while this Agreement is in force.”
7.
Exterior Sign at New Location. This new section shall he added to the Agreement as follows:
“EXTERIOR SIGN AT NEW LOCATION. Disney agrees to design and fabricate a new exterior sign for
the New Location, which design and fabrication shall be in Disney’s sole discretion, and Crystal agrees to pay
Disney for such design and fabrication, such cost not to exceed Fifteen Thousand Dollars ($15,000.00),”
8.
No Other Changes. Except as expressly provided by this First Amendment, the Agreement
remains in full force and effect and this First Amendment shall not be construed to alter or amend any of the other
terms or conditions set forth in the Agreement, Furthermore, in the event of any conflict between the provisions of
this First Amendment and any of the provisions of the Agreement, the provisions contained in this First
Amendment shall control.
IN WITNESS WHEREOF, the parties hereto have executed this First Amendment effective on the
Effective Date first above written.
DISNEYLAND RESORT, A DIVISION
OF WALT DISNEY WORLD CO.
CRYSTAL MAGIC, INC.
By: /s/ Marianne Sharpe
Name: Marianne Sharpe
Title: Vice President
By: /s/ Steven M. Rhodes
Name: Steven M. Rhodes
Title: President
Page 4
Exhibit 10.4
CONCESSION AGREEMENT
This CONCESSION AGREEMENT (this “Agreement”) is entered into and effective as of December 7,
1999, by and between WALT DISNEY WORLD CO. (“Disney”), with a mailing address of P.O. Box 10,000,
Lake Buena Vista, Florida 32830, and CRYSTAL MAGIC, INC. (“Vendor”), with a mailing address of 2120
Hidden Pine Lane, Apopka, Florida, 32712 whereby Vendor shall provide certain services and/or merchandise for
sale to guests of Epcot® (the “Premises”), located at the WALT DISNEY WORLD® Resort.
IN CONSIDERATION of the mutual covenants contained herein, the parties agree as follows;
1.
Grant of License. Disney hereby grants to Vendor a non-exclusive, non-transferable license to enter
upon the Premises to perform the services described on Exhibit A, attached hereto and made a part hereof (the
“Services”), and for no other purpose, Vendor shall provide the Services at the Premises at Epcot® Imagination
Institute (the “Concession”). The provisions of this Agreement shall be deemed to create a mere license only, and
shall not be construed no be a lease, sublease, assignment, easement or” any other conveyance of any interest in or
to the Premises or in or to anything contained therein or thereon. Vendor shall not make any alterations or
modifications to the Premises or the Concession without the prior written approval of Disney, which approval may
be withheld by Disney in its sole discretion. Disney may enter the Concession at any time for any purpose
Including, without limitation, ensuring that Vendor is complying with the terms of this Agreement.
2.
Name of the Concession. The name and any changes to the name of the Concession must be preapproved in writing by Disney in its sole discretion. Unless otherwise agreed in writing by Disney, in its sole
discretion, in providing the Services, Vendor shall not identify the name of Vendor or the brand name of the
merchandise, products or services being offered by Vendor at the Concession.
3.
Days and Times of the Services, Vendor shall provide the Services at the Concession on the days
and times as set forth on Exhibit A, or such other days and times as Disney shall designate in its sole discretion.
4.
Term, The term of this Agreement shall commence on December 7, 1999, and continue through and
including September 30, 2006 (the “Term”), unless either party terminates this Agreement, with or without cause, by
providing the other party with sixty (60) days’ prior written notice, In addition, Disney may terminate this
Agreement for cause (e.g., if Vendor fails to perform any of its obligations under this Agreement) immediately by
giving notice to Vendor, The parties mutually agree that there may be a period during the Term during which the
Concession will be closed by Disney for, among other reasons, maintenance and rehabilitation of the Premises or
special events (the “Closed Period”). The existence of the Closed Period shall not extend the Term or release the
parties from their obligations hereunder.
5.
Merchandise/Other Products/Services. Vendor shall provide the merchandise, other products
and/or services in connection with the Services, as identified in Exhibit, B. attached hereto and made a part hereof.
All changes in the merchandise, other products and/or services shall be approved by Disney in writing in its sole
discretion, Disney shall have the right, in its sole discretion, to require Vendor to remove any merchandise, other
products and/or services from the Concession and/or to add any merchandise, other products and/or services to the
Concession; provided, however, that Disney shall not have the right to requite Vendor to remove crystal glass cubes
completely from the Concession without the prior written approval of Vendor
6.
Inventory/Equipment/Supplies. Vendor will provide all inventory, equipment and supplies
necessary to provide the Services including, but not limited to. the equipment described on Exhibit C, attached
hereto and made a pan hereof (the “Equipment”) All of the inventory, Equipment and supplies shall be subject to the
prior approval of Disney in its sole discretion. Vendor shall keep the Concession fully supplied at all times. Vendor
shall regularly inspect and service the Equipment, keeping each piece of Equipment in good working order. Vendor
will be responsible for cleaning below, above and behind the Equipment and for complying with all other applicable
rules and regulations relating to the Equipment Including, but not limited to, those rules and regulations more fully
set forth in Exhibit D, attached hereto and made a part hereof. During the Term, Vendor shall retain ownership of
all of the inventory, Equipment and supplies necessary to provide the Services and all risk of loss thereto shall be
borne solely by Vendor, except to the extent such loss is caused solely by Disney’s gross negligence or willful
misconduct. Maintenance of the Equipment during the Term shall be Vendor’s sole responsibility. Upon the
expiration or sooner termination of this Agreement, Vendor shall promptly remove all of its inventory, Equipment
and supplies from the Premises. If Vendor shall fail to remove any of its inventory, Equipment or supplies from the
Premises, Disney may, at its option, either remove and dispose of any or all of the same at Vendor’s expense or
retain the same, in which latter event all right, title and interest therein shall pass to and vest m Disney.
7.
License To Use Disney Characters.
a.
Disney hereby grants to Vendor a revocable, non-transferable, royalty-free, nonexclusive
license to use the characters identified on Exhibit B only. On the merchandise identified on Exhibit B. Vendor
acknowledges that Disney has adopted the Code of Conduct for Manufacturers (the “Code”) set forth on Exhibit D.
attached hereto and made a part hereof. If Vendor, at any time, desires to utilize a third party to manufacture or
produce any of the merchandise identified on Exhibit B. Vendor will notify Disney of the names and physical street
addresses of such third parties (individually, a “Third Party” and collectively, the “Third Panics”), Disney shall have
the right, in its sole discretion, to approve in writing all of the Third Parties, If Disney does not approve in writing
any Third Party, Vendor shall not use such Third Party to manufacture or produce the merchandise identified on
Exhibit B. If Disney approves a Third Party in writing, Vendor may use such Third Party to manufacture or
produce the merchandise identified on Exhibit B
b.
To the extent Vendor wishes to manufacture or produce any of the merchandise
Identified on Exhibit B itself, Vendor shall adopt the Code and shall evidence such adoption by executing a copy of
the Code and delivering the originally executed copy of the Code to Disney prior to Vendor’s commencement of the
manufacture or production of the merchandise identified on Exhibit B
c.
Disney shall have the right, in its sole discretion, to withdraw its approval of any Third
Party at any time. If Disney withdraws its approval of any Third Party. Vendor shall immediately stop using such
Third Party to manufacture or produce the merchandise identified on Exhibit B. provided, however, that Vendor
shall be permuted to sell ail of such merchandise in its inventory, unless Disney provides otherwise in writing to
Vendor
d.
Disney shall have the right to evaluate and monitor Vendor to ensure that Vendor is only
using Third Parties approved by Disney hereunder to manufacture and produce the merchandise identified on
Exhibit B including, but not limited to, on-sire inspections and reviews of books and records
2
e.
Vendor shall not sell or use the merchandise identified on Exhibit B at any ocher
location or for any purpose other than in connection with [he Services, unless approved by Disney in its sole
discretion. Upon the expiration or sooner termination of this Agreement, Vendor shall return to Disney any
remaining Inventory of such merchandise.
8.
Signage. Disney shall provide, at its sole cost and expense, such signage and promotional
materials for the Concession as Disney deems necessary, in its sole discretion. Vendor shall not display or distribute
any other signage or promotional materials at the Concession.
9.
Uniforms. Disney will provide all uniforms for Vendor and its employees. Vendor acknowledges
and agrees that Vendor has no ownership rights in the uniforms Vendor shall return the uniforms to Disney for
cleaning and maintenance as Disney may require during the Term. Vendor shall keep such uniforms clean and
professional at all times in accordance with Disney’s safety and appearance standards whenever Vendor or its
employees are performing the Services. Upon expiration or sooner termination of this Agreement, Vendor shall
immediately return the uniforms to Disney Vendor will be responsible for reimbursing Disney for Disney’s uniform
cleaning, maintenance and /or replacement costs for Vendor and Vendor’s employees upon receipt of a monthly
invoice from Disney. To the extent any of the uniforms are lost or substantially damaged, as determined by Disney
in its sole discretion. Vendor agrees to reimburse Disney for the replacement costs of such uniforms.
10.
Disney’s Responsibilities During the Term, Disney shall be responsible for the following, at its
sole cost and expense:
a.
Utilities (other than telephone). In no event shall Disney be liable or responsible for any
interruption or disruption of utility service and Vendor hereby waives any and all claims against Disney for any
loss, damage or expense arising out of, or incurred In connection with, any such interruption or disruption, and
b.
Trash pick up.
11.
Vendor’s Responsibilities. During the Term, Vendor shall be responsible for the following, at
its sole cost and expense:
12.
a.
Telephone service; and
b.
Keeping the Concession clean, sanitary and free from trash and debris,
Compensation for the Services.
a.
Vendor’s compensation for the Services shall be based solely on the Services provided
3
b.
All sales at the Concession are to be handled by Disney’s personnel whether on sue or
by mail order or drop shipping. Vendor shall not accept any money from guests but shall refer all sales transactions,
including special orders and mail orders, to Disney personnel for processing through cash registers in accordance
with Disney’s standard sales procedures.
c.
Disney shall collect the compensation from the guests and shall pay to Vendor sixty
percent (60%) of gross revenues from retail sales from the Services, less applicable sales, use, excise or other taxes.
Disney shall retain the remaining gross revenues from retail sales from the Services. The term “gross revenues from
retail sales from the Services” is denned as all monies and other things of value received by, or paid to, Disney and
all credit extended by Disney, arising upon, out of or in connection with the Services at the Concession during the
Term, plus the amount of any applicable sales, use, excise or other taxes, less the amount of any of Vendor’s
merchandise or products which are returned to Disney or replaced by Disney, less the amount of any refunds made
by Disney in connection with the Services, less the amount of any cancelled orders for Vendor’s merchandise or
products. Such fee shall be payable on or before Thursday of each week with respect to gross revenues from retail
sales from the Services made during the preceding week (Sunday through Saturday), through and including the
calendar week immediately following the expiration or sooner termination of this Agreement.
d.
Disney shall maintain complete and accurate records evidencing the gross revenues from
retail sales from the Services Disney agrees to make available to Vendor once each calendar year, upon thirty (30)
days’ prior written request by Vendor, a full, permanent and accurate set of Disney’s accounting books and records
relating solely to gross revenues from retail sales from the Services. Vendor will have the right, at its sole cost and
expense, to audit said books and records, Disney agrees to keep all such books and records for at least three (3)
years following the expiration or sooner termination of this Agreement.
13.
Taxes.
a.
Amounts retained by Disney or paid to Disney under this Agreement may be subject to
tax. Accordingly, the applicable sales, use excise or other taxes on such amounts shall be deducted from Vendor’s
compensation and retained by Disney or paid to Disney by Vendor, as appropriate.
b.
On or before the 10th day of each month during the Term (including the month
immediately following the expiration or sooner termination of this Agreement), Vendor shall supply Disney with a
copy of Vendor’s monthly sales tax report submitted to the State of Florida, Department of Revenue
14.
Exhibits The exhibits referred to in, and attached to, this Agreement are hereby incorporated
herein by reference. Unless otherwise expressly provided in the exhibit or the body of this Agreement, in the event
of any conflict or inconsistency with the provisions contained in the body of this Agreement and the exhibits, the
provisions contained in the body of this Agreement shall prevail.
15.
Miscellaneous. The GENERAL TEPMS AND CONDITIONS attached to this Agreement are
hereby incorporated herein by reference, This Agreement constitutes the entire agreement of the panics hereto with
respect to the subject matter of this Agreement and supersedes any and all previous agreements between the panics,
whether written or oral, with respect to such subject matter, Any modification of this Agreement shall be in writing
and signed by both parties, If any provision of this Agreement is deemed to be invalid, it shall be considered deleted
herefrom and shall not invalidate the remaining provisions.
4
16.
Signature Authority The person who executes this Agreement on behalf of either party hereto
expressly represents and warrants that he/she has full and complete authority to do so, knowing that the other party
intends to rely solely thereon.
17.
No Offer. This instrument does not constitute an offer by Disney. When executed by Vendor, it
shall constitute an offer by Vendor to Disney irrevocable for a period often (10) days after receipt by Disney and,
upon execution by Disney and delivery to Vendor, shall constitute a binding agreement between the parties.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.
(“DISNEY”)
(“VENDOR”)
WALT DISNEY WORLD CO,
CRYSTAL MAGIC, INC
By: /s/ Karl L. Holz
By: /s/ Steven M. Rhodes
Print Name: Karl L. Holz
Print Name: Steven M. Rhodes
Title: Vice President
Title: President
5
GENERAL TERMS AND CONDITIONS
A.
Control of the premises. Nothing in this Agreement is intended or shall be deemed or construed to grant
to or confer upon Vendor any rights whatsoever in respect of the Premises, including, without limitation, rights in
connection with the closing, alteration, discontinuance, condemnation or casualty loss thereof. Accordingly, without
limiting the generality of the foregoing. Disney shall have ultimate and unfettered control over the Premises.
B.
Themed Cart. If requested by Disney, Vendor shall provide a cart for use in connection with the
Services. Disney shall have the right to approve every aspect of the Cart, including, without limitation, design,
theming and signage, such approval to be in Disney’s sole and absolute discretion; provided, however, that by
giving any such approval, Disney shall not assume responsibility for the quality, workmanship and/or safety of such
cart. Once approved, Vendor shall not change the design, theming or any other aspect of the cart without the express
written approval of Disney, which approval may be withheld by Disney in its sole discretion. Vendor’s expenditure
of any monies in connection with the design, construction, installation, removal, acquisition and/or operation of the
cart shall be at Vendor’s sole risk. Upon the expiration or sooner termination of this Agreement, Disney shall have
the right to request that Vendor remove any theming from the cart and Vendor shall remove the cart from the
Premises at its sole cost and expense. If Vendor shall fail to remove the cart from the Premises, Disney may, at its
option, either remove and dispose of the cart at Vendor’s expense or retain the same, in which latter event all right,
title and interest therein shall pass to and vest in Disney.
C.
Disney’s Approval of Cart Manufacturer. The architects, engineers, consultant and general contractors
selected by Vendor for the design and production of the cart shall be licensed in the State of Florida and shall be
subject to the prior written approval of Disney, which approval may be withheld by Disney in its sole discretion. If
requested by Disney, Vendor shall furnish to Disney copies of all contracts for any work in connection with the
design and construction of the cart (including, without limitation, all contracts for the purchase of materials and
supplies in connection therewith).
D.
No Representations or Warranties by Disney. Disney makes no representations or warranties
whatsoever in connection with this Agreement, including, without limitation, the condition of the Premises, its
suitability for the use described herein or for any other use, the visibility, of the Concession to the guests of the
Premises, the profitability of the Services to be provided at the Concession or the success or failure of the Services
to be provided at the Concession.
E.
Participants. Vendor acknowledges that Disney and its parent, related, affiliated and subsidiary companies
are parties to certain participant agreements and that Disney and its parent, related, affiliated and subsidiary
companies may enter into additional participant agreements in the future. Vendor agrees to comply with the
provisions of such participant agreements as they exist from time to time. Disney shall disclose the relevant
provisions of such agreements to Vendor.
F.
Licenses. Vendor and its employees shall be licensed as required by law. Vendor shall obtain and maintain
throughout the Term, all professional, occupational equipment, and other licenses and permits required by law to
perform the Services and shall provide copies of such licenses to Disney upon request.
G.
Disney Traditions/Guest Surveys/Meetings. If requested by Disney, Vendor and its employees shall
enroll in, at Vendor’s expense, and complete the Disney Traditions class and any other Disney class that Disney
deems necessary prior to commencement of the Services or at any time thereafter as Disney may determine in its
sole discretion. Vendor and its employees shall, if requested by Disney: (i) conduct or participate in guest evaluation
and experience surveys at periodic intervals relating to the Premises and/or the Concession and (ii) attend meetings
called by Disney.
H.
Parking Passes/ID Cards. Disney shall provide Vendor and its employees with parking passes and ID
cards to gain admission to the Premises and to the cast parking lot at the Premises. Upon the expiration or sooner
termination of this Agreement, Vendor shall return to Disney all parking passes and ID cards issued to Vendor and
its employees pursuant to this Agreement.
I.
Additional Services/Disney Standard. Vendor shall pay Disney for any and all services provided by
Disney which are requested by Vendor, including, without limitation, the installation of water lines and fixtures,
electricity lines and sanitary sewer. In addition, to the extent Disney determines that Vendor needs additional
equipment to provide the Services, including, without limitation, lightning rods, Disney shall have the option of
either requiring Vendor to acquire and install such equipment at Vendor’s sole cost and expense or acquiring and
installing such equipment itself and then billing Vendor for such equipment and installation. Further, to the extent
Disney determines that any of the equipment, supplies, signage or any other items or materials used by Vendor in
connection with the Services do not satisfy the Disney standard, as determined by Disney from time to time, Disney
shall have the option of either requiring Vender to bring such equipment, supplies, signage or any other items or
materials into compliance at Vendor’s sole cost and expense or taking whatever actions are required, as determined
by Disney in its sole discretion, to bring such equipment, supplies, signage or any other items or materials into
compliance and then billing Vendor for such actions.
J.
Late Charges. Any amounts payable by Vendor pursuant to this Agreement which are not paid when due
shall bear interest from the date due until the date paid at the lesser of the maximum rate allowed by law or the
annual rate of eighteen percent (18%) and such interest shall be payable on demand. Vendor shall be responsible for
all costs and expenses that Disney, or its designee, may incur in collecting any amount due from Vendor hereunder
or in enforcing any of Disney’s other rights or remedies under this Agreement, including, without limitation,
attorneys’ fees and fees of other professionals.
K.
Credit Cards/Charges. If so requested by Disney, Vendor will accept (in accordance with procedures
established by Disney from time to time) WALT DISNEY WORLD® hotel identification cards, Disney Dollars
and/or other Forms of resort cards, gift certificates and package coupons distributed by Disney and/or any of
Disney’s parent, related, affiliated or subsidiary companies to guests at the WALT DISNEY WORLD® Resort, for
payment for the Services. Disney will pay Vendor the total amount of all such card charges Disney Dollars, resort
cards, gift certificates and package coupons to the extent Vendor has complied with Disney’s procedures, less a
reasonable service fee (currently three and one-half percent (3-1/2%) of the total amount of all such card charges,
Disney Dollars, resort cards, gift certificates and package coupons), and such amount paid by Disney to Vendor
shall be considered part of “gross revenues from retail sales from the Services” for purposes of this Agreement. If
so requested by Disney, Vendor will also accept American Express, Visa, MasterCard, Discover Card, Diners;
Club, JCB (Japanese Credit Bureau) Card, and/or other credit cards in payment for the Services.
6
L.
Guest Claims. Vendor shall promptly inform Disney of any guest claims or complaints and any such
claims or complaints will be handled exclusively by Disney’s personnel in accordance with Disney’s policies and
procedures.
M.
Change of Concession. Disney reserves the right to change the location of the Concession at which
Vendor performs the Services upon seven (7) days prior notice to Vendor. Additionally, Disney reserves the right
to introduce new vendors at any location at the, Premises who may or may not be in direct competition with Vendor.
N.
Personal property. All personal property placed upon the Premises by Vendor or any of its employees
(including, but not limited to, inventory, Equipment and supplies) shall remain Vendor’s or its employees’ property,
and shall be placed upon the Premises at Vendor’s or its employees’ sole risk. Disney shall not be responsible for
any loss (including, without limitation, theft) of or damage to any of Vendor’s or its employees’ personal property
on the Premises, except to the extent such loss or damage was caused solely by the gross negligence or willful
misconduct of Disney. If requested by Disney, Vendor shall give Disney prompt written notice of any occurrence,
incident or accident occurring on the Premises that causes, or threatens to cause, damage or loss to the Premises or
any property contained therein.
O.
Vendor’s Employees.
i.
Vendor’s employees, if any, shall be under Vendor’s direct supervision and control. In addition,
Vendor shall comply with, and Vendor shall ensure that each of its employees complies with, all of Disney’s
standards, rules, and regulations which may be in effect from time to time and applicable to employees of entities
sponsoring attractions or corporate displays at the WALT DISNEY WORLD® Resort, or any part thereof,
including, but not limited to, the rules of conduct and personal appearance standards established by Disney for its
own employees.
ii.
Vendor, and its employees, shall; (a) not insult, use offensive or profane language or gestures
toward or in the presence of, or argue with or be discourteous to, any guests of the Premises, or any of Disney’s
employees or representatives; (b) not use, possess or be under the influence of alcohol narcotics, drugs or other
hallucinatory agents while on Disney’s premises; and (c) otherwise comply with any and all rules and regulations
promulgated by Disney from time to time for the protection and safety of Disney’s guests and for their comfort and
convenience.
iii.
Vendor hereby assumes, and releases Disney from, any and all risks to Vendor and its employees
in connection with the Services. Accordingly, Disney shall have no obligation whatsoever to compensate Vendor, or
its employees, on account of any injuries or property damage which Vendor, or its employees, may sustain as a
result of the performance of the Services hereunder, except to the extent such injuries or damage were caused solely
by the gross negligence or willful misconduct of Disney, and Vendor hereby waives, on its own behalf and on
behalf of any persons claiming by, through or under Vendor, any and all rights of recovery which Vendor, or its
employees, may now or hereafter have against Disney on account of any such injury or property damage sustained
by Vendor, or its employees, as a result of the performance of the Services. The provisions of this section shall
survive the expiration or sooner termination of this Agreement.
iv.
Any persons that assist Vendor in the performance of the Services shall be Vendor’s employees
and not the employees of Disney or its parent, related, affiliated or subsidiary companies, and they, as well as
Vendor, shall not be entitled to participate in any of Disney’s employee benefit or welfare plans, or to receive any of
Disney’s employee benefits. Vendor will pay all salaries and all social security taxes, federal and state
unemployment insurance and any and all similar taxes relating to Vendor and its employees. Vendor shall provide to
Disney, upon request, evidence that Vendor and its employees possess valid visas, passports or other
documentation to enable Vendor and its employees, respectively, to perform the Services.
v.
Vendor acknowledges that Disney has a policy relating to criminal background checks, which
policy is applicable to all prospective new employees and certain existing employees of Disney and its parent,
related, affiliated and subsidiary companies employed in connection with the WALT DISNEY WORLD® Resort,
as well as all prospective new employees and certain existing employees of third parties operating businesses in the
WALT DISNEY WORLD® Resort. Accordingly, Vendor agrees that, with respect to all prospective new
employees of Vendor employed in connection with the Premises and certain existing employees of Vendor that may
be assigned to work in the Premises from time to time during the Term. Vendor will conduct, at its own expense,
criminal background checks in compliance with the requirements and procedures set forth in such policy, as the
same may be amended from time to time during the Term. Vendor shall comply with such requirements and
procedures to the minimum extent set forth in the policy and Vendor may, consistent with all applicable laws, wish
to conduct more comprehensive or inclusive employee criminal background searches on its own accord. Vendor
shall, at Vendor’s expense, comply with all laws applicable to the initial retrieval and subsequent use and disclosure
of the information it obtains from conducting such criminal background checks (including, without limitation, the
Fair Credit Reporting Act).
P.
Representations and Warranties. Vendor hereby warrants and represents to Disney that: (i) Vendor has
the experience, staff, skill and authority to perform the Services; (ii) Vendor shall comply with all applicable federal,
state and local laws, rules, regulations, codes, statutes, ordinances, and orders of any governmental or regulatory
authority including, without limitation, the Reedy Creek Improvement District. (iii) Vendor is adequately financed to
authority including, without limitation, the Reedy Creek Improvement District. (iii) Vendor is adequately financed to
meet any financial obligation Vendor may be required to incur hereunder, (iv) Vendor has obtained all licenses and
permits required to observe and perform the terms, covenants, conditions and other provisions on its part to be
observed or performed under this Agreement; (v) any material or work product provided by Vendor under this
Agreement shall not infringe upon any patent, trademark or copyright, or otherwise violate the rights of, any person,
firm or corporation; (vi) Vendor has obtained and will maintain during the Term, all necessary licenses, consents,
permissions and releases (including, without limitation, any necessary licenses from third parties for the artwork
which is used in Vendor’s performance or the Services), and will timely make all payments to third parties, that may
be required to provide the Services; (vii) to the extent Vendor is a corporation, Vendor is duly organized, validly
existing and in good standing in its State of incorporation; (viii) in providing the Services, Vendor shall use good
moral judgment; (ix) there is no actual or potential conflict of interest between the Services to be performed by
Vendor under this Agreement and its family, business, financial or other interests, and Vendor shall immediately
notify Disney of any actual or potential conflict of interest of which Vendor becomes aware during the Term; and
(x) Vendor will not engage any current employee of Disney or any of its parent, related, affiliated or subsidiary
companies or any person who was employed by Disney or any of its parent, related, affiliated or subsidiary
companies within the past twelve (12) months to perform any part of the Services.
7
Q.
Year 2000. Vendor represents and warrants to Disney that any equipment and software, including,
without limitation, any embedded software necessary for Vendor to fulfill its obligations under this Agreement will
process dates correctly prior to, during and after the calendar year 2000. This shall include, but not be limited to,
century recognition, calculations that accommodate same century and multicentury formulas and date values, and
interface values ital reflect the century. In the event Vendor become aware that any such equipment or software will
not or does not process data containing any date subsequent to the year 1999 correctly. Vendor shall immediately
notify Disney of that fact and promptly correct or replace the equipment or software to eliminate such processing
problem. If Vendor fails to correct or replace any equipment or software that does not meet the foregoing warranty
within a reasonable period of time, Disney shall have the right (but not the obligation) to correct or replace the
inadequate equipment and software at Vendor’s expense and receive full reimbursement from Vendor for the costs
incurred.
R.
Recordation of this Agreement. This Agreement shall not be recorded.
S.
Liens.
i.
The Premises and the Concession shall not be subjected to liens of any nature by reason of
Vendor’s construction, alteration, repair, restoration, replacement or by reason of any other act or omission of
Vendor (or of any person claiming by, through or under Vendor). All persons dealing with Vendor are hereby
placed on notice that such persons shall not look to Disney or to Disney’s credit or assets for payment or
satisfaction of any obligations incurred in connection with the construction, alternation, repair, restoration,
replacement, use or reconstruction of the Concession by or on behalf of Vendor. Vendor has no power, right or
authority lo subject Disney to any lien or claim of lien including, but not limited to, mechanics and other
materialmen’s liens. Vendor shall not create or permit to be created any lien, encumbrance or charge against the
Premises or any part of the Premises including, but not limited to, the Concession.
ii.
To secure the payment of all compensation due and to become due hereunder and the faithful
performance of this Agreement by Vendor, Vendor hereby gives to Disney an express first and prior contract lien
and security interest on all property (including, without limitation. Vendor’s merchandise, inventory, supplies,
Equipment, etc.) which may be placed in the Premises, and also upon all proceeds of any insurance which may
accrue to Vendor by reason of destruction of or damage to any such property. Such property shall not be removed
from the Premises without the prior written approval of Disney (which approval may be withheld by Disney in its
sole discretion) until all arrearages in compensation then due to Disney hereunder shall first have been paid. If
requested by Disney, Vendor shall execute and deliver to Disney, Uniform Commercial Code Financing Statements
in sufficient form so that when properly filed, the security interest hereby given shall thereupon be perfected.
T.
Confidentiality.
i.
Vendor and/or its employees may, during the course of this Agreement, have access to, and acquire
knowledge of or from, materials, data, strategies, systems, or other information relating to Disney, or its parent,
related, affiliated or subsidiary companies, which may not be accessible or known to the general public. All such
knowledge acquired by Vendor, or its employees, shall be kept confidential and shall not be used, published or
divulged by Vendor, or its employees, (a) to any other person, firm or corporation, (b) in any advertising or
promotion regarding Vendor, its employees, or its services, or (c) in any other manner or connection whatsoever
without first having obtained Disney’s prior written permission, which permission Disney may withhold in its sole
discretion.
ii.
Vendor agrees that any suggestions, ideas, information, documents or things which it discloses to Disney
shall not be subject to an obligation of confidentiality by Disney, and Disney shall not be liable for any use or
disclosure thereof, unless there is a prior written agreement to the contrary among the parties.
iii.
The provisions of this section shall survive the expiration or sooner termination of this Agreement.
U.
Disney’s Promotion Rights. Notwithstanding any other provision of this Agreement to the contrary,
Disney shall have the right, without obtaining Vendor’s approval, to photograph, take motion pictures of and
televise in any manner or through any media, the Concession and any parts thereof, either individually or as an
integral part of the WALT DISNEY WORLD® Resort or any part thereof such right shall include the right to use
Vendor or any of its employees or representatives. Disney may display, use, sell, license or otherwise exploit any
such photographs or pictures for promotional purposes, both during and after the Term, and all of the foregoing
materials and all benefits and revenues obtained therefrom shall be Disney’s sole and exclusive property. If
requested by Disney, Vendor shall (other than the payment of money) obtain, for Disney’s benefit, releases,
clearances or other instruments from any of Vendor’s employees and representatives necessary to permit Disney to
make and use or cause to be made and used any such photographs or pictures for any of the purposes herein
provided.
The provisions of this section shall survive the expiration or sooner termination of this Agreement.
8
V.
No Use of the Disney Name. Vendor shall acquire no rights under this Agreement to use, and Vendor
shall not use: (i) the WALT DISNEY WORLD or “Disney” mark, name or symbol; (ii) the name “Waller E.
Disney” or any variation thereof; (iii) any mark, name, symbol, photograph, film or other representation of any
theme park, water park, hotel, restaurant, nightclub, or any other facility located in the WALT DISNEY WORLD®
Resort; or (iv) any “Disney” fanciful characters (such as MICKEY MOUSE), designs, symbols, representations,
figures, drawings, ideas or other matter owned, developed or created by The Walt Disney Company, or any of its
related, affiliated or subsidiary companies. The provisions of this section shall survive the expiration or sooner
termination of this Agreement.
W.
Insurance. Vendor shall provide and keep in force during the Term the following coverages:
i.
Commercial General Liability Insurance (including, without limitation, contractual and product liability
coverages) and Automobile Liability Insurance (for all vehicles), with minimum limits of $2,000,000 and
$1,000,000, respectively, combined single limit per occurrence, protecting Vendor, Disney, Disney’s parent, related,
affiliated and subsidiary companies and the officers, directors, agents, employees and assigns of each, from and
against claims for personal injury, bodily injury (including, without limitation, death) and property damage that may
arise from or in connection with the performance of the Services hereunder or from or out of any act or omission of
Vendor, its officers, directors, agents or employees;
ii.
Workers’ Compensation Insurance as required by applicable law, and Employer’s Liability Insurance with
minimum limits of $1,000,000 per occurrence; and
iii.
Such further insurance, in adequate amounts, against risks commonly insured against in the case of similar
operations.
All such insurance required in this section shall (a) be in companies with a Best Guide Rating of B+VII or better
and on forms acceptable to Disney, (b) provide that the coverage thereunder may not be reduced or canceled unless
thirty (30) days’ unrestricted prior written notice thereof is furnished to Disney, (c) be primary and not contributory,
and (d) be on an occurrence basis. Certificates of Insurance (or copies of policies, if required by Disney) shall be
furnished to Disney, at least thirty (30) days prior to commencement of the Services hereunder, naming Disney, its
parent, related, affiliated and subsidiary companies and the officers, directors, agents, employees and assigns of
each, as additional insureds, and shall contain a waiver of subrogation with respect to the additional insureds.
X.
Indemnification. Vendor shall defend (if requested by Disney), indemnify and hold harmless, Disney, its
parent, related, affiliated and subsidiary companies and the officers, directors, agents, employees and assigns of
each, from and against any and all damages, claims, demands, suits, judgments, losses or expenses (including,
without limitation, attorneys’ fees and fees of other professionals) of any nature whatsoever (whether based on tort,
breach of contract, product liability, patent or copyright infringement or otherwise) arising directly or indirectly from
or out of: (i) the sale, use, provision or consumption of any products or services offered for sale or otherwise
obtained in connection with the Services; (ii) any act or omission of Vendor its officers, directors, agents, suppliers
or employees; (iii) any failure of Vendor to perform the Services hereunder in accordance with generally accepted
industry standards; (iv) any breach of Vendor’s representations as set forth in this Agreement; (v) any injuries to, or
death of, any of Vendor’s employees; or (vi) any other failure of Vendor to comply with the obligations on its part
to be performed hereunder. The provisions of this section shall survive the expiration or sooner termination of this
Agreement.
Y.
Limitations on Disney’s Liability. Disney shall not be liable to any person, firm or corporation as a
result of any act or omission by Vendor or any other person, firm or corporation associated with Vendor, nor upon
any occurrence arising out of or related in any way to this Agreement or any use of the Premises by Vendor. IN NO
EVENT SHALL DISNEY BE LIABLE TO VENDOR FOR ANY INDIRECT, SPECIAL, EXEMPLARY,
PUNITIVE OR CONSEQUENTIAL DAMAGES ARISING OUT OF OR RELATING TO THIS
AGREEMENT.
Z.
Independent Contractor. In the performance of the Services hereunder, Vendor shall be an independent
contractor and not an agent, employee, partner or joint venturer of Disney or its parent, related, affiliated or
subsidiary companies, and Vendor shall not interfere with Disney’s operations.
AA.
Personal Services. This Agreement is for Vendor’s personal services and may not be assigned,
subcontracted or transferred by Vendor without Disney’s prior written approval, which may be withheld by Disney
in its sole discretion Disney may assign this Agreement without Vendor’s consent.
BB.
Broker and Commission. All negotiations relating to this Agreement have been conducted by and
among Disney and Vendor without the intervention of any person or other party as agent or broker. Disney and
Vendor represent and warrant to each other that there are and will be no broker’s commissions or fees payable in
connection with this Agreement by reason of their respective dealings, negotiations or communications.
CC.
Notices. All notices and approvals submitted hereunder may be sent by certified mail, return receipt
requested to the addresses set forth on the first page of this Agreement, or delivered by hand to the Concession at
the Premises, or any party hereto may also deliver any such notices and/or approvals by depositing such notices
with a reliable air courier service marked and prepaid for overnight delivery and addressed as provided on the first
with a reliable air courier service marked and prepaid for overnight delivery and addressed as provided on the first
page of this Agreement. If such notice is sent by certified mail, notice shall be deemed given three (3) days
following mailing; if such notice is delivered by hand, such notice shall be deemed given when delivered to the
Concession; and if such notice is sent by air courier, notice shall be deemed given one (1) day following deposit
with such air courier service.
DD.
Force Majeure. If the performance by either party of its obligations under this Agreement is delayed or
prevented in whole or in part by any cause not reasonably within its control, it shall be excused, discharged and
released from performance to the extent such performance is so limited or prevented without liability of any kind.
Nothing herein contained shall be construed as requiring any party to accede to any demands of labor or labor
unions, suppliers or other entities which it considers unreasonable.
9
EE.
Governing Law. This Agreement shall be construed, regulated and enforced under and by the laws of
the State of Florida without regard to conflicts of laws principles. Venue for any legal action arising out of this
Agreement shall be in Orange County, Florida and jurisdiction shall be vested exclusively in the Circuit Court of the
Ninth Judicial Circuit in and for Orange County, Florida (or if the Circuit Court shall not have jurisdiction over the
subject matter thereof, then to such other court sitting in said county and having subject matter jurisdiction). The
parties hereby consent to the jurisdiction of such court and to the service of process outside the State of Florida
pursuant to the requirements of such court in any matter so to be submitted to it, and expressly waive all rights to
trial by jury regarding any such matters.
FF.
Waiver of Rights. The failure of any party hereto to insist upon the Strict performance of this
Agreement, or any of the terms, covenants, representations and conditions hereof, shall not be deemed a waiver of
any rights or remedies that such party may have and shall not be deemed a waiver of any subsequent breach in
respect of any such terms, covenants, representations and conditions.
GG.
Regulatory Inspection Reports. Vendor shall deliver to Disney, immediately following receipt by
Vendor, copies of any inspection or evaluation report or any notice of violation of or failure to comply with any law,
rule or regulation applicable to the Premises or Vendor’s operation of the Concession, which is delivered to Vendor
by any governmental authority (including, without limitation, any agency of the Florida Department of Business and
Professional Regulation).
HH.
HACCP. If, in accordance with Vendor’s permitted use of the Premises under this Agreement, Vendor
prepares and serves to the public any “Potentially Hazardous Food” (as such term is defined in the Food and Drug
Administration Food Code) then Vendor shall adopt and implement a Hazard Analysis and Critical Control Point
(“HACCP”) program which shall be used by Vendor in the operation of its business. Upon receipt of a written
request, Disney shall provide Vendor a copy of the Walt Disney World Co. HACCP plan for informational,
comparative and illustrative purposes only.
10
EXHIBIT A
SCOPE OF SERVICES
Vendor will assist Disney, as an independent contractor, in setting up a display area within the Premises, to
provide the following services for sale to the guests of the Premises:
Generating guest portraits and 3-D characters, logos and/or artwork (Mickey Mouse, Minnie
Mouse, Donald Duck, Goofy, Pluto, Figment, Imagination Institute logo, Epcot® logo, Space
Mountain, Cinderella Castle and any other characters, logos and artwork approved by Disney in
writing) sculpture reproductions inside optically transparent material (a crystal glass cube).
Vendor shall also provide the entertainment and show aspects associated with the Services. Vendor will
provide the Services at the times and on the dates that the Premises are open to the public.
Vendor agrees that to the extent Vendor uses photographic materials (including, without limitation, film
and photographic paper) in connection with the Services, Vendor will only use Kodak products. Any substitutions
which may be available from other companies require Disney’s prior written approval in each instance, which
approval Disney may withhold in its sole discretion.
11
EXHIBIT B
MERCHANDISE/OTHER PRODUCTS/SERVICES
Vendor agrees to provide only the following merchandise/other products/services for sale:
Merchandise/Other Products/Services
Optically transparent material (a crystal glass cube) which contains guest portraits and 3-D characters, logos and/or
artwork (Mickey Mouse, Minnie Mouse, Donald Duck, Goofy, Pluto, Figment, logo, of Imagination Institute or
Epcot®).
12
EXHIBIT C
EQUIPMENT
Vendor shall provide the following equipment
Vendor shall provide the following equipment
1.
Laser safety provisions:
ANSI Class IV laser system
Interlocked and labeled enclosure per ANSI ZI36.1
Keyswitch and emergency stop
2.
Laser Subsystem
Ultra GRM 1064, standard specifications
Wavelength: 1064 nm (Nd: YAG fundamental)
3.
Positioner Subsystem
Stepper-driven 3-axis positioning system with motors, drives, and indexer
4.
System Controller
PC-platform including, but not limited to
Intel PII-350 MHz or better processor
128 MB RAM
10 GB internal mass storage (hard drive)
1.44MB removable mass storage (floppy drive)
Multi-protocol network card
Frame grabber card
17” color monitor
Keyboard
RS-232 serial interface
Operating system: Windows 98
5.
Video Display System
Color CCD camera and macro lens
Incandescent “top light”
Visible red targeting diode laser
Video output signal
13
EXHIBIT D
CODE OF CONDUCT FOR MANUFACTURERS
At The Walt Disney Company, we are committed to:
·
·
·
·
a standard of excellence in every aspect of our business and in every corner of the world;
ethical and responsible conduct in all of our operations;
respect for the rights of all individuals; and
respect for the environment.
We expect these same commitments to be shared by all manufacturers of Disney merchandise. At a minimum, we
require that all manufacturers of Disney merchandise meet the following standards:
Child Labor
Manufacturers will not use child labor.
The term “child” refers to a person younger than 15 (or 14 where local law allows) or, if
higher, the local legal minimum age for employment or the age for completing compulsory
education.
Manufacturers employing young persons who do not fall within the definition of “children”
will also comply with any laws and regulations applicable to such persons.
Involuntary
Labor
Manufacturers will not use any forced or involuntary labor, whether prison, bonded, indentured
or otherwise.
Coercion and
Harassment
Manufacturers will treat each employee with dignity and respect, and will not use corporal
punishment, threats of violence or other forms of physical, sexual, psychological or verbal
harassment or abuse.
Nondiscrimination Manufacturers will not discriminate in hiring and employment practices, including salary,
benefits, advancement, discipline, termination or retirement, on the basis of race, religion, age,
nationality, social or ethnic origin, sexual orientation, gender, political opinion or disability.
Association
Manufacturers will respect the rights of employees to associate, organize and bargain collectively
in a lawful and peaceful manner, without penalty or interference.
Health and Manufacturers will provide employees with a safe and healthy workplace in compliance with all
applicable laws and regulations, ensuring at a minimum reasonable access to potable water and
Safety
sanitary facilities; fire safety; and adequate lighting and ventilation. Manufacturers will also ensure
that the same standards of health and safety are applied in any housing that they provide for
employees.
14
Compensation
We expect manufacturers to recognize that wages are essential to meeting employees’
basic needs. Manufacturers will, at a minimum, comply with all applicable wage and
hour laws and regulations, including those relating to minimum wages, overtime,
maximum hours, piece rates and other elements of compensation, and provide legally
mandated benefits. Except in extraordinary business circumstances, manufacturers will
not require employees to work more than the lesser of (a) 48 hours per week and 12
hours overtime or (b) the limits on regular and overtime hours allowed by local law or,
where local law does not limit the hours of work, the regular work week plus 12 hours
overtime. In addition, except in extraordinary business circumstances, employees will
be entitled to at least one day off in every seven-day period.
Manufacturers will compensate employees for overtime hours at such premium rate as is
legally required or, if there is no legally prescribed premium rate, at a rate at least equal to
the regular hourly compensation rate.
Where local industry standards are higher than applicable legal requirements, we expect
manufacturers to meet the higher standards.
Protection of the
Environment
Manufacturers will comply with all applicable environmental laws and regulations.
Other Laws
Manufacturers will comply with all applicable laws and regulations, including those pertaining to
the manufacture, pricing, sale and distribution of merchandise. All references to “applicable laws
and regulations” in this Code of Conduct include local and national codes, rules and regulations as
well as applicable treaties and voluntary industry standards.
Subcontracting
Monitoring and
Compliance
Publication
Manufacturers will not use subcontractors for the manufacture of Disney merchandise or
components thereof without Disney’s express written consent, and only after the
subcontractor has entered into a written commitment with Disney to comply with this Code of
Conduct.
Manufacturers will authorize Disney and its designated agents (including third parties)
to engage in monitoring activities to confirm compliance with this Code of Conduct,
including unannounced on-site inspections of manufacturing facilities and employerprovided housing; reviews of books and records relating to employment matters; and
private interviews with employees. Manufacturers will maintain on site all
documentation that may be needed to demonstrate compliance with this Code of
Conduct.
Manufacturers will take appropriate steps to ensure that the provisions of this Code of
Conduct are communicated to employees, including the prominent posting of a copy of
this Code of Conduct, in the local language and in a place readily accessible to
employees, at all times.
15
Exhibit 10.5
AMENDED AND RESTATED
CONCESSION AGREEMENT
This AMENDED AND RESTATED CONCESSION AGREEMENT (this “Agreement”) is entered into
and effective as of March 26, 2002, by and among WALT DISNEY WORLD CO., with a mailing address of P.O.
Box 10000, Lake Buena Vista, Florida 32830, and WALT DISNEY WORLD HOSPITALITY &
RECREATION CORPORATION, with a mailing address of P.O. Box 10000, Lake Buena Vista, Florida 32830
(collectively, “Disney”), and CRYSTAL MAGIC, INC., with a mailing address of 2120 Hidden Pine Lane,
Apopka, Florida, 32712 (“Vendor”), and hereby amends and restates the Concession Agreement between Vendor
and Walt Disney World Co. dated as of December 7, 1999 (the “Prior Agreement”). Pursuant to this Agreement,
Vendor shall provide certain services and/or merchandise for sale to guests of EPCOT® and the MAGIC
KINGDOM® Park (collectively, the “Premises”), located at the WALT DISNEY WORLD® Resort.
IN CONSIDERATION of the mutual covenants contained herein, the parties agree as follows:
1.
Grant of License; Status of Prior Agreement. Disney hereby grants to Vendor a non-exclusive,
non-transferable license to enter upon the Premises to perform the services described on Exhibit A, attached hereto
and made a part hereof (the “Services”), and for no other purpose. Vendor shall provide the Services at the Premises
at the Imagination Institute in EPCOT® commencing on December 7, 1999 and at the Tomorrowland Arcade in the
MAGIC KINGDOM® Park commencing on March 26, 2002 (collectively, the “Concession”). The provisions of
this paragraph shall be deemed to create a mere license only, and shall not be construed to be a lease, sublease,
assignment, easement or any other conveyance of any interest in or to the Premises or in or to anything contained
therein or thereon. Vendor shall not make any alterations or modifications to the Premises or the Concession without
the prior written approval of Disney, which approval may be withheld by Disney in its sole discretion. Disney may
enter the Concession at any time for any purpose including, without limitation, ensuring that Vendor is complying
with the terms of this Agreement. Upon the effective date of this Agreement set forth above, the Prior Agreement will
no longer be in force or effect and this Amended and Restated Concession Agreement will, without any lapse of time
between the grant of license previously granted under the Prior Agreement and the license granted hereunder,
supersede the Prior Agreement in all respects.
2.
Name of the Concession. The name and any changes to the name of the Concession must be preapproved in writing by Disney in its sole discretion. The parties hereto acknowledge and agree that Disney owns the
name of the Concession. Disney hereby grants to Vendor a revocable non-transferable, royalty-free, non-exclusive
license to use such name during the Term (as hereinafter defined) only at the Concession. Vendor shall not use such
name at any other location or for any other purpose, unless approved by Disney in its sole discretion. Unless
otherwise agreed in writing by Disney, in its sole discretion, in providing the Services, Vendor shall not identify the
name of Vendor or the brand name of the merchandise, products or services being offered by Vendor at the
Concession.
3.
Days and Times of the Services. Vendor shall provide the Services at the Concession on the days
and times as set forth on Exhibit A, or such other days and times as Disney shall designate in its sole discretion.
4.
Term. The term of this Agreement shall commence on December 7, 1999, and continue through
and including XXXX the “Term”), unless any party terminates this Agreement, with or without cause (i.e., in the
terminating party’s sole discretion), by providing the other parties with sixty (60) days’ prior written notice. In
addition, Disney may terminate this Agreement for cause (e.g., if Vendor fails to perform any of its obligations under
this Agreement) immediately by giving notice to Vendor. The parties mutually agree that there may be a period during
the Term during which the Concession will be closed by Disney for, among other reasons, inclement weather,
maintenance and rehabilitation of the Premises or special events (the “Closed Period”). The existence of the Closed
Period shall not extend the Term or release the parties from their obligations hereunder.
5.
Merchandise/Other Products/Services. Vendor shall provide the merchandise, other products
and/or services in connection with the Services, as identified in Exhibit B, attached hereto and made a part hereof. All
changes in the merchandise, other products and/or services shall be approved by Disney in writing in its sole
discretion. Disney shall have the right, in its sole discretion, to require Vendor to remove any merchandise, other
products and/or services from the Concession and/or to add any merchandise, other products and/or services to the
Concession; provided, however, that Disney shall not have the right to require Vendor to remove crystal glass cubes
completely from the Concession without the prior written approval of Vendor.
6.
Inventory/Equipment/Supplies. Vendor will provide all inventory, equipment and supplies
necessary to provide the Services including, but not limited to, the equipment described on Exhibit C, attached hereto
and made a part hereof (the “Equipment”). All of the inventory, Equipment and supplies shall be subject to the prior
approval of Disney in its sole discretion Vendor shall keep the Concession fully supplied at all times. Vendor shall
regularly inspect and service the Equipment, keeping each piece of Equipment in good working order. Vendor will be
responsible for cleaning below, above and behind the Equipment and for complying with all other applicable rules
and regulations relating to the Equipment. During the Term, Vendor shall retain ownership of all of the inventory,
Equipment and supplies necessary to provide the Services and all risk of loss thereto shall be borne solely by Vendor,
except to the extent such loss is caused solely by Disney’s gross negligence or willful misconduct. Maintenance of
the Equipment during the Term shall be Vendor’s sole responsibility. Upon the expiration or sooner termination of
this Agreement, Vendor shall promptly remove all of its inventory, Equipment and supplies from the Premises. If
Vendor shall fail to remove any of its inventory, Equipment or supplies from the Premises, Disney may, at its option,
either remove and dispose of any or all of the same at Vendor’s expense or retain the same, in which latter event all
right, title and interest therein shall pass to and vest in Disney.
7.
License To Use Disney Characters.
a.
Disney hereby grants to Vendor a revocable, non-transferable, royalty-free, non-exclusive
license to use the characters identified on Exhibit B only on the merchandise identified on Exhibit B (the “Disney
Merchandise”), Vendor acknowledges that Disney has adopted the Code of Conduct for Manufacturers (the “Code”)
set forth on Exhibit D, attached hereto and made a part hereof. If Vendor, at any time, desires to utilize a third party
to manufacture or produce any of the Disney Merchandise, Vendor will notify Disney of the names and physical
street addresses of such third parties (individually, a “Third Party” and collectively, the “Third Parties”), Disney shall
have the right, in its sole discretion, to approve in writing all of the Third Parties. If Disney does not approve in
writing any Third Party, Vendor shall not use such Third Parry to manufacture or produce the Disney Merchandise.
If Disney approves a Third Party in writing, Vendor may use such Third Party to manufacture or produce the Disney
Merchandise.
b.
To the extent Vendor wishes to manufacture or produce any of the Disney Merchandise
itself, Vendor shall adopt the Code and shall evidence such adoption by executing a copy of the Code and delivering
the originally executed copy of the Code to Disney prior to Vendor’s commencement of the manufacture or
production of the Disney Merchandise.
c.
Disney shall have the right, in its sole discretion, to withdraw its approval of any Third
Party at any time. If Disney withdraws its approval of any Third Party, Vendor shall immediately stop using such
Third Party to manufacture or produce the Disney Merchandise, provided, however, that Vendor shall be permitted to
sell all of such Disney Merchandise in its inventory, unless Disney provides otherwise in writing to Vendor.
d.
Disney shall have the right to evaluate and monitor Vendor to ensure that Vendor is only
using Third Parties approved by Disney hereunder to manufacture and produce the Disney Merchandise, including,
but not limited to, on-site inspections and reviews of books and records.
e.
Vendor shall not sell or use the Disney Merchandise at any other location or for any
purpose other than in connection with the Services, unless approved by Disney in its sole discretion. Upon the
expiration or sooner termination of this Agreement, Vendor shall return to Disney any remaining inventory of such
Disney Merchandise.
8.
Signage.
a.
Disney shall provide, at its sole cost and expense, such signage and promotional materials
for the Concession at Imagination Institute in EPCOT® as Disney deems necessary, in its sole discretion. Vendor
shall not display or distribute any other signage or promotional materials at such Concession.
b.
Vendor shall provide, display in location(s) designated by Disney and distribute, at its sole
cost and expense, such signage and/or promotional materials for the Concession at the Tomorrowland Arcade in the
MAGIC KINGDOM® Park as Disney may approve in its sole discretion. Vendor shall not display or distribute any
other signage or promotional materials at such Concession without the prior written approval of Disney, which
approval may be withheld by Disney in its sole discretion.
9.
Uniforms. Disney will provide all uniforms for Vendor and its employees (as hereinafter defined).
Vendor acknowledges and agrees that Vendor has no ownership rights in the uniforms. Vendor shall return the
uniforms to Disney for cleaning and maintenance as Disney may require during the Term. Vendor shall keep such
uniforms clean and professional at all times in accordance with Disney’s safety and appearance standards whenever
Vendor or its employees are performing the Services. Upon the expiration or sooner termination of this Agreement,
Vendor shall immediately return the uniforms to Disney, Vendor will be responsible for reimbursing Disney for
Disney’s uniform cleaning, maintenance and/or replacement costs for Vendor and Vendor’s employees upon receipt
of a monthly invoice from Disney. To the extent any of the uniforms are lost or substantially damaged, as determined
by Disney in its sole discretion, Vendor agrees to reimburse Disney for the replacement costs of such uniforms.
10.
Disney’s Responsibilities. During the Term, Disney shall be responsible for the following, at its
sole cost and expense:
a.
Utilities (other than telephone). In no event shall Disney be liable or responsible for any
interruption or disruption of utility service and Vendor hereby waives any and all claims against Disney for any loss,
damage or expense arising out of, or incurred in connection with, any such interruption or disruption.
b.
Trash pick up.
11.
Vendor’s Responsibilities. During the Term, Vendor shall be responsible for the following, at
its sole cost and expense:
12.
provided.
a.
Telephone service.
b.
Keeping the Concession clean, sanitary and free from trash and debris.
Compensation for the Services.
a.
Vendor’s compensation for the Services shall be based solely on the Services provided,
b.
All sales at the Concession are to be handled by Disney’s personnel whether on site or by
mail order or drop shipping. Vendor shall not accept any money from guests but shall refer all sales transactions,
including special orders and mail orders, to Disney personnel for processing through cash registers in accordance
with Disney’s standard sales procedures.
c.
Disney shall collect the compensation from the guests and shall pay to Vendor sixty
percent (60%) of gross revenues from retail sales from the Services, less applicable sales, use excise or other taxes.
Disney shall retain the remaining gross revenues from retail sales from the Services. The term “gross revenues from
retail sales from the Services” is defined as all monies and other things of value received by, or paid to, Disney and all
credit extended by Disney, arising upon, out of or in connection with the Services at the Concession during the Term,
plus the amount of any applicable sales, use, excise or other taxes, less the amount of any of Vendor’s merchandise
or products which are returned to Disney or replaced by Disney, less the amount of any refunds made by Disney in
connection with the Services, less the amount of any cancelled orders for Vendor’s merchandise or products. Such
fee shall be payable on or before Thursday of each week with respect to gross revenues from retail sales from the
Services made during the preceding week (Sunday through Saturday), through and including the calendar week
immediately following the expiration or sooner termination of this Agreement.
d.
Disney shall maintain complete and accurate records evidencing the gross revenues from
retail sales from the Services. Disney agrees to make available to Vendor once each calendar year, upon thirty (30)
days’ prior written request by Vendor, a full, permanent and accurate set of Disney’s accounting books and records
relating solely to gross revenues from retail sales from the Services. Vendor will have the right, at its sole cost and
expense, to audit said books and records. Disney agrees to keep all such books and records for at least three (3) years
following the expiration or sooner termination of this Agreement.
13.
Taxes.
a.
Amounts retained by Disney under this Agreement are subject to tax. Accordingly, the
applicable sales, use, excise or other taxes on such amounts shall be deducted from Vendor’s compensation and
remitted by Disney to the State of Florida.
b.
Disney shall be responsible for remitting directly to the State of Florida all sales taxes
applicable to the gross revenues from retail sales from the Services, according to the provisions of Disney’s Florida
Direct Payment Authority Certificate #TPP-0038, attached hereto as Exhibit E.
14.
Exhibits. The exhibits referred to in, and attached to, this Agreement are hereby incorporated
herein by reference. Unless otherwise expressly provided in the exhibit or the body of this Agreement, in the event of
any conflict or inconsistency with the provisions contained in the body of this Agreement and the exhibits, the
provisions contained in the body of this Agreement shall prevail.
15.
Miscellaneous. The GENERAL TERMS AND CONDITIONS attached to this Agreement are
hereby incorporated herein by reference. This Agreement constitutes the entire agreement of the parties hereto with
respect to the subject matter of this Agreement and supersedes any and all previous agreements, negotiations and
understandings among the parties, whether written or oral, with respect to such subject matter. Any modification of
this Agreement shall be in writing and signed by all of the parties hereto. If any provision of this Agreement is
deemed to be invalid, it shall be considered deleted herefrom and shall not invalidate the remaining provisions.
16.
Signature Authority. The person who executes this Agreement on behalf of any party hereto
expressly represents and warrants that he/she has full and complete authority to do so, knowing that the other parties
intend to rely solely thereon.
17.
No Offer. This instrument does not constitute an offer by Disney. When executed by Vendor, it
shall constitute an offer by Vendor to Disney irrevocable for a period often (10) days after receipt by Disney and,
upon execution by Disney and delivery to Vendor, shall constitute a binding agreement among the parties.
IN WITNESS WHEREOF, the panics have executed this Agreement as of the date first above written.
(“DISNEY”)
WALT DISNEY WORLD CO.
By:
/s/ Mark Mrozinsko
Title: Vice President
WALT DISNEY WORLD HOSPITALITY
& RECREATION CORPORATION
By:
/s/ Mark Mrozinski
Title: Vice President
(“VENDOR”)
CRYSTAL MAGIC, INC.
By: Steven M. Rhodes
Title: President
GENERAL TERMS AND CONDITIONS
A.
Control of the premises. Nothing in this Agreement is intended or shall be deemed or construed to grant to
or confer upon Vendor any rights whatsoever in respect of the Premises, including, without limitation, rights in
connection with the closing, alteration, discontinuance, condemnation or casualty loss thereof. Accordingly, without
limiting the generality of the foregoing. Disney shall have ultimate and unfettered control over the Premises.
B.
Themed Cart. If requested by Disney, Vendor shall provide a cart for use in connection with the Services.
Disney shall have the right to approve every aspect of the Cart, including, without limitation, design, theming and
signage, such approval to be in Disney’s sole and absolute discretion; provided, however, that by giving any such
approval, Disney shall not assume responsibility for the quality, workmanship and/or safety of such cart. Once
approved, Vendor shall not change the design, theming or any other aspect of the cart without the express written
approval of Disney, which approval may be withheld by Disney in its sole discretion. Vendor’s expenditure of any
monies in connection with the design, construction, installation, removal, acquisition and/or operation of the cart shall
be at Vendor’s sole risk. Upon the expiration or sooner termination of this Agreement, Disney shall have the right to
request that Vendor remove any theming from the cart and Vendor shall remove the cart from the Premises at its sole
cost and expense. If Vendor shall fail to remove the cart from the Premises, Disney may, at its option, either remove
and dispose of the cart at Vendor’s expense or retain the same, in which latter event all right, title and interest therein
shall pass to and vest in Disney.
C.
Disney’s Approval of Cart Manufacturer. The architects, engineers, consultant and general contractors
selected by Vendor for the design and production of the cart shall be licensed in the State of Florida and shall be
subject to the prior written approval of Disney, which approval may be withheld by Disney in its sole discretion. If
requested by Disney, Vendor shall furnish to Disney copies of all contracts for any work in connection with the
design and construction of the cart (including, without limitation, all contracts for the purchase of materials and
supplies in connection therewith).
D.
No Representations or Warranties by Disney. Disney makes no representations or warranties
whatsoever in connection with this Agreement, including, without limitation, the condition of the Premises, its
suitability for the use described herein or for any other use, the visibility, of the Concession to the guests of the
Premises, the profitability of the Services to be provided at the Concession or the success or failure of the Services to
be provided at the Concession.
E.
Participants. Vendor acknowledges that Disney and its parent, related, affiliated and subsidiary companies
are parties to certain participant agreements and that Disney and its parent, related, affiliated and subsidiary companies
may enter into additional participant agreements in the future. Vendor agrees to comply with the provisions of such
participant agreements as they exist from time to time. Disney shall disclose the relevant provisions of such
agreements to Vendor.
F.
Licenses. Vendor and its employees shall be licensed as required by law. Vendor shall obtain and maintain
throughout the Term, all professional, occupational equipment, and other licenses and permits required by law to
perform the Services and shall provide copies of such licenses to Disney upon request.
G.
Disney Traditions/Guest Surveys/Meetings. If requested by Disney, Vendor and its employees shall
enroll in, at Vendor’s expense, and complete the Disney Traditions class and any other Disney class that Disney
deems necessary prior to commencement of the Services or at any time thereafter as Disney may determine in its sole
discretion. Vendor and its employees shall, if requested by Disney: (i) conduct or participate in guest evaluation and
experience surveys at periodic intervals relating to the Premises and/or the Concession and (ii) attend meetings called
by Disney.
H.
Parking Passes/ID Cards. Disney shall provide Vendor and its employees with parking passes and ID
cards to gain admission to the Premises and to the cast parking lot at the Premises. Upon the expiration or sooner
termination of this Agreement, Vendor shall return to Disney all parking passes and ID cards issued to Vendor and
its employees pursuant to this Agreement.
I.
Additional Services/Disney Standard. Vendor shall pay Disney for any and all services provided by
Disney which are requested by Vendor, including, without limitation, the installation of water lines and fixtures,
electricity lines and sanitary sewer. In addition, to the extent Disney determines that Vendor needs additional
equipment to provide the Services, including, without limitation, lightning rods, Disney shall have the option of either
requiring Vendor to acquire and install such equipment at Vendor’s sole cost and expense or acquiring and installing
such equipment itself and then billing Vendor for such equipment and installation. Further, to the extent Disney
determines that any of the equipment, supplies, signage or any other items or materials used by Vendor in connection
with the Services do not satisfy the Disney standard, as determined by Disney from time to time, Disney shall have
the option of either requiring Vender to bring such equipment, supplies, signage or any other items or materials into
compliance at Vendor’s sole cost and expense or taking whatever actions are required, as determined by Disney in its
sole discretion, to bring such equipment, supplies, signage or any other items or materials into compliance and then
billing Vendor for such actions.
J.
Late Charges. Any amounts payable by Vendor pursuant to this Agreement which are not paid when due
shall bear interest from the date due until the date paid at the lesser of the maximum rate allowed by law or the annual
rate of eighteen percent (18%) and such interest shall be payable on demand. Vendor shall be responsible for all costs
and expenses that Disney, or its designee, may incur in collecting any amount due from Vendor hereunder or in
enforcing any of Disney’s other rights or remedies under this Agreement, including, without limitation, attorneys’
fees and fees of other professionals.
K.
Credit Cards/Charges. If so requested by Disney, Vendor will accept (in accordance with procedures
established by Disney from time to time) WALT DISNEY WORLD® hotel identification cards, Disney Dollars
and/or other Forms of resort cards, gift certificates and package coupons distributed by Disney and/or any of
Disney’s parent, related, affiliated or subsidiary companies to guests at the WALT DISNEY WORLD® Resort, for
payment for the Services. Disney will pay Vendor the total amount of all such card charges Disney Dollars, resort
cards, gift certificates and package coupons to the extent Vendor has complied with Disney’s procedures, less a
reasonable service fee (currently three and one-half percent (3-1/2%) of the total amount of all such card charges,
Disney Dollars, resort cards, gift certificates and package coupons), and such amount paid by Disney to Vendor shall
be considered part of “gross revenues from retail sales from the Services” for purposes of this Agreement. If so
requested by Disney, Vendor will also accept American Express, Visa, MasterCard, Discover Card, Diners; Club,
JCB (Japanese Credit Bureau) Card, and/or other credit cards in payment for the Services.
L.
Guest Claims. Vendor shall promptly inform Disney of any guest claims or complaints and any such
claims or complaints will be handled exclusively by Disne’s personnel in accordance with Disney’s policies and
procedures.
M.
Change of Concession. Disney reserves the right to change the location of the Concession at which
Vendor performs the Services upon seven (7) days prior notice to Vendor. Additionally, Disney reserves the right to
introduce new vendors at any location at the, Premises who may or may not be in direct competition with Vendor.
N.
Personal property. All personal property placed upon the Premises by Vendor or any of its employees
(including, but not limited to, inventory, Equipment and supplies) shall remain Vendor’s or its employees’ property,
and shall be placed upon the Premises at Vendor’s or its employees’ sole risk. Disney shall not be responsible for
any loss (including, without limitation, theft) of or damage to any of Vendor’s or its employees’ personal property on
the Premises, except to the extent such loss or damage was caused solely by the gross negligence or willful
misconduct of Disney. If requested by Disney, Vendor shall give Disney prompt written notice of any occurrence,
incident or accident occurring on the Premises that causes, or threatens to cause, damage or loss to the Premises or
any property contained therein.
O.
Vendor’s Employees.
i.
For purposes of this Agreement, all references to “employees” of Vendor shall include Vendor’s
employees, agents, representatives and independent contractors and any other person providing the Services
hereunder.
ii.
Vendor’s employees, if any, shall be under Vendor’s direct supervision and control. In addition,
Vendor shall comply with, and Vendor shall ensure that each of its employees complies with, all of Disney’s
standards, rules, and regulations which may be in effect from time to time and applicable to employees of entities
sponsoring attractions or corporate displays at the WALT DISNEY WORLD® Resort, or any part thereof, including,
but not limited to, the rules of conduct and personal appearance standards established by Disney for its own
employees.
iii.
Vendor, and its employees, shall; (a) not insult, use offensive or profane language or gestures
toward or in the presence of, or argue with or be discourteous to, any guests of the Premises, or any of Disney’s
employees or representatives; (b) not use, possess or be under the influence of alcohol narcotics, drugs or other
hallucinatory agents while on Disney’s premises; and (c) otherwise comply with any and all rules and regulations
promulgated by Disney from time to time for the protection and safety of Disney’s guests and for their comfort and
convenience.
iv.
Vendor hereby assumes, and releases Disney from, any and all risks to Vendor and its employees
in connection with the Services. Accordingly, Disney shall have no obligation whatsoever to compensate Vendor, or
its employees, on account of any injuries or property damage which Vendor, or its employees, may sustain as a result
of the performance of the Services hereunder, except to the extent such injuries or damage were caused solely by the
gross negligence or willful misconduct of Disney, and Vendor hereby waives, on its own behalf and on behalf of any
persons claiming by, through or under Vendor, any and all rights of recovery which Vendor, or its employees, may
now or hereafter have against Disney on account of any such injury or property damage sustained by Vendor, or its
employees, as a result of the performance of the Services. The provisions of this section shall survive the expiration
or sooner termination of this Agreement.
v.
Any persons that assist Vendor in the performance of the Services shall be Vendor’s employees
and not the employees of Disney or its parent, related, affiliated or subsidiary companies, and they, as well as
Vendor, shall not be entitled to participate in any of Disney’s employee benefit or welfare plans, or to receive any of
Disney’s employee benefits. Vendor will pay all salaries and all social security taxes, federal and state unemployment
insurance and any and all similar taxes relating to Vendor and its employees. Vendor shall provide to Disney, upon
request, evidence that Vendor and its employees possess valid visas, passports or other documentation to enable
Vendor and its employees, respectively, to perform the Services.
vi.
Vendor acknowledges that Disney has a policy relating to criminal background checks, which
policy is applicable to all prospective new employees and certain existing employees of Disney and its parent, related,
affiliated and subsidiary companies employed in connection with the WALT DISNEY WORLD® Resort, as well as
all prospective new employees and certain existing employees of third parties operating businesses in the WALT
DISNEY WORLD® Resort. Accordingly, Vendor agrees that, with respect to all prospective new employees of
Vendor employed in connection with the Premises and certain existing employees of Vendor that may be assigned to
work in the Premises from time to time during the Term. Vendor will conduct, at its own expense, criminal
background checks in compliance with the requirements and procedures set forth in such policy, as the same may be
amended from time to time during the Term. Vendor shall comply with such requirements and procedures to the
minimum extent set forth in the policy and Vendor may, consistent with all applicable laws, wish to conduct more
comprehensive or inclusive employee criminal background searches on its own accord. Vendor shall, at Vendor’s
expense, comply with all laws applicable to the initial retrieval and subsequent use and disclosure of the information it
obtains from conducting such criminal background checks (including, without limitation, the Fair Credit Reporting
Act).
P.
Representations and Warranties. Vendor hereby warrants and represents to Disney that: (i) Vendor has
the experience, staff, skill and authority to perform the Services; (ii) Vendor shall comply with all applicable federal,
state and local laws, rules, regulations, codes, statutes, ordinances, and orders of any governmental or regulatory
authority including, without limitation, the Reedy Creek Improvement
District; (iii) Vendor is adequately financed to meet any financial obligation Vendor may be required to incur
hereunder, (iv) Vendor has obtained all licenses and permits required to observe and perform the terms, covenants,
conditions and other provisions on its part to be observed or performed under this Agreement; (v) any material or
work product provided by Vendor under this Agreement shall not infringe upon any patent, trademark or copyright,
or otherwise violate the rights of, any person, firm or corporation; (vi) Vendor has obtained and will maintain during
the Term, all necessary licenses, consents, permissions and releases (including, without limitation, any necessary
licenses from third parties for the artwork which is used in Vendor’s performance or the Services), and will timely
make all payments to third parties, that may be required to provide the Services; (vii) to the extent Vendor is a
corporation, Vendor is duly organized, validly existing and in good standing in its State of incorporation; (viii) in
providing the Services, Vendor shall use good moral judgment; (ix) there is no actual or potential conflict of interest
between the Services to be performed by Vendor under this Agreement and its family, business, financial or other
interests, and Vendor shall immediately notify Disney of any actual or potential conflict of interest of which Vendor
becomes aware during the Term; and (x) Vendor will not engage any current employee of Disney or any of its
parent, related, affiliated or subsidiary companies or any person who was employed by Disney or any of its parent,
related, affiliated or subsidiary companies within the past twelve (12) months to perform any part of the Services.
Q.
Recordation of this Agreement. This Agreement shall not be recorded.
R.
Liens.
i.
The Premises and the Concession shall not be subjected to liens of any nature by reason of
Vendor’s construction, alteration, repair, restoration, replacement or by reason of any other act or omission of Vendor
(or of any person claiming by, through or under Vendor). All persons dealing with Vendor are hereby placed on
notice that such persons shall not look to Disney or to Disney’s credit or assets for payment or satisfaction of any
obligations incurred in connection with the construction, alternation, repair, restoration, replacement, use or
reconstruction of the Concession by or on behalf of Vendor. Vendor has no power, right or authority lo subject
Disney to any lien or claim of lien including, but not limited to, mechanics and other materialmen’s liens. Vendor
shall not create or permit to be created any lien, encumbrance or charge against the Premises or any part of the
Premises including, but not limited to, the Concession.
ii.
To secure the payment of all compensation due and to become due hereunder and the faithful
performance of this Agreement by Vendor, Vendor hereby gives to Disney an express first and prior contract lien
and security interest on all property (including, without limitation. Vendor’s merchandise, inventory, supplies,
Equipment, etc.) which may be placed in the Premises, and also upon all proceeds of any insurance which may accrue
to Vendor by reason of destruction of or damage to any such property. Such property shall not be removed from the
Premises without the prior written approval of Disney (which approval may be withheld by Disney in its sole
discretion) until all arrearages in compensation then due to Disney hereunder shall first have been paid. If requested
by Disney, Vendor shall execute and deliver to Disney, Uniform Commercial Code Financing Statements in
sufficient form so that when properly filed, the security interest hereby given shall thereupon be perfected.
S.
Confidentiality.
i.
Vendor and/or its employees may, during the course of this Agreement, have access to, and acquire
knowledge of or from, materials, data, strategies, systems, or other information relating to Disney, or its parent,
related, affiliated or subsidiary companies, which may not be accessible or known to the general public. All such
knowledge acquired by Vendor, or its employees, shall be kept confidential and shall not be used, published or
divulged by Vendor, or its employees, (a) to any other person, firm or corporation, (b) in any advertising or
promotion regarding Vendor, its employees, or its services, or (c) in any other manner or connection whatsoever
without first having obtained Disney’s prior written permission, which permission Disney may withhold in its sole
discretion.
ii.
Vendor agrees that any suggestions, ideas, information, documents or things which it discloses to
Disney shall not be subject to an obligation of confidentiality by Disney, and Disney shall not be liable for any use or
disclosure thereof, unless there is a prior written agreement to the contrary among the parties.
iii.
The provisions of this section shall survive the expiration or sooner termination of this Agreement.
T.
Disney’s Promotion Rights. Notwithstanding any other provision of this Agreement to the contrary,
Disney shall have the right, without obtaining Vendor’s approval, to photograph, take motion pictures of and televise
in any manner or through any media, the Concession and any parts thereof, either individually or as an integral part of
the WALT DISNEY WORLD® Resort or any part thereof such right shall include the right to use Vendor or any of
its employees or representatives. Disney may display, use, sell, license or otherwise exploit any such photographs or
pictures for promotional purposes, both during and after the Term, and all of the foregoing materials and all benefits
and revenues obtained therefrom shall be Disney’s sole and exclusive property. If requested by Disney, Vendor shall
(other than the payment of money) obtain, for Disney’s benefit, releases, clearances or other instruments from any of
Vendor’s employees and representatives necessary to permit Disney to make and use or cause to be made and used
any such photographs or pictures for any of the purposes herein provided. The provisions of this section shall
survive the expiration or sooner termination of this Agreement.
U.
No Use of the Disney Name. Vendor shall acquire no rights under this Agreement to use, and Vendor
shall not use: (i) the WALT DISNEY WORLD or “Disney” mark, name or symbol; (ii) the name “Waller E. Disney”
or any variation thereof; (iii) any mark, name, symbol, photograph, film or other representation of any theme park,
water park, hotel, restaurant, nightclub, or any other facility located in the WALT DISNEY WORLD® Resort; or (iv)
any “Disney” fanciful characters (such as MICKEY MOUSE), designs, symbols, representations, figures, drawings,
ideas or other matter owned, developed or created by The Walt Disney Company, or any of its related, affiliated or
subsidiary companies. The provisions of this section shall survive the expiration or sooner termination of this
Agreement.
V.
Insurance. Vendor shall provide and keep in force during the Term the following coverages:
i.
Commercial General Liability Insurance (including, without limitation, contractual and product
liability coverages) and Automobile Liability Insurance (for all vehicles), with minimum limits of $2,000,000 and
$1,000,000, respectively, combined single limit per occurrence, protecting Vendor, Disney, Disney’s parent, related,
affiliated and subsidiary companies and the officers, directors, agents, employees and assigns of each, from and
against claims for personal injury, bodily injury (including, without limitation, death) and property damage that may
arise from or in connection with the performance of the Services hereunder or from or out of any act or omission of
Vendor, its officers, directors, agents or employees;
ii.
Workers’ Compensation Insurance as required by applicable law, and Employer’s Liability
Insurance with minimum limits of $1,000,000 per occurrence; and
iii.
Such further insurance, in adequate amounts, against risks commonly insured against in the case of
similar operations.
All such insurance required in this section shall (a) be in companies with a Best Guide Rating of B+VII or better and
on forms acceptable to Disney, (b) provide that the coverage thereunder may not be reduced or canceled unless thirty
(30) days’ unrestricted prior written notice thereof is furnished to Disney, (c) be primary and not contributory, and
(d) be on an occurrence basis. Certificates of Insurance (or copies of policies, if required by Disney) shall be
furnished to Disney, at least thirty (30) days prior to commencement of the Services hereunder, naming Disney, its
parent, related, affiliated and subsidiary companies and the officers, directors, agents, employees and assigns of each,
as additional insureds, and shall contain a waiver of subrogation with respect to the additional insureds.
W.
Indemnification. Vendor shall defend (if requested by Disney), indemnify and hold harmless, Disney, its
parent, related, affiliated and subsidiary companies and the officers, directors, agents, employees and assigns of each,
from and against any and all damages, claims, demands, suits, judgments, losses or expenses (including, without
limitation, attorneys’ fees and fees of other professionals) of any nature whatsoever (whether based on tort, breach of
contract, product liability, patent or copyright infringement or otherwise) arising directly or indirectly from or out of:
(i) the sale, use, provision or consumption of any products or services offered for sale or otherwise obtained in
connection with the Services; (ii) any act or omission of Vendor its officers, directors, agents, suppliers or
employees; (iii) any failure of Vendor to perform the Services hereunder in accordance with generally accepted
industry standards; (iv) any breach of Vendor’s representations as set forth in this Agreement; (v) any injuries to, or
death of, any of Vendor’s employees; or (vi) any other failure of Vendor to comply with the obligations on its part to
be performed hereunder. The provisions of this section shall survive the expiration or sooner termination of this
Agreement.
X.
Limitations on Disney’s Liability. Disney shall not be liable to any person, firm or corporation as a result
of any act or omission by Vendor or any other person, firm or corporation associated with Vendor, nor upon any
occurrence arising out of or related in any way to this Agreement or any use of the Premises by Vendor. IN NO
EVENT SHALL DISNEY BE LIABLE TO VENDOR FOR ANY INDIRECT, SPECIAL, EXEMPLARY,
PUNITIVE OR CONSEQUENTIAL DAMAGES ARISING OUT OF OR RELATING TO THIS
AGREEMENT.
Y.
Independent Contractor. In the performance of the Services hereunder, Vendor shall be an independent
contractor and not an agent, employee, partner or joint venturer of Disney or its parent, related, affiliated or subsidiary
companies, and Vendor shall not interfere with Disney’s operations.
Z.
Personal Services. This Agreement is for the personal services of Vendor and may not be subcontracted or
assigned by Vendor in any fashion, whether by operation of law, or by conveyance of any type including, without
limitation, transfer of stock in Vendor, without the prior written consent of Disney, which consent Disney may
withhold in its sole discretion. Disney retains the right to assign all or any portion of this Agreement at any time.
Upon such assignment, and provided the assignee shall, in writing, assume Disney’s obligations under this
Agreement, Disney shall be automatically released and discharged from any and all of its obligations under this
Agreement, and Vendor shall thenceforth look solely to the assignee for performance of Disney’s obligations under
this Agreement.
AA.
Broker and Commission. All negotiations relating to this Agreement have been conducted by and
among Disney and Vendor without the intervention of any person or other party as agent or broker. Disney and
Vendor represent and warrant to each other that there are and will be no broker’s commissions or fees payable in
connection with this Agreement by reason of their respective dealings, negotiations or communications.
BB.
Notices. All notices and approvals submitted hereunder may be sent by certified mail, return receipt
requested to the addresses set forth on the first page of this Agreement, or delivered by hand to the Concession at the
Premises, or any party hereto may also deliver any such notices and/or approvals by depositing such notices with a
reliable air courier service marked and prepaid for overnight delivery and addressed as provided on the first page of
this Agreement. If such notice is sent by certified mail, notice shall be deemed given three (3) days following mailing;
if such notice is delivered by hand, such notice shall be deemed given when delivered to the Concession; and if such
notice is sent by air courier, notice shall be deemed given one (1) day following deposit with such air courier service.
CC.
Force Majeure. If the performance by any party of its obligations under this Agreement is delayed or
prevented in whole or in part by any cause not reasonably within its control, it shall be excused, discharged and
prevented in whole or in part by any cause not reasonably within its control, it shall be excused, discharged and
released from performance to the extent such performance is so limited or prevented without liability of any kind.
Nothing herein contained shall be construed as requiring any party to accede to any demands of labor or labor unions,
suppliers or other entities which it considers unreasonable.
DD.
Governing Law. This Agreement shall be construed, regulated and enforced under and by the laws of the
State of Florida without regard to conflicts of laws principles. Venue for any legal action arising out of this
Agreement shall be in Orange County, Florida and jurisdiction shall be vested exclusively in the Circuit Court of the
Ninth Judicial Circuit in and for Orange County, Florida (or if the Circuit Court shall not have jurisdiction over the
subject matter thereof, then to such other court sitting in said county and having subject matter jurisdiction). The
parties hereby consent to the jurisdiction of such court and to the service of process outside the State of Florida
pursuant to the requirements of such court in any matter so to be submitted to it, and expressly waive all rights to trial
by jury regarding any such matters.
EE.
Waiver of Rights. The failure of any party hereto to insist upon the Strict performance of this Agreement,
or any of the terms, covenants, representations and conditions hereof, shall not be deemed a waiver of any rights or
remedies that such party may have and shall not be deemed a waiver of any subsequent breach in respect of any such
terms, covenants, representations and conditions.
FF.
Regulatory Inspection Reports. Vendor shall deliver to Disney, immediately following receipt by
Vendor, copies of any inspection or evaluation report or any notice of violation of or failure to comply with any law,
rule or regulation applicable to the Premises or Vendor’s operation of the Concession, which is delivered to Vendor
by any governmental authority (including, without limitation, any agency of the Florida Department of Business and
Professional Regulation).
GG.
HACCP. If, in accordance with Vendor’s permitted use of the Premises under this Agreement, Vendor
prepares and serves to the public any “Potentially Hazardous Food” (as such term is defined in the Food and Drug
Administration Food Code) then Vendor shall adopt and implement a Hazard Analysis and Critical Control Point
(“HACCP”) program which shall be used by Vendor in the operation of its business. Upon receipt of a written
request, Disney shall provide Vendor a copy of the Walt Disney World Co. HACCP plan for informational,
comparative and illustrative purposes only.
EXHIBIT A
SCOPE OF SERVICES
Vendor will assist Disney, as an independent contractor, in setting up a display area within the Premises, to
provide the following services for sale to the guests of the Premises:
Generating guest portraits and 3-D characters, logos and/or artwork (Mickey Mouse, Minnie
Mouse, Donald Duck, Goofy, Pluto, Figment, Imagination Institute logo, Epcot® logo, Space
Mountain, Cinderella Castle and any other characters, logos and artwork approved by Disney in
writing) sculpture reproductions inside optically transparent material (a crystal glass cube).
Vendor shall also provide the entertainment and show aspects associated with the Services. Vendor will
provide the Services at the times and on the dates that the Premises are open to the public.
Vendor agrees that to the extent Vendor uses photographic materials (including, without limitation, film and
photographic paper) in connection with the Services, Vendor will only use Kodak products. Any substitutions which
may be available from other companies require Disney’s prior written approval in each instance, which approval
Disney may withhold in its sole discretion.
EXHIBIT B
MERCHANDISE/OTHER PRODUCTS/SERVICES
Vendor agrees to provide only the following merchandise/other products/services for sale:
Merchandise/Other Products/Services
Optically transparent material (a crystal glass cube) which contains guest portraits and 3-D characters, logos and/or
artwork (Mickey Mouse, Minnie Mouse, Donald Duck, Goofy, Pluto, Figment, Imagination Institute logo, Epcot®
logo, Space Mountain, Cinderella Castle and any other characters, logos and artwork approved by Disney in writing).
EXHIBIT C
EQUIPMENT
Vendor shall provide the following equipment at each of the locations at which it provides the Services at the
Premises:
1.
Laser safety provisions:
ANSI Class IV laser system
Interlocked and labeled enclosure per ANSI ZI36.1
Keyswitch and emergency stop
2.
Laser Subsystem
Ultra GRM 1064, standard specifications
Wavelength: 1064 nm (Nd: YAG fundamental)
3.
Positioner Subsystem
Stepper-driven 3-axis positioning system with motors, drives, and indexer
4.
System Controller
PC-platform including, but not limited to
Intel PII-350 MHz or better processor
128 MB RAM
10 GB internal mass storage (hard drive)
1.44MB removable mass storage (floppy drive)
Multi-protocol network card
Frame grabber card
17” color monitor
Keyboard
RS-232 serial interface
Operating system: Windows 98
5.
Video Display System
Color CCD camera and macro lens
Incandescent “top light”
Visible red targeting diode laser
Video output signal
EXHIBIT D
CODE OF CONDUCT FOR MANUFACTURERS
At The Walt Disney Company, we are committed to:
·
·
·
·
a standard of excellence in every aspect of our business and in every corner of the world;
ethical and responsible conduct in all of our operations;
respect for the rights of all individuals; and
respect for the environment.
We expect these same commitments to be shared by all manufacturers of Disney merchandise. At a minimum, we
require that all manufacturers of Disney merchandise meet the following standards:
Child Labor
Manufacturers will not use child labor.
The term “child” refers to a person younger than 15 (or 14 where local law allows) or, if
higher, the local legal minimum age for employment or the age for completing compulsory
education.
Manufacturers employing young persons who do not fall within the definition of “children”
will also comply with any laws and regulations applicable to such persons.
Involuntary
Labor
Manufacturers will not use any forced or involuntary labor, whether prison, bonded, indentured
or otherwise.
Coercion and
Harassment
Manufacturers will treat each employee with dignity and respect, and will not use corporal
punishment, threats of violence or other forms of physical, sexual, psychological or verbal
harassment or abuse.
Nondiscrimination
Manufacturers will not discriminate in hiring and employment practices, including salary,
benefits, advancement, discipline, termination or retirement, on the basis of race, religion, age,
nationality, social or ethnic origin, sexual orientation, gender, political opinion or disability.
Association
Manufacturers will respect the rights of employees to associate, organize and bargain
collectively in a lawful and peaceful manner, without penalty or interference.
Health and
Safety
Manufacturers will provide employees with a safe and healthy workplace in compliance with all
applicable laws and regulations, ensuring at a minimum reasonable access to potable water and
sanitary facilities; fire safety; and adequate lighting and ventilation. Manufacturers will also ensure
that the same standards of health and safety are applied in any housing that they provide for
employees.
Compensation
We expect manufacturers to recognize that wages are essential to meeting employees’
basic needs. Manufacturers will, at a minimum, comply with all applicable wage and
hour laws and regulations, including those relating to minimum wages, overtime,
maximum hours, piece rates and other elements of compensation, and provide legally
mandated benefits. Except in extraordinary business circumstances, manufacturers will
not require employees to work more than the lesser of (a) 48 hours per week and 12
hours overtime or (b) the limits on regular and overtime hours allowed by local law or,
where local law does not limit the hours of work, the regular work week plus 12 hours
overtime. In addition, except in extraordinary business circumstances, employees will be
entitled to at least one day off in every seven-day period.
Manufacturers will compensate employees for overtime hours at such premium rate as is
legally required or, if there is no legally prescribed premium rate, at a rate at least equal to
the regular hourly compensation rate.
Where local industry standards are higher than applicable legal requirements, we expect
manufacturers to meet the higher standards.
Protection of the Manufacturers will comply with all applicable environmental laws and regulations.
Environment
Other Laws
Subcontracting
Manufacturers will comply with all applicable laws and regulations, including those
pertaining to the manufacture, pricing, sale and distribution of merchandise. All
references to “applicable laws and regulations” in this Code of Conduct include local and
national codes, rules and regulations as well as applicable treaties and voluntary industry
standards.
Manufacturers will not use subcontractors for the manufacture of Disney merchandise or
components thereof without Disney’s express written consent, and only after the subcontractor
has entered into a written commitment with Disney to comply with this Code of Conduct.
Monitoring and Manufacturers will authorize Disney and its designated agents (including third parties) to engage
in monitoring activities to confirm compliance with this Code of Conduct, including
Compliance
unannounced on-site inspections of manufacturing facilities and employer-provided housing;
reviews of books and records relating to employment matters; and private interviews with
employees. Manufacturers will maintain on site all documentation that may be needed to
demonstrate compliance with this Code of Conduct.
Publication
Manufacturers will take appropriate steps to ensure that the provisions of this Code of
Conduct are communicated to employees, including the prominent posting of a copy of
this Code of Conduct, in the local language and in a place readily accessible to
employees, at all times.
Exhibit 10.6
AMENDMENT NO. 2 TO AMENDED AND RESTATED CONCESSION AGREEMENT
THIS AMENDMENT NO.2 TO AMENDED AND RESTATED CONCESSION AGREEMENT, is
effective as of the 31st day of March, 2006, between WALT DISNEY WORLD CO. and WALT DISNEY
WORLD HOSPITALITY & RECREATION CORPORATION (collectively, “Disney”) and CRYSTAL
MAGIC, INC. (“Vendor”),
WITNESSETH;
WHEREAS, the parties heretofore entered into an Amended and Restated Concession Agreement dated as
of March 26, 2002 (the “Agreement”), pursuant to which Vendor provides certain services and/or merchandise for
sale to guests of Epcor® and the Magic Kingdom® Park; and
WHEREAS, the parties have determined that it is in their mutual best interests to amend the terms of the
Agreement, effective as the 31st day of March, 2006, as herein provided.
NOW, THEREFORE, in consideration of the premises and mutual covenants contained herein and in the
Agreement, the parties agree as follows;
1.
as follows:
Paragraph 4 (Term) of the Agreement is hereby amended and restated so that it reads in its entirety
4.
Term. The term of this Agreement shall commence on December 7, 1999, and
continue through and including October 30, 2008 (the “Term”), unless any party terminates this
Agreement, with or without cause (i.e., in the terminating party’s sole discretion), by providing the
other parties with sixty (60) days prior written notice. In addition, Disney may terminate this
Agreement for cause (e.g., if Vendor fails to perform any of its obligations under this Agreement)
immediately by giving notice to Vendor. The parties mutually agree that there may be a period during
the Term during which the Concession will be closed by Disney for, among other reasons, inclement
weather, maintenance and rehabilitation of the Premises or special events (the “Closed Period”), The
existence of the Closed Period shall not extend the Term or release the parties from their obligations
hereunder.
2.
Paragraph 8 (Signage) of the Agreement is hereby amended and restated so that it reads in its
entirety as follows:
8.
Signage.
a.
Vendor shall provide, display in location(s) designated by Disney and
distribute, at its sole cost and expense, such signage, fixtures and promotional materials for the Concession at Image
Works in Epcot® as Disney may approve in its sole discretion. Vendor shall not display or distribute any other
signage, fixtures or promotional materials at such Concession without the prior written approval of Disney, which
approval may be withheld by Disney in its sole discretion.
b.
Vendor shall provide, display in location(s) designated by Disney and
distribute, at its sole cost and expense, such signage, fixtures and/or promotional materials for the Concession at the
Tomorrowland Arcade in the Magic Kingdom® Park as Disney may approve in its sole discretion. Vendor shall not
display or distribute any other signage, fixtures or promotional materials at such Concession without the prior written
approval of Disney, which approval may be withheld by Disney in its sole discretion.
c.
Vendor shall provide, display in location(s) designated by Disney and
distribute, at its sole cost and expense, such signage, fixtures and promotional materials for the Concession at Mouse
Gear in Epcot® as Disney may approve in its sole discretion. Vendor shall not display or distribute any other
signage, fixtures or promotional materials at such Concession without the prior written approval of Disney, which
approval may. be withheld by Disney in its sole discretion.
follows:
3.
Paragraph 12.c. of the Agreement is hereby amended and restated so that it reads in its entirety as
c.
Disney shall collect the compensation from the guests and shall pay to
Vendor sixty percent (60%) of gross revenues from retail sales from the Services, less applicable sales, use, excise or
other taxes. Disney shall retain the remaining gross revenues from retail sales from the Services. The term “gross
revenues from retail sales from the Services” is defined as all monies and other things of .value received by, or paid
to, Disney and all credit extended by Disney, arising upon, out of or in connection with the Services at the
Concession during the Term, plus the amount of any applicable sales, use, excise or other taxes, less the amount of
any of Vendor’s merchandise or products which are returned to Disney or replaced by Disney, less any applicable
discounts, less the amount of any refunds made by Disney in connection with the Services, less the amount of any
cancelled orders for Vendor’s merchandise or products. Such fee shall be payable on or before Thursday of each
week with respect to gross revenues from retail sales from the Services made during the preceding week (Sunday
through Saturday), through and including the calendar week immediately following the expiration or sooner
termination of this Agreement.
4.
Exhibit B of the Agreement is hereby amended and restated so that it reads in its entirety as Exhibit
B attached hereto.
5.
Except as provided herein, the Agreement shall remain in full force and effect in accordance with its
terms and conditions.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 2.to Amended and
Restated Concession Agreement to be duly executed as of the day and year first referenced above.
(“DISNEY”)
WALT DISNEY WORLD CO,
By: /s/ Jim MacPhee
(“VENDOR”)
CRYSTAL MAGIC, INC
By: /s/ Steven M. Rhodes
Print Name: Jim MacPhee
Print Name: Steven M. Rhodes
Title: Vice President
Title: President
WALT DISNEY WORLD HOSPITALITY
& RECREATION CORPORATION
By: /s/ Phil Hughes
Print Name: Phil Hughes
Title: Vice President
Exhibit 10.7
August 17, 2000
Crystal Magic, Inc.
2120 Hidden Pine Lane
Apopka, Florida 32712
Attn.: Steven M. Rhodes
Re:
Crystal Magic Carts
Universal Orlando
Dear Mr. Rhodes:
Thank you for your proposal regarding the operation of a cart/kiosk in Universal Studios Florida and Universal
Studios Islands of Adventure (the “Attractions”). This letter will confirm and contain the terms and conditions of
the agreement (“Agreement”) between Crystal Magic, Inc., a Florida corporation (“Licensee”) and Universal City
Development Partners. LP a Delaware limited partnership, (“UCDP”) pursuant to which Licensee is granted the
license to operate multiple carts/kiosks within the Attractions for the purposes stated below. In consideration of the
mutual benefits derived from this Agreement, Licensee arid UCDP agree to the following terms and conditions:
1.
Definitions.
(a)
Attractions: The theme parks known as Universal Studios Islands of Adventure (“IOA”) and
Universal Studios Florida (“USF”) both of the foregoing being located in the “Resort” known as Universal
Orlando, Orlando, Florida.
(b)
Business: Defined in Section 3(a).
(c)
Concession Fee: The consideration and compensation due from Licensee and payable to UCDP
for the license granted hereunder and for the use of the Locations and privilege of operating the Business in
the Attractions. The Concession Fee, and any other sums or consideration due under this Agreement will be
due UCDP without demand and without deduction, set-off, claim or counterclaim of any nature whatsoever
which Licensee may have or allege to have against UCDP, and all such payments will, upon receipt or
retention by UCDP, be and remain the sole and absolute property of UCDP, Further, such Concession Fees
will be calculated on the Gross Revenues, regardless of whether such Gross Revenues were generated by
cash sales, Universal Scrip, Resort Hotel charges under Section 4(d) below or credit/charge sales. See
Section 4(a).
(d)
Effective Date: The Effective Date of this Agreement and the parties obligations hereunder
(excepting only Licensee’s obligations to pay the Concession Fee and Minimum Monthly Fee) will
commence on the date of full execution of this Agreement as indicated below by the date on which this
Agreement is executed by the last party signing same.
(e)
Gross Receipts: All proceeds, including, but not limited to, all moneys and all other things of
value (including charge receipts, Universal Scrip and Resort Hotel charges) received by or paid to Licensee
or any other person on Licensee’s account by reason of Licensee’s operation of the Business, less only (i)
the amount of any returns or refunds with respect to sales from the Business by customers of the Business
provided that the original sales price thereof was included in Gross Receipts and (ii) any “Permitted
Discounts” (defined in Section 3(e) below) on “Merchandise” (defined in Section 1(m) below). For
example, with regards to the Permitted Discounts, a ten percent (10%) discount is permitted on a two dollars
($2.00) piece of Merchandise, then included in Gross Receipts would be the sum of one and 80/100 ($1.80)
dollars for such item. The Permitted Discounts will be the only discount permitted to be exclude from Gross
Receipts. No other discounts not specifically permitted under this Agreement, regardless of the amount
thereof, will be permitted.
(f)
Gross Revenues: Gross Receipts less only any retail sales tax or excise tax imposed by law on the
sale of goods and services which are payable to the taxing authority and which are actually stated separately
and collected by the Licensee.
(g)
Initial Term: Defined in Section 2(a).
(h)
Kiosk or Kiosks: The carts, kiosks or other retail locations from which Licensee will operate the
Business.
(i)
Licensee: Crystal Magic, Inc.
(j)
Licensee’s Plans: Those plans, if any, prepared by Licensee for UCDP’s approval which set forth
the design, layout, materials, theme and overall appearance of the Kiosks and the production area.
(k)
Licensee’s Share: The amount of Gross Revenues remaining after deducting therefrom (i) the
Concession Fee, (ii) the applicable sales tax on the Concession Fee, and (iii) any other sums which may be
due UCDP under this Agreement, including, but not limited to any Minimum Monthly Fee, Deferral
Repayments, Orientation Fee(s), Wardrobe Charge, Resort Hotel charges, credit card fees and any Royalty
Fees. See Section 4 below.
(l)
Location or Locations; The designated sites within the Attractions where the Kiosks will be
located, as the same may be changed, from time to time, at UCDP’s sole discretion, taking into account the
volume of business experienced by the Attractions, traffic flow in the Attractions, any special events taking
place in the Attractions and Licensee’s performance at each Location and/or Attractions. UCDP will have the
right to request that Licensee locate more than one (1) Kiosk in any of the Attractions or UCDP may, at its
option, elect not to locate more than one (1) Kiosk in any one or more of the Locations. Licensee
acknowledges that UCDP shall have the ultimate decision, in its sole judgment, as to where and how many
Kiosks will be located in the various Attractions. Notwithstanding the foregoing, to the extent the same is
financially feasible, it is agreed that UCDP will make a good faith effort to offer Licensee multiple Locations
in each of the Attractions to afford Licensee significant exposure of its Merchandise to guests visiting the
Attractions; provided, however, the final determination of how many Locations and where such Locations
shall be placed will be at UCDP’s sole determination.
(m)
Merchandise: The products, wares, and/or services which Licensee is permitted to produce,
display and/or offer for sale to Guests visiting the Attractions under Section 3(a) of this Agreement.
(n)
Minimum Annual Fee and Minimum Weekly Fee; The Minimum Annual Fee is the least
amount of consideration on an annual basis Licensee is required to pay to UCDP for each applicable
Operating Year for the use and privilege of operating its Business in the Attractions. The Minimum Weekly
Fee is one-fifty-second (1/52nd) of the Minimum Annual Fee. The Minimum Weekly Fee will be calculated
and paid on a weekly basis. The Minimum Annual Fee and the Minimum Weekly Fee are in addition to, not
in lieu of, the annual or weekly Concession Fee and are due the applicable Concession Fee does not exceed
the Minimum Annual Fee or Minimum Weekly Fee, as applicable. The Minimum Weekly Fee due for any
partial week occurring during the Term will be equal to that sum derived by multiplying the Minimum
Annual Fee by a fraction, the denominator of which is three hundred sixty-five (365) and the numerator of
which is the number of days in the partial week. See Section 5.
(o)
Annual Adjustment or Weekly Adjustment: The sum, if such sum is a positive amount,
derived by subtracting the total annual Concession Fee or the weekly Concession Fee, respectively, from the
Minimum Annual Fee or the Minimum Weekly Fee, respectively.
(p)
Operating Year: The first Operating Year is that twelve (12) full consecutive month period
immediately following the commencement date of this Agreement as determined in Section 2(a) below, if
such date occurs on the first day of a month. The second and succeeding Operating Years will be the next
ensuing twelve (12) consecutive month periods following the end of the first Operating Year. If the
commencement date does not occur on the first day of a month, then the first Operating Year will consist of
the partial month immediately following the commencement date plus the next twelve (12) full consecutive
months following such partial month.
(q)
Orientation Fee: The sum due UCDP from Licensee in payment of the orientation program
described in Section 17(c) below, which sum will be equal to Forty Dollars ($40.00) for each employee,
representative, officer, or individual for each orientation session attended by such employee, representative,
officer, or individual.
(r)
Renewal Term: Any period of time beyond the Initial Term for which this Agreement is extended
as permitted herein. See Section 2(b).
(s)
Site Manager: Licensee’s on-site full-time manager that is to act as the primary interface with
UCDP’s designated representatives.
(t)
Term: The Initial Term and/or any Renewal Term, as applicable.
(u)
Deleted.
(v)
Universal: Universal Studios, Inc. and any of its affiliates, subsidiaries or parent companies, as
applicable.
(w)
UCDP: Universal City Development Partners, LP.
(x)
Universal Orlando: The property known and designated as “Universal Orlando” which consists
of Universal Studios Florida, Islands of Adventure, Universal’s CityWalk - Orlando, and various resort
hotels located on such property. Universal Orlando will also include any additional real property, theme
parks, buildings, hotels, and improvements which may be added by UCDP from time to time.
Notwithstanding the foregoing, UCDP retains the absolute right to increase or decrease the definition of
what properties are included in or excluded from Universal Orlando. Universal Orlando is also referred to
herein as the “Resort.”
(y)
Universal Scrip: UCDP produced printed scrip worth the value noted on the face of the scrip
(generally in five dollar ($5.00) denominations), which may be exchanged for the face value of the scrip at
the UCDP vault. UCDP will accept Universal Scrip on Licensee’s behalf as payment for Merchandise as
provided below in Section 5(j). Universal Scrip should not be confused with any other coupons, discounts,
or other printed media, whether the same originates from UCDP or any of its affiliates or from a third party.
2.
Term.
(a)
Initial Term: The Initial Term of this Agreement will be for five (5) Operating Years, unless
sooner terminated by UCDP as permitted in this Agreement. The commencement date of the Initial Term and
Licensee’s obligations to pay the Concession Fee, Minimum Monthly Fee and other charges due hereunder
will be the earlier of (i) the date the Business opens any Kiosk to the public in any one or more of the
Attractions or (ii) November 1, 2000.
(b)
Renewal Term: At the option of Licensee, Licensee may, subject to the terms contained herein,
extend the Initial Term for one (1) additional term of five (5) Operating Years (the “Renewal Term”) if,
and only if: (i) Licensee is not in default at the time of exercising the option to extend the Initial Term or at
the commencement of the Renewal Term; (ii) Licensee properly and timely exercises its right to extend the
Initial Term within the time period provided herein (WITH TIME BEING OF THE ESSENCE), and (iii) the
annual Gross Revenues for the fifth (5th) Operating Year of the Initial Term exceed Two Million Seven
Hundred Fifty Thousand Dollars ($2,750,000.00) (the “Renewal Base”).
The Renewal Term will be upon the same terms, conditions and charges (including the Concession
Fees) as set forth in this Agreement except for the Minimum Annual Fees which shall be adjusted as
provided in Section 5(c) below. Licensee may exercise its right to extend the Initial Term by giving written
notice of such intention to UCDP no earlier than nine (9) months and no later than three (3) months prior to
the end of the Initial Term. If Licensee fails to timely deliver written notice to UCDP at least three (3)
months prior to the expiration of the Initial Term, Licensee’s right to extend the Initial Term will be null and
void and of no further effect and this Agreement shall terminate at the expiration of the Initial Term. If
Licensee exercises its right to extend the Initial Term as provided herein and Gross Revenues for the fifth
(5th) Operating Year of the Initial Term do not exceed the Renewal Base, then the Term of this Agreement
shall expire thirty (30) days after the expiration of the fifth Operating Year of the Initial Term.
(c)
Unavoidable Delays: If the regular operation of any of the Attractions is materially hampered,
interrupted or prevented due to an act of God, war (declared or undeclared), riot, civil disturbance, fire,
earthquake, casualty, act of any federal, state or local instrumentality of for any other similar or dissimilar
reasons beyond its control and Licensee is unable to operate its Business in any of the remaining unaffected
Attractions, UCDP will have the right to suspend the running time of the then existing Term until the
resumption of regular operations of the affected Attractions, and in such event UCDP may, at its option,
upon written notice to Licensee, extend the then existing Term by a period equal to all or part of the
suspension period. Notwithstanding the foregoing, if Licensee is able to operate the Business in one or more
of the Attractions, then there shall be no suspension of the tolling of this Agreement nor shall Licensee’s
obligations hereunder be affected in any manner as relates to the remaining Attraction(s). During any such
period in which the running time of the then existing Term is suspended under the provisions of this
Section. Licensee’s payment obligations under Section 4(a) below will also be suspended except that any
sums which have become owing prior to such suspension will be paid in accordance with the payment
schedule. Upon termination of the suspension, all payments will be resumed. Nothing in this Section will
otherwise diminish UCDP’s rights under this Agreement.
(d)
UCDP’s Early Termination Option: Notwithstanding anything to the contrary contained in this
Agreement, UCDP may terminate this Agreement for its convenience, with or without cause, in its sole and
absolute discretion, on sixty (60) days written notice to Licensee. Licensee acknowledges that the foregoing
early termination right is of significant and material consideration to UCDP in entering into this License and
that UCDP would not have otherwise considered this License without such early termination right. If UCDP
elects to terminate the Agreement during the Initial Term as permitted in this Section 2(d), then Licensee’s
right to extend the Initial Term shall become null and void as of the date of such termination by UCDP.
3.
The Business.
(a)
Business, and Trade Name: Licensee will offer for the retail sale to the guests visiting the
Attractions the following Merchandise: laser engraved crystal and glass objects and any other products
approved in writing by UCDP which have been etched and/or engraved with individually designed and
created images, names or photographs of the consumer purchasing such product. The
creation and production of any Merchandise completed at any Kiosk will only be for Merchandise sold at
such Kiosk. All other production and creation of the Merchandise will occur at such other place or places as
may be mutually agreed upon between the parties. The other production and creation area or areas may also
be used for the sale at retail of the Merchandise; however, the other production and creation of the
Merchandise may be visible to the guests and should be completed in such a manner as to enlighten and
entertain the guests. Licensee will be permitted twenty-four (24) hour access to the area or areas used to
produce and create the Merchandise in order to produce sufficient amounts to adequately stock the Kiosks.
The designs and images to be etched into the glass and/or crystal will be limited to those items approved by
UCDP, in writing. The use of any Universal images, logos or licensed properties in the laser etchings will
be subject to the limitations contained in Sections 3(k) and (l) below. Licensee will not be permitted to
display or sell any items, wares or products not specifically approved by UCDP. Licensee will operate the
Business from various Kiosks at the Locations in the Attractions as designated by UCDP under the trade
name “Crystal Magic.” Reference in this Agreement to the “Business” will include all Kiosks operated by
Licensee under this Agreement as well as any designated areas in the Resort used by Licensee to
manufacture the Merchandise.
(b) Approval of Merchandise and Pricing: Prior to being permitted to open any Kiosk for business, Licensee
will submit the following to UCDP: (i) drawings or pictures depicting the designs and/or a catalogue
containing the Merchandise to be sold at the Kiosks, (ii) a detailed list of all of the Merchandise that
Licensee intends to sell at the Kiosks, and (iii) the price at which Licensee proposes to sell such
Merchandise. Licensee will only display and sell Merchandise which has been pre-approved, in writing, by
UCDP. The preceding restriction and required approval will remain in full force and effect throughout the
Term. The pricing of the Merchandise will also be subject to UCDP’s written approval prior to any sales of
such Merchandise by the Licensee at the Locations. All Merchandise and prices offered or used by Licensee
in the Business will be subject to UCDP’s prior written approval, to assure a quality and price level
consistent and compatible with the overall image of Universal Orlando.
In no event will Licensee display or sell from any of the Locations, without the express prior
written approval of UCDP, which approval may be withheld at UCDP’s sole and absolute discretion, any
merchandise licensed by or affiliated with any theme parks and related facilities, either alone or in
conjunction with or as part of any other word or name, including without limitation any merchandise which
uses or contains any of the characters or designs associated with any theme parks and related facilities. The
phrase “theme parks and related facilities” is intended to mean tourist-oriented attractions having some
combination of permanent and
temporary entertainment facilities, retail and restaurant facilities, recreational activities and exhibitions based
on or related to a unifying theme, and having in excess of 250,000 visitors annually (as well as any area,
attraction or business which is associated, operated or marketed in conjunction with a theme park). By way
of example and not limitation, the following destinations, and the component attractions, hotels and other
support uses contained therein, are “theme parks and related facilities” for the purposes of this Agreement:
Magic Kingdom, EPCOT. Disney/MGM Studios, Pleasure Island, and all other attractions and
entertainment facilities forming a part of, associated with or controlled by Walt Disney World or The Walt
Disney Company; Sea World; and/or Busch Gardens. Further, for the purpose of this Agreement, the term
“merchandise licensed by or affiliated with any theme parks” will include all licensed products issued by
such theme park or any of its affiliates or parent companies. (For example, any licensed product sold by The
Walt Disney Company will be deemed to be a product that is affiliated with Disney World, EPCOT, and/or
MGM Studios, as the case may be). Further, Licensee expressly acknowledges and agrees that nothing
contained herein will permit or be deemed to permit the sale or display of any merchandise licensed by or
affiliated with “Universal,” “Universal Studios®,” “Universal Studios Islands of AdventureSM”, “Universal
Studios Floridasm”. “Universal Studios CityWalk™,” or “CityWalk™”, or any combination of the foregoing
(either alone or in conjunction with or as a part of any other word or name), including without limitation any
merchandise which uses or contains any of the fanciful characters or designs of Universal or any of its
related, affiliated or subsidiary companies or entities.
(c)
Hours: At a minimum, the Business will be open to the guests visiting the Attractions during those
hours which the retail establishments in the Attractions are open to the public. The parties acknowledge that
UCDP has and retains the right, in its sole discretion, to alter and vary the times during which the Business
will be required to remain open to the public, including without limitation during special events and
promotions in which the Attractions are open to the general public.
(d)
Staffing: Licensee will at all times during the foregoing operating hours, staff each Kiosk with a
minimum of one (1) trained competent qualified employee at each of the Locations or, if, at UCDP’s sole
reasonable determination after taking into account the guests counts for the applicable Attraction, more
employees are required to properly operate the Business and meet Licensee’s obligations under this
Agreement, such additional number of trained competent qualified personnel to adequately operate the
Business and meet Licensee’s obligations under this Agreement during the operating hours designated by
UCDP for the Term.
(e)
Permitted Discounts: Licensee authorizes UCDP to recognize and grant the following discounts
(“Permitted Discounts”) on all Merchandise offered from the Business: (i) fifteen percent (15%) percent to
all individuals with valid and current Universal Orlando employee identification cards; (ii) ten percent (10%)
to all qualified members of the American Automobile Association (“AAA”); (iii) ten percent (10%) to all
annual pass holders to any Universal Studios Orlando theme park; and (iv) ten percent (10%) to such other
groups or entities identified by UCDP, in writing, to Licensee. For the purpose of this Agreement, the sum
so discounted and subtracted from the sales price of the Merchandise as a result of the foregoing Permitted
Discounts will be the only sums arising out of any discount on the marked sales price which may be
excluded from such sales price when determining Gross Receipts, For the purpose of this provision.
“Universal Orlando employees” will mean any individual presenting a current and valid Universal Orlando
employee identification card. Qualified members of AAA will mean any individuals presenting a valid and
current AAA discount card. Annual pass holders to Universal Orlando will include individuals presenting a
current and valid annual or seasonal pass to either or both of the theme parks located in Universal Orlando.
(f)
Sales Presentation: All employees and management engaged by Licensee at the Business will be
properly trained by Licensee to interact with guests visiting or dealing with employees of the Business.
Licensee will develop interactive sales routines from scripts which have been reviewed and approved in
advance by UCDP. Licensee will update and change such scripts (after review and approval by UCDP) on a
continuous basis to keep such routines “fresh and new.” UCDP, or its selected representative, will have the
right, from time to time and without notice to Licensee, to randomly audit the sales presentations and service
levels. UCDP will notify Licensee of any portion of the presentation, service, material or activity which
UCDP finds objectionable. Licensee will, within twenty-four (24) hours of receipt of such notice, cure and
eliminate such objectionable matter contained in the notice. Failure of Licensee to cure and eliminate the
objectionable matter within the foregoing twenty-four (24) hour period, will constitute a material breach of
this Agreement and UCDP may, at its option, immediately terminate this Agreement and remove Licensee
from the Locations. The foregoing right to terminate this Agreement will not be subject to any additional
right to cure or remedy such objectionable matter by Licensee. Further, a violation of this Section in one
Attraction will be the same as a violation of this Section in the other Attraction and UCDP may terminate
this Agreement as to both Attractions. The Licensee acknowledges and agrees that the right to terminate this
Agreement as to one or more of the Attractions due to a violation in one Attraction is a material and
significant element of this Agreement
(g)
Inventory/Supplies: Licensee will provide at its own expense all inventory and Merchandise as
well as equipment, materials, labor and supplies (i.e. office supplies, etc.) required to operate the Business.
Licensee will maintain a complete and full set of Merchandise inventory at all times during the Term to
maximize its sales from the Business and to guarantee a full impact presentation to the public visiting the
Attractions, taking into account peak and off-peak attendance fluctuations at the Attractions.
(h)
Cleanliness/Appearances: Licensee will occupy, operate, maintain and manage Business in
accordance with the highest professional standards for an establishment or business located in the Attraction
and as required by UCDP, in its sole determination. Licensee will keep the Locations neat and clean and free
of all debris and in keeping with the Attraction standards as determined by UCDP in its sole discretion. If
Licensee fails to keep the Locations clean, neat and free of all debris. UCDP may take such action it deems
necessary and charge Licensee for the cost thereof plus interest at the lesser of the rate of eighteen percent
(18%) per annum or the maximum rate permitted by law.
(i)
Business Plan: Any and all changes in the Business operation or any other changes in
merchandising products or practices will be subject to UCDP’s prior written approval. On or before the
anniversary of this Agreement of each Operating Year, Licensee will provide UCDP with a summary of its
business plan which will contain information as to Licensee’s plans for merchandising, entertainment and
customer service for the succeeding Operating Year. Licensee acknowledges that UCDP’s business
reputation will be substantially impacted by Licensee’s failure to achieve and maintain the highest possible
standards for its operations in the Locations.
(j)
Licensee’s Warranties: Licensee represents and warrants that any Merchandise, equipment, creative
instruments or service and the Kiosks will meet or exceed all applicable local, state or federal consumer and
employee safety laws, health standards and other applicable requirements and standards. Licensee warrants
that all such items are and will be free and clear of all liens and encumbrances and that Licensee has and will
have good and marketable title thereto. Licensee will protect, defend, hold harmless and indemnify UCDP
from and against any and all claims arising from these items. Licensee represents and warrants that all
Merchandise offered and/or sold under this Agreement will be free from defects of material and
workmanship. The warranties of Licensee together with its service warranties and guaranties, will run to
UCDP, its successor, assigns and guests. These warranties will remain in effect for so long as the Business
is in operation. Licensee upon notification from UCDP of a breach of warranty will, at UCDP’s discretion,
either repair or replace any defective item.
(k)
Licensed Property: If deemed appropriate, UCDP will provide Licensee with the logo and art
work, which may include Universal-owned or licensed property (“Licensed Property”) if any, to be
incorporated into or onto Merchandise produced and sold by Licensee at the Locations. UCDP will provide
to the Licensee a written list of each Licensed Property that is approved by the Senior Vice President of
Merchandise for Universal Orlando which Licensee may, subject to the prior written approval of UCDP,
incorporate into the Merchandise. Licensee acknowledges that each Licensed Property may be site specific
and may have limitations as to where such Licensed Property may be displayed and/or sold in the Resort.
Licensee will only sell Merchandise bearing or containing an approved Licensed Property at the Location or
Locations designated by UCDP and will not, in any event, sell any Merchandise bearing or containing
Licensed Property at any Location not previously approved by UCDP. In no event will Licensee display or
sell any Merchandise bearing or containing any Licensed Property at any location outside of the Resort
owned or operated by Licensee or by any individual or entity directly or indirectly controlled by the
Licensee. The foregoing limitations as to where any Merchandise bearing or containing Licensed Property
may be displayed and/or sold is of material importance to UCDP and the violation of the foregoing
restrictions by Licensee will be deemed a default hereunder. In the event of a default under this Section,
UCDP may, in addition to all other remedies available to UCDP, including injunction and restraining orders,
effect an immediate termination of this Agreement. Licensee will submit to UDCP for UCDP’s prior written
approval any logos and artwork not provided to Licensee by UCDP and Licensee will obtain any licenses
and clearances necessary to use such logos and artwork not furnished by UCDP. All Merchandise,
regardless of whether the same is licensed or not licensed, that Licensee either produces for sale at the
Locations and/or sells at the Locations will be subject to the approval of UCDP.
(l)
Royalty Payment: Upon approval of the use of a Licensed Property by Licensee, UCDP will pay
the required royalty payments, if any, directly to third parties for any such Licensed Property sold by
Licensee (“Royalty Fees”), Licensee hereby authorizes UCDP to deduct and retain such Royalty Fees
actually paid by UCDP for the use of such Licensed Property from Gross Revenues prior to paying the
Licensee’s Share to Licensee. UCDP will advise Licensee, on a monthly basis within fifteen (15) days of the
end of each month in which any Licensed Property was sold, the total of all Licensed Property sold by the
Business for the applicable period, together with supporting documentation indicating the amount of Royalty
Fees paid by UCDP for same. UCDP will retain from Gross Revenues prior to paying Licensee’s Share all
Royalty Fees, if any, which UCDP is required to pay for the use of such Licensed Property. The Royalty
Fee will be deducted from Gross Revenues prior to determining Licensee’s Share. It is the intention of the
parties that the Royalty Fees are in
payment of all royalties which may be due and owing for the use of Licensed Properties by Licensee in or
on its Merchandise and such Royalty Fees are not payments for the use of the Locations. The parties
acknowledge that the Licensee’s use and enjoyment of the Locations are not conditioned upon the Licensee
using any fixed or minimum amount of Licensed Property nor is such use and enjoyment subject to the
Licensee generating any particular amount of Royalty Fees from the sale of Merchandise containing
Licensed Property. Notwithstanding the foregoing, if the State of Florida determines the Royalty Fees are a
payment for the privilege of using the Locations and, as such; is subject to the applicable Florida sales/rent
tax, then UCDP will be entitled to deduct such tax from Licensee’s Share at the time of payment of the
Royalty Fees by UCDP. The foregoing obligation to pay the Royalty Fees hereunder will survive the Term
hereof and Licensee will reimburse UCDP of any payments made by UCDP which become due as a result
of the sale of Merchandise bearing or containing any Licensed Property. UCDP will pay the owner(s) or
licensor(s) of the Licensed Property the amount due such owners and will indemnify and defend Licensee
from any claims of such owner(s) or licensor(s) for such Royalty Fees to the extent Licensee has either paid
UCDP such Royalty Fees or UCDP has deducted same from Gross Revenues. The Licensee will be solely
responsible for advising UCDP as to any other royalty payments which may be result from the sale of any
Merchandise containing or bearing any logos, images, or other properties not listed as Licensed Property
and Licensee will indemnify and defend UCDP for all such additional royalty payments, expenses, attorneys
fees or interest associated with any inaccuracies in the information furnished by Licensee, including but not
limited to costs or claims arising out of or related to any late or insufficient royalty payment by UCDP made
based on inaccurate information provided by the Licensee.
4.
Revenue Distribution.
(a) Concession Fee: Licensee will pay to UCDP for each Operating Year during the Term a Concession Fee
equal to thirty percent (30%) of the first Three Million Five Hundred Thousand and no/100 Dollars
($3,500,000.00) of Gross Revenues generated from the Business from all Kiosks for each Operating Year
during the Term; plus thirty-two percent of all Gross Revenues in excess of Three Million Five Hundred
Thousand and no/100 Dollars ($3,500,000.00) generated from the Business from all Kiosks for each
Operating Year during the Term. Licensee’s obligation to pay the Concession Fee for the portion of any
Operating Year preceding the date of termination of this Agreement shall survive the termination hereof.
UCDP will provide cashier’s change fund, cash registers, cashiers, money counting and accounting
services (“Cash Handling Services”). Licensee will
design, produce, display, merchandise and sell the Merchandise and UCDP will accept payment for same on
Licensee’s behalf. Any Merchandise sold by Licensee will be rung up on UCDP’s designated cash registers
by UCDP and payment for the Merchandise will be made to and accepted by a UCDP employee. UCDP
will assign special sku numbers for Licensee’s Merchandise processed through UCDP cash registers.
Licensee will not be permitted to accept payment for any Merchandise and any acceptance of payment by
Licensee or its employees shall be deemed to be a default under this Agreement. UCDP will be liable for any
cash shortage unless the Merchandise was mislabeled as to the price, in which event, any loss associated
with a shortage due to under-charging for an item due to such mislabeling will be at Licensee’s sole cost.
All daily sales proceeds received by UCDP from the Business shall be retained and deposited by
UCDP daily at the end of each day and weekly proceeds from the sale of Merchandise shall be accounted
for by UCDP on a weekly basis from Sunday through Saturday. On Thursday following the conclusion of
each week, UCDP will retain its Concession Fee, sales tax, rent tax (if any) and any additional deductions
from Gross Receipts described and permitted in this Agreement, and pay the balance of the Gross Receipts
(the Licensee’s Share) to the Licensee by check, together with a report in a form mutually agreeable between
the parties, to such address as Licensee shall provide to UCDP. In consideration of UCDP providing the
Cash Handling Services, Licensee shall indemnify, defend and hold UCDP, together with UCDP’s
partner’s and /or joint ventures, the respective parent and affiliated companies of UCDP and/or any such
partner and/or joint venturer and all of the foregoing persons and/or entities respective officers, directors,
employees agents and assigns, free and harmless from any and all claims, damages, liabilities, losses, costs
and expenses (including attorneys’ fees) for errors, omissions, or negligent acts arising out of or relating to
UCDP’s Cash Handling Services. The aforesaid indemnification shall apply as to all of the aforementioned
claims, demands and causes of action except for those instances where UCDP is solely liable for proven
dishonest acts. In the process of determining the Concession Fee, UCDP will also withhold from the
Licensee’s Share: (i) all actual credit card and Resort Hotel room charge fees as the same become due; (ii) an
amount equal to the sales tax payable as a result of and on the Concession Fee (commonly referred to as a
“rent tax”), which sales tax UCDP will be solely responsible for remitting to the proper taxing authority
within the State of Florida; (iii) the Royalty Fees, if any, due pursuant to Section 3(1) above and, (iv) when
applicable, any Deferral Repayments described in Section 4(b) below. If any check is returned to UCDP,
any loss suffered as a result of such returned check shall be deducted from the Gross Receipts. Licensee’s
credit card fees will be equal to that sum derived by multiplying the amount of
credit card collection and processing fees charged by the credit card clearing house for the applicable time
period by a fraction, the numerator of which will be the total credit card purchases and payments received in
payment of Merchandise for such time period and the denominator of which will be the total credit card
purchases and payments which included the Merchandise charge purchases which were processed by the
clearing house for the same period. Licensee’s Resort Hotel room charge fees will be equal to those fees
charged by the applicable Resort Hotel for processing the Resort Hotel room charges.
By way of example, the manner of calculating the Concession Fee, the permitted deductions and
Licensee’s Share shall be as follows:
Step 1. Determine the Gross Receipts of all Kiosks for the reporting period by deducting the
following from all income, proceeds and moneys, including, but not limited to, all moneys and all
other things of value (including credit card charge receipts and Resort Hotel room charge receipts)
received by or paid to UCDP on behalf of Licensee for Merchandise or any other person on
Licensee’s or UCDP’s account by reason of Licensee’s operation of the Business:
(i)
the amount of any returns or refunds with respect to sales from the Business
actually paid by UCDP to Licensee’s customers, provided that the original sales price of
such return or refund was included in the reported income, proceeds and moneys received
by UCDP; and
(ii)
any Permitted Discounts on Merchandise to the same extent the same were
included in the total funds received by UCDP.
Step 2.
Determine the Gross Revenues by deducting the following from the Gross
Receipts: sales or excise tax imposed by law on the sale of goods and services which are payable to
the taxing authority and which are actually stated separately and collected by the UCDP, which
sales tax UCDP shall be solely responsible for remitting to the proper taxing authority within the
State of Florida.
Step 3.
Calculate the Concession Fee to be retained by UCDP in accordance with the
rates contained in the first paragraph of this Section 4(a).
Step 4.
Determine Licensee’s Share by deducting the following from the Gross
Revenues determined under Step 2 above:
(i) the Concession Fee as calculated in Step 3;
(ii) all allowable deductions from the Licensee’s Share which would otherwise
be payable to Licensee, including, but not limited
to the “rent tax,” credit card fees, Resort Hotel room charge fees, and, if applicable, any Orientation
Fees, Wardrobe Charge, Royalty Fees, Deferral Repayments shortages due UCDP, Monthly
Adjustments, and, to the same extent the same had previously been included in prior Gross
Revenues, returned checks, charge backs from credit card processing centers, and charge backs
from Resort Hotel room charges;
(iii)
the balance of the Gross Revenues, after deducting all of the items set forth in Step 4 (i)
and 4(H) above, will be paid to Licensee as Licensee’s Share.
If the Concession Fee retained by UCDP for its own account in any Operating Year is greater than the
Concession Fee actually due for such Operating Year. Licensee will be entitled to a credit against Licensee’s next
payment(s) of the Concession Fee(s) coming due until Licensee has received full credit for any overage retained by
UCDP for such Operating Year. If the Concession Fee retained by UCDP for any Operating Year is less than the
Concession Fee actually due UCDP for such. Operating Year, then, at UCDP’s sole option, UCDP may deduct
such shortage from future Licensee’s Shares or invoice Licensee for same, in which event Licensee shall pay such
difference to UCDP within five (5) days of such invoice.
(b)
Deferred Concession Fee: Notwithstanding anything to the contrary contained in this
Agreement, provided Licensee is open and operating the Business and is not otherwise in default hereunder,
Licensee will be entitled to defer a portion of the Concession Fees coming due during the first Operating
Year (the “Deferred Concession Fee”). Provided Licensee complies with the requirements set forth herein,
the Deferred Concession Fee will be equal to the total sum of the loan payments to be made by Licensee
during the first Operating Year of the Initial Term to Licensee’s lender in repayment of the loan undertaken
by Licensee to purchase Licensee’s equipment used in the operation of the Business. Licensee shall furnish
to UCDP, prior to the commencement date of this Agreement and prior to Licensee’s obligation to pay the
charges and fees due hereunder, a copy of such loan documents as well as the repayment schedule for said
loan. In no event will the Deferred Concession Fee permitted hereunder exceed a “Maximum Deferral”
equal to the lesser of (i) the total of the payments becoming due under the foregoing loan for and during the
first Operating Year of the Initial Term or (ii) three hundred thousand dollars ($300,000.00).
Notwithstanding the foregoing, if Licensee fails to furnish copies of the loan documentation together with
the loan repayment schedule as required hereunder or any other documentation relating, to the loan as may
be reasonably required by UCDP, Licensee shall not be entitled to any portion of the Deferred Concession
Fee until such documents are submitted and approved
by UCDP. Further, notwithstanding anything to the contrary contained herein, should Licensee fail to
submit such documentation prior to the commencement date as determined in Section 2(a) above, then the
weekly deductions credited to Licensee as part of the Deferred Concession Fee will not begin until such
documents are submitted to and approved by UCDP. For example, if Licensee fails to submit such required
documentation until the end of the sixth full week of the first Operating Year of the Initial Term, then the
deductions permitted hereunder as a credit towards the Deferred Concession Fee shall only occur for the
remaining forty-six (46) full weeks of the first Operating Year.
The Deferred Concession Fee will be credited to the Licensee on a weekly basis by deducting from
the Concession Fee otherwise due UCDP for each full week during the first Operating Year of the Initial
Term that sum equal to ten percent (10%) of such weekly Gross Revenues for each full week during said
first Operating Year until the earlier of (i) the date such credit deductions equal the Maximum Deferral or (ii)
the expiration of the first Operating Year of the Initial Term. If, at the end of the first Operating Year the
Maximum Deferral has not been attained, then any unused portion Maximum Deferral will no longer be
available to defer any future Concession Fees coming due after the expiration of the first Operating Year.
As example of the above, if Gross Revenues for the first Operating Year totaled four Million
Dollars ($4,000,000.00), then the Maximum Deferral would be equal to the lesser of Three Hundred
Thousand Dollars ($300,000.00) or the total of Licensee’s loan repayments described above. If Licensee
fails to submit the loan documentation required above until the end of the tenth (10th) full week of the first
Operating Year, then the deduction of ten percent (10%) of Gross Revenues from the Concession Fee shall
not occur until the eleventh (11th) full week and the amount that would have otherwise have been deducted
from the Concession Fee during the first ten (10) full weeks will be deemed to be waived by Licensee.
If at anytime during the first Operating Year or immediately thereafter it is determined that there has
been an error in calculating the Deferred Concession Fee previously during the said Operating Year, then an
applicable adjustment will be made to the next Concession Fee coming due hereunder.
Beginning with the first week of the second Operating Year, and for each week thereafter for the
second through the fourth Operating Year, Licensee shall repay UCDP the Deferred Concession Fee as the
same finally determined plus interest thereon at an annual rate of twelve percent (12%) from the date of each
deferred payment, (the “Deferral Repayment”). The weekly Deferral Repayment sum shall be calculated
by applying the foregoing twelve percent (12%) interest
to the total Deferred Concession Fee on a payment schedule which would result in two hundred eight (208)
equal consecutive weekly payments and would include the foregoing interest on the unpaid balance from the
date of deferral until paid. UCDP will be entitled to deduct such weekly Deferral Repayment from the
Licensee’s Share prior to paying same to Licensee under Section 4(a) above. If this Agreement should
terminate for any reason, excepting only the early termination by UCDP pursuant to Section 2(d) above,
prior to the repayment of the Deferred Concession Fee, then the balance due and owing on the date of such
early termination shall become due, in full, without deduction or setoff. If this Agreement is terminated by
UCDP pursuant to Section 4(a) above and not due to any other reason or default on the part of the Licensee,
then any remaining unpaid Deferred Concession Fee shall be waived by UCDP. Licensee shall have the
right, at anytime, to prepay all or a portion of the Deferred Concession Fee and an applicable adjustment
shall be made to the Deferral Repayment Schedule. Further, Licensee may elect, at its sole option, to instruct
UCDP not to defer any portion of the Concession Fee during the first Operating Year. It is understood that
the Deferred Concession Fee has been agreed to by UCDP solely for the purpose of assisting Licensee in
paying for its start up costs during the first Operating Year and such deferral of Concession Fees is made at
the Licensee’s request and solely for Licensee’s benefit.
(c)
Sales Tax: UCDP will be solely liable for the collection of all applicable state sales tax due on the
sales Merchandise from the Business (regardless of whether Licensee or UCDP makes such payment to the
taxing authority). Any shortage in the sales tax collected by UCDP will be deducted from the Gross
Revenues. UCDP will comply with all laws, regulations, and orders relating to, and shall promptly pay to
the appropriate authorities when due, for Licensee’s account, all applicable sales, excise or other similar
taxes imposed by any governmental body or agency upon the Gross Receipts (excluding, however, any
taxes based on the net income of Licensee other than the “rent tax” based on such income). At Licensee’s
request, UCDP shall produce such records as may be required to evidence UCDP direct payments to the
proper taxing authorities. Any fines, penalties, or interest imposed on late payments of any sales tax shall be
borne by UCDP, provided Licensee has not withheld information necessary for UCDP to meet its
obligation. Any fines, penalties or interest imposed on late payment of any sales tax due to Licensee’s failure
to timely provide UCDP with accurate information shall be paid by Licensee. Any fees, taxes, or other
lawful charges paid by Licensee upon failure of UCDP to make such sales tax payments shall become
immediately due and payable from UCDP to Licensee, provided UCDP withheld the payment of such fees,
taxes other lawful charges for Gross Receipts but failed to pay the same to the .proper authority and
provided Licensee has not withheld information or submitted false information with respect to such sales
tax. If Licensee failed to furnish UCDP with any
required or accurate information relating to such taxes, then Licensee shall not be entitled to recover same
from UCDP.
(d)
Resort Hotel Charges; Licensee authorizes UCDP, on Licensee’s behalf, to honor all requests by
guests which are registered in a hotel located within the Resort (a “Resort Hotel” and such guest(s) being
referred to as “Guest” or “Guests”) to charge items or services to their Resort Hotel room accounts when
purchased by such Guests at or from the Business. Licensee further authorizes UCDP to treat such Resort
Hotel room charges as per the terms of this Section 4(d). Licensee shall familiarize its employees with this
Section in order that Licensee’s employees respond correctly to any Guests queries regarding the acceptance
of such Resort Hotel room charge privileges. All Guests will be identified by the Resort Hotel room charge
authorization card issued by the applicable Resort Hotel. A memoranda (duplicate credit card receipt) of any
charge made by a Guest will retained by UCDP. Such memorandum will contain the Guest’s name,
authorization code and an adequate description of the Merchandise covered by the transaction, and will be
properly dated, signed by the Guest, and transmitted promptly to the applicable Resort Hotel by UCDP
through a compatible TCP/IP modem device. On request, UCDP will produce a copy of such memorandum
to the applicable Resort Hotel to verify the charge and the Guest’s signed approval thereof.
The collections of such Resort Hotel room charges will be credited by the applicable Resort Hotel
for the account of Licensee and will be paid to UCDP on Licensee’s behalf at a weekly or such longer
intervals as may be agreed upon, in writing, by Licensee and the applicable hotel. Initially, such payments to
Vendor will occur on each Friday of each week. The specific day of payment may be modified from time to
time so long as such time period does not extend more than one week from the prior week’s payment.
Licensee acknowledges and agrees that the applicable hotel may deduct and retain from the amounts
collected by hotel for the account Resort Hotel Licensee, a handling charge equal to three percent (3%) of the
amounts so collected. Licensee further acknowledges and agrees that the Resort Hotel does not guarantee
collection from any Guest or will be accountable to Licensee only for money actually received from such
Guest’s or from such Guest’s credit card charge account, provided that the Resort Hotel acted with due
diligence when registering such Guest and the Resort Hotel followed its credit card processing center’s
requirements in handling such Guest’s credit charges.
If the Resort Hotel pays UCDP on Licensee’s account any money billed to any Guest’s room
account prior to the actual collection of such bills from the Guest, and if any such charges will subsequently
be found to be uncollectible for
any reason other than the Resort Hotel’s failure to exercise due diligence in processing such Guest’s credit
card charges, then the Resort Hotel will have the right, at its election, either to require repayment by UCDP
on Licensee’s account or to deduct such uncollectible charges from any subsequent payment to be made by
the Resort Hotel to UCDP.
UCDP will not make any charges to any Guest’s room prior to the actual delivery of the
Merchandise to such Guest.
It is UCDP’s responsibility to validate the Guests’ identity and signature by comparing and
verifying the signature shown on the charge authorization card against a valid photo ID (i.e., driver’s license,
passport, military identification). If there is a dispute made by a Guest as to the amount of any charge made
by the Guest to the Guest’s account, UCDP’s copy of the Guest’s signature on the charge documentation
will be satisfactory to the Resort Hotel provided such signature has been duly and properly obtained by
Licensee.
For the purpose of calculating Concession Fee due under this Agreement, any charges made by a
Guest to a Resort Hotel as provided above will be treated and reported in the same manner as a charge made
to a credit card.
(e)
Recording of Sales: Licensee acknowledges that the Business will be operated on a cash basis,
with any credit card, Resort Hotel charge, Universal Scrip, traveler’s check or personal check transaction
being deemed to be the same as cash. Each payment on a credit card, Resort Hotel room charge, Universal
Scrip, personal check or traveler’s check will be treated as a sale for the full price in cash during the week in
which such safe is initially made, irrespective of the time when UCDP actually receives payment (whether
full or partial) from the applicable credit card agency or bank or Resort Hotel, and no deduction will be
allowed for uncollected or uncollectible credit card, Resort Hotel room charge, personal check or traveler’s
check sales. UCDP will record, at the time of purchase or other transaction, each and every sale and
transaction from the operation of the Business at the time of the transaction, whether cash, Universal Scrip,
or credit, in a cash register or registers furnished by UCDP at UCDP’s sole cost and expense. The cash
register will be equipped with credit card reading and approval devices and shall have a sealed continuous
cash register tape with a cumulative totals that numbers, records, and duplicates each transaction entered into
the register, or such other type of cash register as UCDP may deem proper. The continuous tape will be
sealed or locked in such a manner that it is not accessible to the person operating the cash register in the
usual course of the days business. Each day, UCDP will retain the daily cash register detail tape for each
cash register and a copy of the daily sales reports showing Licensee’s sales processed through such register,
which will reflect,
among other things, the Gross Receipts rung up on each register. The foregoing will be submitted daily
during the Term to the Finance Department (i.e. Revenue Accounting) of UCDP or such other department as
selected o by UCDP. In addition, UCDP shall furnish UCDP’s Finance Department with copies of all overrings and voids which have been generated by the Business. If Licensee and UCDP are sharing space at any
Location, the daily operating and cash handling procedures may be changed, amended or altered, in a manner
mutually agreeable to the parties should either party determine that the daily operating and cash handling
procedures are networking in the best interest of the parties.
(f)
Books and Records: UCDP will keep accurate books of account and records for the cash handling
portion of the Business in accordance with generally accepted accounting principles consistently applied.
(g)
Reporting of Gross Receipts: Within twenty-four (24) hours following the closing of the Business
on each day of the Term, UCDP will, on request of Licensee, advise Licensee, orally, of the Gross Receipts
for that day by using a Daily Sales Reporting form that is developed and used by UCDP. A copy of the
applicable portion of the final register reading for each register used by the UCDP in the Business will be
attached to such Daily Sales Reporting form.
(h)
Deleted:
(i)
Deleted,
(j)
Acceptance of Universal Scrip: Universal Scrip will be accepted by UCDP on Licensee’s account
when offered in payment for merchandise or services from the Business. UCDP will redeem Universal
Scrip on behalf of Licensee’s account for its full face value. UCDP represents that, to its best knowledge,
there have been no incidents involving any such counterfeit scrip; however, UCDP will not will not be
responsible for nor shall it redeem any counterfeit scrip unless UCDP was not diligent in checking the
validity of the scrip or was otherwise negligence in its policies for accepting such scrip. The acceptance of
any other types of discount media, coupons, scrip or printed matters, which may or may not involve
discounts, should .not be confused with Universal Scrip. Licensee is not obligated to accept such other types
of discount media, coupons, scrip or printed matters, regardless of whether the same is in the form of scrip
or coupons, unless Licensee specifically agrees to same. If Licensee agrees to accept such other types of
discount media, coupons, scrip or printed matters, the redeeming of such other types of discount media,
coupons, scrip or printed matters will be as provided-in such agreement and may or may not be for the full
face value, depending on such agreement Universal Scrip shall be treated the same as cash by UCDP and
Licensee in their respective accounting procedures.
All Universal Scrip shall be included in Gross Sales at its full face value when calculating the Concession
Fee due hereunder.
5.
Minimum Annual/Weekly Fees.
( a ) Minimum Weekly Fees: The parties are entering into this Agreement with the understanding and
agreement that Licensee will generate sufficient Gross Revenues from the Business for the first Operating
Year of the Initial Term to enable Licensee to pay a Minimum Annual Fee during the first Operating Year
equal to Three Hundred Thousand Dollars ($300,000.00) and, further, Licensee will generate sufficient
Gross Revenues from the Business for the second Operating Year of the Initial Term to enable Licensee to
pay a Minimum Annual Fee during the second Operating Year equal to Five Hundred Thousand Dollars
($500,000.00). Beginning with the third Operating Year of the Term and each Operating Year thereafter, the
foregoing Five Hundred Thousand Dollars ($500,000.00) Minimum Annual Fee will be adjusted as
provided in Section 5(c) below. The Annual Minimum Fee will be paid in fifty-two (52) equal installments
over the applicable Operating Year (the “Minimum Weekly Fee”). The Minimum Weekly Fee for any
partial week during the Term shall be calculated as provided in Section 1(n) above. If the total Gross
Revenues from the Business for any week during any Operating Year are not sufficient to generate a weekly
Concession Fee which equals or exceeds the Minimum Weekly Fee for such week, then Licensee will pay,
in addition to the Concession Fee for that week, a Weekly Adjustment for such week. Such Weekly
Adjustment will be deducted from Gross Revenues and retained by UCDP prior to paying Licensee’s Share
to Licensee for any week that the Concession Fee does not equal or exceed Minimum Weekly Fee.
Excepting only as specifically provided otherwise herein with regards to the abatement of the
Minimum Weekly Fees for the first sixty (60) days of the Initial Operating Year, the Minimum Weekly Fees
shall not be subject to any reduction, whether by virtue of any Deferred Concession Fee or for any other
reductions or payments due hereunder; provided, however, in determining whether any Weekly Adjustment
is due, the weekly Deferred Concession Fee shall not be deducted from the weekly Concession Fee prior to
calculating the Weekly Adjustment, if any, {For example, if Gross Revenues are $8,000.00 for one week of
the first Operating Year, the Concession Fee for that week would be $2,400.00 (30% of $8,000.00), the
Minimum Weekly Fee for that week would be $600,00 ($3,000.00 - $2,400.00), the Deferred Concession
Fee for that week would be $800.00 (10% of $8,000.00), then UCDP would deduct the foregoing Deferred
Concession Fee of $800.00 from the foregoing total of the Concession
Fee and Minimum Weekly Fee of $3,000.00 and UCDP would retain $2,200.00 as its total weekly fees after
deduction of the Deferred Concession Fee}
(b)
Initial Abatement of Minimum Weekly Fee: Provided Licensee is open and operating the Business
as required under this Agreement and is not otherwise in default hereunder, the Minimum Weekly Fee will
abate, in full, for the first sixty (60) days of the Initial Term.
(c)
Adjustment of Minimum Annual Fee. Commencing on the third Operating Year of the Initial Term
and for each Operating Year thereafter during the Term, the Minimum Annual Fee of Five Hundred
Thousand Dollars ($500,000.00) (the “Base Amount”) will be subject to annual increases, but not
decreases, as provided herein. The measure for such adjusted increases will be the Department of Labor,
Bureau of Labor Statistics Consumer Price Index for all Urban Consumers (CPI-U) - U.S. City Average
(the “Index”). The term “Base Index” will mean the Index for the calendar month occurring thirty (30)
days prior to the month in which the commencement date of the Initial Term occurs, as such date is
determined under Section 2(a) above (the “Base Month”), and the term “Adjusted Index” shall mean the
Index for the calendar month occurring thirty (30) days prior to the applicable anniversary of such
commencement date of the Initial Term as determined under Section 2(a) above for which the adjustment is
being calculated (the “Month of Adjustment”). The procedure for making the adjustment to the Minimum
Annual Fee will be to increase the Base Amount by a percentage, such percentage to be equal to the
percentage increase, if any, in the Adjusted Index over the Base Index. Such increase, as so determined,
shall be added to the then existing Minimum Annual Fee and such adjusted Minimum Annual Fee shall be
the Minimum Annual Fee used for the ensuing Operating Year. Should publication of the Index be
discontinued, then UCDP shall adopt a substitute procedure which reasonably reflects and monitors
consumer prices and/or shall substitute any official index published by the Bureau of Labor Statistics or by
such successor or similar governmental agency as may then be in existence and shall be, most nearly
equivalent thereto as reasonably determined by UCDP. Notwithstanding anything herein to the contrary, no
reduction in any amount due shall occur based on an adjustment pursuant to this Section 5(c).
6.
Construction of Kiosks.
(a)
Kiosks Design: The Kiosks will be of such design, size, theme, and decor as is approved by
UCDP. Upon written approval of Licensee’s plans, if any, by UCDP, such approved Licensee’s plans will,
by reference thereto, be deemed to be part of and will be incorporated into this Agreement. UCDP agrees
that Licensee and its personnel, agents and representative will be entitled to access
to the Attractions after normal the business hours of the Attractions as may be required for Licensee to
complete and install the Kiosks. Licensee will not be permitted to undertake any installation or construction
during those hours which the Attractions are open to the public. UCDP may provide certain decorative
improvements and materials to be used in the vicinity of the Kiosks. UCDP will retain all rights, title interest
and ownership of any such decorative improvements and materials and other materials provided for
Licensee’s use by UCDP. Licensee will provide all necessary rights and clearances to use the Kiosks or any
other materials required by Licensee to operate the Business. Licensee will not use any designs, decorations
or themes on the Kiosks which have not been previously approved by UCDP, in writing, and will not
provide any backgrounds or designs for use on the Kiosks which incorporate any property of UCDP or its
affiliated companies, or any famous person or fictional character, without the written permission of UCDP.
(b)
Licensee’s Plans: If UCDP requires Licensee to renovate, construct or install any improvements in
any of the Locations prior to the opening of the Business in such Location, Licensee will, within fifteen (15)
days of execution of this Agreement, at Licensee’s sole cost and expense, submit preliminary design and
plans for the Kiosks to UCDP for review and approval by UCDP. Prior to submitting such preliminary
plans, Licensee is encouraged to enter into discussions with UCDP’s design personnel to obtain guidance
on the design criteria, goals, objectives and expectations of UCDP as to the type and nature of the Kiosks.
UCDP will, within fifteen (15) days of receipt of Licensee’s preliminary plans, notify Licensee, in writing,
as to any required changes or modifications to the Licensee’s proposed preliminary plans. Such submittal
and review will continue until UCDP approves Licensee’s plans. If Licensee’s plans are not approved
within sixty (60) days of the date of execution of this Agreement, UCDP may, at any time thereafter,
terminate this Agreement and the parties will be relieved of all obligations hereunder unless, the Licensee
secures the written approval of Licensee’s plans prior to the termination date set forth in the notice given by
UCDP.
(c)
Construction/Fabrication: Any approval or consent by Landlord of any and all of Licensee’s plans
will neither constitute an assumption of responsibility by Landlord for any aspect of Licensee’s plans,
including, their accuracy or efficiency, nor will UCDP be obligated in any manner with respect to the
construction of the Kiosks. Licensee will be solely responsible for the design, construction and fabrication
of the Kiosks. Licensee will commence construction of the Kiosks promptly upon receipt of approval of
Licensee’s plans and will complete the construction of the Kiosks within thirty (30) days of receipt of such
approval; provided, however, in any event the Kiosks must be completed and placed in service within ninety
(90) days of the date of this Agreement. If
Licensee fails to complete the Kiosks within the foregoing periods, then UCDP may deliver written notice of
such failure to Licensee, and thereupon, Licensee will have ten (10) days within which to complete the
Kiosks. If Licensee fails to complete the Kiosks within said ten (10) day period, UCDP will be entitled to
terminate this Agreement upon written notice thereof to Licensee. Licensee will, at all times, retain
ownership of the Kiosks.
(d)
Delays in Plans/Construction: The failure of Licensee to submit its plans or revised plans within or
to start and complete the construction of the Kiosks within the time periods required hereunder will not
affect nor delay the commencement of the Initial Term or the Licensee’s obligations to pay the Minimum
Monthly Fee due hereunder. If UCDP fails to return Licensee’s plans within the time period provided for
herein or if UCDP otherwise delays Licensee in beginning and completing its plans or construction of the
Kiosks within the time periods required hereunder, then the Initial Term commencement date will be delayed
one (1) day for each day that Licensee is so delayed by UCDP provided that Licensee gives notice to UCDP
of such delays within three (3) days of the occurrence thereof. Licensee acknowledges and agrees that any
delays in completing its plans and the construction of the Kiosks not attributed to delays caused by UCDP
for which UCDP has received notice, that the Initial Term and Licensee’s obligations to, pay the Minimum
Monthly Fee and other charges due hereunder will commence on the commencement date set forth under
Section 2(a) above.
7.
Utilities & Taxes.
(a)
Electrical Power: UCDP will furnish, at its expense and at no cost to Licensee, all, electrical power
required to operate the Business at the Locations provided such electric power is presently existing and in
place at the applicable Location. The power will consist of a 3 phase, 30 amp, 110V duplex receptacle. If
there is no existing utility line at any Location or if an existing utility line at a Location does not carry
sufficient power for Licensee’s business, then Licensee shall be solely responsible for any costs or expenses
in securing such electric power, including, but not limited to, the cost to run cable, install fuse boxes and
outlets and any other cost associated with furnishing a Location with electric power.
(b)
Telephone Line: Licensee will, at its sole cost and expense, be permitted to obtain a telephone line
from UCDP or, if UCDP does not furnish same, from the appropriate telephone service provided servicing
the Attraction to connect with the internal fax modem of the Kiosks if it is deemed feasible or Licensee may
install such other non-invasive method of direct communication with the Kiosks. UCDP will, if available,
furnish a telephone/data outlet at the Locations
for the Business. UCDP will not be under any obligation to provide Licensee with a hook-up or terminal for
such telephone service if there are no existing facilities available for Licensee’s use, such availability to be
determined by UCDP, at its sole discretion, taking into account the needs of UCDP and the guests visiting
the Attraction. The cost for any telephone service furnished by UCDP will be paid by Licensee directly to
UCDP if Licensee obtains such service from UCDP.
8.
Ownership/Maintenance.
(a)
Ownership: Licensee will be the sole owner and operator of the Business (excluding UCDP
provided materials), including all equipment and inventory used in the Business. Licensee will be totally
responsible for care, product quality, image management, insurance, upkeep and maintenance of the Kiosks
and all associated equipment used in the Business. Licensee will bear all the risk of loss of, or damage to the
Business and its equipment and inventory, except to the extent” such loss or damage is due to the sole
negligence or willful misconduct of UCDP, its parent, subsidiary or affiliated companies, its and their
respective officers, employees and agents. Licensee will repair and replace, as required, at Licensee’s sole
expense, such equipment, materials and finishes to maintain the appearance and appeal of the Business at a
level satisfactory to UCDP and to meet the demand of guests visiting the Attraction. Nothing contained in
this Section will be deemed to grant to Licensee any ownership or other interest in the background or other
materials provided by UCDP.
(b)
Maintenance/Upgrades: The Kiosks will be maintained by Licensee and will be inspected by
Licensee as often as required to keep the Kiosks and the equipment used in the Business in first class
condition. The term “first class condition” will mean that Licensee will maintain the Kiosks and operate the
Business at a level that is equal or exceeds any similar type of business operated from a kiosk or cart in the
Central Florida area. To maintain such level, Licensee will be required to update the equipment, Kiosks and
appearance to a level that is considered to be “state of the art” for such business operation. Any replacements
made by Licensee will be of like size, kind and quality to the items replaced as they existed when originally
installed and will be subject to UCDP’s approval. If Licensee fails to perform its obligations under this
Section, UCDP may, at its sole option, perform such obligations and UCDP shall have the right and
Licensee authorizes UCDP to deduct from the Gross Revenues prior to paying Licensee’s Share to
Licensee, the cost thereof plus interest thereon from the date of such expenditure at the lesser of eighteen
percent (18%) per annum or the maximum rate permitted by law. Notwithstanding the foregoing, on or
before the expiration of the twenty-fifth (25th) month of the Initial Term and on or before the expiration of
each twenty-fifth (25th) month thereafter throughout the Term. Licensee will refurbish and replace all worn
surfaces, fixtures and
equipment used in the Business so as to restore the Kiosks to a “like new” condition. Licensee will submit
its plans to UCDP for such refurbishment and repair at the end of each twenty-three (23) consecutive month
period following each refurbishment and repair work required hereunder. UCDP will review and either
approve such plans or advise Licensee of such additional work as may be required to comply with the
refurbishment requirement hereunder. The foregoing refurbishment requirement is of material and significant
importance to UCDP in entering into this Agreement with Licensee. If Licensee will fail to abide by the
foregoing schedule or fail to make such refurbishment and repairs as approved or requested by UCDP, then
UCDP, in addition to any other rights contained herein (including the right to make such refurbishment
and/or repairs on Licensee’s behalf as provided above), will have the immediate right to terminate this
Agreement upon ten (10) days notice to Licensee.
9.
Insurance.
(a)
Coverage: Licensee agrees to provide during the entire Term the following
insurance coverage on the forms and in amounts not less than specified:
(i)
(ii)
(iii)
(iv)
(v)
Statutory Workers’ Compensation, as and to the extent required by law, and Employer’s
Liability insurance with a limit of not less than One Million Dollars ($1,000,000).
Comprehensive General or Commercial Liability insurance (and/or Excess Umbrella
Liability) including personal/advertising injury coverage, which will be written on an
“occurrence” basis, with a standard broad form endorsement and/or excess umbrella liability
with a combined single limit of not less than Two Million Dollars ($1,000,000) each
occurrence and Three Million Dollars ($2,000,000) general aggregate. The completed
operations portion of this policy will remain in effect for two (2) years after completion of
this Agreement.
Business Automobile Liability coverage and/or Excess Umbrella Liability for all owned,
hired, or non-owned vehicles utilized by Licensee with reasonable limits as required by
UCDP.
A n “all risk” property damage floater policy covering Licensee’s personal property and
Licensee’s equipment, whether owned, leased or rented by Licensee.
Licensee will be required to maintain insurance covering loss or damage to its personal
property, whether owned, leased or rented by Licensee.
(b)
Additional Insureds: Licensee will cause all policies to name Universal City Development
Partners, LP, Universal Studios, Inc., and their respective
affiliated and related companies as additional insureds. All policies will be primary and non-contributing
with any insurance maintained by UCDP and will include a waiver of subrogation.
(c)
Proof of Coverage: Upon execution of this Agreement, Licensee will deliver to UCDP satisfactory
evidence of such insurance coverage as required by UCDP for Licensee on a standard ACORD form, or
other form acceptable to UCDP or if required, copies of the policies. Said policies or certificate will indicate
that such policies are in full force and effect will be delivered to UCDP at the time of execution of this
Agreement by Licensee and will contain a provision indicating that the insurance can not be canceled or
modified without giving UCDP twenty (20) days prior written notice. All certificates will be issued to
Universal City Development Partners, LP, attention: Risk Management, 1000 Universal Studios Plaza,
Orlando, Florida 32819. All required insurance will be placed with carriers satisfactory to UCDP and will
provide twenty (20) days written notice to UCDP if the carrier elects not to renew such policy. Licensee will
give UCDP a replacement of such certificate or policies in advance, so that UCDP will always have the
current policies or certificates. If Licensee will be using any contractor to do any work at the Locations, such
contractor will provide evidence of insurance in the amounts set forth above.
(d)
Licensee’s Obligations: All insurance furnished by Licensee or its subcontractors hereunder will
be in full force and effect during Licensee’s performance of this Agreement. The failure of UCDP to request
copies of the insurance certificate or policies or the failure of Licensee to deliver satisfactory evidence of
coverage, will in no way be construed as a waiver of Licensee’s obligation to provide the required insurance
coverage specified in this Agreement. Further, the coverage and limits of insurance required in this
Agreement will not be construed as a limitation of any liability to UCDP.
10.
Indemnification/Waiver of Subrogation.
(a)
Indemnification: Licensee hereby agrees to indemnify, defend and hold UCDP, together with
UCDP’s partners and/or joint venturers, the respective parent and affiliated companies of UCDP and/or any
such partner and/or joint venturer and any licensee or lessee of UCDP’s and all of the foregoing persons’
and/or entities’ respective officers, directors, employees, agents and assigns, free and harmless from any and
all claims, damages, liabilities, losses, costs and expenses (including attorneys’ fees) for errors, omissions or
negligent acts arising out of or relating to this Agreement or Licensee’s performance of this Agreement by
any agents, servants, independent contractors-or employees of Licensee. The aforesaid indemnification will
apply as to all the aforementioned claims, demands and causes of action except for those instances where
UCDP
is solely at fault. This indemnification includes any claim asserted against UCDP by agents, servants,
independent contractors or employees of Licensee.
(b)
Release: Licensee hereby releases each and all of the foregoing indemnified parties from liability to
Licensee for loss of or damage to any of Licensee’s or its subcontractor’s property arising out of any act or
omission, negligent or otherwise, in connection with the performance of this Agreement by UCDP to the
extent Licensee is or is otherwise required to be insured against such damage and/or loss or to the extent
Licensee is self-insured under a formal self-insurance program.
(c)
Waiver: Licensee hereby waives all rights to claim against UCDP and any entities related thereto
with respect to any bodily injury, personal injury or losses or damage to real or personal property
howsoever caused to the extent any such losses are covered by insurance (including deductibles or selfinsurance), Licensee hereby waives all rights of subrogation on behalf of any insurance company insuring
its interest so long as said waiver does not violate any terms and conditions of any such insurance policy.
Licensee’s compliance with the requirements of this Section will not relieve Licensee of any other
obligations or requirements contained in this Agreement.
11.
Default.
(a)
Default:
This license is made upon the condition that Licensee will punctually and
faithfully perform all the covenants and agreements to be performed by Licensee as herein set forth and the
occurrence of either of the following will constitute an event of default and a breach of this Agreement by
Licensee: (a) failure by Licensee to observe or perform any of the covenants or conditions of this Agreement
and said failure will continue for twenty-four (24) hours after oral or written notice from UCDP to Licensee;
(b) any Kiosk is abandoned or vacated by Licensee; (c) the removal of any Kiosk from its designated
Locations to another location in Attractions without the prior approval of UCDP; (d) the repeated violation
or failure to observe or perform any of the covenants or conditions of this Agreement that Licensee has been
given notice on one (1) prior occasion in any twelve (12) month period; (e) the assignment of this
Agreement or the transfer of any interest herein to a third party without the prior written approval of UCDP;
(f) if Licensee becomes insolvent or files any debtor proceedings, or should any adjudication in bankruptcy
be rendered against Licensee, or should Licensee take or have taken against Licensee in any court pursuant
to any statute either of the United States or of any state a petition in bankruptcy or insolvency or for
reorganization or for the appointment of a receiver or trustee of all or a portion of Licensee’s property, and if
the same is not discharged within sixty (60) days thereafter, (g) Licensee makes an
assignment for the benefit of creditors, or petitions for or enters into an arrangement; (h) Licensee suffers
any portion of its property used for the operation of the Business to be taken under any writ of attachment or
execution, and the same is not discharged within thirty (30) days thereafter; or (i) the default of Licensee in
the performance of any of its obligations and duties under any other agreement, license or lease, if any,
between Licensee and UCDP and/or Universal, or either of their respective affiliates, subsidiaries or parents,
wheresoever located, including, but not limited to all of Universal Orlando, Universal Studios Hollywood
and its related facilities, including Universal Studios CityWalk Hollywood or any other locations owned,
controlled or operated by UCDP and/or Universal, or either of their respective affiliates, subsidiaries or
parents.
(b)
Remedies: Licensee hereby agrees that in any of the foregoing events, UCDP may elect any and all
of the following remedies; (i) UCDP may sue to collect any and all sums which may accrue to UCDP by
virtue of a violation of any provision of this Agreement and for any and all damages that may occur by
virtue of the breach of this Agreement by the Licensee; (ii) UCDP may sue to restrain by injunction any
violation or threatened violation of this Agreement; (iii) UCDP may terminate this Agreement by oral or
written notice to Licensee; or (iv) UCDP may re-enter the Locations without terminating this Agreement and
upon giving five (5) days oral or written notice, remove all personal property of Licensee therefrom at
Licensee’s cost and expense. The remedies hereunder will be cumulative and not exclusive of any other
remedy hereunder or to which UCDP may be entitled. If UCDP elects to terminate this Agreement due to a
default by Licensee, UCDP will not be required to pay or otherwise reimburse Licensee for any costs,
including, but not limited to, Licensee’s cost to construct the Kiosks, equip the Business or purchase
inventory.
(c)
Termination: UCDP will, at its sole and subjective discretion, have the right to terminate this
Agreement upon twenty-four (24) hours prior written notice to Licensee and to immediately regain
possession of the Locations upon which or where the Business is operating upon a material breach of this
Agreement by Licensee.
12.
Notice.
Except as specifically provided elsewhere in this Agreement, any notice given
under the provisions of this Agreement will be in writing and will be delivered personally, delivered by a nationally
recognized courier or sent by certified or registered mail, postage prepaid:
To UCDP:
Ronald W. Sikes. V.P., Legal and Business Affairs
Universal Studios Florida
1000 Universal Studios Plaza
Orlando, Fl 32819
To Licensee
Crystal Magic Inc.
2120 Hidden Pine Lane
Apopka, FL 32712
Attention: Steven M. Rhodes
13.
Relationship of Parties. Licensee will furnish all of the obligations to be performed hereunder to
UCDP in Licensee’s capacity as an independent contractor. In no event will UCDP in be construed or held
to be a partner, joint venturer or business associate of Licensee in the operation of the Business. Licensee
agrees that the personnel necessary in the performance of its services hereunder will be Licensee’s
employees, not employees of UCDP and Licensee will have all of the duties and responsibilities of an
employer, including but not limited to payment of wages, payroll deductions and withholdings, employers’
taxes and workers’ compensation insurance.
14.
Non-Discriminatory Practices. Licensee agrees neither Licensee nor its subcontractors will
discriminate against any business invitee, customer, employee or applicant for employment because of race,
religion, color, sex, age, physical handicap, or national original except where sex or absence of physical
handicap is a bona fide occupational qualification, and that Licensee will execute and cause each of its
subcontractors to execute any such certificate and covenants not to discriminate, as may be required by any
governmental authority.
15.
Logo Usage. Neither Licensee nor any of its employees, suppliers or others engaged by it in
connection with its Business, by virtue of this Agreement, will acquire any right to use, and they will not
use, the name of Universal or the name “Universal Studios” (either alone or in conjunction with or as a part
of any other word, phrase or name) or any fanciful characters or designs of Universal Studios or any of its
parent, related, affiliated or subsidiary entities in any advertising, publicity or promotion or to express or
imply any endorsement of Licensee, except to the extent UCDP may expressly consent to in advance in
writing, which consent UCDP may withhold at its discretion.
16.
Trade Secrets. Licensee agrees to refrain at all times from disclosing UCDP’s trade secrets,
systems, concepts and designs, financial data and general business information which is not generally
known by the public and which gives UCDP an advantage over its competitors who do not know or use this
information to others or from using it except for the benefit of UCDP and/or its related entities, and to
refrain from any other acts which would tend to destroy the value of this information to UCDP. Further,
without the prior written approval of UCDP, Licensee and Licensee’s employees will not discuss the terms
of this Agreement or their relationship to it or to UCDP with any branch of the media or with any third
party, nor will they furnish any written materials.
photographs, drawings or sketches relating to the Agreement to any media entity or third party. Licensee will
not use UCDP’s name or its association with UCDP in any form of advertising or promotions without
UCDP’s prior written consent. Further, Licensee will not utilize the name of UCDP or any of its fanciful
characters or themes, whether real or fictitious, associated with UCDP’s products, or any other intellectual
properties owned or controlled by UCDP without the prior written consent of UCDP, which consent may
be withheld by UCDP in its sole judgment
17.
Personnel.
(a)
Policies/Procedures: All proposed personnel policies and procedures, costume designs and
grooming standards will be consistent with those of UCDP. All uniforms; costumes and other attire utilized
by Licensee’s employees in the performance of their work activities at the Locations are subject to the prior
written approval of UCDP and UCDP reserves the right to require Licensee to modify, replace, upgrade or
otherwise change the same should UCDP deem such change to be in the best interests of the Attractions.
Licensee shall be solely responsible to ensure that its employees, at all times, comply with the UCDP
procedures regarding appearance, attire and grooming standards. UCDP may, at its option, offer Licensee
the right to avail itself to the use of UCDP costumes or uniforms (“UCDP Wardrobe”) which are used by
UCDP in the various Locations. If UCDP offers License the right to purchase of otherwise utilize UCDP’s
services for such UCDP Wardrobe, then the procedure and costs shall be as set forth in Section 17(b)
below. If UCDP does not offer Licensee the right to purchase or use UCDP Wardrobe, then the attire of
Licensee’s employees shall be subject to UCDP’s prior approval and must be in keeping with the theme of
the Locations in which each Kiosk is situated. Licensee shall require its employees to adhere to the dress
code, attire and appearance as is approved by UCDP. UCDP may require Licensee to incorporate, at
Licensee’s expense, employee name tags into the attire of its employees in a form and style as established
from time to time by UCDP, which name tag may include the first name of the employee and his or her
“home town.” Licensee may acquire such name tags from UCDP and reimburse UCDP on receipt of invoice
for the cost of such name tags. The cost for the name tags, if acquired from UCDP, shall be the same charge
as is levied against UCDP employees for a replacement name tag. Licensee is responsible for making
arrangements with its employees regarding the purchase and maintenance of such name tags and as well as
the purchase and maintenance of any approved attire or UCDP Wardrobe required while at work in the
Business. UCDP may, at any time, direct Licensee to require any of its employee without name tags or
employees not dressed in approved attire which is clean and neat in appearance and not worn or otherwise
unsightly, to immediately conform to the requirements of this Section or leave the Attraction. Each and every
representative and employee of
Licensee will adhere to the standard policies of UCDP relating to courteous guest relations and guest service
while operating the Business.
(b)
Wardrobe /Appearance: If UCDP elects to offer Licensee the opportunity to utilize UCDP’s
services to furnish, service and maintain Licensee’s employees’ attire and Licensee elects to use such
services, then, Licensee will reimburse UCDP for the cost of servicing, repairing and cleaning such UCDP
Wardrobe (the “Wardrobe Charge”) and Licensee hereby authorizes and directs UCDP to deduct any such
Wardrobe Charge from Gross Receipts prior to paying Licensee’s Share to Licensee. Any charges to
Licensee’s employees by Licensee will be solely within Licensee’s purview and any arrangements between
Licensee and its employees with regards to any costs or charges for UCDP Wardrobe will be between such
employees and Licensee. The procedure for the fitting, daily pick-up and turn-in of the UCDP Wardrobe by
Licensee’s employees shall be the same as those policies and procedures for UCDP employees as are issued
by the Wardrobe Department of UCDP, as the same may be modified, from time to time. It shall be
Licensee’s responsibility to insure its employees are familiar with the Wardrobe Department’s policies and
procedures and abide by same. Any violation of the Wardrobe Department’s procedures by a Licensee
employee could, at UCDP’s sole option, result in the refusal of the Wardrobe Department to issue UCDP
Wardrobe to such employee or to further service Licensee’s wardrobe needs.
For each UCDP Wardrobe Licensee elects to have furnished and maintained by UCDP, Licensee
shall be charged by and shall pay to UCDP, on a monthly basis, a Wardrobe Charge of Fifty Dollars
($50.00) per month per employee for the handling, cleaning, servicing and replacing of each employee’s
wardrobe. Any partial month occurring at the beginning or end of the period in which Licensee utilizes
UCDP services for furnishing UCDP Wardrobe will be considered a full month for the purposes of
calculating the monthly Wardrobe Charge. The Wardrobe Charge will also cover the fitting and other startup costs incurred by UCDP in furnishing UCDP Wardrobe to Licensee’s employees. Licensee’s obligation
to pay the Wardrobe Charge contained in this Section17 (b) shall be without setoff or deduction, shall be a
material condition of this Agreement and shall survive the termination of this Agreement.
If Licensee elects to use the services of UCDP in furnishing, maintaining and cleaning Licensee’s
wardrobe, if any UCDP Wardrobe is lost or is otherwise damaged beyond reasonable repair due to the
misconduct or negligence of the Licensee’s employee, then Licensee will be charged a replacement fee of
Thirty Dollars (30.00) for each article of clothing of UCDP Wardrobe which UCDP elects to replace.
UCDP’s determination as to when it is necessary to replace UCDP Wardrobe or a part thereof due to an
employee’s misconduct or negligence shall
guideline, policy, rule or regulation established by UCDP from time to time relating to the Licensee’s
employees or their conduct within the Attraction. Licensee will have an opportunity to object to the
suspension or revocation of an entry permit or the removal of an employee by requesting in writing to
UCDP for a hearing. Pending such hearing, UCDP’s action will not be disturbed or changed. UCDP’s
decision after such hearing will then be final.
(e)
Solicitation of Employees: Licensee will not knowingly employ or solicit employment of any
employee or ex-employee of UCDP or any other tenant, licensee, exhibitor or concessionaire of UCDP
without the prior written consent of UCDP. Licensee will submit to UDCP the names of all employees of
Licensee that will work at the Locations. UDCP may do’ a background check on any Licensee employee,
and such background will be at no cost to Licensee.
(f)
Managers/Employees: The identity and occupational background of all key Business management
personnel, including without limitation the Site Manager, will be provided in writing by Licensee to UCDP
for review and approval. Further, on request, Licensee will submit the names and occupational background
of other employees engaged in the Business to UCDP for its review and approval. Licensee will assign an
on-site full time Site Manager to act as the primary interface with UCDP’s designated representative. The
Site Manager will coordinate with UCDP’s representative on all technical questions, schedule conflicts,
special requests, and other matters pertaining to the operation of the Business.
18.
Filming Operations.
UCDP and persons designated by UCDP may
take photographs and make motion pictures of the Business and may make sound recordings of, and otherwise
visually and audibly reproduce (for example, but not by way of limitation, make live” or filmed television
broadcasts, feature films, or radio broadcasts) all or a portion of the Business and persons and activities thereon, and
UCDP or persons designed by UCDP may exploit the results or proceeds thereof without any payment of any kind
to Licensee. Licensee will grant UCDP’s request for access to the Business in connection with the foregoing, and
such activities will be conducted in a manner so as not to unreasonably interfere with the operations of Licensee or
cause Licensee any cost or expense. UCDP will indemnify Licensee with respect to any claims that may arise out of
any such activities.
19.
Miscellaneous.
(a)
Rules & Regulations/Parking/Access: Licensee agree to abide by all rules and regulations of
UCDP and will follow any directions given by UCDP personnel with respect to the location of parking,
areas of access, safety and other general operating instructions. UCDP will provide Licensee, on a daily
basis, appropriate
approved by the UCDP in writing: (i) Licensee will keep no live animals of any kind at the Locations; (ii)
Licensee will not display or sell Merchandise, portable signs, devices or any other objects, outside of the
Locations; (iii) Licensee will not erect or install any aerial antenna or “dish” and (iv) Licensee will not solicit
or distribute material in any manner in any of the common areas of the Attraction.
20.
Governing Law/Compliance/Headings.
(a)
Occupational Fees/Licenses: Licensee will fully comply with payments of any fees related to all
health, safety and other regulations and restrictions imposed by any governmental agency with jurisdiction
over the operation of the Business. Licensee will be responsible for obtaining and maintaining at its expense
during the Term all licenses, permits and other governmental approvals necessary to engage in, conduct and
carry on the Business operations provided for in this Agreement and will comply with any and all
governmental laws and regulations relating to the business conducted by Licensee at the Locations(s).
(b)
Compliance With Laws: Licensee will comply with all applicable federal, state and local laws,
regulations and order with respect to the operation of the Business.
(c)
Governing Law: This Agreement will be construed in accordance with the laws of the State of
Florida. This Agreement includes the entire understanding of the parties with respect to the subject matter
hereof and all prior agreements with respect to subject matter have been merged herein. No representations
or warranties have been made other than those expressly provided for herein. This Agreement may not be
altered, modified, or changed in any way except by an instrument in writing signed by the parties.
(d)
Headings: The headings used in this Agreement are for reference only and will hot be construed to
define or otherwise limit the terms and conditions expressed in the respective paragraphs.
(e)
Jurisdiction: Any legal proceeding of any nature brought by either party hereto against the other
party to enforce any right or obligation under this Agreement, or arising out of any matter pertaining to this
Agreement to be performed hereunder, will be submitted for trial without jury before any court of competent
jurisdiction in Orange County, Florida.
(f)
WAIVER OF JURY TRIAL: THE PARTIES HERETO EXPRESSLY WAIVE TRIAL
BY JURY IN ANY LEGAL PROCEEDING, CONSENT AND SUBMIT TO THE
JURISDICTION OF ANY SUCH COURT AND AGREE TO ACCEPT SERVICE OF PROCESS
OUTSIDE THE STATE OF FLORIDA IN
AGREED to and ACCEPTED:
Universal City Development Partners, LP,
Crystal Magic, Inc.
By: /s/ Ronald W. Pelly
By: /s/ Steven M. Rhodes
Its: Vice President
Its: President
Date: 9/15/00
Date: 8/21/00
Tax ID#: 59-3502967
GUARANTY
For valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the undersigned
Guarantor agrees to be personally bound to UCDP for the full and faithful performance of the obligations
undertaken in this Agreement by Licensee, including, but not limited to, the payment of all fees and sums arising or
becoming due under the Agreement and, upon reasonable written notice from UCDP, will perform each and all of
the obligations of Licensee hereunder in a timely manner. Nothing contained in this guaranty will modify, impair or
otherwise limit the rights and remedies of UCDP provided for in this Agreement or by operation of law. This
Guaranty and the obligations arising hereunder will survive the termination and/or expiration of the Agreement.
By:
Steven M. Rhodes
Date:
Exhibit 10.8
AMENDMENT NUMBER ONE TO LICENSE AGREEMENT
This Amendment Number One To License Agreement (“Amendment”) is made and entered into as of
January 1, 2001, by and between Universal City Development Partners, LP, a Delaware limited partnership
(“UCDP”), and Crystal Magic, Inc., a Florida corporation (“Licensee”).
WHEREAS, UCDP and Licensee did enter into a license agreement dated August 17. 2000 (the
“Agreement”) whereby UCDP licensed Licensee to operate the Business described therein in the Attractions
described therein; and,
hereof.
WHEREAS, UCDP and Licensee desire to amend the Agreement as provided herein effective as of the date
NOW, THEREFORE, in consideration of the mutual terms, covenants and conditions contained herein and
other good and valuable consideration, the parties do hereby covenant and agree that the Agreement shall be and the
same is hereby modified and amended as follows:
(1)
Section 1 (p), “Operating Year” shall be modified and amended to provide that the first Operating
Year shall commence on January 1, 2001 and end on December 31, 2001. Each subsequent Operating Year will
begin on January 1st and expire on December 31st.
(2)
Section 2(a), “Initial Term” shall be modified and amended to provide that, notwithstanding
anything to the contrary contained in this Section 2(a), the Initial Term shall commence on January 1, 2001.
(3)
All of the capitalized terms contained in this Amendment shall have the same meaning as set forth
in the Agreement unless specifically provided otherwise herein.
(4)
Except as amended or as otherwise provided in this Amendment, the terms, conditions and
agreements contained in the Agreement shall continue in full force and effect and shall bind the parties.
(3)
The provisions of this Amendment shall be binding upon and inure to the benefit of the parties
hereto, their heirs, successors and assigns as of the day and year first above written
WITNESSES:
Crystal Magic, Inc.
By: /s/ Steven M. Rhodes
Steven M. Rhodes
Its: President
Date: 1/6/00
Universal City Development Partners, LP
By: /s/ Steve Shaiken
Steve Shaiken
Its: Authorized Agent
Date: 1/25/01
EXHIBIT 10.9
MARKETING REPRESENTATIVE AGREEMENT
THIS MARKETING REPRESENTATIVE AGREEMENT (this “Agreement”) is made and entered into
this 7th day of July, 2006 (the “Effective Date”), by and between AMERISOURCEBERGEN CORPORATION, a
Delaware corporation having an address at 1300 Moms Drive, Chesterbrook, PA 19087-5594 (“ABC”), and
MOUNTAIN CAPITAL, LLC, doing business as ARROW MEDIA SOLUTIONS, a New York limited liability
company having an address at 1927 Saranac Avenue, Suite 2, Lake Placid, New York 12946 (“AMS”).
RECITALS:
A.
AMS has developed and sells various kiosks to transfer digital images (each a “Kiosk”) along with
various accessories including, but not limited to, dyes, printers, paper and software (the “Accessories”).
B.
AMS desire to appoint ABC, and ABC desires to accept such appointment, as a marketing
representative for the sale of Kiosks to ABC’s customers (each an “End User”), in accordance with the terms and
conditions of this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein, and
intending to be legally bound hereby, the parties agree as follows:
Section 1.
Definitions. Except for me terms defined elsewhere in this Agreement, the following terms
shall have the meanings specified below:
“ABC Account Number” shall mean an End User’s account number with ABC through which such End
User may purchase one or more Kiosk Packages.
“End User Price” shall mean the price that ABC charges to an End User for the purchase of a particular
Kiosk Package.
“Kiosk Package” shall mean the Kiosk(s), Accessories and Services sold together to an End User pursuant
to this Agreement.
“Kiosk Purchase Agreement” shall mean that certain purchase agreement attached hereto as Exhibit B
pursuant to which one or more Kiosk Packages are sold to an End User.
“Kiosk Purchase Price” shall mean that price charged by AMS to ABC for a Kiosk Package or a number of
Kiosk Packages as set forth in Exhibit A attached hereto.
“Leasing Company” shall mean any Person that provides leasing or financing to End Users for the lease,
lease to purchase or purchase of one or more Kiosk Packages.
“Person” shall mean an individual, corporation, partnership, trust, association, entity or governmental
authority.
“Services” shall mean those installation, training, warranty, and maintenance and support services provided
by AMS to End Users pursuant to the Kiosk Purchase Agreement.
“Term” shall have the meaning ascribed thereto in Section 8.1 of this Agreement
Section 2.
Grant of Rights.
2.1
Appointment as Marketing Representative. During the Term of this Agreement and except as
otherwise provided in this Agreement, AMS hereby appoints ABC as a marketing representative for the sale of
Kiosk Packages to ABC customers and ABC accepts such appointment.
2.2
License to End Users. ABC shall arrange for the sale of the Kiosk Packages to ABC customers
and for each sale of one or more Kiosk Packages to an ABC Customer each End User shall be required to execute a
Kiosk Purchase Agreement.
2.3
Ownership. As between AMS and ABC, AMS owns and retains all right, title and interest in and
to (i) the Kiosk Packages; (ii) all trademarks, service marks and trade names of AMS associated with the Kiosk
Packages (the “AMS Trademarks”); and (iii) all copyrights, patents, trade secret rights and other intellectual property
associated with the Kiosk Packages (the “Intellectual Property” and collectively with the Kiosk Packages and the
AMS Trademarks, the “AMS Property”).
2.4
Use of the Trademarks. During the Term of this Agreement, ABC shall have the right to use and
reproduce the AMS Trademarks in connection with ABC’s advertising, marketing and promotion of the Kiosk
Packages. If ABC, in the course of exercising its rights under this Agreement acquires any goodwill or reputation in
any of the AMS Trademarks, all such goodwill or reputation shall be transferred to and shall vest in AMS when and
as, on an ongoing basis, such acquisition of goodwill or reputation occurs, as well as at the expiration or termination
of this Agreement, without any separate payment or other consideration of any kind to ABC, and ABC agrees to take
upon AMS’s request, any commercially reasonable actions necessary to effect such vesting.
Section 3.
3.1
3.1.1
Pricing and Payment.
Purchase of Kiosk Packages by End Users.
Purchase Through ABC Account Number. During the Term of this Agreement, if an
End User purchases one or more Kiosk Packages using its ABC Account Number, then
for each of these End User purchases AMS will invoice ABC less then the retail price of
the Kiosk Packages. The % discount is based off of the following schedule;
For a member of the Good Neighbor Pharmacy program (“GNP Program”), AMS will
invoice ABC ***% of the “GNP Price” per the provided price list from AMS.
____________
*** Redacted pursuant to a Confidentiality Request with the United States Securities and Exchange Commission
For non-GNP customers, AMS will invoice ABC ***% of “non-GNP Price” per the
provided price list from AMS.
When requested and approved, each in writing, ABC will allow AMS permission to lower the retail price for
a promotion or special event pricing.
3.1.2
AMS will invoice ABC for the end user’s purchase and ABC will bill thru the amount of
the purchase to the applicable End User with a standard payment term of 30 days, for reimbursement to ABC, ABC
will pay AMS within 30 days upon receiving an invoice.
3.1.3
Purchase Other Than Through ABC Account Number. During the Term of this
Agreement, if an End User purchases one or more Kiosk Packages other than through their ABC account (e.g., a
lease, cash, check), then for each of these End User purchases AMS will pay to ABC a rebate off the purchase price
for each Kiosk Package, The % rebate is based on the following schedule:
For GNP customers, AMS will pay to ABC a ***% rebate off the “GNP Price” per the provided price list
from AMS.
For non-GNP customers, AMS will pay to ABC a ***% rebate off the “non-GNP Price” per the provided
price list from AMS.
Such payments will be made by AMS to ABC within thirty (30) days of the end of the month in which such End
User Price was received by AMS. For purchases other than through ABC Account Number, AMS shall enter into a
Kiosk Purchase Agreement with End Users to reflect the terms and conditions of the sale of its Kiosk(s) Packages to
such End Users, which such agreement shall be substantially in the form attached hereto as Exhibit A.
3.2
Sale of Additional Services and Accessories to End Users. In the event End Users purchase
additional Services and/or Accessories from AMS, AMS will pay to ABC an amount equal to ***% of all gross
revenues received by AMS in connection with the sale of such additional Services and Accessories. AMS will pay
the foregoing amounts to ABC on a monthly basis; such amounts to be equal to the gross revenues received by AMS
in the immediately preceding month for such additional Services and Accessories.
3.3
***
_______________
*** Redacted pursuant to a Confidentiality Request with the United States Securities and Exchange Commission
or Accessories or Services and the price of the same that was offered to a third party, as well as the cost of the audit.
3.4
End User Prices. During the Term of this Agreement and notwithstanding the Kiosk Purchase
Price, ABC shall be free to determine the End User Price for Kiosk Packages that ABC charges to End Users.
3.5
Taxes. For those Kiosk Packages sold to End Users pursuant to Section 3.1.1 above, ABC shall
be responsible for the collection of all sales, use or personal property taxes from End Users. For those Kiosk
Packages sold to End Users pursuant to Section 3.1.2 above or those Services or Accessories sold to End Users
pursuant to Section 3.2 above, AMS shall be responsible for the collection of all sales, use or personal property taxes
from End Users. Neither party shall be responsible for any taxes based on other party’s net income.
Section 4.
Duties of ABC; Reservations.
4.1
Marketing the Kiosk Packages. ABC shall use commercially reasonable efforts to market the
Kiosks and shall be solely responsible for its costs relating to marketing the Kiosk Packages.
4.2
Services to End Users. In order for AMS to provide the Services to End Users, ABC shall
provide to AMS a complete list of all End Users, and shall update such list on a monthly basis and deliver the
updated End User list to AMS. ABC shall not be responsible for providing any Services to End Users.
4.3
Competitive and Other Products. During the Term of this Agreement, ABC will not market or sell
products that directly compete with the Kiosks.
Section 5.
Duties of AMS.
5.1
Technical Materials. AMS shall provide to ABC such technical information in relation to the
Kiosk Packages and information relating to the advertising or marketing thereof as ABC may reasonably require.
5.2
Order Fulfillment. Upon execution of a valid Kiosk Purchase Agreement, AMS shall deliver the
applicable number of Kiosk Packages to an End "User within 2 to 6 weeks of the delivery of the Kiosk Purchase
Agreement or placement of an order for one or more Kiosk Packages.
5.3
End Users.
Section 6.
Services to End Users. During the Term of this Agreement, AMS shall provide the Services to
Representations and Warranties.
6.1
By AMS. AMS represents and warrants to ABC that (i) it or its licensors have all of the rights
necessary to grant ABC the rights set forth in this Agreement; (ii) none of the AMS
Property infringes any intellectual property rights of any Person; (iv) the rights granted to ABC hereunder do not, and
will not during the term of this Agreement violate any agreement or any applicable laws, including, but not limited to,
any export or import laws, and (v) it is authorized to enter into this Agreement and grant the rights hereunder.
6.2
By ABC. ABC represents and warrants to AMS that (i) it is authorized to enter into this
Agreement, and (ii) it will comply will all applicable laws relating to the marketing of the Kiosks.
Section 7.
Confidentiality and Nondisclosure. In performing under this Agreement, each party may
disclose to the other confidential business and technical information related to the business plans and methods of each
party, both generally and as they relate to the Kiosk Packages and the distribution thereof (the “Confidential
Information”). In addition to the foregoing, the Kiosk Purchase Price, and any other information related thereto, shall
be treated as the Confidential Information of AMS.
Each party agrees it shall not use, either directly or indirectly, the Confidential Information provided by the other party
except for the purposes contemplated by this Agreement. Each party also agrees that it shall take all commercially
reasonable actions necessary to prevent the disclosure to any third party of the Confidential Information provided by
the other party. “Confidential Information” shall not include any information that is (i) known to the receiving party
prior to disclosure by the other party, (ii) lawfully obtained after the date of this Agreement by the receiving party
from a third party who is not under any duty of nondisclosure; (iii) generally available to the public; or (iv) lawfully
developed by the receiving party independent of information provided by the other party.
Section 8.
Term and Termination.
8.1
Term. Unless otherwise terminated as provided herein, the term of this Agreement shall
commence on the Effective Date and continue in effect for three (3) years (the “Initial Term”). Thereafter, ABC, in its
sole discretion, may renew the term of this Agreement for 1 year (the “Renewal Term” and together with the Initial
Term, the “Term”) upon written notice to AMS prior to the expiration of the Initial Term or any Renewal Term. If the
Term of this Agreement is extended to a Renewal Term, the parties agree to meet by telephone (or otherwise as the
parties may agree) prior to the expiration of the Renewal Term to discuss the continuation of the Term, modifications
to this Agreement or termination of this Agreement.
8.2
***
8.3
Termination for Breach. Either party may terminate this Agreement by written notice to the other
party if the other party is in material breach of any of its material obligations under this Agreement and fails to cure
such breach within thirty (30) days of receiving written notice of such breach, unless such breach is incurable, in
which event the non-breaching party may immediately terminate this Agreement.
____________
*** Redacted pursuant to a Confidentiality Request with the United States Securities and Exchange Commission
8.4
Duties Upon Termination. Upon termination of this Agreement for any reason whatsoever (i)
ABC shall cease marketing the Kiosk Packages; and (ii) each party shall return to the other party the Confidential
Information of such other party.
8.5
Survival of Certain Provisions. The parties acknowledge that certain provisions, by their nature,
are intended to survive termination of this Agreement, including, but not limited to, each party’s duties as set forth in
Section 8.4 and the indemnification obligations set forth in Section 9.
Section 9.
Indemnification. AMS shall hold ABC, its affiliates and subsidiaries and each of their
directors officers managers, members, shareholders, employees representatives and agents, harmless from all
damages, judgments, liabilities, obligations, costs and expenses (including, without limitation, reasonable attorneys’
fees and costs) arising from any suit or claim made, or proceeding instituted, by any Person against ABC. its affiliates
or subsidiaries or each of their directors officers managers, members, shareholders, employees representatives or
agents with respect to the Kiosk Packages, the Kiosk Purchase Agreements, or which results from the negligence,
misrepresentation or intentional acts of AMS.
Section 10.
Insurance Requirements. AMS agrees to maintain primary and noncontributing
Products Liability Insurance of not less man U.S. $5,000,000.00 per occurrence. Combined Single Limit (Bodily
Injury and Property Damage) including ABC and its subsidiaries and affiliates as Additional Insured, including a
Broad Form Vendors Endorsement, with provision for at least 30 days’ prior written notice to the additional Insured
in the event of cancellation or material reduction of coverage, and upon request promptly submit satisfactory evidence
of such insurance. All insurance coverage must be with a carrier acceptable to ABC, at its sole discretion.
Section 11.
Relationship of the Parties. The relationship between AMS and ABC under this
Agreement is that of independent contractors. No party shall be, or represent itself to be, for any purpose whatsoever,
the following with respect to the other party: joint venturer, franchisee, franchisor, partner, broker, employee, servant,
agent or representative. No party is granted the right or authority to assume or create any obligation or responsibility,
express or implied, on behalf of the other party.
Section 12.
Inspection of Records. AMS and ABC agree to maintain complete and accurate
records of all transactions related to the conduct of each party’s respective business pursuant to this Agreement
(collectively, “AMS-ABC Records”). Both parties will permit inspection of their respective AMS-ABC Records
upon reasonable notice during regular business hours for the purpose of resolving business disputes. If based on any
such inspection or audit it is determined that either party has received excess amounts or not paid any earned, the
party shall immediately pay any such amount.
Section 13.
General Provisions.
13.1
Waiver. No waiver by a party of any provision of this Agreement shall be considered a waiver of
any other provision, or any subsequent breach of the same or any other provision, including the time for performance
of any such provision.
13.2
Severability. If any term, provision, covenant or condition of this Agreement is held through
arbitration or by a court of competent jurisdiction to be invalid, void or otherwise unenforceable, the remaining
provisions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or
invalidated.
13.3
Notices. All notices to be given by or made to the parties under this Agreement shall be effected
by: (i) personal delivery in writing; (ii) by facsimile; or (iii) overnight express mail carrier. All notices shall be
deemed communicated as of the date received. Notices shall be addressed to the parties as their addresses appear
below:
If to ABC:
AmerisourceBergen Corporation
1300 Moms Drive
Chesterbrook, PA 19087-5594
Attn:
Facsimile:
With a copy to:
AmerisourceBergen Corporation
1300 Morris Drive
Chesterbrook, PA 19087-5594
Attn: General Counsel
Facsimile:
If to AMS:
Mountain Capital, LLC
1927 Saranac Avenue, Suite 2
Lake Placid, NY 12946
Attn:
Facsimile:
With a copy to:
The Law Office of Mark W. Ishman, P.C.
9660 Falls of Neuse Road, Suite 138-350
Raleigh, NC 27615
Attn: Mark W. Ishman, Esq.
Facsimile: (919) 882-1466
or to such other address as any party shall furnish to the others by notice given in accordance with this Section 13.3.
13.4
Interpretation. The terms and provisions of this Agreement shall be construed as a whole
according to their respective meanings, and shall not be construed against any party based on the fact that such party
drafted one or more terms and provisions of this Agreement. Further, the parties acknowledge that each of them has
had an opportunity to consult with counsel regarding the meaning and application of terms and provisions of this
Agreement.
13.5
Governing Law, Forum Selection and Jurisdiction. This Agreement shall be construed and
interpreted according to the internal laws of the Commonwealth of Pennsylvania without giving effect to its conflicts
of laws provisions. The parties hereby consent to jurisdiction of Pennsylvania’s courts and, for any litigation that may
arise out of this Agreement, stipulate to venue in the state and federal courts serving Chester County, Pennsylvania,
as the sole proper venue.
13.6
Entire Agreement. This Agreement supersedes all negotiations, commitments and writings prior
to the date hereof pertaining to the subject matter of this Agreement This Agreement shall not be changed or modified
in any manner, except by mutual consent in writing of subsequent date signed by duly authorized representatives of
the parties to this Agreement.
13.7
Counterparts. This Agreement may be executed in any number of counterparts, all of which shall
be construed together to constitute a single agreement binding the parties.
13.8
Assignment. AMS may not assign this agreement without the prior written consent of ABC.
This Agreement shall inure to and be binding on the successors and assigns of each party, as applicable.
13.9
Section Headings. The section headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this Agreement.
13.10
Publicity. Neither party shall have the right to issue a press release, statement or
publication regarding the terms and conditions of or the existence of this Agreement.
[Signatures appear on the next page.]
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly
authorized representatives on the date first written above.
AMERISOURCEBERGEN
CORPORATION
By: /s/ Dave Schendt
Print Name: Dave Schendt
Title: Director Pharmacy Support
MOUNTAIN CAPITAL, LLC
By: /s/ Paul Scapatici
Print Name: Paul Scapatici
Title: President
Exhibit 10.10
CONSULTING AGREEMENT
This Consulting Agreement (the “Agreement” is entered into as of November 1, 2007 (the “Effective Date”)
by and between Shutterfly, Inc., a Delaware corporation with a principal place of business at 2800 Bridge Parkway,
Suite 101, Redwod City, California 94065 (“Shutterfly”) and Mountain Capital LLC. (dba Arrow Media Solutions)
a New York limited liability company (the “AMS”).
RECITAL
AMS desires to perform), and Shutterfly desires to have AMS perform, consulting services as an
independent contractor to Shutterfly.
NOW, THEREFORE, the parties agree as follows:
1.
Services and Compensation.
(a)
Performance. AMS shall perform the consulting services (the “Services”) described in
detail on Exhibit A to this Agreement (the “Project Description”) in a workmanlike and professional manner, and
with a level of skill commensurate with the requirements of this Agreement.
(b)
Compensation. As sole compensation for the performance of the Services, Shutterfly
will pay AMS the compensation set forth on Exhibit A for the performance of Services, Any expenses incurred by
AMS in performing the Services will be the sole responsibility of AMS unless otherwise agreed by Shutterfly. AMS
will invoice Shutterfly on a monthly basis. Shutterfly will pay each such invoice no later than thirty (30) days after
receipt of the invoice.
2.
Relationship of Parties.
(a)
Independent Contractor. AMS is an independent contractor and is not an
agent or employee of, and has no authority to bind, Shuttorfly by contract or otherwise. AMS’s will determine, in
AMS’s sole discretion, the manner, method and means by which the Services are accomplished, subject to the
requirement that AMS shall at all times comply with applicable law. While Shutterfly has no right or authority to
control the manner or means by which the Services arc accomplished, it may, in its discretion, exercise broad general
power of supervision over the results of the work performed by AMS.
(b)
Employment Taxes and Benefits. As AMS is not an employee of Shutterfly,
Shutterfly shall not take any action or provide AMS with any benefits or commitments. AMS will not be entitled to
receive any vacation or illness payments, or to participate in any benefit plans, arrangements, or distributions by
Shutterfly pertaining to any bonus, stock option, profit sharing, insurance or similar benefits for Shutterfly’s
employees, AMS shall bear sole responsibility for payment of compensation to its personnel. AMS shall pay and
report, for all personnel assigned to Shutterfly’s work, federal and state income tax withholding, Social Security
taxes, disability insurance contributions and unemployment insurance applicable to such personnel as employees of
AMS. AMS shall bear sole responsibility for any health or disability insurance, retirement benefits, or other welfare
or pension benefits (if any) to which such personnel may be entitled.
1
(c)
AMS’s Agreements with Personnel. AMS shall obtain and maintain in effect written
agreements with each of its personnel, if any, who participate in any of Shutterfly’s work hereunder. Such
agreements shall contain terms sufficient for AMS to comply with all provisions of this Agreement.
(d)
Insurance Coverages. AMS shall procure and maintain adequate insurance to protect
AMS from the following; (a) claims under worker’s compensation; (b) claims for damages because of bodily injury,
sickness, disease or death which arise out of any negligent art or omission of AMS; and (c) claims for damages
because of injury to or destruction of tangible or intangible property, including loss of use resulting therefrom, which
arise out of any negligent act or omission of AMS.
3.
License of Rights.
(a)
Shutterfly hereby obtains an exclusive, nontransferable and definite term right to use one
copy of the object code version of the Software, as defined and listed on Exhibit A. with each Kiosk for the term
specified in Paragraph 6(a) of this Agreement (the “License Term”), Shutterfly will only have the right to execute
one copy of Software under one single operating system image solely on the designated Kiosk, as defined in Exhibit
A. and solely al the designated location. Any extension of Shutterfly’s rights of use and/or any increase to
Shutterfly’s authorized computer processing power will require payment of additional foes in accordance with AMS’
then current terms and fees. AMS will deliver or have delivered to Shutterfly one (1) set of the Software unless
otherwise agreed on Exhibit A, AMS is responsible for the installation of the Software with each Kiosk unless
otherwise mutually agreed in writing
The Software is generally composed to two components. In this regard, parties agree as follows:
(i)
Software Retained Components. AMS will retain all ownership rights of the
following: all intellectual property, including trade secrete ideas and concepts, methodologies, techniques, templates,
generic tools, processes, software, routines, algorithms, expressions and data developed or reduced to practice by
AMS prior to or independent of its performance of the services and their modifications and derivative works thereto
or any other retained components (collectively, “Retained Components”).
(ii)
Software Shutterfly Components AMS will retain all ownership rights of the
following; all intellectual property, including trade secrets, ideas and concepts, methodologies, techniques, templates,
generic tools, processes, software routines, algorithms, expressions and data developed or reduced to practice by
AMS as part of its performance of the services, and their modifications and derivative works thereto or any other
retained components (collectively, “Shutterfly Components”). Provided that Shutterfly satisfactory fulfills of all of
its payment obligations under this Agreement, AMS agrees that it will not license, sublicense or sale the Shutterfly
Components to a third party during the term of this Agreement and for a period of two years following expiration or
termination of this Agreement.
(b)
Shutterfly may use the Software (i) to transmit information to and receive
information from those companies who routinely trade or transact business with Shutterfly in the normal course of
business; (ii) for internal use in connection with its own business requirements; and (iii) in
2
connection with any services it is providing to its parent corporation or to wholly owned subsidiaries of Shutterfly
provided that such entities’ personnel do not have access to the Software. Shutterfly shall not charge, or allow others
to charge, any such party for use of the Software. Shutterfly shall not sell, license, publish, distribute, lease, rent or
otherwise transfer the Software or perform, display or otherwise use the Software in the operation of a service bureau
or for the benefit of unrelated third parties.
(c)
Shutterfly shall not copy the Software, in whole or in part, except for disaster recovery,
program error verification, and back-up purposes. Shutterfly may install the Software on another Kiosk of the same
operating system at the same or another Shutterfly location only for such purposes or for use in emergency situations.
Except as authorized under Exhibit A. Shutterfly shall not otherwise copy, modify, translate or prepare derivative
works of the Software. Shutterfly shall maintain and furnish to AMS, upon reasonable request, competent records of
the number and location of all copies of the Software, in whole or in part. In the event of a major malfunction causing
the Kiosk to become inoperable, Shutterfly may, upon prompt written notice to AMS, temporarily use the Software
on a no designated kiosk or at a nondesignated facility location, at the Designated Location, as defined in Exhibit A,
on an interim basis. When the Kiosk becomes operational, Shutterfly shall promptly return the Software to the Kiosk
at the Designated Location and this interim right of use shall be revoked.
(d)
Provided Shutterfly is current on all fees payable, Shutterfly may change the Kiosk
location to another location and/or substitute the Kiosk with another Kiosk, provided any applicable fee is paid by
Shutterfly, the prior use is discontinued and Shutterfly continues to use the Software under the terms of this
Agreement. Shutterfly shall give AMS written notice no less than thirty (30) days prior to such relocation, including
the new address and Kiosk. Such location shall be the new Kiosk location.
E.
License to Shutterfly Content. Shutterfly grants to AMS an nonexclusive.
nontransferable and definite term right license to reproduce and modify Shutterfly Content, as defined in 3(e) below,
to develop and maintain the Kiosk Software interface and the Kiosks.
F.
License to Third Party Content. AMS shall be responsible for obtaining and paying
any necessary licenses to use third party content other than, the third party content as provided by Shutterfly to be
incorporated into the Kiosks. Shutterfly shall be responsible for obtaining and paying for any necessary licenses to
use such content provided by it to be incorporated into the Kiosks.
G.
Licenses to Use other Software and Tools. AMS shall be responsible for obtaining
licenses for and paying license fees for any software and/or tools used in performance of its services under this
Agreement that are not owned by AMS.
(e)
Ownership. As between AMS and Shutterfly, AMS owns and retains all right, tide and
interest in and to (i) the Software, including but not limited to the Retained Components and the Shutterfly
Components; (ii) all trademarks, service marks and trade names of AMS associated with the Software; and (iii) all
copyrights, patents, trade secret rights and other intellectual property associated with the Software; as well as (iv) the
Kiosks and their corresponding hardware, As between AMS and Shutterfly. Shutterfly owns and retains all right,
tide and interest in and to all trademarks,
serve marks and trade names of Shutterfly associated with the Software and Kiosks (Collectively “Shutterfly
Center”)
3
4.
Confidential Information. In performing under this Agreement, each party may disclose to the
other confidential business and technical information related to the business plans and methods of each party, both
generally and as they relate to the Kiosk Packages and the distribution thereof (the “Confidential Information”), In
addition to the foregoing, each party’s knowledge about the other party’s business and products, and its customers
and vendors, including without limitation, the identity of and information relating to customers, employees, financial
condition, technical information, prices, business plans, and strategies and prospects, and that all such knowledge,
information and materials acquired, and any other information related thereto, shall be treated as the Confidential
Information. Each party agrees it shall not use, either directly or indirectly, the Confidential Information provided by
the other party except for the purposes contemplated by this Agreement, Each party also agrees that it shall take all
commercially reasonable actions necessary to prevent the disclosure to any third party of the Confidential Information
provided by the other party. “Confidential Information” shall not include any information that is (i) known to the
receiving party prior to disclosure by the other party; (ii) lawfully obtained after the date of this Agreement by the
receiving party from a third party who is not under any duty of nondisclosure; (iii) generally available to the public; or
(iv) lawfully developed by the receiving party independent of information provided by the other party.
5.
Indemnification by AMS. AMS will indemnify Shutterfly and hold it harmless from and against
all claims, damages, losses and expenses. Including court costs and reasonable fees and expenses of attorneys, expert
witnesses and other professionals, arising out of or resulting from, and, at Shutterfly’s option, AMS will defend
Shutterfly against:
(a)
any action by a third party against Shutterfly that is based on any claim that any of the
Services, Software or Kiosks provided or delivered under this Agreement, or their results, infringe a patent, copyright
or other proprietary right or violate a trade secret;
(b)
any action by a third party that is based on any negligent act or Omission or willful
conduct of AMS and which results m, (i) any bodily injury, sickness, disease or death; (ii) any injury or destruction
to tangible or intangible property (including computer programs and data) or any loss of use resulting therefrom; or
(iii) any violation of any statute, ordinance, or regulation; and
(c)
any and all claims, relating to any obligation imposed by law on Shutterfly lo pay any
withholding taxes, social security, unemployment or disability insurance, state and federal income tax, workers’
compensation insurance or similar items in connection with the Services and compensation received by AMS
pursuant to this Agreement.
6.
Term and Termination.
(a)
Term The term of this Agreement shall commence on the date hereof and, unless
terminated in accordance with Section 6(b) shall continue through the completion of the services sot forth in Section
1. and thereafter for so long as Shutterfly seeks or obtains services from AMS.
(b)
Termination for Convenience. The parties may terminate this Agreement at any time upon
mutual written agreement.
(c)
Termination for Breach. Either party may terminate this Agreement by written notice to
the other party if the other party is in material breach of any of its material obligations under
4
this Agreement and fails to cure such breach within thirty (30) days of receiving written notice of such breach, unless
such breach is incurable, in which event the non-breaching party may immediately terminate this Agreement.
(d)
Duties Upon Termination. Upon termination of this Agreement for any reason
whatsoever each party shall return to the other party the Confidential Information of such other party.
(e)
No Election of Remedies. The election by Shutterfly to terminate this Agreement in
accordance with its terms shall not be deemed an election of remedies, and all other remedies provided by this
Agreement or available at law or in equity $hall survive any termination.
7.
Effect of Termination. Upon the expiration or termination of this Agreement for any reason: each
party will be released from all obligations to the other arising after the date of expiration or termination, except that
expiration or termination of this Agreement will not relieve AMS of its obligations under Sections 2(b), 3,4, 5,
8.9(d), 11 and 12; and AMS will promptly return to Shutterfly all Confidential Information.
8.
Limitation of Liability. IN NO EVENT SHALL SHUTTERFLY BE LIABLE FOR ANY
SPECIAL, INCIDENTAL, INDIRECT OR CONSEQUENTIAL DAMAGES OF ANY KIND IN
CONNECTION WITH THIS AGREEMENT, EVEN IF SHUTTERFLY HAS BEEN INFORMED IN
ADVANCE OF THE POSSIBILITY OF SUCH DAMAGES.
9.
Representations and Warranties of AMS,
(a)
Third Party Infringement. AMS warrants that: (i) AMS’s performance of the Services
and the Software hereunder do not violate any applicable law, rule, or regulation, any contracts with third parties, or
any third-party rights in any patent, trademark, copyright, trade secret, or similar right; and (ii) AMS has sufficient
right, title, and interest in and to any software and other intellectual property, exclusive of rights respecting programs,
data, and material identified as furnished to Customer by third-party vendors, to grant and convey the rights accorded
to Shutterfly under this Agreement.
(b)
Pre-existing Obligations. AMS represents and warrants that AMS is not under any preexisting obligation inconsistent with the provisions of this Agreement.
(c)
Solicitation of Employment. Because of the trade secret subject matter of Shutterfly’s
business, AMS agrees that it will not solicit the services of any of the employees, consultants, suppliers or customers
of Shutterfly’s during the term of this Agreement and for one (1) year thereafter either for AMS’s benefit or for any
other firm or entity. In addition, Shutterfly agrees to the provisions regarding solicitation of AMS’s employees As set
forth in Exhibit A.
(d)
All materials and services provided by AMS hereunder including, without limitation, the
Software and the Kiosks, are either owned or properly licensed by AMS or are in the public domain and the use
thereof by Shutterfly, its representatives, or end users will not infringe any proprietary rights of any third party.
(e)
AMS has the full power to enter into this Agreement, to carry out its obligations under
this Agreement and to grant the rights and licenses granted to Shutterfly in this Agreement.
5
(f)
The Software and Kiosks wilt (i) perform in accordance with the applicable published or
mutually agreed upon specifications and related documentation provided by AMS (and will achieve any function
described therein), and (ii) be free from defects in materials, workmanship or design.
(g)
The parties agree that AMS shall implement reasonable commercial safeguards in
accordance to industry standards that the Software and the media on which the Software is contained shall contain no
computer instructions, including, but not limited to, any virus, Trojan horse, worm, trapdoor, backdoor or malicious
code the purpose of which is (A) to disrupt, damage, destroy, alter or interfere with the use or operation of any of the
software, firmware, hardware, services, data, programs or computer or telecommunications facilities; or (B) to
perform functions which are not an appropriate part of the functionality of the computer programs and whose result is
to disrupt the use or operation of such computer programs; and, unless expressly authorized in writing by Shutterfly.
the Software shall not contain (A) any mechanism which electronically notifies AMS of any fact or event, (B) any
key, node lock, drop-dead device, time bomb, time-out, logic bomb or other function, implemented by any means,
which may restrict the use of, or access to, any of the Software; nor (C) any third party software code, including but
not limited to open source software.
(h)
Except as provided in Section 9(j) below, if AMS, at AMS’s expense, fails to correct or
replace any of the Software and/or Kiosk that does not meet the foregoing warranties within three (3) business days
from the receipt of Shutterfly’s written notice of such failure, Shutterfly shall, in addition to all other remedies
available to it, have the option of returning the Software to AMS, at AMS’s expense and receiving a full refund of all
amounts paid to Licensee hereunder
(i)
Except as otherwise expressly provided herein, the representations and warranties made in
this Agreement are continuous in nature and shall be deemed to have been given by AMS al the execution of this
Agreement and each stage of performance of this Agreement NO OTHER WARRANTIES ARE EXPRESSED OR
IMPLIED, INCLUDING, BUT NOT LIMITED TO, ANY IMPLIED WARRANTIES OF MERCHANTABIUTY
AND FITNESS FOR A PARTICULAR PURPOSE.
(j)
Neither party shall be liable for any loss or delay resulting from any force majeure event,
including acts of God, fire, natural disaster, terrorism, labor stoppage, war or military hostilities or inability of carriers
to make scheduled deliveries, and any payment or delivery date shall be extended to the extent of any delay resulting
from any force majeure event.
10.
Sexual Harassment. Shutterfly is committed to providing a work environment free of unlawful
harassment. Shutterfly prohibits unlawful harassment including but not limited to epithets, derogatory jokes or
comments, slurs or unwanted sexual advances, invitations or comments. As a consultant, you understand and agree
that such action if initiated by you could be cause for immediate termination of this Agreement, If you believe that you
have been unlawfully harassed, you will need to submit a written complaint to Shutterfly of your employment with a
copy sent to the human resource department of Shutterfly within thirty (30) days of the incident, The written
complaint should include details of the incident or incidents, names of the individuals involved, and names of any
witnesses. If Shutterfly determines that unlawful harassment has occurred, effective remedial action will be taken in
accordance with the circumstances involved.
6
11.
Arbitration and Equitable Relief
(a)
Disputes. Shutterfly and AMS agree that any dispute or controversy arising out of,
relating to or in connection with the interpretation, validity, construction, performance, breach or termination of this
Agreement shall be settled by binding arbitration to be held in San Mateo County, California, in accordance with the
Commercial Arbitration Rules, supplemented by the Supplemental Procedures for Large Complex Disputes, of the
American Arbitration Association as then in effect (the “Rules”) The arbitrator may grant injunctions or other relief in
such dispute or controversy. The decision of the arbitrator shall be final, conclusive and binding on the parties to the
arbitration. Judgment maybe catered on the arbitrator’s decision in any court of competent jurisdiction.
(b)
Consent to Personal Jurisdiction. The arbi1rator(s) shall apply California law to the
merits of any dispute or claim, without reference to conflicts of law rules. AMS hereby consents to the personal
jurisdiction of the state and federal courts located in California for any action or proceeding arising from or relating to
this Agreement or relating to any arbitration in which the parties ore participants.
(c)
Costs, Shutterfly and AMS Shall each pay one-half of the costs and expenses of such
arbitration, and each shall separately pay its counsel fees and expenses unless otherwise required bylaw.
(d)
Equitable Relief. The parties may apply to any court of competent jurisdiction for a
temporary restraining order, preliminary injunction, or other interim or conservatory relief, as necessary, without
breach of this arbitration agreement and without abridgment of the powers of the arbitrator.
12.
General.
(a)
Assignment. AMS may not assign AMS’s rights or delegate AMS’s duties under this
Agreement either in whole or in part without the prior written consent of Shutterfly.
(b)
Governing Law Severability, This Agreement will be governed by and construed in
accordance with the laws of the State of California excluding that body of law pertaining to convict of laws. If any
provision of this Agreement is for any reason found to be unenforceable, the remainder of this Agreement will
continue in full force and effect.
(c)
Notices. Any notices under this Agreement will be sent by certified or registered mail,
return receipt requested, to the address specified below or such other address as the party specifies in writing. Such
notice will be effective upon its mailing as specified.
(d)
Entire Agreement; Modification: Waiver. This Agreement constitutes the entire
agreement between the parties pertaining to the matters set forth herein and supersedes all prior and contemporaneous
agreements, representations, and understandings of the parties. No supplement, modification, or amendment of this
Agreement shall be binding unless executed in writing by both parties No waiver of any of the provisions of this
Agreement shall be deemed, or shall constitute, a waiver of any other provision, whether or not similar, nor shall any
waiver constitute a continuing waiver. No waiver shall be binding unless executed in writing by the party making the
waiver.
7
IN WITNESS WHEREOF, the parties have signed this Agreement as of the Effective Date.
Shutterfly, Inc
Mountain capital LLC:
By: /s/ Douglas J. Goodman
By: /s/ Paul Scapatici
Name: Douglas J. Goodman
Name: Paul Scapatici
Title: SVP
Title: President
Federal Tax ID, Number: 34-204-5134
Address: 2008 Bridge Parkway
Redood City, CA 94065
Address: 1927 Saranac Avenue, Suite 2
Lake Placid, NY 12946
8
EXHIBIT A
Project Description and Compensation
AMS and Shutterfly desire to undertake a beta kiosk project where they shall collectively install and
maintain four (4) kiosks bearing Shutterfly colors, signage, and user interface with brochure racks in certain retail
settings (“Beta Kiosk Project”)
1.
Responsibilities of AMS
A. AMS agrees to manage the deployment and XXXX of the kiosks in accordance to the Development
Schedule as provided in Paragraph 4 below. This includes the management of the consumable supply
chain telephone help desk support and field technician dispatches.
1.
B.
C.
It will the responsibility of the designated site contact to report kiosk problems to the AMS
help desk. Some problems can be diagnosed and corrected via remote technical support.
When it is determined that a field technician is required to further troubleshoot, or repair a
kiosk problem. Then AMS shall respond with an on-site technician within 2 business days.
A M S agrees to provide customized software for the kiosks that night the “look & feel” of AMS
software with Shutterfly’s branding and likeness (i.e., colors graphics, etc);
AMS agrees that the customized software that it develops for the Beta Kiosk Project shall provide:
i
The function of integrating Shutterfly’s website within the customized software
ii. T h e function of reciting existing images from Shutterfly customer’s account stored at
Shutterfly’s website:
iii. The function of uploading new Shutterfly’s customers’ images to such customers’ existing
Shutterfly accounts;
iv. The functions of creating new Shutterlfy customer accounts:
v. The function of ordering products for print an the kiosks XXXX location:
vi. The function of ordering products for shipment to Shutterfly customer’s homes. The list of
products offered for ship-to-home will be a subset of the total product offering on
Shutterfly’s website. A representative set of mutually agreed to products will be used for this
pilot. Likely to be in the single image, non-styled calegory.
vii. The ability to dynamleaity update XXXX to-home product offering matching product pricing
selection and prevention changes at www.shutterfly.com and
viii. Kiosk “second upper screen” implementation to merchandise and guide customers.
D.
2.
Any other responsibilities as mutually agreed upon by the Parties
Responsibilities of Shutterfly.
A. Shutterfly shall pay Sixty-Five Thousand Dollars (US$65.000.00) collectively for the total XXXX of
Kiosks and software development as provided herein:
I.
II.
Shutterfly shall provides to AMS an initial retainer in the account of Thirty Five Thousand Dollars
(US$35,000.00) at the time of executing this Agreement to be applied towards the future
agreement or to be partially refunded at the end of the pilot contract.
Shutterfly shall submit payment for the remaining software development of $30,000 to AMS upon
the later date of either (i) forty-five (45) days after the Effective Date, as defined in the Agreement,
or (II) on the date that. AMS delivers the Kiosks to Kiosk Location, as defined in the Exhibit A
However.
9
If the delivery of the Kiosks by AMS is delayed as a result of Shutterfly, then Shutterfly shall deliver the remaining
software development of $30,000 to AMS upon forty-five (45) days after the Effective Date:
B
Shutterfly (i) shall provide graphical assess. Technical access and support sufficient to permit AMS’
engineers to integrate the Kiosks and incorporate Shutterfly’s branding and likeness with the Kiosks: and
(ii) hereby grants to AMS the right and a license to use Shtterfly’s trademarks solely in connection with
this Agreement and the prior approval of shutterlfy’s in each instance of use:
C.
Shutterfly in its discretion shall supply reasonable marketing support to this pilot program in the form
of kiosk design, collateral and brand assests.
D.
Shutterfly shall provide to AMS XXXX answers for ht Beta kiosk Project, including but not limited
to:
i. How and in XXXX format are orders received on the Shutterfly website?
ii. How does Shutterfly manager its prouder database?
iii. And other technical answers as needed throughout the Beta Kiosk Project.
E. Any other responsibilities as XXXX agreed upon by the Parties.
3.
Collaborative Responsibilities of the Parties
A. The parties agree that they shall collectively collaborate on the strategic design and implementation
of key marketing campaigns to support the Beta Kiosk Project and thereafter delegate the actual
management of such marketing campaigns to shutterfly:
B. The parties agree to negotiate in good faith to determine final business XXXX for the test no later
than December 28, 2007. including criteria, such as customer acquisition cost requirements for
determining whether the test is a success (the “Success XXXX”) and XXXX and profit sharing.
C. The development schedule (“Development Schedule”) for the Beta Kiosk Project is reflected in the
attached Exhibit B which is incorporate by reference
4.
Terms and Conditions of Pilot
A.
B.
C
D.
E
F.
G.
Term of Pilot:
i. (4) months (February 25,2008 – June 24, 2008), provided, however that the terms of the plot
may commence at a later as determined by Shutterfly in its reasonable discretion in the event
of any delays.
ii. Option for additional moths as agreed to by both parties.
I f Shutterfly elects not to pursue a broader deployment of the pilot (i.e extended term and
additional locations (“Commercial Deployment”), AMS agrees to refund $30.000 of the $65.00
commitment within 30 days of Shutterfly’s written notice after pilot completion.
T h e kiosk software interface and related software code development by AMS under this
Agreement are licensed to Shutterfly as set forth in the Agreement. All information provided by
either party in relation to the pilot program as described herein, shall be and remain the
Confidential information of the disclosing party. The non disclosing party agrees to keep such
Confidential material as XXXX in the Agreement, confidential
Software the Computer program in machine readable object code form and any subsequent error
corrections or updates to Shutterfly by AMS pursuant to this Agreement. The Software license as
provided in the Agreement may be amended form time to time by AMS in writing.
Number of Copies of Software: One copy per kiosk
Designation Location for the Kiosk:
T o be determined under the
Development Schedule provided
herein.
Designation Number of Kiosk XXXX with the Software:4
10
Project XXXX
XXXX XXXX
XXXX
Sign contract, issue PO and deposit 11/12/2007
Shutterfly Klosk Deployment (Pilot)
XXXX
XXXX
XXXX
XXXX
11/12/2007 On Track
1
1.1
1.2
1/11/2008
11/23/2007
11/18/2007
On Track
On Track
On Track
1.3
Secure (4) placement agreement
11/5/2007
Develop placement contract
11/5/2007
D ev elo p list of top 10 target 11/5/2007
locations
Contact location and secure contracts 11/19/2007
1/11/2008
On Track
2
2.1
2.1.1
Develop customized photo kiosk
Software integration
Determine scope of integration
10/28/2007
11/5/2007
11/5/2007
2/8/2008
2/8/2008
11/7/2007
On Track
On Track
On Track
2.1.3
Integrate image 2 Print with API’s
12/10/2007
1/25/2008
On Track
AMS
2.1.4
2.2
2.2.1
2.2.2
Test and certify changes
Software look and feel
Provide Screen Shot document
Provide demo of Software
1/28/2007
10/29/2007
10/29/2007
11/5/2007
2/8/2008
2/8/2008
11/2/2007
11/5/2007
On Track
On Track
On Track
On Track
AMS/XXXX
2.2.3
2.2.4
2.2.5
2.2.6
2.3
2.3.1
Determine scope of changes
11/5/2007
Provide necessary graphics
12/3/2007
Implement changes
12/24/2007
Test and certify changes
1/28/2007
Hardware look and feel
11/5/2007
D e te r m in e scope of hardware 11/5/2007
customization
11/30/2007
12/21/2007
1/26/2008
2/8/2008
2/1/2008
11/16/2007
On Track
On Track
On Track
On Track
On Track
On Track
AMS/XXXX
XXXX
AMS/XXXX
AMS/XXXX
2.3.2
Design/print kiosk decals and ship to 11/19/2007
AMS
2/1/2007
On Track
3.
3.1
2/22/2008
1/11/2008
On Track
On Track
3.2
3.3
Deploy customized kiosks
12/31/2007
D e t e r m i n e payment
collection 12/31/2007
method
Determine product pricing
1/14/2007
Determine product pricing
1/28/2008
1/26/2008
2/8/2008
On Track
On Track
3.4
3.5
3.6
Integrate kiosks
Ship kiosks
Initial Kiosks
2/13/2008
2/13/2008
2/22/2008
On Track
On Track
On Track
2/11/2008
2/11/2008
2/18/2008
11
AMS
AMS/XXXX
AMS/XXXX Which
Products are
going to be
offered?
AMS
AMS
C a n start
prior
to
API’s being
complete
Scheduled
for 1:00Pm
EST
on
XXXX
AMS/XXXX Leaning
towards
solid color
with decals
tailored
towards
specific
retailer.
Nead
XXXX
creative
brief
XXXX
AMS/XXXX Credit card,
Bill store ect
AMS/XXXX
AMS/XXXX L i s t Prices
for gifting
items
AMS
AMS
AMS
XXXX XXXX
3.7
Train local Personnel
4.
4.1
4.1.1
4.2
4.2.1
4.3
4.4
4.5
5
5.1
5.2
5.3
5.3
XXXX
XXXX
2/18/2008 22/22/2008
XXXX
On Track
XXXX
AMS
Finalize XXXX plan
12/10/2007
D etermine types of marketing / 12/10/2007
advertising
12/10/2007
Determine best use of 2nd screen
Develop marketing
12/24/2007
12/24/2007
Develop slideshow for 2nd screen
Implement print marking
1/14/2008
Ship/send to locations
2/11/2008
Follow up with locations
2/18/2008
3/1/2008
12/21/2007
On Track
On Track
AMS XXXX
12/21/2007
1/11/2008
1/11/2008
2/8/2008
2/16/2008
3/1/2008
On Track
On Track
On Track
On Track
On Track
On Track
AMS XXXX
XXXX
AMS XXXX
XXXX
XXXX
XXXX
F i n a l i z e success 11/5/2007
measurements/reporting
Determine success criteria
11/5/2007
D etermine next steps following 12/3/2007
successful pilot
Determine tracking method(s)
12/31/2007
D etermine reporting method and 1/14/2008
frequency
1/26/2008
On Track
11/30/2007
12/28/207
On Track
On Track
AMS XXXX
AMS XXXX
1/11/2008
1/25/2008
On Track
On Track
AMS XXXX
AMS XXXX
12
XXXX
12
Exhibit 10.11
Control # 9TFL-00512
Secured Economic Injury Disaster Loan
U. S. Small Business Administration
LOAN AUTHORIZATION AND AGREEMENT
Date: December 19. 2001
On the above date, this Administration (SBA) authorized (under Section 7(b) of the Small Business Act, as amended)
a Loan (Loan Number EIDL 51147840-07) to Crystal Magic. Inc. (Borrower) of 2120 Hidden Pine Lane, Apopka.
Florida 32712 in the amount of Two Hundred Fifty-Three Thousand Four Hundred and no/100 ($253,400.00)
Dollars upon the following conditions:
1.
2.
PAYMENT TERMS
A.
Interest will accrue at the rate of 4.000% per annum; installment payments, including principal and
interest, of One Thousand Two Hundred Thirty-Four and no/100 ($1,234.00) Dollars monthly,
will begin Five (5) months from the date of the promissory Note. The balance of principal and
interest will be payable Thirty (30) Years from the date of die promissory Note.
B.
Each payment will be applied first to interest accrued to the dare of receipt of each payment, and
the balance if any, will be applied to principal.
C.
Each payment will be made when due even if at that time the mil amount of the Loan has not yet
been advanced or the authorized amount of the Loan has been reduced.
D.
Interest will accrue only on funds actually advanced from the date(s) of each advance.
COLLATERAL
Borrower will provide the following collateral:
A.
3.
Security Interest in machinery and equipment, excluding automotive, now owned, hereafter
acquired, or purchased in whole or in part from the proceeds of this Loan, and/or the proceeds of
any disposition thereof.
GUARANTEE
Borrower will provide the following guarantee(s):
A.
Guarantor will provide a guarantee on SBA Form 2128 of Steven M. Rhodes of 2120 Hidden
Pine Lane. Apopka, Florida 32712, secured by the following collateral:
(1)
D eed of Trust/Mortgage on real estate located at 2120 Hidden Pine Lane Apopka.
Florida 32712. Said Deed of Trust/Mortgage to be subject only to the following:
(a) Trust Deed/Mortgage held by Bank of America, Post Office Box I7018. Baltimore. Maryland 21297
with a current approximate balance of $105.000-00.
B.
Guarantor will provide a guarantee on SBA Form 2129 of Vicki L. Rhodes of 2120 Hidden Pine Lane,
Apopka, Florida 32712, limited to the Guarantor’s interest in, and secured by, the following collateral:
(1)
Deed of Trust/Mortgage on real estate located at 2120 Hidden Pine Lane. Apopka. Florida 32712.
Said Deed of Trust/Mortgage to be subject only to the following;
(a) Trust Deed/Mortgage held by Bank of America, Post Office Box 17018 Baltimore. Maryland 21297
with a current approximate balance of $105,000.00.
SBA Form 1391 (5.00)
9TFL-00512
Page 1
4.
5.
REQUIREMENTS RELATIVE TO COLLATERAL
A.
Borrower will submit to SBA evidence of SBA’s recorded lien position and of payment of
appropriate fees prior to the disbursement of Loan funds in excess of $5,000.00. Such evidence
will be in a form satisfactory to SBA Counsel and will be at Borrower’s expense.
B.
Borrower will not sell or transfer any collateral (except normal inventory turnover in the ordinary
course of business) described in paragraph 2 hereof without the prior written consent of SBA.
C.
Borrower will neither seek nor accept future advances under any superior liens on the collateral
securing this Loan without prior written consent of SBA.
USE OF LOAN PROCEEPS
Borrower will use the proceeds of this Loan solely to alleviate economic injury caused by Disaster occurring
in the month of September. 2001. Borrower will apply all Loan proceeds to the following specific uses:
A.
6.
7.
Approximately $253,400.00 for working capital.
REQUIREMENTS FOR USE OF LOAN PROCEEDS AND RECEIPTS
A.
Borrower will obtain and itemize receipts (paid receipts, paid invoices or cancelled checks) and
contracts for all Loan funds spent and retain these receipts for 3 years from the date of the final
disbursement. Prior to each subsequent disbursement (if any) and whenever requested by SBA,
Borrower will submit to SBA such itemization together with copies of the receipts.
B.
Borrower will make the damaged, repaired or replacement property(ies) available to SBA for
inspection and verification of the use of Loan proceeds when so requested.
C.
Borrower will return to SBA, as soon as possible but not later than 1 year from the date of final
disbursement, all funds received but not used for disaster repairs as authorized by the above
paragraph. Funds so returned will be used to reduce the outstanding balance of this Loan and will
not be applied in lieu of scheduled payments.
D.
Borrower will not use any proceeds of this Loan to pay wages or any other compensation for
repair work performed by Borrower or members of Borrower’s immediate family, or to pay
overhead or profit for repairs performed by, or materials acquired from, a business in which
Borrower owns a 50% or greater interest.
E.
Borrower will not use, directly or indirectly, any portion of the proceeds of this Loan to relocate
without the prior written permission of SBA. The law prohibits the use of any portion of the
proceeds of this Loan for voluntary relocation from the business area in which the disaster
occurred. To request SBA’s prior written permission to relocate, Borrower will present to SBA
the reasons therefore and a description or address of the relocation site. Determinations of (1)
whether a relocation is voluntary or otherwise, and (2) whether any site other than the disasteraffected location is within the business area in which the disaster occurred, will be made solely by
SBA.
F.
Borrower will, to the extent feasible, purchase only American-made equipment and products with
the proceeds of this Loan.
DEADLINE FOR RETURN OF LOAN CLOSING DOCUMENTS
Loan closing documents must be signed and returned to SBA within 2 months from the date of this Loan
Authorization and Agreement. SBA will cancel this Loan if Borrower fails to meet this deadline. If causes
beyond the control of the Borrower result in delay which prevents meeting the deadline, Borrower may
submit a written explanation of the delay and request for an extension of this deadline. The deadline may be
extended only by SBA in writing.
SBA Form 1391 (5.00)
9TFL-00512
Page 2
8.
9.
AGREEMENT TO REMIT AND ASSIGNMENT OF COMPENSATION FROM OTHER SOURCES
A.
Eligibility for this disaster Loan is limited to disaster losses that are not compensated by other
sources. Other sources include but are not limited to: (l) proceeds of policies of insurance or other
indemnifications, (2) grants or other reimbursement (including loans) from government agencies
or private organizations, (3) claims for civil liability against other individuals, organizations or
governmental entities, and (4) salvage (including any sale or re-use) of items of damaged property.
B.
Borrower will promptly notify SBA of the existence and status of any claim or application for
such other compensation, and of the receipt of any such compensation, and Borrower will
promptly submit the proceeds of same (not exceeding the outstanding balance of this Loan) to
SBA.
C.
Borrower hereby assigns to SBA the proceeds of any such compensation from other sources and
authorizes the payor of same to deliver said proceeds to SBA at such time and place as SBA shall
designate.
D.
SBA will in its sole discretion determine whether any such compensation from other sources is a
duplication of benefits. SBA will use the proceeds of any such duplication to reduce the
outstanding balance of this Loan, and Borrower agrees that such proceeds will not be applied in
lieu of scheduled payments.
DUTY TO MAINTAIN INSURANCE
A.
10.
Prior to disbursement of Loan funds in excess of $5,000.00, Borrower will purchase hazard
insurance, including fire, lightning, and extended coverage equal to 80% of the insurable value of
the collateral or the minimum coinsurance requirement set forth in the insurance policy provided
by Borrower, whichever is greater, or such other amounts and types of coverage as SBA may
require. Borrower will provide proof of such hazard insurance coverage to SBA together with an
endorsement naming SBA as mortgagee or loss payee, and Borrower will maintain such coverage
throughout the entire term of this Loan.
BOOKS AND RECORDS
A.
Borrower will maintain current and proper books of account in a manner satisfactory to SBA for
the most recent 5 years until 3 years after the date of maturity, including extensions, or the date
this Loan is paid in full, whichever occurs first. Such books will include Borrower’s financial and
operating statements, insurance policies, tax returns and related filings, records of earnings
distributed and dividends paid and records of compensation to officers, directors, holders of 10%
or more of Borrower’s capital stock, members, partners and proprietors.
B.
Borrower authorizes SBA to make or cause to be made, at Borrower’s expense and in such a
manner and at such times as SBA may require: (1) inspections and audits of any books, records
and paper in the custody or control of Borrower or others relating to Borrower’s financial or
business conditions, including the making of copies thereof and extracts therefrom, and (2)
inspections and appraisals of any of Borrower’s assets.
C.
Borrower will furnish to SBA, not later than 3 months following the expiration of Borrower’s
fiscal year and in such form as SBA may require, Borrower’’ financial operating statements.
D.
Upon written request of SBA, Borrower will accompany such statements with an “Accountant’s
Review Report” prepared by an independent public accountant at Borrower’s expense.
E. Borrower authorizes all Federal. State and municipal authorities to furnish reports of examination,
records and other information relating to the conditions and affairs of Borrower and any desired
information from such reports, returns, file?, and records of such authorities upon request of SBA.
SBA Form 1391 (5.00)
9TFL-00512
Page 3
11.
DISTRIBUTIONS AND COMPENSATION
A.
12.
CONDITIONS RELATIVE TO LEASED PREMISES
A.
13.
14.
Borrower will not, without the prior written consent of SBA, declare or pay any dividend or make
any distribution upon its capital stock, or purchase or retire any of its capital stock, or consolidate,
or merge with any other company, or give any preferential treatment, make any advance, directly
or indirectly, by way of Loan, gift, bonus, or otherwise, to any company directly or indirectly
controlling or affiliated with or controlled by Borrower, or any other company, or to any officer,
director or employee of Borrower, or of any such company.
Prior to disbursement of Loan funds in excess of $5,000.00, Borrower will obtain and submit in a
form satisfactory to SBA a landlord’s waiver covering the Borrower’s leased premises. Said
waiver must allow SBA free access to such leased premises in case of default or forclosure in
order to remove those items covered in the Security Interest(s) referred to in Paragraph 2 hereof.
OTHER CONDITIONS
A.
I f Borrower has or intends to have employees. Borrower will pose SBA Form 722. “Equal
Opportunity Poster”, in Borrower’s place of business where it will be clearly visible to
employees, applicants for employment, and the general public.
B.
Prior to disbursement of any Loan funds. Borrower will execute and submit Board of Directors 1
Resolution on SBA Form 160.
C.
Prior to disbursement of any Loan proceeds. Borrower will complete the Certification Concerning
Lobbying and the Disclosure of Lobbying Activities (if appropriate), and submit the required
document(s) to SBA (for Loans in excess of $150,000).
BORROWER’S CERTIFICATIONS
Borrower certifies that;
A.
There has been no substantial adverse change in Borrower’s financial condition (and organization,
in case of a business borrower) since the date of the application for this Loan. (Adverse changes
include, but are not limited to: judgment liens, tax liens, mechanic’s liens, bankruptcy, financial
reverses, arrest or conviction of felony, etc.)
B.
No fees have been paid, directly or indirectly, to any representative (attorney, accountant, ere.) for
services provided or to be provided in connection with applying for or closing this Loan other
than those reported on SBA Form 5, “Business Disaster Loan Application”; or SBA Form 159,
“Compensation Agreement.” All fees not approved by SBA are prohibited.
C.
All representations in the Borrower’s Loan application (including all supplementary submissions)
are true, correct and complete and are offered to induce SBA to make this Loan.
D.
N o claim or application for any other compensation for disaster losses has been submitted to or
requested of any source, and no such other compensation has been received, other than that which
Borrower has fully disclosed to SBA.
E.
Neither the Borrower nor, if the Borrower is a business, any principal who owns at least 50% of
the Borrower, is delinquent more than 60 days under the terms of any: (a) administrative order; (b)
court order; or (c) repayment agreement that requires payment of child support.
F. The Borrower(s) arc the owner(s) of and hold legal title to certain real estate property fully described in
Section 2--Collateral. Said premises are in my/our possession, and my/our title thereto has never been
disputed or questioned as to any part thereof. Said premises are free of all mortgages, taxes,
assessments, liens, encumbrances, and claims, or interest of any other parry, except as listed in Section
2 of this document. There are no actions pending affecting said real property,
SBA Form 1391 (5.00)
9TFL-00512
Page 4
15.
16.
17.
18.
CIVIL AND CRIMINAL PENALTIES
A.
Criminal Penalties: Any person who knowingly makes a false statement or misrepresentation to
SBA shall be subject to a fine of not more than $10,000,00 or to imprisonment for not more than
5 years, or both, under provisions of 18 U’.S.C. 1001 and/or 15 U.S.C. 645.
B.
Civil Penalties: Public Law 92-385 provides that for all disaster Loans made after August 16,
1972, anyone who wrongfully misapplies the proceeds of a disaster Loan shall be civilly liable to
the Administrator in an amount equal to one and one-half times the original principal amount of
the Loan.
RESULT OF VIOLATION OF THIS LOAN AUTHORIZATION AND AGREEMENT
A.
If Borrower violates any of the terms or conditions of this Loan Authorization and Agreement, the
Loan will be in default and SBA may declare all or any part of the indebtedness immediately due
and payable. SBA’s failure to exercise its rights under this paragraph will not constitute a waiver.
B.
A default (or any violation of any of the terms and conditions) of any SBA Loan(s) to Borrower
and/or its affiliates will be considered a default of all such Loan(s).
DISBURSEMENT OF THE LOAN
A.
Disbursements will be made by and at the discretion of SBA Counsel, in accordance with this
Loan Authorization and Agreement and the general requirements of SBA,
B.
Disbursements may be made in increments as needed.
C.
Other conditions may be imposed by SBA pursuant to general requirements of SBA.
D.
Disbursement may be withheld if, in SBA’s sole discretion, there has been an adverse change in
Borrower’s financial condition or in any other material fact represented in the Loan application or
if Borrower fails to meet any of the terms or conditions of this Loan Authorization and
Agreement.
E.
NO DISBURSEMENT WILL BE MADE LATER THAN 6 MONTHS FROM THE
DATE OF THIS LOAN AUTHORIZATION AND AGREEMENT.
PARTIES AFFECTED
A.
Th is Loan Authorization and Agreement will be binding upon Borrower and Borrower’s
successors and assigns and will inure to the benefit of SBA and its successors and assigns.
SBA Form 1391 (5.00)
9TFL-00512
Page 5
19.
DATE
A.
This Loan Authorization and Agreement is approved and issued on December 19. 2001.
Administrator
Hector V. Barreto
Brent Dowdle
Supervisory Loan Officer
U.S. Small Business Administration
The undersigned agree(s) to be bound by the terms and conditions herein during the term of this Loan, and further
agree(s) that no provision stated herein will be waived without prior written consent of SBA.
Crystal Magic, Inc.
By: /s/ Steven M. Rhodes
Steven M. Rhodes, President
12/19/01
Date:
By: /s/ Steven M. Rhodes
Steven M. Rhodes, President
12/19/01
Date:
Note:
Corporate Borrowers must execute Loan Authorization and Agreement in corporate name by a
duly authorized officer, and seal must be affixed and duly attested; partnership Borrowers must execute in firm name,
together with signature of a general partner. Limited liability entities must execute in the entity name by the signature
of the authorized managing person.
SBA Form 1391 (5.00)
9TFL-00512
Page 6
Exhibit 10.12
Small Business Administration
U.S. Small Business Administration
AUTHORIZATION
(SBA GUARANTEED LOAN)
SBA Loan #
SBA Loan Name
Approval Date
PLP 399-356-4007
Crystal Magic, Inc.
10/05/00
Lender:
U. S. Small Business Administration (SBA):
Liberty National Bank
502 N. Highway 17-92
Longwood, FL 32750
North Florida District Office
7825 Baymeadows Way - Suite 100-B
Jacksonville, FL 32256-7504
SBA approves, under Section 7(a) of the Small Business Act as amended. Lender’s, application, received 10/04/00,
for SBA to guarantee 75% of a loan (“Loan”) in the amount of $300,000.00 to assist;
Borrower;
1.
Crystal Magic, Inc.
2120 Hidden Pine Lane
Apopka, FL 32712
All requirements in the Authorization which refer lo Borrower also apply to any Co-Borrower.
A.
THE GUARANTEE FEE IS $562.50. Lender must pay the guarantee fee prior to SBA signing this
Authorization. Any Lender with authority to sign this Authorization on behalf of SBA certifies that it has
paid the guarantee fee to the Small Business Administration, prior to signing this Authorization. No
guarantee exists if Lender has not timely paid the guarantee fee in full. SBA will not refund the guarantee
payment of the guarantee fee is not contingent upon disbursement. Lender may collect this fee from
Borrower upon receipt by Lender of the Authorization Borrower Denver, CO 80259-0001. The remittance
check should show the Loan number. No part of the guarantee fee is refundable if Lender has made any
disbursement. Lender may collect this fee from Borrower after initial disbursement of Loan. Borrower may
use Loan proceeds to reimburse Lender for the guarantee fee.
B.
ONGOING SERVICING FEE - Lender agrees to pay an ongoing fee equal to one-half of one percent
per year of the guaranteed portion of the outstanding balance. Lender may not charge this fee to Borrower.
C.
IT IS LENDER’S SOLE RESPONSIBILITY TO:
1.
Close the Loan in accordance with the terms and conditions of this Authorization.
2.
Obtain valid and enforceable Loan documents, including obtaining the signature or written consent of
any obligor’s spouse if such consent or signature is necessary to bind the marital community or create
a valid lien on marital property.
SBA
Loan
4004
SBA Loan Name: .Crystal Magic, Inc.
3.0)
Number:
PLP
Page 1
399-236(7a Wizard
3.
Retain all Loan closing documents. Lender must submit these documents, along with other required
documents, to SBA for review if Lender requests SBA to honor its guarantee on the Loan, or at any time
SBA requests the documents for review.
REQUIRED FORMS
D.
1.
Lender may use its own forms except as otherwise instructed in this Authorization. Lender must use the
following SBA forms for the Loan:
SBA Form 147, Note
SBA Form 1050, Settlement Sheet, for each disbursement
SBA Form 159, Compensation Agreement, for each representative
SBA Form 2004, Lender’s Certification
SBA Form 722, Equal Opportunity Poster
SBA Form 793, Notice to New Borrowers
2.
Lender may use computer-generated versions of mandatory SBA Forms, as long as these versions are
exact reproductions.
3.
Lenders must submit completed SBA Forms 159 and 2004 for non-PLP loans to the SBA immediately
after final disbursement.
E. CONTINGENCIES - SBA issues this Authorization in reliance on representations in the Loan application,
including supporting documents. The guarantee is contingent upon Lender:
1.
Having and complying with a valid SBA Loan Guarantee Agreement (SBA Form 750 or SBA Form 750B
for short-term loans) and any required supplemental guarantee agreements, between Lender and SBA;
2.
Complying with the current SBA Standard Operating Procedures (SOP);
3.
Making initial disbursement of the Loan no later than 3 months, and completing disbursement no later than
6 months, from the date of this Authorization, unless SBA extends the time in writing;
4.
Having no evidence since the date of the Loan application, or any preceding disbursement, of any
unremedied adverse change in the financial condition, organization, operations, or fixed assets of Borrower
which would warrant withholding or not making any further disbursement, and;
5.
Satisfying all of the conditions in this Authorization.
SBA
Loan
4004
SBA Loan Name: .Crystal Magic, Inc.
3.0)
Number:
PLP
Page 2
399-356(7a Wizard
F.
NOTE TERMS:
1.
2.
Maturity: This Note will mature in 1 years from date of Note.
Repayment Terms: Lender must insert onto SBA Note, Form 147, to be executed by Borrower, the
following repayment terms, without modification. Lender must complete all blank terms on the Note at time
of closing:
The interest rate on this Note will fluctuate. The initial interest rate is 11.50% per year. This initial rate is
the prime rate on the date SBA received the loan application, plus 2.00%.
Borrower must pay three payments of interest only on the disbursed principal balance beginning one
month from the month this Note is dated and every month thereafter payment must be made on the first
calendar day in the month it is due.
Borrower must pay principal and interest payments of $28,866.00 every month, beginning four months
from the month this Note is dated; payments must be made on the first calendar day in the months they
are due.
Lender will apply each installment payment first to pay interest accrued to the day Lender receives the
payment, then to bring principal current, then to pay any late fees, and will apply any remaining balance
to reduce principal.
The interest rate will be adjusted every calendar quarter (the “change period”).
The “Prime Rate” is the prime rate in effect on the first business day of the quarter in which a change
occurs, as published in the Wall Street Journal on the next business day.
The adjusted interest rate will be 2.00% above the Prime Rate. Lender will adjust the interest rate on the
first calendar day of each change period. The change in interest rate is effective on that day whether or not
Lender gives Borrower notice of the change. The initial rate must remain in effect until the first change
period begins.
Lender must adjust the payment amount at least annually as needed to amortize principal over the
remaining term of the note.
If SBA purchases the guaranteed portion of the unpaid principal balance, the interest rate becomes fixed
at the rate in effect at the time of the earliest uncured payment default. If there is no uncured payment
default, the rate becomes fixed at the rate in effect at the time of purchase.
All remaining principal and accrued interest is due and payable 1 years from date of Note.
Late Charge: If a payment on this Note is more than 10 days late. Lender may charge Borrower a late fee
of up to 5% of the unpaid portion of the regularly scheduled payment.
G.
USE OF PROCEEDS
1. $210,000.00 to purchase equipment.
2. $45,000.00 to purchase inventory.
3. $45, 000.00 for working capital
SBA
Loan
4004
SBA Loan Name: .Crystal Magic, Inc.
3.0)
Number:
PLP
Page 3
399-356(7a Wizard
Lender may not disburse Loan proceeds solely to pay the guarantee fee. Lender may disburse to Borrower, as
working capital only, funds not spent for the listed purposes as long as these funds do not exceed 10% of the
specific purpose authorized or $l0,000.00, whichever is less. An Eligible Passive Company may not receive
working capital funds.
Lender must complete SBA Form 1050. Settlement Sheet, for each disbursement and retain these forms in its
Loan file.
COLLATERAL CONDITIONS
H.
Lender must obtain a lien on 100% of the interests in the following collateral and properly perfect all lien
positions:
1.
First Perfected Security Interest, subject to no other liens, in the following personal property
(including any proceeds and products), whether now owned or later acquired, wherever located:
Equipment; Fixtures; Inventory, Accounts; Instruments; Chattel Paper, General Intangibles;
a.
Lender must obtain a written agreement from all Lessors (including sublessors) agreeing .to: (I)
Subordinate to Lender Lessor’s interest, if any, in this property; (2) Provide Lender written notice of
default and reasonable opportunity to cure the default; and (3) Allow Lender the right to take
possession and dispose of or remove the collateral.
b.
Lender must obtain a list of all equipment and fixtures that are collateral for the Loan. For items with a
unit value of $500 or more, the list must include a description and serial number, if applicable.
c. Lender must obtain an appropriate Uniform Commercial Code lien search evidencing all required lien
positions. If UCC search is not available, another type of lien search maybe substituted.
The following language must appear in all lien instruments including Mortgages, Deeds of Trust, and
Security Agreements;
“The Loan secured by this lien was made under a United Stales Small Business Administration (SBA)
nationwide program which uses tax dollars to assist small business owners. If the United States is seeking to
enforce this document, then under SBA regulations”
a) When SBA is the holder of the Note, this document and all documents evidencing or securing this
Loan will be construed in accordance with federal law.
b) Lender or SBA may use local or state procedures for purposes such as filing papers, recording
documents, giving notice, foreclosing liens, and other purposes. By using these procedures, SBA does
not waive any federal immunity from local or state control, penalty, tax or liability. No Borrower or
Guarantor may claim or assert against SBA any local or state law to deny any obligation of
Borrower, or defeat any claim of SBA with respect to this Loan.
Any clause in this document requiring arbitration is not enforceable when SBA is the holder of the Note secured
by this instrument.”
SBA
Loan
4004
SBA Loan Name: .Crystal Magic, Inc.
3.0)
Number:
PLP
Page 4
399-356(7a Wizard
I.
ADDITIONAL CONDITIONS
1.
Insurance Requirements
Prior to disbursement. Lender must require Borrower to obtain the following insurance coverage and maintain
this coverage for the life of Loan;
a.
Personal Property Hazard Insurance coverage on all equipment, fixtures or inventory that is
collateral for the Loan, in the amount of full replacement costs. If full replacement cost insurance is not
available, coverage should be for maximum insurable value. This policy must contain a LENDER’S
LOSS PAYABLE CLAUSE in favor of Lender. This clause must provide that any act or neglect of
the debtor or owner of the insured property will not invalidate the interest of Lender. The policy or
endorsements must provide for at least 10 days prior written notice to Lender of policy cancellation.
b.
Life Insurance, satisfactory to Lender
on the life of Steven M. Rhodes in the amount of $1,000,000.00.
(1)
Lender must obtain a collateral assignment of each policy with Lender as assignee which provides that
Insurer will give Lender at least 30 days written notice of payment default and a right to cure. Lender
must also obtain acknowledgment of the assignment by the Home Office of the Insurer.
2.
c.
Liability Insurance in an amount and with an insurance company satisfactory to Lender.
d.
Workers’ Compensation Insurance in an amount meeting state law requirements and with an
insurance company satisfactory to Lender.
Borrower, Guarantor and Operating Company Documents
a.
Prior to closing, Lender must obtain from Borrower, Guarantor and Operating Company a current
copy of each of the following as appropriate:
(1)
Corporate Documents - Articles or Certificate of Incorporation (with amendments), any Bylaws, Certificate of Good Standing (or equivalent), Corporate Borrowing Resolution, and, if a
foreign corporation, current authority to do business within this state.
(2)
Limited Liability Company (LLC) Documents - Articles of Organization (with amendments),
Fact Statement or Certificate of Existence, Operating Agreement, Borrowing Resolution, and
evidence of registration with the appropriate authority.
(3)
General Partnership Documents - Partnership Agreement, Certificate as to Partners, and
Certificate of Partnership or Good Standing (or equivalent), as applicable.
(4)
Limited Partnership Documents - Partnership Agreement, Certificate as to Partners, and
Certificate of Partnership or Good Standing (or equivalent), as applicable, Certificate of Limited
Partnership, and evidence of registration with the appropriate authority.
(5)
Limited Liability Partnership (LLP) Documents - Partnership Agreement, Certificate as to
Partners, Certificate of Partnership or Good Standing (or equivalent) as applicable, and evidence
of registration with the appropriate authority.
SBA
Loan
4004
SBA Loan Name: .Crystal Magic, Inc.
3.0)
Number:
PLP
Page 5
399-356(7a Wizard
(6)
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(7)
3.
Trustee Certification - A Certificate from the trustee warranting that:
The trust will not be revoked or substantially amended for the term of the Loan without the
consent of SBA;
The trustee has authority to act;
The trust has the authority to borrow funds, guarantee loans, and pledge trust assets;
If the trust is an Eligible Passive Company, the trustee has authority to lease the property to the
Operating Company;
There is nothing in the trust agreement that would prevent Lender from realizing on any security
interest in trust assets;
The trust agreement has specific language confirming the above; and
The trustee has provided and will continue to provide SBA with a true and complete list of all
trustors and donors.
Trade Name – Documentation that Borrower has complied with state requirements for registration of
Borrower’s trade name (or fictitious name), if one is used.
Operating Information
Prior to any disbursement of Loan proceeds, Lender must obtain;
4.
a.
Verification of Financial Information - Lender must submit IRS Form 4506 to the Internal Revenue
Service to obtain federal income tax information on Borrower or, if the Borrower is an EPC, then the
Operating Company for the last 3 years (unless Borrower or Operating Company is a start-up business). If
the business has been operating for less than 3 years, lender must obtain the information for all years in
operation. This requirement does not include tax information for the most recent fiscal year if the fiscal
year-end is within 6 months of the application date. Lender must compare the tax data received from the
IRS with the financial data or tax returns submitted with the Loan application, and relied upon in approving
the Loan. Borrower must resolve any significant differences to the satisfaction of Lender and SBA, Failure
to resolve differences may result in cancellation of the Loan.
b.
If Lender has not submitted IRS Form 4506 prior to the date of this Authorization, it must submit the Form
no later than 10 business days from this date. If the Lender does not receive a response from the IRS within
10 business days of submitting the SBA version of IRS Form 4506, then Lender may disburse prior to
completing this verification. At the time the information is received, Lender must still perform the
verification and resolve any significant differences discovered, even if the loan is fully disbursed.
c.
Authority to Conduct Business - Evidence that the Borrower has an Employer Identification Number
and all insurance, licenses, permits and other approvals necessary to lawfully operate the business.
d.
Flood Hazard Determination - A completed Standard Flood Hazard Determination (FEMA Form 8193).
e.
Lease - Current lease(s) on all business premises where collateral is located with term, including options, at
least as long as the term of the Loan.
Certifications and Agreements
a.
Lender must require Borrower to certify that:
SBA
Loan
4004
SBA Loan Name: .Crystal Magic, Inc.
3.0)
Number:
PLP
Page 6
399-356(7a Wizard
(1)
(a)
(b)
(c)
(d)
(e)
Receipt of Authorization - Borrower has received a copy of this Authorization and SEA Form 793,
Notice to New SBA Borrower, from Lender; and acknowledges that:
The Authorization is not a commitment by Lender to make a loan to Borrower;
The Authorization is between Lender and SBA and creates no third party rights or benefits to
Borrower;
The Note will require Borrower to give Lender prior notice of intent to prepay.
If Borrower defaults on Loan, SBA may be required to pay Lender under the SBA guarantee.
SBA may then seek recovery of these funds from Borrower. Under SBA regulations, 13 CFR
Part 101, Borrower may not claim or assert against SBA any immunities or defenses available
under local law to defeat, modify or otherwise limit Borrower’s obligation to repay to SBA any
funds advanced by Lender to Borrower.
Payments by SBA to Lender under SBA’s guarantee will not apply to the Loan account of
Borrower, or diminish the indebtedness of Borrower under the Note or the obligations of any
personal guarantor of the Note,
(2)
Child Support - No principal who owns at least 50% of the ownership or voting interest of the
company is delinquent more than 60 days under the terms of any (a) administrative order, (b) court
order, or (c) repayment agreement requiring payment of child support.
(3)
Current Taxes - Borrower is current on all federal, state, and local taxes, including but not limited to
income taxes, payroll taxes, real estate taxes, and sales taxes.
b. Lender must require Borrower to certify that it will:
(1)
Reimbursable Expenses-Reimburse Lender for expenses incurred in the making and administration
of the Loan.
(2)
Books, Records, and Reports.
(a)
Keep proper books of account in a manner satisfactory to Lender;
(b)
Furnish year-end statements to Lender within 120 days of fiscal year end;
(c)
Furnish additional financial statements or reports whenever Lender requests them;
(d)
Allow Lender or SBA, at Borrower’s expense, to:
[1]
Inspect and audit books, records and papers relating to Borrower’s financial or business
condition; and
[2]
Inspect and appraise any of Borrower’s assets; and
[3]
Allow all government authorities to furnish reports of examinations, or any records pertaining
to Borrower, upon request by Lender or SBA.
(3)
Equal Opportunity - Post SBA Form 722, Equal Opportunity Poster, where it is clearly visible to
employees, applicants for employment and the general public, and comply with the requirements of
SBA Form 793, Notice to New SBA Borrowers.
(4)
American-made Products - To the extent feasible, purchase only American-made equipment and
products with the proceeds of the Loan.
(5)
Taxes - Pay all federal, state, and local taxes, including income, payroll, real estate and sales taxes of
the business when they come due.
SBA
Loan
4004
SBA Loan Name: .Crystal Magic, Inc.
3.0)
Number:
PLP
Page 7
399-356(7a Wizard
c. Lender must require Borrower to certify that it will not, without Lender’s prior written consents
(1)
Distributions-Make any distribution of company assets that will adversely affect the financial
condition of Borrower.
(2)
Ownership Changes - Change the ownership structure or interests in the business during the term of
the Loan.
(3)
Transfer of Assets - Sell, lease, pledge, encumber (except by purchase money liens on property
acquired after the date of the Note), or otherwise dispose of any of Borrowers property or assets,
except in the ordinary course of business.
ADMINISTRATOR
SMALL BUSINESS ADMINISTRATION
By:
Laura M. Badawi, Vice President,
Date: 10/04/00
a Preferred Lender, as Lender and as an agent of and on behalf of the SBA for the purpose of executing this
Authorization.
SBA Loan Number: PLP 399-3564004
SBA Loan Name: .Crystal Magic, Inc.
3.0)
Page 8
(7a Wizard
Exhibit 10.13
Small Business Administration
U.S. Small Business Administration
AUTHORIZATION
(SBA GUARANTEED LOAN)
SBA Loan #
SBA Loan Name
Approval Date
PLP 399-236-4004
Crystal Magic, Inc.
10/04/00
Lender:
U. S. Small Business Administration (SBA):
Liberty National Bank
502 N. Highway 17-92
Longwood, FL 32750
North Florida District Office
7825 Baymeadows Way - Suite 100-B
Jacksonville, FL 32256-7504
SBA approves, under Section 7(a) of the Small Business Act as amended. Lender’s, application, received 10/04/00,
for SBA to guarantee 75% of a loan (“Loan”) in the amount of $250,000.00 to assist;
Borrower;
1.
Crystal Magic, Inc.
2120 Hidden Pine La.
Apopka, FL 32712
All requirements in the Authorization which refer lo Borrower also apply to any Co-Borrower.
A.
THE GUARANTEE FEE IS $5,625.00. Lender must pay the guarantee fee within 90 days of the date of
this Authorization. Failure to timely pay the guarantee fee will result in cancellation of the SBA guarantee.
The 90-day deadline may not be extended. Lender must send the guarantee fee to the Small Business
Administration, Denver CO 80259-0001. The remittance check should show the Loan number. No part of
the guarantee fee is refundable if Lender has made any disbursement Lender may collect this fee from
Borrower after initial disbursement of Loan- Borrower may use Loan proceeds to reimburse Lender for the
guarantee fee.
B.
ONGOING SERVICING FEE - Lender agrees to pay an ongoing fee equal to one-half of one percent
per year of the guaranteed portion of the outstanding balance. Lender may not charge this fee to Borrower.
C.
IT IS LENDER’S SOLE RESPONSIBILITY TO:
1.
Close the Loan in accordance with the terms and conditions of this Authorization.
2.
Obtain valid and enforceable Loan documents, including obtaining the signature or written consent of
any obligor’s spouse if such consent or signature is necessary to bind the marital community or create
a valid lien on marital property.
SBA
Loan
4004
SBA Loan Name: .Crystal Magic, Inc.
3.0)
Number:
PLP
Page 1
399-236(7a Wizard
3.
Retain all Loan closing documents. Lender must submit these documents, along with other required
documents, to SBA for review if Lender requests SBA to honor its guarantee on the Loan, or at any time
SBA requests the documents for review.
REQUIRED FORMS
D.
1.
Lender may use its own forms except as otherwise instructed in this Authorization. Lender must use the
following SBA forms for the Loan:
SBA Form 147, Note
SBA Form 1050, Settlement Sheet, for each disbursement
SBA Form 159, Compensation Agreement, for each representative
SBA Form 2004, Lender’s Certification
SBA Form 722, Equal Opportunity Poster
SBA Form 793, Notice to New Borrowers
2.
Lender may use computer-generated versions of mandatory SBA Forms, as long as these versions are
exact reproductions.
3.
Lenders must submit completed SBA Forms 159 and 2004 for non-PLP loans to the SBA immediately
after final disbursement.
E. CONTINGENCIES - SBA issues this Authorization in reliance on representations in the Loan application,
including supporting documents. The guarantee is contingent upon Lender:
1.
Having and complying with a valid SBA Loan Guarantee Agreement (SBA Form 750 or SBA Form 750B
for short-term loans) and any required supplemental guarantee agreements, between Lender and SBA;
2.
Complying with the current SBA Standard Operating Procedures (SOP);
3.
Making initial disbursement of the Loan no later than 3 months, and completing disbursement no later than
6 months, from the date of this Authorization, unless SBA extends the time in writing;
4.
Having no evidence since the date of the Loan application, or any preceding disbursement, of any
unremedied adverse change in the financial condition, organization, operations, or fixed assets of Borrower
which would warrant withholding or not making any further disbursement, and;
5.
Satisfying all of the conditions in this Authorization.
SBA
Loan
4004
SBA Loan Name: .Crystal Magic, Inc.
3.0)
Number:
PLP
Page 2
399-236(7a Wizard
F.
NOTE TERMS:
1.
2.
Maturity: This Note will mature in 7 years from date of Note.
Repayment Terms: Lender must insert onto SBA Note, Form 147, to be executed by Borrower, the
following repayment terms, without modification. Lender must complete all blank terms on the Note at time
of closing:
The interest rate on this Note will fluctuate. The initial interest rate is 11.50% per year. This initial rate is
the prime rate on the date SBA received the loan application, plus 2.00%.
Borrower must pay three payments of interest only on the disbursed principal balance beginning one
month from the month this Note is dated and every month thereafter payment must be made on the first
calendar day in the month it is due.
Borrower must pay principal and interest payments of $4,452.00 every month, beginning four months
from the month this Note is dated; payments must be made on the first calendar day in the months they
are due.
Lender will apply each installment payment first to pay interest accrued to the day Lender receives the
payment, then to bring principal current, then to pay any late fees, and will apply any remaining balance
to reduce principal.
The interest rate will be adjusted every calendar quarter (the “change period”).
The “Prime Rate” is the prime rate in effect on the first business day of the quarter in which a change
occurs, as published in the Wall Street Journal on the next business day.
The adjusted interest rate will be 2.00% above the Prime Rate. Lender will adjust the interest rate on the
first calendar day of each change period. The change in interest rate is effective on that day whether or not
Lender gives Borrower notice of the change. The initial rate must remain in effect until the first change
period begins.
Lender must adjust the payment amount at least annually as needed to amortize principal over the
remaining term of the note.
If SBA purchases the guaranteed portion of the unpaid principal balance, the interest rate becomes fixed
at the rate in effect at the time of the earliest uncured payment default. If there is no uncured payment
default, the rate becomes fixed at the rate in effect at the time of purchase.
All remaining principal and accrued interest is due and payable 7 years from date of Note.
Late Charge: If a payment on this Note is more than 10 days late. Lender may charge Borrower a late fee
of up to 5% of the unpaid portion of the regularly scheduled payment.
G.
USE OF PROCEEDS
1. $200,000.00 to purchase equipment.
2. $30,000.00 to purchase inventory.
3. $20, 000.00 for working capital
SBA
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SBA Loan Name: .Crystal Magic, Inc.
3.0)
Number:
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399-236(7a Wizard
All amounts-listed above are approximate. Lender must document that Borrower used the loan proceeds for the
purposes stated in this Authorization.
Lender may not disburse Loan proceeds solely to pay the guarantee fee. Lender may disburse to Borrower, as
working capital only, funds not spent for the listed purposes as long as these funds do not exceed 10% of the
specific purpose authorized or $l0, 000.00, whichever is less. An Eligible Passive Company may not receive
working capital funds.
Lender must complete SBA Form 1050. Settlement Sheet, for each disbursement and retain these forms in its
Loan file.
COLLATERAL CONDITIONS
H.
Lender must obtain a lien on 100% of the interests in the following collateral and properly perfect all lien
positions:
1.
First Perfected Security Interest, subject to no other liens, in the following personal property
(including any proceeds and products), whether now owned or later acquired, wherever locatedEquipment; Fixtures; Inventory. Accounts; Instruments; Chattel Paper, General Intangibles;
a.
Lender must obtain a written agreement from all Lessors (including sublessors) agreeing .to: (I)
Subordinate to Lender Lessor’s interest, if any, in this property; (2) Provide Lender written notice of
default and reasonable opportunity to cure the default; and (3) Allow Lender the right to take
possession and dispose of or remove the collateral.
b.
Lender must obtain a list of all equipment and fixtures that are collateral for the Loan. For items with a
unit value of $500 or more, the list must include a description and serial number, if applicable.
c. Lender must obtain an appropriate Uniform Commercial Code lien search evidencing all required lien
positions. If UCC search is not available, another type of lien search maybe substituted.
The following language must appear in all lien instruments including Mortgages, Deeds of Trust, and
Security Agreements;
“The Loan secured by this lien was made under a United Stales Small Business Administration (SBA)
nationwide program which uses tax dollars to assist small business owners. If the United States is seeking to
enforce this document, then under SBA regulations”
a) When SBA is the holder of the Note, this document and all documents evidencing or securing this
Loan will be construed in accordance with federal law.
b) Lender or SBA may use local or state procedures for purposes such as filing papers, recording
documents, giving notice, foreclosing liens, and other purposes. By using these procedures, SBA does
not waive any federal immunity from local or state control, penalty, tax or liability. No Borrower or
Guarantor may claim or assert against SBA any local or state law to deny any obligation of
Borrower, or defeat any claim of SBA with respect to this Loan.
Any clause in this document requiring arbitration is not enforceable when SBA is the holder of the Note secured
by this instrument.”
SBA
Loan
4004
SBA Loan Name: .Crystal Magic, Inc.
3.0)
Number:
PLP
Page 4
399-236(7a Wizard
I.
ADDITIONAL CONDITIONS
1.
Insurance Requirements
Prior to disbursement. Lender must require Borrower to obtain the following insurance coverage and maintain this
coverage for the life of Loan;
a.
Personal Property Hazard Insurance coverage on all equipment, fixtures or inventory that is collateral
for the Loan, in the amount of full replacement costs. If full replacement cost insurance is not available,
coverage should be for maximum insurable value. This policy must contain a LENDER’S LOSS
PAYABLE CLAUSE in favor of Lender. This clause must provide that any act or neglect of the debtor or
owner of the insured property will not invalidate the interest of Lender. The policy or endorsements must
provide for at least 10 days prior written notice to Lender of policy cancellation.
b.
Life Insurance, satisfactory to Lender
(1)
on the life of Steven M. Rhodes in the amount of $1,000,000.00.
Lender must obtain a collateral assignment of each policy with Lender as assignee which provides that Insurer
will give Lender at least 30 days written notice of payment default and a right to cure. Lender must also obtain
acknowledgment of the assignment by the Home Office of the Insurer.
c.
Liability Insurance in an amount and with an insurance company satisfactory to Lender.
Workers’ Compensation Insurance in an amount meeting state law requirements and with an insurance
company satisfactory to Lender.
Borrower, Guarantor and Operating Company Documents
d.
2.
a.
Prior to closing, Lender must obtain from Borrower, Guarantor and Operating Company a current copy of
each of the following as appropriate:
(1)
Corporate Documents - Articles or Certificate of Incorporation (with amendments), any By-laws,
Certificate of Good Standing (or equivalent), Corporate Borrowing Resolution, and, if a foreign
corporation, current authority to do business within this state.
(2)
Limited Liability Company (LLC) Documents - Articles of Organization (with amendments), Fact
Statement or Certificate of Existence, Operating Agreement, Borrowing Resolution, and evidence of
registration with the appropriate authority.
(3)
General Partnership Documents - Partnership Agreement, Certificate as to Partners, and Certificate
of Partnership or Good Standing (or equivalent), as applicable.
(4)
Limited Partnership Documents - Partnership Agreement, Certificate as to Partners, and Certificate
of Partnership or Good Standing (or equivalent), as applicable. Certificate of Limited Partnership, and
evidence of registration with the appropriate authority.
(5)
Limited Liability Partnership (LLP) Documents - Partnership Agreement, Certificate as to
Partners, Certificate of Partnership or Good Standing (or equivalent) as applicable, and evidence of
registration with the appropriate authority.
SBA
Loan
4004
SBA Loan Name: .Crystal Magic, Inc.
3.0)
Number:
PLP
Page 5
399-236(7a Wizard
(6)
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(7)
3.
Trustee Certification - A Certificate from the trustee warranting that:
The trust will not be revoked or substantially amended for the term of the Loan without the
consent of SBA;
The trustee has authority to act;
The trust has the authority to borrow funds, guarantee loans, and pledge trust assets;
If the trust is an Eligible Passive Company, the trustee has authority to lease the property to the
Operating Company;
There is nothing in the trust agreement that would prevent Lender from realizing on any security
interest in trust assets;
The trust agreement has specific language confirming the above; and
The trustee has provided and will continue to provide SBA with a true and complete list of all
trustors and donors.
Trade Name – Documentation that Borrower has complied with state requirements for registration of
Borrower’s trade name (or fictitious name), if one is used.
Operating Information
Prior to any disbursement of Loan proceeds, Lender must obtain;
a.
Verification of Financial Information - Lender must submit IRS Form 4506 to the Internal Revenue Service
to obtain federal income tax information on Borrower or, if the Borrower is an EPC, then the Operating
Company for the last 3 years (unless Borrower or Operating Company is a start-up business). If the business
has been operating for less than 3 years, lender must obtain the information for all years in operation. This
requirement does not include tax information for the most recent fiscal year if the fiscal year-end is within 6
months of the application date. Lender must compare the tax data received from the IRS with the financial data
or tax returns submitted with the Loan application, and relied upon in approving the Loan. Borrower must
resolve any significant differences to the satisfaction of Lender and SBA, Failure to resolve differences may
result in cancellation of the Loan.
b.
If Lender has not submitted IRS Form 4506 prior to the date of this Authorization, it must submit the Form no
later than 10 business days from this date. If the Lender does not receive a response from the IRS within 10
business days of submitting the SBA version of IRS Form 4506, then Lender may disburse prior to completing
this verification. At the time the information is received, Lender must still perform the verification and resolve
any significant differences discovered, even if the loan is fully disbursed.
c.
Authority to Conduct Business - Evidence that the Borrower has an Employer Identification Number and all
insurance, licenses, permits and other approvals necessary to lawfully operate the business.
d.
Flood Hazard Determination - A completed Standard Flood Hazard Determination (FEMA Form 81-93).
e.
Lease - Current lease(s) on all business premises where collateral is located with term, including options, at
least as long as the term of the Loan.
4.
Certifications and Agreements
a.
Lender must require Borrower to certify that:
SBA
Loan
4004
SBA Loan Name: .Crystal Magic, Inc.
3.0)
Number:
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Page 6
399-236(7a Wizard
(1)
(a)
(b)
(c)
(d)
(e)
b.
Receipt of Authorization - Borrower has received a copy of this Authorization and SEA Form 793,
Notice to New SBA Borrower, from Lender; and acknowledges that:
The Authorization is not a commitment by Lender to make a loan to Borrower;
The Authorization is between Lender and SBA and creates no third party rights or benefits to
Borrower;
The Note will require Borrower to give Lender prior notice of intent to prepay.
If Borrower defaults on Loan, SBA may be required to pay Lender under the SBA guarantee.
SBA may then seek recovery of these funds from Borrower. Under SBA regulations, 13 CFR
Part 101, Borrower may not claim or assert against SBA any immunities or defenses available
under local law to defeat, modify or otherwise limit Borrower’s obligation to repay to SBA any
funds advanced by Lender to Borrower.
Payments by SBA to Lender under SBA’s guarantee will not apply to the Loan account of
Borrower, or diminish the indebtedness of Borrower under the Note or the obligations of any
personal guarantor of the Note,
(2)
Child Support - No principal who owns at least 50% of the ownership or voting interest of the
company is delinquent more than 60 days under the terms of any (a) administrative order, (b) court
order, or (c) repayment agreement requiring payment of child support.
(3)
Current Taxes - Borrower is current on all federal, state, and local taxes, including but not limited to
income taxes, payroll taxes, real estate taxes, and sales taxes.
Lender must require Borrower to certify that it will:
Reimbursable Expenses-Reimburse Lender for expenses incurred in the making and administration
of the Loan.
(2)
Books, Records, and Reports.
(a)
Keep proper books of account in a manner satisfactory to Lender;
(b)
Furnish year-end statements to Lender within 120 days of fiscal year end;
(c)
Furnish additional financial statements or reports whenever Lender requests them;
(d)
Allow Lender or SBA, at Borrower’s expense, to:
[1]
Inspect and audit books, records and papers relating to Borrower’s financial or business
condition; and
[2]
Inspect and appraise any of Borrower’s assets; and
[3]
Allow all government authorities to furnish reports of examinations, or any records pertaining
to Borrower, upon request by Lender or SBA.
(1)
(3)
Equal Opportunity - Post SBA Form 722, Equal Opportunity Poster, where it is clearly visible to
employees, applicants for employment and the general public, and comply with the requirements of
SBA Form 793, Notice to New SBA Borrowers.
(4)
American-made Products - To the extent feasible, purchase only American-made equipment and
products with the proceeds of the Loan.
(5)
Taxes - Pay all federal, state, and local taxes, including income, payroll, real estate and sales taxes of
the business when they come due.
SBA
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SBA Loan Name: .Crystal Magic, Inc.
3.0)
Number:
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399-236(7a Wizard
c. Lender must require Borrower to certify that it will not, without Lender’s prior written consents
(1)
Distributions-Make any distribution of company assets that will adversely affect the financial
condition of Borrower.
(2)
Ownership Changes - Change the ownership structure or interests in the business during the term of
the Loan.
(3)
Transfer of Assets - Sell, lease, pledge, encumber (except by purchase money liens on property
acquired after the date of the Note), or otherwise dispose of any of Borrowers property or assets,
except in the ordinary course of business.
ADMINISTRATOR
SMALL BUSINESS ADMINISTRATION
By:
Laura M. Badawi, Vice President,
Date: 10/04/00
a Preferred Lender, as Lender and as an agent of and on behalf of the SBA for the purpose of executing this
Authorization.
SBA
Loan
4004
SBA Loan Name: .Crystal Magic, Inc.
3.0)
Number:
PLP
Page 8
399-236(7a Wizard
Exhibit 10.14
Small Business Administration
U.S. Small Business Administration
AUTHORIZATION
(SBA GUARANTEED LOAN)
SBA Loan #
SBA Loan Name
Approval Date
PLP 3 09-109-4009
Crystal Magic, Inc.
7/29/99
Lender:
Liberty National Bank
502 N. Highway 17-92
Longwood, FL 32750
U. S. Small Business Administration (SBA):
North Florida District Office
7825 Baymeadows Way - Suite 100-B
Jacksonville, FL 32256-7504
SBA approves, under Section 7(a) of the Small Business Act as amended. Lender’s, application, received 7/27/99,
for SBA to guarantee 75% of a loan (“Loan”) in the amount of $490,000.00 to assist;
Borrower;
1.
Crystal Magic, Inc.
2120 Hidden Pine La.
Apopka, FL 32712
All requirements in the Authorization which refer lo Borrower also apply to any Co-Borrower.
A.
THE GUARANTEE FEE IS $11,612.50. Lender must pay the guarantee fee within 90 days of the date
of this Authorization. The 90-day deadline may not be extended. Lender must send the guarantee fee to
the Small Business Administration, Denver, CO 80259-0001. The remittance check should show the
Loan number. No part of the guarantee fee is refundable if Lender has made any disbursement. Lender
may collect this fee from Borrower after initial disbursement of Loan. Borrower may use Loan proceeds
to reimburse Lender for the guarantee fee.
B.
ONGOING SERVICING FEE - Lender agrees to pay an ongoing fee equal to one-half of one percent
per year of the guaranteed portion of the outstanding balance. Lender may not charge this fee to Borrower.
C.
IT IS LENDER’S SOLE RESPONSIBILITY TO :
1.
Close the Loan in accordance with the terms and conditions of this Authorization.
2.
Obtain valid and enforceable Loan documents, including obtaining the signature or written consent of
any obligor’s spouse if such consent or signature is necessary to bind the marital community or create
a valid lien on marital property.
SBA
Loan
4009
SBA Loan Name: .Crystal Magic, Inc.
2.3)
Number:
PLP
Page 1
309-109(7a Wizard
3.
Retain all Loan closing documents. Lender must submit these documents, along with other required
documents, to SBA for review if Lender requests SBA to honor its guarantee on the Loan, or at any time
SBA requests the documents for review.
D.
REQUIRED FORMS
1.
Lender may use its own forms except as otherwise instructed in this Authorization. Lender must use the
following SBA forms for the Loan:
SBA Form 147, Note
SBA Form 1050, Settlement Sheet, for each disbursement
SBA Form 159, Compensation Agreement, for each representative
SBA Form 2004, Lender’s Certification
SBA Form 722, Equal Opportunity Poster
SBA Form 793, Notice to New Borrowers
SBA Form 148, Guarantee
SBA Form 148, Limited Guarantee (use 148L if available)
2.
Lender may use computer-generated versions of mandatory SBA Forms, as long as these versions are
exact reproductions.
3.
Lenders must submit completed SBA Forms 159 and 2004 for non-PLP loans to the SBA immediately
after final disbursement.
E. CONTINGENCIES - SBA issues this Authorization in reliance on representations in the Loan application,
including supporting documents. The guarantee is contingent upon Lender:
1.
Having and complying with a valid SBA Loan Guarantee Agreement (SBA Form 750 or SBA Form
750B for short-term loans) and any required supplemental guarantee agreements, between Lender and
SBA;
2.
Complying with the current SBA Standard Operating Procedures (SOP);
3.
Making initial disbursement of the Loan no later than 6 months, and completing disbursement no later
than 12 months, from the date of this Authorization, unless SBA extends the time in writing;
4.
Having no evidence since the date of the Loan application, or any preceding disbursement, of any
unremedied adverse change in the financial condition, organization, operations, or fixed assets of
Borrower which would warrant withholding or not making any further disbursement, and;
5.
Satisfying all of the conditions in this Authorization.
SBA
Loan
4009
SBA Loan Name: .Crystal Magic, Inc.
2.3)
Number:
PLP
Page 2
309-109(7a Wizard
F.
NOTE TERMS:
1.
2.
Maturity: This Note will mature in 7 years from date of Note.
Repayment Terms: Lender must insert onto SBA Note, Form 147, to be executed by Borrower, the
following repayment terms, without modification. Lender must complete all blank terms on the Note at
time of closing:
The interest rate on this Note will fluctuate. The initial interest rate is 10.50% per year. This initial rate is
the prime rate on the date SBA received the loan application, plus 2.50%.
Borrower must pay three payments of interest only on the disbursed principal balance one month from
the month this Note is dated; payment must be made on the first calendar day in the month it is due.
Borrower must pay principal and interest payments of $6,050.00 every month, beginning four months
from the month this Note is dated; payments must be made on the first calendar day in the months they
are due.
Lender will apply each installment payment first to pay interest accrued to the day Lender receives the
payment, then to bring principal current, then to pay any late fees, and will apply any remaining balance
to reduce principal.
Lender may adjust the interest rate for the first time no earlier than the first calendar day of the first
quarter after initial disbursement. The interest rate will then be adjusted each calendar quarter (the
“change period”).
The “Prime Rate” is the prime rate in effect on the first business day of the quarter in which a change
occurs, as published in the Wall Street Journal on the next business day.
The adjusted interest rate will be 2.50% above the Prime Rate. Lender will adjust the interest rate on the
first calendar day of each change period. The change in interest rate is effective on that day whether or
not Lender gives Borrower notice of the change.
Lender must adjust the payment amount at least annually as needed to amortize principal over the
remaining term of the note.
If SBA purchases the guaranteed portion of the unpaid principal balance, the interest rate becomes fixed
at the rate in effect at the time of the earliest uncured payment default. If there is no uncured payment
default, the rate becomes fixed at the rate in effect at the time of purchase.
All remaining principal and accrued interest is due and payable 7 years from date of Note.
Late Charge: If a payment on this Note is more than 10 days late. Lender may charge Borrower a late
fee of up to 5% of the unpaid portion of the regularly scheduled payment.
G.
USE OF PROCEEDS
1.
$215,000.00 to purchase equipment.
2.
$275,000.00 for working capital.
All amounts listed above are approximate. Lender must document that Borrower used the loan proceeds for
the purposes stated in this Authorization.
SBA
Loan
4009
SBA Loan Name: .Crystal Magic, Inc.
2.3)
Number:
PLP
Page 3
309-109(7a Wizard
Lender may not disburse Loan proceeds solely to pay the guarantee fee. Lender may disburse to Borrower, as
working capital only, funds not spent for the listed purposes as long as these funds do not exceed 10°/o of the
specific purpose authorized or $10,000.00, whichever is less. An Eligible Passive Company may not receive
working capital funds.
Lender must complete SEA Form 1050, Settlement Sheet, for each disbursement and retain these forms in its
Loan file.
H.
COLLATERAL CONDITIONS
Lender must obtain a lien on 100% of the interests in the following collateral and properly perfect all lien
positions:
1.
2.
First Perfected Security Interest, subject to no other liens, in the following personal property
(including any proceeds and products), whether now owned or later acquired, wherever located:
Equipment; Inventory; Accounts; Instruments; General Intangibles;
a.
Lender must obtain a written agreement from all Lessors (including sublessors) agreeing to: (I)
Subordinate to Lender Lessor’s interest, if any, in this property; (2) Provide Lender written notice of
default and reasonable opportunity to cure the default; and (3) Allow Lender the right to take
possession and dispose of or remove the collateral.
b.
Lender must obtain a list of all equipment and fixtures that are collateral for the Loan. For items with a
unit value of $500 or more, the list must include a description and serial number, if applicable.
c.
Lender must obtain an appropriate Uniform Commercial Code lien search evidencing all required lien
positions. If UCC search is not available, another type of lien search may be substituted.
Guarantee on SBA Form 148, by Steven M. Rhodes, resident in Florida, Secured by:
a.
Second Mortgage on land and improvements located at 2120 Hidden Pine La., Apopka, Fl. 32712.
This property is residential.
(1)
3.
(a)
Subject only to prior lien(s) as follows:
First: Bank of America in the amount of $119,400.00
(2)
Any prior lien(s) that is (are) open ended as to future advances must be closed, in writing, according
to applicable state law. The revolving line(s) of credit set out above, if any, must be limited in writing
to the amount stated.
(3)
Evidence of title and priority of lien must be based upon:
(a)
Title and/or Lien Search or other evidence of proper ownership and lien position.
Guarantee on SBA Form 148, by Steven M. Rhodes, resident in Florida. Secured by
a.
Pledge of Corporate Stock: Pledge to Lender by Steven M. Rhodes (shareholder) of 10,000 shares of
stock (but not voting rights) in Crystal Magic, Inc..
SBA
Loan
4009
SBA Loan Name: .Crystal Magic, Inc.
2.3)
Number:
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Page 4
309-109(7a Wizard
4.
Limited Guarantee on SBA Form 148 (use 14SL if available), by Vicki L. Rhodes, resident in Florida.
COMMUNITY PROPERTY OR SPOUSAL INTEREST LIMITATION: The Guarantee is limited to
Guarantor’s community property or spousal interest in collateral pledged to secure the Note or any guarantee.
Secured by :
Second Mortgage on laud and improvements located at 2120 Hidden Pine La., Apopka, FL. 32712.
This property is residential.
(1)
Subject only to prior lien(s) as follows:
(a)
First: Bank of America in the amount of $119,400.00
(2)
Any prior lien(s) that is (are) open ended as to future advances must be closed, in writing, according
to applicable state law. The revolving line(s) of credit set out above, if any, must be limited in writing
to the amount stated.
(3)
Evidence of title and priority of lien must be based upon:
(a)
Title and/or Lien Search or other evidence of proper ownership and lien position.
a.
The following language must appear in all lien instruments including Mortgages, Deeds of Trust, and
Security Agreements;
“The Loan secured by this lien was made under a United Stales Small Business Administration (SBA)
nationwide program which uses tax dollars to assist small business owners. If the United States is seeking
to enforce this document, then under SBA regulations”
a) When SBA is the holder of the Note, this document and all documents evidencing or securing this
Loan will be construed in accordance with federal law.
b) Lender or SBA may use local or state procedures for purposes such as filing papers, recording
documents, giving notice, foreclosing liens, and other purposes. By using these procedures, SBA
does not waive any federal immunity from local or state control, penalty, tax or liability. No
Borrower or Guarantor may claim or assert against SBA any local or state law to deny any
obligation of Borrower, or defeat any claim of SBA with respect to this Loan.
Any clause in this document requiring arbitration is not enforceable when SBA is the holder of the Note secured
by this instrument.”
SBA
Loan
4009
SBA Loan Name: .Crystal Magic, Inc.
2.3)
Number:
PLP
Page 5
309-109(7a Wizard
I.
ADDITIONAL CONDITIONS
1.
Insurance Requirements
Prior to disbursement. Lender must require Borrower to obtain the following insurance coverage and maintain
this coverage for the life of Loan;
a.
Flood Insurance, If FEMA Form 81-93 reveals that any portion of the collateral is located in a special
flood hazard zone, Lender must require Borrower to obtain Federal flood insurance, or other appropriate
special hazard insurance, in amounts equal, to the lesser of the insurable value of the property or the
maximum limit of coverage available. (Borrower will be ineligible for any future SBA disaster assistance
or business loan assistance if Borrower does not maintain any required flood insurance for the entire term
of the Loan.)
b.
Real Estate Hazard Insurance coverage on all real estate that is collateral for the Loan in the amount of
the full replacement cost. If full replacement cost insurance is not available, coverage should be for
maximum insurable value. This policy must contain a MORTGAGEE CLAUSE (or substantial
equivalent) in favor of Lender. This clause must provide that any act or neglect of the mortgagor or owner
of the insured property will not invalidate the interest of Lender. The policy or endorsements must provide
for at least 10 days prior written notice to Lender of policy cancellation.
c.
Personal Property Hazard Insurance coverage on all equipment, fixtures or inventory that is collateral
for the Loan, in the amount of full replacement costs. If full replacement cost insurance is not available,
coverage should be for maximum insurable value. This policy must contain a LENDER’S LOSS
PAYABLE CLAUSE in favor of Lender. This clause must provide that any act or neglect of the debtor or
owner of the insured property will not invalidate the interest of Lender. The policy or endorsements must
provide for at least 10 days prior written notice to Lender of policy cancellation.
d.
Life Insurance, satisfactory to Lender
(1)
on the life of Steven M. Rhodes in the amount of $490,000,00.
Lender must obtain a collateral assignment of each policy with Lender as assignee which provides that
Insurer will give Lender at least 30 days written notice of payment default and a right to cure. Lender must
also obtain acknowledgment of the assignment by the Home Office of the Insurer.
e.
Liability Insurance in an amount and with an insurance company satisfactory to Lender.
f.
Workers’ Compensation Insurance in an amount meeting state law requirements and with an insurance
company satisfactory to Lender.
SBA
Loan
4009
SBA Loan Name: .Crystal Magic, Inc.
2.3)
Number:
PLP
Page 6
309-109(7a Wizard
2.
Borrower, Guarantor and Operating Company Documents
a.
(1)
Corporate Documents - Articles or Certificate of Incorporation (with amendments), any By-laws,
Certificate of Good Standing (or equivalent), Corporate Borrowing Resolution, and, if a foreign
corporation, current authority to do business within this state.
(2)
Limited Liability Company (LLC) Documents - Articles of Organization (with amendments),
F act Statement or Certificate of Existence, Operating Agreement, Borrowing Resolution, and
evidence of registration with the appropriate authority.
(3)
General Partnership Documents - Partnership Agreement, Certificate as to Partners, and Certificate
of Partnership or Good Standing (or equivalent), as applicable.
(4)
Limited Partnership Documents - Partnership Agreement, Certificate as to Partners, and Certificate
of Partnership or Good Standing (or equivalent), as applicable. Certificate of Limited Partnership, and
evidence of registration with the appropriate authority.
(5)
Limited Liability Partnership (LLP) Documents - Partnership Agreement, Certificate as to
Partners, Certificate of Partnership or Good Standing (or equivalent) as applicable, and evidence of
registration with the appropriate authority.
(6)
(a)
Trustee Certification - A Certificate from the trustee warranting that:
The trust will not be revoked or substantially amended for the term of the Loan without the
consent of SBA;
The trustee has authority to act;
The trust has the authority to borrow funds, guarantee loans, and pledge trust assets;
If the trust is an Eligible Passive Company, the trustee has authority to lease the property to the
Operating Company;
There is nothing in the trust agreement that would prevent Lender from realizing on any security
interest in trust assets;
The trust agreement has specific language confirming the above; and
The trustee has provided and will continue to provide SBA with a true and complete list of all
trustors and donors.
(b)
(c)
(d)
(e)
(f)
(g)
3.
Prior to closing, Lender must obtain from Borrower, Guarantor and Operating Company a current copy of
each of the following as appropriate:
Operating Information
Prior to any disbursement of Loan proceeds, Lender must obtain;
a.
Verification of Financial Information - Evidence that the financial information submitted to support the
loan application is accurate using procedures required by SBA. Borrower must resolve any questions on
accuracy to the satisfaction of Lender and SBA before Lender disburses Loan proceeds.
b.
Authority to Conduct Business - Evidence that the Borrower has an Employer Identification Number
and all insurance, licenses, permits and other approvals necessary to lawfully operate the business.
c.
Flood Hazard Determination - A completed Standard Flood Hazard Determination (FEMAFormSI-93).
SBA
Loan
4009
SBA Loan Name: .Crystal Magic, Inc.
2.3)
Number:
PLP
Page 7
309-109(7a Wizard
4.
Certifications and Agreements
a. Lender must require Borrower to certify that:
(1)
Receipt of Authorization - Borrower has received a copy of this Authorization and SBA Form 793,
Notice to New SBA Borrower, from Lender; and acknowledges that:
(a)
The Authorization is not a commitment by Lender to make a loan to Borrower;
(b)
The Authorization is between Lender and SBA and creates no third party rights or benefits to
Borrower;
(c)
The Note will require Borrower to give Lender prior notice of intent to prepay.
(d)
If Borrower defaults on Loan, SBA may be required to pay Lender under the SBA guarantee.
SBA may then seek recovery of these funds from Borrower. Under SBA regulations, 13 CFR
Part 101, Borrower may not claim or assert against SBA any immunities or defenses available
under local law to defeat, modify or otherwise limit Borrower’s obligation to repay to SBA any
funds advanced by Lender to Borrower.
(e)
Payments by SBA to Lender under SBA’s guarantee will not apply to the Loan account of
Borrower, or diminish the indebtedness of Borrower under the Note or the obligations of any
personal guarantor of the Note,
(2)
Child Support - No principal who owns at least 50% of the ownership or voting interest of the
company is delinquent more than 60 days under the terms of any (a) administrative order, (b) court
order, or (c) repayment agreement requiring payment of child support.
(3)
Current Taxes - Borrower is current on all federal, state, and local taxes, including but not limited to
income taxes, payroll taxes, real estate taxes, and sales taxes.
b. Lender must require Borrower to certify that it will:
(1)
Reimbursable Expenses-Reimburse Lender for expenses incurred in the making and administration
of the Loan.
(2)
Books, Records, and Reports.
(a)
Keep proper books of account in a manner satisfactory to Lender;
(b)
Furnish year-end statements to Lender within 120 days of fiscal year end;
(c)
Furnish additional financial statements or reports whenever Lender requests them;
(d)
Allow Lender or SBA, at Borrower’s expense, to:
[1]
Inspect and audit books, records and papers relating to Borrower’s financial or business
condition; and
[2]
Inspect and appraise any of Borrower’s assets; and
[3]
A llow all government authorities to furnish reports of examinations, or any records
pertaining to Borrower, upon request by Lender or SBA.
(3)
Equal Opportunity - Post SBA Form 722, Equal Opportunity Poster, where it is clearly visible to
employees, applicants for employment and the general public, and comply with the requirements of
SBA Form 793, Notice to New SBA Borrowers.
(4)
American-made Products - To the extent feasible, purchase only American-made equipment and
products with the proceeds of the Loan.
(5)
Taxes - Pay all federal, state, and local taxes, including income, payroll, real estate and sales taxes of
the business when they come due.
SBA Loan Number: PLP 309-1094009
SBA Loan Name: .Crystal Magic, Inc.
2.3)
Page 8
(7a Wizard
c. Lender must require Borrower to certify that it will not, without Lender’s prior written consents
(1)
Distributions-Make any distribution of company assets that will adversely affect the financial
condition of Borrower.
(2)
Ownership Changes - Change the ownership structure or interests in the business during the term
of the Loan.
(3)
Transfer of Assets - Sell, lease, pledge, encumber (except by purchase money liens on property
acquired after the date of the Note), or otherwise dispose of any of Borrowers property or assets,
except in the ordinary course of business.
ADMINISTRATOR
SMALL BUSINESS ADMINISTRATION
By:
James M- Scott, Senior V.P.,
Date: 7/29/99
a Preferred Lender, as Lender and as an agent of and on behalf of the SBA for the purpose of executing this
Authorization.
SBA
Loan
4009
SBA Loan Name: .Crystal Magic, Inc.
2.3)
Number:
PLP
Page 9
309-109(7a Wizard
LOAN AGREEMENT
THIS LOAN AGREEMENT (“Agreement”) is made August 4, 1999 between the Borrower and Lender
identified in the attached Authorization issued by the U.S. Small Business Administration (“SBA”) to Lender, dated
July 27, 1999 (“Authorization”).
SBA has authorized a guaranty of a loan from Lender to Borrower for the amount and under the terms
stated in the attached Authorization (the “Loan”).
In consideration of the promises in this Agreement and for other good and valuable consideration,
Borrower and Lender agree as follows:
1
2.
Subject to the terms and conditions of the Authorization and SBA’S Participating Lender Rules as
defined in the Guarantee Agreement between Lender and SBA, Lender agrees to make the Loan if
Borrower complies with the following “Borrower Requirements”. Borrower must:
a.
Provide Lender with all certifications, documents or other information Lender is required by the
Authorization to obtain from Borrower or any third party;
b.
Execute a note and any other documents required by Lender; and
c.
D o everything necessary for Lender to comply with the terms and conditions of the
Authorization.
The terms and conditions of this Agreement:
a.
Are binding on Borrower and Lender and their successors and assigns; and
b.
Will remain in effect after the closing of the Loan.
3.
Borrower shall provide Lender with written notice of intent to prepay part or all of the loan at least three
(3) weeks prior to the anticipated prepayment date. A prepayment is any payment made ahead of schedule
that exceeds twenty (20) percent of the then outstanding principal balance. If Borrower makes a
prepayment and fails to give at least three weeks advance notice of intent to prepay, then, notwithstanding
any other provision to the contrary in the Note or other document, Borrower shall be required to pay
Lender three weeks interest on the unpaid principal as of the date of such prepayment.
4.
Failure to abide by any of the Borrower Requirements will constitute an event of default under the note
and other loan documents
Crystal Magic, Inc.
Borrower:
By: Steven M, Rhodes, President/Secretary
Liberty National Bank
Lender:
By: Laura M, Badawi, Vice President
BORROWER’S CERTIFICATION
INSTRUCTIONS: INDICATE THE PARAGRAPHS BEING CERTIFIED TO BY HAVING THE
BORROWER INITIAL IN THE [ ] NEXT TO THE APPROPRIATE PARAGRAPHS, PRIOR TO
SIGNING.
In order to induce Liberty National Bank
(“Lender”) to
make a U.S. Small Business Administration (“SBA”) guaranteed Loan, SBA Loan Number PLP 309-109-4009
(“Loan”) to Crystal Magic, Inc. “Borrower”),
A.
Borrower, Crystal Magic, Inc., certifies that:
[
a.
b.
c.
d.
e.
] 1.
Receipt of Authorization -Borrower has received a copy of the Authorization for this Loan
and SBA Form 793, Notice to New SBA Borrower, from Lender and acknowledge that:
The Authorization is not a commitment by Lender to make a loan to Borrower;
The Authorization is between Lender and SBA and creates no third party rights or benefits to Borrower;
The note will require Borrower to give Lender Prior notice or intent to prepay.
If Borrower defaults on Loan, SBA may be required to pay Lender under the SBA guarantee. SBA may then
seek recovery of these funds from Borrower. Under SBA regulations, 13 CFR Part 101, Borrower may not
claim or assert against SBA any immunities or defenses available under local law to defeat, modify or
otherwise limit Borrower’s obligation to repay to SBA any funds advanced by Lender to Borrower.
Payments by SBA to Lender under SBA’s guarantee will not apply to the Loan account of Borrower, or
diminish the indebtedness of Borrower under the Note or the obligations of any personal guarantor of the
Note.
[
] 2.
Adverse Change - That there has been no adverse change in Borrower’s (and Operating
Company) financial condition, organization, operations or fixed assets since the date the Loan application was
signed.
[
] 3.
Child Support - That no principal who owns at least 50% of the voting interest of the company
is delinquent more than 60 days under the terms of any (a) administrative order, (b) court order, or (c) repayment
agreement requiring payment of child support.
[
] 4.
Current Taxes - That Borrower (and Operating Company) are current on all federal, state, and
local taxes, including but not limited to income taxes, payroll taxes, real estate taxes, and sales taxes.
[
a.
b.
c.
d.
e.
] 5.
Environmental - - That
At the time Borrower submitted the Loan application. Borrower (and Operating Company) was in compliance
with all local, state, and federal environmental laws and regulations pertaining to environmental contamination;
Borrower (and Operating Company) has, and will continue to comply with these laws and regulations;
Borrower (and Operating Company) has no knowledge of any environmental contamination of any real or
personal property pledged as collateral for the Loan which violates any such laws and regulations, (other than
what was disclosed in connection with the Environmental Investigation of the property);
Borrower (and Operating Company) assumes full responsibility for all costs incurred in any clean-up of
environmental contamination and agrees to indemnify Lender and SBA against payment of any such costs
(Lender or SBA may require Borrower (and Operating Company) to execute a separate indemnification
agreement);
Until full repayment of Loan, Borrower (and Operating Company) will promptly notify Lender and SBA if it
knows, suspects or believes there may be any environmental contamination in or around the real property
securing the Loan, or if Borrower (and Operating Company) and/or such property are subject to any
investigation or enforcement action by any Governmental agency pertaining to any environmental
contamination of the property.
B.
That Borrower will:
1) Reimbursable Expenses- Reimburse Lender for expenses incurred in the making and
administration of the Loan.
2) Books, Records, and Reportsa.
Keep proper books of account in a manner satisfactory to Lender;
b. Furnish year-end statements to Lender within ___ days (if not filled in, then 120 days) of
fiscal year end;
c. Furnish additional financial statements or reports whenever Lender requests them;
d. Allow Lender or SBA to:
(1)
Inspect and audit books, records and papers relating to Borrower’s financial or business
condition; and
(2)
Inspect and appraise any of Borrower’s assets; and
(3)
Allow all government authorities to furnish reports of examinations, or any records
pertaining to Borrower, upon request by Lender or SBA.
3) Equal Opportunity - Post SBA Form 722, Equal Opportunity Poster, where it is clearly
visible to employees, applicants for employment and the general public, and comply with SBA
Form 793. Notice to New SBA Borrowers.
4) American-made Products - To the extent feasible, purchase only American-made equipment
and products with the proceeds of the Loan.
5) Taxes - Pay all federal, state, and local taxes, including income, payroll, real estate and sales,
taxes of the business when they come due.
6) Occupancy - Occupy at least 51% of the square footage of rentable property at all times during
the term of the Loan. Borrower certifies that it will not use Loan proceeds to improve or renovate
any of the space leased to third parties.
B.
That Borrower will not, without Lender’s prior written consent:
1 ) Distributions- Make any distribution of company assets that will adversely affect the M
financial condition of the Borrower (and/or Operating Company).
2) Ownership Changes - Change the ownership structure or interests in the business during the
term of the Loan.
3 ) Transfer of Assets - Sell, lease, pledge, encumber (except by purchase money liens on
property acquired after the date of the Note), or otherwise dispose of any of Borrower’s property
or assets, except in the ordinary course of business.
Crystal Magic, IncBy: Steven M- Rhodes, President
8/4/99
Exhibit 10.15
Operating Agreement
This Operating Agreement (this “Agreement’) is made effective as of September 7, 2001 by and between Cashman
Enterprises, Inc., a Nevada corporation (“Cashman”), and Crystal Magic, Inc. a Florida corporation (“Crystal
Magic”),
RECITALS
A.
Crystal Magic has developed technology, software, equipment, know how, intellectual property and systems
to create “Laser Damage Products” in transparent media (The “Crystal Magic Technology”).
B.
Crystal Magic distributes Laser Damage Products world wide through retail outlets it owns, distributors who
resell Crystal Magic’s products, authorized dealers and the internet.
C.
Crystal Magic desires to obtain the help and cooperation of Cashman to introduce and sell its Laser Damage
Products in the state of Nevada.
D.
Cashman and its Affiliates own and operate retail stores in the state of Nevada that sell photographic
products and services including but not limited to custom images of customers on various media (“Video
Stores”),
E.
Cashman and its Affiliates own and operate “Wedding Chapel photographic services and concessions at
major hotel and casino properties in the state of Nevada (“Wedding Chapels”),
F.
Cashman and its Affiliates have long standing relationships and current operating agreements with major
hotel, casino and entertainment complex properties in the state of Nevada.
G.
Cashman desires to sell Laser Damage Products.
H.
Crystal Magic desires Cashman to sell Laser Damage Products in the state of Nevada.
I.
Cashman represents that Cashman and it Affiliates have not less than two years of prior management
experience in this and similar businesses and the parties in good faith anticipate sales arising from this
Agreement will constitute no more than 20% of Cashman’s and its Affiliates’ projected gross sales revenues
for at least one year after Cashman begins to sell the Laser Damage Products.
Therefore, in consideration of their mutual covenants contained herein, the parties agree as follows;
DEFINITIONS
1.
NET SALES shall mean the total sales revenue, exclusive of sales tax, produced by the sale, lease or other
disposition of Laser Damage Products by Cashman and/or its affiliates, reduced by any units of Laser
Damage Products returned to and accepted by Cashman and/or its Affiliates for which the purchase price has
been refunded. For sales of Laser Damage Products to an Affiliate, the higher of the Affiliate’s purchase or
sale price for each item will be included in Net Sales; provided however that the Net Sales to such Affiliate
shall not be recognized for royalty calculations until sold by the Affilate to a third party and shall then be
recognized as a sale at the higher of the Affiliated or third party’s purchase or sale price. For purposes of
calculating Net Sales, the revenue attributed to any Laser Damage Products sold in promotional combinations
with other products sold by Cashman shall be the retail price established on the Crystal Magic website or as
otherwise agreed between the parties.
Page 1 of 16
Initials:
Operating Agreement
2.
AFFILIATE shall mean, with respect to any Person: (i) any Person directly or indirectly controlling,
controlled by, or under common control of such Person, (ii) any Person owning or controlling 10% or more
of the outstanding voting interests of such Person, (iii) any officer, director, or general partner of such
Person, or (iv) any officer, director, general partner, trustee or holder of 10% or more of the voting interests
of any Person described in clauses (i) through (iii) of this sentence. For purposes of this definition: (a)
Person means any individual or business entity, and the heirs, executors, administrators, legal
representatives, successors, and assigns of such “Person” and (b) “controls”, “is controlled by”, or “is under
common control with” shall mean the possession, direct or indirect, of the power to direct or cause the
direction of the management and policies of a Person, whether through the ownership of voting securities, by
contract or otherwise.
3.
LASER DAMAGE PRODUCT shall mean any object that contains internal decorative or indicative
images that have been created by a Laser.
4.
LASER DAMAGE SYSTEMS shall mean any laser marking device whose construction or method
produces a “Laser Damage Product”.
5.
KNOW-HOW means any and all information of any kind whatsoever now possessed by or known to, or
hereafter developed or acquired by, relating to (1) the manufacturing data, and technical specifications for the
Crystal Magic Technology, and/or marketing information of potential competitive value (e.g. customer
information, promotional plans, market data, etc.) (2) specific techniques, software, algorithms and methods
used in connection with the production of the Laser Damage Products utilizing the Crystal Magic
Technology (3) the techniques and methods for installing and servicing the equipment necessary in
connection with the production of the Laser Damage Products utilizing the Crystal Magic Technology, and
(4) any techniques and methods for creating the internal images in the Laser Damage Products.
6.
IMPROVEMENTS shall mean any technical information or know-how developed by Crystal Magic or
Cashman (or either of such parties’ Affiliates) after the date of the initial transfer of the Know-How and
during the term of this Agreement that uses or relates to the Know-How.
7.
OPERATING PRE TAX PROFIT for the purposes of this Agreement shall be calculated by deduction
from Net Sales, the following direct operating costs; product, freight, insurance manufacturing payroll, sales
commissions, location percentage rent, supplies, equipment repairs, maintenance, equipment depreciation,
interest, communications costs, training expenses (including travel and hotel), artwork, promotional
materials, F&F Depreciation (e.g. Display F&F specific to Laser Damage Products) and any other
normal and ordinary business expense directly related to the promotion and/or sale of Laser Damage
Products. and license fees (which shall include any royalties or other fees required to be paid to any third
party, if any, including, but not limited to fees for licensing of logos, trademarks, characters, and KnowHow or any Improvements thereof). For the purposes of determining Operating Pre Tax Profits, the
following indirect costs shall not be deducted from Net Sales: allocations of corporate overhead,
depreciation of existing equipment and leasehold improvements, existing payroll expenses and operating
costs currently in place for its retail stores and wedding chapel product offerings. In the event of an
indirect, unanticipated or existing expense that arises or increases as a direct result of Cashman ‘s
compliance or Implementation of this Agreement, such expense shall be reasonably documented and a
reasonable pro-rata portion of such expense shall be “charged” as an additional deduction from the
“Net Sales” as agreed to by Crystal Magic and Cashman.
Page 2 of 16
Initials:
Operating Agreement
TERM
8.
This Agreement shall commence on the effective date set forth above and shall continue for a period of
twenty (20) years unless sooner terminated as provided herein.
LICENSE GRANT, EXCLUSIVE TERRITORY AND EQUIPMENT PURCHASE
9.
LICENSE USE OF KNOW-HOW, TRADEMARKS AND OTHER PROPRIETARY RIGHTS
9.1.
Know-How License. Subject to Cashman’s compliance with all material terms of this Agreement, Crystal
Magic grants to Cashman an exclusive license, without the right to sublicense to manufacture and sell Laser
Damage Products within the State of Nevada only (the “Territory”), using Know-How that Crystal Magic
now has or may subsequently acquire during the term of this Agreement. Except as stated herein or by
other written agreement, no further license is implied or given. So long as this Agreement is in effect.
Crystal Magic will not manufacture or sell Laser Damage Products in the Territory and will not enter into
any agreement with nor sell, lease, rent or give its materials, products. or Know How to any other
company, person or entity for the purpose of selling, either directly or indirectly, any Laser Damage
Product in the Territory. Notwithstanding anything herein to the contrary. Crystal Magic shall not be
prohibited from selling Laser Damage Products within the Territory through sales generated by Crystal
Magic through web sites sales, internet sales, and the remarketing to Cashman’s database of Customers
who purchase Laser Damage Products.
9.2.
Transfer of Know-How. Crystal Magic shall provide Cashman with the Know How necessary to produce
the Laser Damage Products pursuant to this Agreement and provide initial training to Cashman in the
techniques and methods used in production of the Laser Damage Products utilizing the Know How on the
equipment purchased from Crystal Magic pursuant to this Agreement. Crystal Magic will update the Know
How from time to time throughout the term of this Agreement. Crystal Magic shall provide troubleshooting
services and general technical assistance, from time to time as agreed between the parties, as well as routine
checkups to verify the correctness of Cashman’s procedures. All such services and assistance shall be
provided at the rates set forth in Exhibit A, as may be modified from time to time by Crystal Magic.
Page 3 of 16
Initials:
Operating Agreement
9.3.
Trademark License. Crystal Magic grants to Cashman a nonexclusive license, without the right to
sublicense, to use the trademark “CRYSTAL MAGIC” and related marks developed by Crystal Magic
from time to time in connection with Laser Damage Products during the term of this Agreement (the
“Trademarks”) in the State of Nevada only, in the manner and form and subject to the quality control
requirements herein defined, during the term of this Agreement, on Laser Damage Products produced
utilizing the Crystal Magic Technology under the Know-How license granted pursuant to this Agreement.
Crystal Magic shall supply Cashman with sample graphics for the use of the Trademark in printed material.
9.4.
Product Name and Quality: Cashman will use only approved Crystal Magic packaging and all packaging
will identify the product as a Crystal Magic product and utilize the Trademarks, as agreed to herein. Crystal
Magic will set quality control standards for Laser Damage Products, which from time to time it may modify
and Cashman will implement such standards. Cashman will display the Trademarks at all of Cashman’s
Wedding Chapels and other non Video Store locations that sell Laser Damage Products in the manner and
form required by Crystal Magic from time to time and consistent with the latest sample graphics supplied
by Crystal Magic and with all applicable government requirements. Cashman will display the Trademarks
at all of Cashman’s Video Stores after one year from the signing of this agreement unless otherwise agreed
to in writing by Crystal Magic and Cashman. Cashman shall submit to Crystal Magic for its prior written
approval samples of all proposed material, copy and oral scripts, including promotional, advertising,
labeling and packaging material promoting Laser Damage Products or displaying the Trademarks
9.5.
Prohibited Activities. Cashman shall not at any time adopt, or use, or attempt to register with any
governmental authority, without first obtaining Crystal Magic’s written approval, any word or mark that is
similar, or bears any resemblance, to any Trademark or service mark owned or used by Crystal Magic.
9.6.
Improvements to Know-How and Third Party Licensing Arrangements. From time to time, Crystal
Magic may enter into third party licensing arrangements (with third parties that are not Affiliates of Crystal
Magic) related to the Know-How, Patents, or Improvements thereof, or in connection with licensing of
additional brands, trademarks, logos, characters or other similar promotional ventures (“Third Party
Agreements”). Cashman hereby acknowledges and agrees that any licensing fees or royalties for the use of
any rights under any such Third Party Agreements related to Laser Damage Products manufactured, used,
sold, licensed or otherwise disposed of by Cashman shall be the responsibility of Cashman (whether paid
directly to such third party or paid to Crystal Magic for payment to such third party) and shall be included
by Cashman as a direct operating cost deducted from Net Sales in accordance with this Agreement.
Page 4 of 16
Initials:
Operating Agreement
9.7.
Ownership and Improvements. Crystal Magic shall own all right, title, and interest in the Know-How,
the Trademarks and all other intellectual property rights inherent therein, including all Improvements.
Cashman shall promptly notify Crystal Magic in writing upon its discovery of any unauthorized use of the
Know-How or infringement of Crystal Magic’s proprietary rights therein and shall further cooperate with
Crystal Magic to protect its ownership and rights in and to the Know-How and any Improvements,
10.
MINIMUM REQUIREMENTS TO MAINTAIN EXCLUSIVITY. Within one hundred twenty days
(120) of the date of this Agreement, Cashman agrees to make all reasonable efforts to obtain landlords
permission to display and sell Laser Damage Products from all of its Video Stores, including but not
limited to Video Stores located at the Venetian, New York-New York, Aladin, MGM Grand, Forum
Shops, Rio Hotel & Casinos. Within one hundred twenty days (120) of this Agreement, Cashman agrees to
make all reasonable efforts to obtain landlords permission to display and sell Laser Damage Products
from its Wedding Chapels, including but not limited to Treasure Island, Flamingo Hilton, Mandalay Bay,
MGM Grand, and Rio Hotel & Casino’s, Throughout the term of this Agreement, Cashman shall continue
to display and sell Laser Damage Products at each such Video Store and Wedding Chapel so long as
Cashman or its Affiliates continues to operate such Video Stores and Wedding Chapels (the “Minimum
Sites”). Within one year from the date of this Agreement Cashman agrees to maintain an annual Net Sales
of not less than five hundred thousand dollars ($500,000) or annual Royalty Payments of not less than
twenty five thousand dollars ($25,000) and for each subsequent calendar year thereafter, Cashman agrees to
maintain an annual Net Sales of not less than one million dollars ($1,000,000) or annual Royalty Payments
of not less than fifty thousand dollars ($50,000) (the “Minimum Sales Volume”). In the event Cashman
fails to meet or maintain the Minimum Sites or Minimum Sales Volume set forth herein, Crystal Magic
may, on thirty (30) days written notice, terminate the exclusive license for the Territory granted herein and
the license granted to Cashman shall become a non-exclusive license for the Territory.
11.
CUSTOMER DATABASE, Cashman agrees to use Crystal Magic’s order entry system to process all
Laser Damage Products orders. On a monthly basis, Cashman will provide Crystal Magic with a copy of
the database generated by the Crystal Magic order entry system. Crystal Magic may exclusively remarket
sales of Laser Damage Products to the Cashman database. Crystal Magic will pay to Cashman twenty
percent (20%) of the Net Sales generated from remarketing to the Cashman database within fifteen days of
the end of each month for the preceding month.
12.
EQUIPMENT AND SUPPLIES PURCHASE. Cashman agrees to purchase from Crystal Magic at least
two (2) Crystal Magic Laser Damage System, as more fully described in Exhibit A attached hereto (the
“Initial System”) for the purchase price of $80.000.00 for each Initial System. Such purchase price shall be
paid as follows: Within seven (7) days of effective date of this agreement, Cashman will pay to Crystal
Magic one hundred thousand ($100,000) towards the purchase price of the initial Crystal Magic Laser
Damage Systems, Equipment and Supplies, Cashman will pay Crystal Magic the remaining invoice amount
for all Crystal Magic Laser Damage Systems, equipment and supplies upon delivery and installation of the
Crystal Magic Laser Damage Systems.. Subject to payment of such purchase price. Crystal Magic shall
deliver and install the Initial Systems on or about August 30, 2001, Durme the term of this Agreement,
Cashman may but shall not be required to, purchase additional Laser Damage Systems, equipment and
supplies from Crystal Magic, or approved Crystal Magic suppliers, according to the terms and conditions
as set forth in “EXHIBIT A” attached hereto and made a part of this Agreement by reference. Cashman
acknowledges that the costs set forth in EXHIBIT A are current costs and subject to change by Crystal
magic from time to time.
Page 5 of 16
Initials:
Operating Agreement
13.
ROYALTY PAYMENTS, Crystal Magic and Cashman will “split” the Operating Pre Tax Profits from
the sale of Laser Damage Products sold by Cashman or its Affiliates on a ratio of 33.33% to Crystal Magic
and 66-66% to Cashman. Through the first full three months of the Agreement, Cashman shall provide a
monthly statement of Net Sales and shall pay ten percent (10%) of said Net Sales it has received from the
sale of Laser Damage Products by the fifteenth (15th) of each month for the immediately previous month to
Crystal Magic (the “Monthly Payment”). By the end of each quarter and based on GAAP and the
Operating Pre Tax Profit definitions as set forth in this Agreement. Cashman will provide a “Profit and
Loss” statement for the Laser Damage Products operations for the immediately previous quarter to Crystal
Magic. If said statement shows that the Royalty payments previously made do not reflect the 33.33% /
66.66% split, the monthly payment percentage will be adjusted accordingly for future payments (the
“Adjusted Percentage”). Thereafter, Cashman shall continue to provide a monthly statement of Net Sales
and shall pay a percentage of Net Sales from the sale of Laser Damage Products based on the Adjusted
Percentage. All Monthly Payments shall be due to Crystal Magic by the fifteenth (15th) of the each month
for the immediately previous month. Further. Cashman’s Laser Damage Products operations will be
reviewed, reconciled and analyzed on an annual basis concurrent with and as part of Cashman’s fiscal year.
If an over or under payment situation is found, either Cashman or Crystal Magic shall, within thirty days,
issue a check for the difference and, the percent of Net Sales Royalty Payment shall be adjusted accordingly
for all future Royalty payments., In no event shall the Royalty payment paid to Crystal Magic be less than
five percent (5%) of Net Sales.
INSURANCE
14.
Cashman and Crystal Magic shall, throughout the term of this Agreement, maintain general and product
liability insurance of no less than one million dollars ($1,000,000.00), Because of the public perception of
Laser Beam technology, each party shall produce copies of certificates for the aforementioned insurance
within thirty days of the execution of this Agreement and again, within thirty days of each renewal of said
insurance. Each party agrees that its failure to maintain such insurance will be considered a material breach
of this Agreement,
REPORTS; INSPECTIONS AND EXAMINATION OF RECORDS-AUDITS
15.
Cashman will maintain accurate records of amounts and kinds of Laser Damage Products manufactured and
sold and will submit monthly reports reflecting its operations under this Agreement and all reports to be
provided by Cashman to Crystal Magic in connection with the Royalty Payments due pursuant to this
Agreement shall be in such form as Crytal Magic shall require from time to time.
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16.
Crystal Magic shall have the right at all times to inspect the premises of Cashman (including all materials
and supplies used by Cashman in its operations under this Agreement) and to audit Cashman’s records for
the purpose of determining compliance with any or all portions of this Agreement.
17.
Because Royalty Payments by Cashman to Crystal Magic will be based on Cashman’s books and records,
Cashman agrees to maintain such books and records for a period of four (4) years after the reporting due
date and, further, grants Crystal Magic the right to formally audit said books and records on an annual basis
at Cashman’s corporate offices or at such other place as may be mutually agreed upon. Crystal Magic may,
at its sole cost and expense, perform said audits utilizing its own employees or a Certified Public
Accounting firm licensed to practice within the State of Nevada. If any audit shows that Cashman has
underpaid Crystal Magic, Cashman shall issue a check for the amount underpaid to Crystal Magic within
thirty days of receiving the result of the audit. If any audit shows that Cashman has overpaid Crystal
Magic, Crystal Magic shall issue a check for the amount overpaid to Cashman within thirty days of
receiving the result of the audit.
18.
Because Crystal Magic will supply Cashman with equipment as listed in Exhibit A at its manufacturing cost
and supplies and materials at its “cost”, therefore, Crystal Magic agrees to maintain its relevant books and
records for a period of four (4) years after the date such items were sold to Cashman and, further, grants
Cashman the right to formally audit said books and records on an annual basis at Crystal Magic’s corporate
offices or at such other place as may be mutually agreed upon. Cashman may, at its sole cost and expense,
perform said audits utilizing its own employees or a Certified Public Accounting firm licensed to practice
within the State of Florida, If any audit shows that Cashman has underpaid Crystal Magic, Cashman shall
issue a check for the amount underpaid to Crystal Magic within thirty days of receiving the result of the
audit. If any audit shows that Cashman has overpaid Crystal Magic, Crystal Magic shall issue a check for
the amount overpaid to Cashman within thirty days of receiving the result of the audit.
LATE PAYMENTS AND COLLECTION COSTS
19.
Each party agrees to pay the other interest at the rate of one percent (1%) per month on any past due
amounts owed. Such interest shall accrue if any payment is more than thirty (30) days overdue and shall
continue until the balance is paid in full.
20.
In the event either party retains an attorney to collect an overdue amount, the attorney’s fees and reasonable
collection costs will be added to the amount owed and paid by the offending party.
WARRANTY AND INDEMNIFICATION
21.
WARRANTIES. Crystal Magic represents and warrants that (i) it has the right to grant the license for the
Know-How and Crystal Magic Technology pursuant to this Agreement and is the owner of the rights, title
and interest in the Know-How and Crystal Magic Technology; and (ii) it has not granted any license for the
Know-How and Crystal Magic Technology in the Territory except to Cashman pursuant to this Agreement
and is under no obligation to grant any such license.
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22.
WARRANTY DISCLAIMER. Nothing in this Agreement is or shall be construed as;
(i) A warranty or representation by Crystal Magic as to the validity or scope of any patents licensed as part
of the Know-How transferred pursuant to this Agreement;
(ii) A warranty or representation that anything made, used, sold or otherwise disposed of under any license
granted in this Agreement is or will be free from infringement of patents, copyrights and other rights of third parties;
(iii)
An obligation to bring or prosecute actions or suits against third parties for infringement of any
license granted pursuant to this Agreement, or
(iv)
Granting by implication, estoppel, or otherwise any licenses under patents of Crystal Magic or
other persons other than the license in the Know-How granted pursuant to this Agreement.
23.
NO WARRANTIES OF MERCHANTABILITY OR FITNESS FOR USE
EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, CRYSTAL MAGIC MAKES NO
REPRESENTATION AND EXTENDS NO WARRANTIES OF ANY KIND, EITHER EXPRESS OR
IMPLIED, OR ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FORA PARTICULAR
PURPOSE.
24. LIMITATION OF LIABILITY
NOTWITHSTANDING ANYTHING TO THE CONTRARY, CRYSTAL MAGIC SHALL NOT BE LIABLE
WITH RESPECT TO ANY SUBJECT MATTER OF THIS AGREEMENT UNDER ANY CONTRACT,
NEGLIGENCE, STRICT LIABILITYOR OTHER LEGAL OR EQUITABLE THEORY FOR (i) ANY
SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES; OR (ii) COST OF PROCUREMENT OF
SUBSTITUTE GOODS. TECHNOLOGY OR SERVICES. THIS LIMITATION WILL APPLY
NOTWITHSTANDING ANY FAILURE OF ESSENTIAL PURPOSE OF ANY LIMITED REMEDY
PROVIDED HEREIN.
25. INDEMNITY
25.1.
Crystal Magic shall indemnify, hold harmless and defend Cashman (and its directors, officers, employees,
and agents) from and against any and all claims, demands, or actions and any losses, expenses, and
damages resulting directly therefrom: (i) based on a claim against Cashman that the Know-How and
Crystal Magic Technology infringe or abridge a third-party right in the United States in a validly issued
patent, copyright, or trade secret and (ii) based on an error in the representations made pursuant to
paragraph 21. Any such indemnification by Crystal Magic pursuant to section (i) above shall be
contingent upon Cashman giving Crystal Magic prompt written notice of the claim for which
indemnification is sought, Cashman allowing Crystal Magic to control the defense and/or settlement of
such claim, and Cashman cooperating with Crystal Magic in such defense and/or settlement and provided,
that, in the event any such settlement by Crystal Magic includes an agreement to pay an ongoing license
fee to such third party, Cashman agrees that such ongoing license fee related to Laser Damage Products
manufactured, used, sold or otherwise disposed of by Cashman shall be the responsibility of Cashman
and shall be included by Cashman as a direct operating cost deducted from Net Sales in accordance with
this Agreement and shall not be subject to indemnification by Crystal Magic.
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25.2.
26.
Cashman agrees to indemnify, hold harmless, and defend Crystal Magic (and its directors, officers,
employees, and agents) from and against any and all claims, demands, or actions and any losses,
expenses, and damages arising out of the manufacture, use, sale, or other disposition of Laser Damage
Products by Cashman or its Affiliates or otherwise related to Cashman’s performance of this Agreement,
However, the foregoing undertaking by Cashman shall not apply to any claims resulting from Crystal
Magic’s willful misconduct or gross negligence.
CONFIDENTIALITY
26.1.
Except as required by law or by order of any court that has legal jurisdiction, each party agrees not to
disclose the terms of this Agreement to any third party without the other’s written consent. If either
party is required to disclose any of the terms of this Agreement, said party shall immediately inform
the other and each party shall provide the other reasonable cooperation and assistance in seeking
confidential treatment of such terms with the proceedings for which the information is sought.
26.2.
Cashman agrees to safeguard all Know-How covered by this Agreement and will not disclose or
provide any Know-How to any third party without Crystal Magic’s prior written consent.
26.3.
Cashman acknowledges (i) that the Know-How obtained from Crystal Magic hereunder is commercially
valuable proprietary information of Crystal Magic or others, the design and development of which has
involved the expenditure of substantial amounts of money and the use of skilled development experts over
a long period of time and which affords Crystal Magic a commercial advantage over its competitors: (ii)
that such Know-How constitutes trade secrets and confidential business information that is disclosed to
Cashman for use on the basis of the confidential relationship between Crystal Magic and Cashman under
this Agreement and is to be used only as may be expressly permitted by the terms and conditions of this
Agreement; (iii) that the loss of this competitive advantage due to unauthorized disclosure of such
proprietary information would cause great injury and harm.
26.4.
Cashman covenants that it will not divulge, or publish to others, other than as herein provided, any
Know-How obtained from Crystal Magic hereunder, or any information about the Crystal Magic’s
commercial practices, policies, or plans, and that it shall divulge the same only to employees of
Cashman who require it for the purpose of distribution of Laser Damage Products hereunder and
only if such employees are subject
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to restrictions on use and disclosure at least as restrictive as those assumed by Cashman hereunder.
26.5.
Cashman shall take reasonable action, by instruction, agreement or otherwise. with respect to independent
contractors employed by Cashman’s employees or other persons who have not entered into the aforesaid
restrictive engagements in order to prevent the unauthorized disclosure or use of such Know-How
26.6.
Know-How does not include information that shall become generally known in the trade through no fault
of Cashman, (ii) any Know-How or information that shall be disclosed to Cashman by a party having
legitimate possession thereof and the unrestricted right to make such disclosure, or (iii) any Know-How or
information that Cashman can demonstrate was within its possession prior to the disclosure by Crystal
Magic, and was provided by a party having legitimate possession thereof and the unrestricted right to make
such disclosure
26.7.
Cashman and Crystal Magic agree to not solicit or employ any employee who works for the other entity
during the term of such employee’s employment or for a period of eighteen months (18) after the
termination of any such employee’s employment for whatever reason.
TERMINATION; CONSEQUENCES OF TERMINATION
27.
28.
28.1.
TERMINATION. If either party should commit or cause to occur a material breach, default or
noncompliance of or with any term or condition of this Agreement, said party shall have thirty (30) days
after written notification to cure such breach, default or noncompliance, otherwise, in addition to any other
remedy available in law or equity, the non-defaulting party may, at its election, terminate this agreement by
written notice to the other. Included, without limitation, in the types of breach for which such notice of
termination may be sent are: (i) failure to employ the Trademark to the extent or in the manner required
under this Agreement; (ii) failure to clear trademark copy in advance as required under this Agreement; (iii)
disclosure of the Know-How by Cashman, its affiliates or its employees or former employees to another
party; (iv) violation of quality control standards or specifications on Laser Damage Products utilizing the
Crystal Magic Technology; (v) denial of visitation or inspection rights granted pursuant to this Agreement;
(vi) failure to pay Royalty Payments or provide the required reports under this Agreement; (vii) an
assignment is made of either party’s business for the benefit of creditors; or (viii) if a receiver, trustee in
bankruptcy, or like official is appointed to take all or part of a party’s business or if either party ceases doing
business in the ordinary course.
CONSEQUENCES OF TERMINATION.
On termination of this Agreement, for any reason, or due to the expiration of the term of the Agreement, all
rights and obligations of the parties shall forthwith cease, except the obligations of Cashman to make
payments pursuant to this Agreement, to provide reports, and to maintain the confidential nature of the
Know-How and the obligations of the parties regarding solicitation of employees, Further, Crystal Magic
shall retain the right to inspect the books, records, and facilities of Cashman following termination of this
Agreement for purposes of ensuring that all surviving obligations are met by Cashman.
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28.2.
The provision for Royalty Payments due to Crystal Magic shall survive the expiration or termination of
this Agreement, for any reason,, for a period of five (5) years (the “Post Termination Period”) and
Cashman shall continue to make Royalty Payments on all Laser Damage Products sold by Cashman in
accordance with this Agreement so long as Cashman continues to manufacture and sell Laser Damage
Products during the Post Termination Period.
GENERAL TERMS
29.
N O ASSIGNMENT. Cashman shall not assign or otherwise transfer, by contract, operation of law, or
otherwise, without the express written consent of Crystal Magic, which consent shall not be unreasonably
withheld, this Agreement, the Know How, or any license right granted hereunder or any interest herein,
and any such unauthorized assignment, transfer or sublicense shall be null and void
30.
TAXES. Cashman shall pay all taxes and other charges that may be imposed by any Governmental agency
as a result of the performance of this Agreement, including but not limited to capital, property, turnover,
excise, use, sales and income taxes or other charges imposed by such Government agency provided,
however, that Cashman shall not be held liable for any taxes imposed on Crystal Magic for Royalties or
other payments made by Cashman to Crystal Magic or for any other taxes or charges imposed on Crystal
Magic by any Government agency for the normal operation of Crystal Magic’s business, income, equity,
ownership or for any other reason,
31.
INDEPENDENT CONTRACTOR, The parties hereby agree that no agency, joint venture or partnership
is created by this Agreement, and that Cashman shall incur no obligation in the name of Crystal Magic
without Crystal Magic’s prior written consent.
32.
SEVERABILITY. If any provision of this Agreement shall be held to be invalid or unenforceable for any
reason, the remaining provisions shall continue to be valid and enforceable. If a court finds that any
provision of this Agreement is invalid or unenforceable, but that by limiting such provision it would become
valid or enforceable, then such provision shall be deemed to be written, construed, and enforced as so
limited.
33.
WAIVER OF CONTRACTUAL RIGHT, The failure of either party to enforce any provision of this
Agreement shall not be construed as a waiver or limitation of that party’s right to subsequently enforce and
compel strict compliance with every provision of this Agreement.
34.
ATTORNEYS’ FEES. In the event that any legal action or arbitration becomes necessary to enforce or
interpret the terms of this Agreement, the prevailing party shall be entitled, in addition to its court costs or
arbitration fees, to such reasonable attorneys’ fees as shall be determined by a court or arbitrator.
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35.
ENTIRE AGREEMENT. This Agreement contains the entire agreement of the parties and there are no
other promises or conditions in any other agreement whether oral or written, This Agreement supersedes
any prior written or oral agreements between the parties.
36.
AMENDMENT, This Agreement may be modified or amended, if the amendment is made in writing and
is signed by both parties or their duly authorized representatives.
37.
APPLICABLE LAW. This Agreement shall be governed by the laws of the State of Florida and venue for
any legal action must be filed in Orange County Circuit Court.
38.
NOTICES, All notices shall be delivered in writing via the United States Postal Service, certified mail or
by other commercial carrier to each party as follows;
Cashman:
Cashman Enterprises, Inc.
Attn: Morgan Cashman, Secretary / Treasurer
3660 Cinder Lane
Las Vegas, NV 89103-3003
Crystal Magic;
Crystal Magic, Inc.
Attn: Steven M. Rhodes, President
2120 Hidden Pine Lane
Apopka, FL 32712
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The undersigned confirm that they have read and agree with the terms and conditions appearing above and that they
are authorized to sign on behalf of their respective entities. This agreement shall become effective upon acceptance
by Cashman at its corporate offices.
IN WITNESS THEREOF, the parties have executed this Agreement.
CRYSTAL MAGIC, INC.
By:
Its:
STEVEN M. RHODES
President and Chief Executive Officer
CASHMAN ENTERPRISES, INC.
By:
Its:
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MORGAN CASHMAN
Secretary / Treasurer
Operating Agreement
EXHIBIT A
EQUIPMENT AND SUPPLIES PURCHASE
Crystal Magic initially agrees to sell to Cashman, Laser Damage Systems at the following manufacturing costs:
Crystal Magic’s Laser Damage System
each
$80,000
Laser safety provisions:
ANSI Class IV laser system
Interlocked and labeled enclosure per ANSI Z136.1
Keyswitch and emergency stop
Safety features documented in instruction manual
Product registration with CDRH
Laser Subsystem
Ultra GRM 1064, standard specifications
Wavelength; 10G4 nm (Nd: YAG fundamental)
Energy per pulse: variable by manual external attenuator
Repetition rate: externally fired at approximately 30 Hz maximum.
Transverse mode: Low-order unstable resonator mode
Far field spatial profile: > 90% Gaussian
Divergence:<0.5 mr after external expander
System control functions: over RS-232 interface and fast trigger inputs Positioner Subsystem
Stepper-driven 3-axis positioning system with motors, drives, and indexer
Load capacity: > 2 Ibs, axial
Travel; 100 mm (“4”) all axes
Acceleration; ~ Ig
Max. speed: - 0.5 m/s
Minimum position increment: ~5 um
Position accuracy: -12 urn
Position repeatability: ~5 um
Control interface options: RS-232, fast network
System Controller
PC-platform including, but not limited to
Intel PI1-350 MHz or better processor
128 MB RAM
10 GB internal mass storage (hard drive)
1.44MB removable mass storage (floppy drive)
Multi-protocol network card
color monitor
Keyboard
RS-232 serial interface
Operating system: Windows 98
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Crystal Magic agrees to sell future Laser Damage Systems to Cashman at its procurement and manufacturing costs.
Upon Cashman’s order of additional Laser Damage Systems, Crystal Magic will provide Cashman with an estimate
of the total cost to procure and manufacture the number of Laser Damage Systems ordered by Cashman, Upon
written acceptance of orders for Laser Damage Systems by both parties, Cashman will provide Crystal Magic with
fifty percent (50%) of the estimated procurement and manufacturing costs. Cashman will provide Crystal Magic
with twenty five percent (25%) of the estimated procurement and manufacturing costs within sixty days (60) of
acceptance of the order, Cashman will pay Crystal Magic any balance due of the procurement and manufacturing
costs of the Laser Damage Systems at the time of delivery.
During the term of this agreement, Crystal Magic agrees to sell the following items at its procurement and
manufacturing cost. Current Manufacturing and procurement costs are as follows and are subject to change with
written notice to Cashman.
Two Sets of Fixtures (3 each of 5 different sizes)
Backup Laser head and cooling unit
6K4 Controller
Energy Meter & Protective Glasses
Flash lamps
Limit Switches
$18,000 each
$15,000 each
$ 2,500 each
$ 3,500 each
$ 300.each
$
50 each
Cashman agrees to purchase all optical crystal used for creating Laser Damage Products from approved Crystal
Magic suppliers. Crystal Magic and Cashman may develop other possible suppliers for its products taking into
account, price, quality, and buying terms and conditions. Current supplier pricing from Topmost Designs for optical
crystal is as follows, FOB suppliers warehouse.
Current Supplier Items:
Small Paperweight
Large Paperweight
Small Cube
Medium Cube
Large Cube
Light Base
60mm x 60mm x 19mm
120mm x 60mm x 19mm
50mm x 50mm x 75mm
90mm x 65mm x 65mm
115mm x 65mm x 75mm
N/A
$ 6.00 each
$11.00 each
$12.00 each
$26.80 each
$30.85each
$10.00 each
System Installation:
Cashman will pay for all Labor, Travel, Accommodations, Shipping and other required costs for the installation,
service and repair of any Laser Damage Systems purchased from Crystal Magic or other training services provided
by Crystal Magic. Crystal Magic has included estimated installation and training costs of $30.000 in the overall
invoice provided to Cashman upon the execution of this agreement. Any unused installation and training costs will
be applied against royalty amounts due Crystal Magic, and any charges in excess of the initial deposit will be paid
by Cashman to Crystal Magic within fifteen (15) days of invoice by Crystal Magic. All future installation, training
and service costs will be paid to Crystal Magic within fifteen (15) days of invoice by Crystal Magic. Crystal
Magic’s current labor costs are listed below. Crystal Magic
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may from time to time modify it labor costs and will notify Cashman in writing of any modifications.
Crystal Magic Current Labor Rates:
Engineers
Manager Trainers
$369.23 per day
$230.77 per day
Crystal Magic will pass on to Cashman all component parts manufactures warranty or actual out of warranty repairs
at costs to Crystal Magic.
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Exhibit 10.16
SUBSURFACE ETCHING AND SERVICING AGREEMENT
THIS SUBSURFACE ETCHING AND SERVICING AGREEMENT (“Agreement”) is made and entered into
as of the 1st day of August, 2003, by and between LASER CRYSTAL WORKS, LP, a Texas limited partnership
(“Owner” or “Laser Crystal Works”), whose address is 100 Bowie Dr., Red Oak, Texas 75154, and CRYSTAL
MAGIC, INC., a Florida corporation (“Crystal Magic”), whose address is 3329 Bartlett Blvd., Orlando, Florida
32811.
1.
DEFINED TERMS. For purposes of this Agreement all terms defined in this Agreement
(including other exhibits to this Agreement) will be used in this Agreement without further definition. In addition,
when delineated with initial capital letters, the following terms will have the following respective meanings:
a)
“Commercial Business” means the engraving of promotional products.
b)
“Crystal Blanks” means Crystal Products prior to subsurface engraving.
c)
“Crystal Products” means leaded or optical glass materials which have been etched by subsurface
engraving by Laser Equipment.
d)
“Insurance Requirements” shall mean all terms of any Insurance policy obtained by Owner or
Crystal Magic covering or applicable to the Laser Equipment, the Retail Center or the Laser
Decorative Engraving Business.
e)
“Laser Equipment” means laser subsurface engraving machines.
f)
“Laser Decorative Engraving Business” means the etching of the Crystal Blanks. For purposes
of this Agreement, Laser Decorative Engraving Business shall exclude Commercial Business.
g)
“Legal Requirements” shall mean all laws, statutes, codes, acts, ordinances, orders, judgments,
decrees, injunctions, rules, regulations, permits, licenses, authorizations, and requirements of all
governmental authorities, foreseen or unforeseen, which now or at any time hereafter may be
applicable to the Retail Centers or the Laser Decorative Engraving Business, including (a) all
federal, state, and local laws, regulations, and ordinances pertaining to employment laws, (b) all
federal, state, and local laws, regulations, and ordinances pertaining to tax matters; and (c) all
laws, codes, and regulations pertaining to zoning, land use, healthy or safety.
h)
“Licensed Decorative Products” means Crystal Products which are used for decorative purposes
under a Patent Sub-License Agreement (“Patent Sublicense”) to which Owner is a party.
i)
“Operative Documents” means this Agreement, the Confidentiality and Non-Circumvention
Agreement, the Security Agreement, and all other agreements, instruments, documents, exhibits,
schedules and certificates executed and delivered by or on behalf of Owner or Crystal Magic
pursuant to this Agreement
j)
“Retail Business” means the sale of Crystal Products at Retail Centers to final customers
(consumers).
k)
“Retail Centers” means the locations where the Crystal Products are sold to consumers.
l)
“Theme Park” means any amusement complex such as Disneyland, Six Flags, Sea World, but
shall exclude gaming and general vacation sites.
m)
“Wholesale Business” means the production of Crystal Products which are not sold directly to
final customers in a Retail Center.
With respect to any Business of Crystal Magic, the definitions of its Business shall include the Business
activities of Crystal Magic as well as its subsidiaries, partners, affiliates, owners, and other entities in common
control (whether wholly or in part) with Crystal Magic.
2.
ENGRAVING SERVICES. Subject to and upon the terms set forth in this Agreement, Owner
will provide etching services to Crystal Magic for purposes of selling Crystal Products at such Retail Centers as are
approved in writing by Owner. During the period the Sublicense Agreement is in place, this License is granted only
with respect to Licensed Decorative Products.
3.
TERM. This Agreement shall be in effect beginning the 3rd day of March, 2003 and shall
continue until terminated as provided herein. At the termination of this Agreement by breach, Crystal Magic shall
cause all of Owner’s property, including the Laser Equipment, to be delivered to Owner at Crystal Magic’s expense
to such locations as directed by Owner.
4.
RETAIL CENTER PREPARATON. Owner shall hire its own employees or independent
contractors to operate the Laser Equipment and shall be responsible for all such individuals at Crystal Magic Retail
Centers. Owner specifically represents and warrants that it has reviewed the scope of Crystal Magic’s Retail
Business and that Crystal Magic’s Retail Business does not violate Owners Laser Equipment Patent License with
LDI or any other Licensor, Crystal Magic understands that the Laser Equipment must be kept secure at all times and
must not be a danger to the public. Owner shall at all times retain ownership of the Laser Equipment and have
ultimate supervision and authority with respect to its use.
5.
DELIVERY AND SHIPPING. The delivery and shipping charges of the Laser Equipment in
each Retail Center shall be at the sole cost and expense of Owner and shall be performed by Owner’s employees or
representatives, with assistance from Crystal Magic employees at the installation site. Crystal Magic shall provide
Owner with the location of each Retail Center and shall assist Owner in obtaining access to each Retail Center,
Owner will initially provide Assets as set forth in Appendix A hereto.
6.
FEES AND EXPENSE PAYMENTS.
a)
T h e Fees are described in Appendix B and shall be calculated as determined pursuant to
Appendix B and shall be due and payable as provided therein. In addition, (1) litigation expenses
including attorney’s fees of Crystal Magic for existing legal litigation in excess of $16,000 per
year and (2) compensation to management (for Crystal Magic, in excess of $250,000 for the
following management members: Steven M. Rhodes and John C. Wolf (3) compensation to
spouses or additional forms of compensation to management not approved by owner shall not be
deducted from gross revenues to arrive at Crystal Magic’s distributable net revenue as defined in
Appendix B. Further, the gross revenues of Crystal Magic shall specifically include revenues
from laser equipment acquired from or operated by sources other than Owner but exclude
revenues from Crystal Magic’s Commercial Business. The cost of any Owner’s employee to
operate lasers (including, without limitation, salary, taxes, benefits, workers compensation
insurance premiums, etc.) will be reimbursed by Crystal Magic to Owner.
b)
In addition to the Fees, Crystal Magic shall pay Owner the expense reimbursements and costs as
determined under Appendix B as well as any sales, use or other taxes or assessments which are
assessed or due by reason of this License hereunder.
c)
Crystal Magic shall keep accurate sets of books and records prepared in accordance with
Generally Accepted Accounting Principles consisting of a profit and loss statement, balance
sheet, and earnings statement, and all supporting records such as sales receipts, expense receipts,
and other records which are necessary to verify and substantiate the amount of the Fees and
expenses, at each party’s principal business office. All such books and records shall be retained
and preserved for at least five (5) years after the end of the calendar year to which they relate and
shall be subject to inspection and audit by Owner and its agents at all reasonable times. In the
event Owner is not satisfied with any monthly statement or annual statement submitted by
Crystal Magic, it shall have the right to have its auditors make a special audit of all books and
records during the period in question. If such statements are found to be incorrect to an extent of
more than two percent (2%) over the figure submitted, Crystal Magic shall pay for such audit.
Crystal Magic shall promptly pay to Owner any deficiency or Owner shall promptly refund any
overpayment, as the case may be, which is established by such audit.
7.
RETAIL CENTER AREAS. Crystal Magic shall use its best commercial efforts to obtain
authorization from the property owner or lessee of the Retail Centers for the installation, operation and maintenance,
of the Laser Equipment in the Retail Centers.
8.
MAINTENANCE ANP REPAIR. At Crystal Magic’s expense, Owner shall maintain and
repair the Laser Equipment and digital cameras which may be required from time to time, and Crystal Magic shall
inform Owner of the need for such required repairs on a timely basis. All other maintenance and repair items relating
to the Retail Center and Laser Decorative Engraving Business shall be the responsibility of Crystal Magic. Parts
purchased from Owner will be provided at its full OEM cost and Owner shall obtain warranty work when possible.
Owner will stock major laser parts required to repair a laser system efficiently.
9.
10.
a)
CRYSTAL BLANKS. Crystal Magic shall purchase the Crystal Blanks at its own expense.
RIGHT OF FIRST REFUSAL.
In the event Crystal Magic or any shareholder thereof receives a bonafide offer for the purchase of
common stock, and Crystal Magic and/or any shareholder thereof desires to accept such offer, such
person (the “Offering Person”) agrees to promptly give written notice of such offer to Owner. The
notice must set forth the name and address of the proposed transferee and the qualifications of such
transferee to hold the common stock (the “Offered Stock”), price and all other terms and conditions of
the proposed transfer. On receipt of the notice with respect to such offer, Owner will have the
exclusive right and option exercisable at any time during a period of sixty (60) days from the date
notice is received, to purchase the Offered Stock upon the same terms and conditions as contained in
the offer from the third party. If Owner elects to exercise its option to purchase the Offered Stock,
Owner will give written notice to that effect to the Offering Person. If Owner does not desire to
purchase the Offered Stock, the Offering Person will have the right to transfer the Offered Stock, or
available portion thereof, to the third party purchaser pursuant to the terms of the offer.
b.
In the event Owner or any limited partner thereof receives a bona fide offer for the purchase of limited
partnership interests, and Owner and/or any limited partner thereof desires to accept such offer, such
person (the “Offering Person”) agrees to promptly give written notice of such offer to Crystal Magic.
The notice must set forth the name and address of the proposed transferee and the qualifications of
such transferee to hold the limited partnership interests (the “Offered Interests”), price and all other
terms and conditions of the proposed transfer. On receipt of the notice with respect to such offer,
Crystal Magic will have the exclusive right and option exercisable at any time during a period of sixty
(60) days from the date notice is received, to purchase the Offered Interests upon the same terms and
conditions as contained in the offer from the third party. If Crystal Magic elects to exercise its option
to purchase the Offered Interests, Crystal Magic will give written notice to that effect to the Offering
Person. If Crystal Magic does not desire to purchase the Offered Interests, the Offering Person will
have the right to transfer the Offered Interests, or available portion thereof, to the third party
purchaser pursuant to the terms of the offer.
c.
This Section 10 shall only apply to offers from persons unaffiliated with each entity and shall not
apply to transfers among existing equity owners, their family members, persons under common
control, or involuntary transfers such as death, bankruptcy or divorce.
11.
RELATIONSHIP. Owner is providing Laser Equipment to Crystal Magic, and is performing
the repair and maintenance services, as well as other services hereunder, as an independent contractor and not as an
employee of Crystal Magic, and Owner shall not be entitled to receive any compensation, benefits or other incidents
of employment from Crystal Magic. Nothing in this Agreement shall be deemed to constitute a partnership, joint
venture, or other related party relationship between Crystal Magic and Owner, nor shall anything in this Agreement
be deemed to constitute Crystal Magic or Owner the agent of the other. Neither Owner nor Crystal Magic shall be or
become liable or bound by any representation, act, or omission whatsoever of the other.
12.
LICENSES AND PERMITS. Prior to commencing any work in any Retail Center, Crystal
Magic shall obtain all necessary licenses, permits and consents related to the Laser Decorative Engraving Business
and to the operation and use of the Laser Equipment and provide copies of same to Owner. Owner shall have the
right to monitor all such work, at the expense of Crystal Magic.
13.
COSTS. IT addition to the fees and expenses referenced in Section 6, Crystal Magic shall be
responsible for any and all cost, damage or expense arising from the installation, maintenance, repair or operation of
the Laser Equipment and the Laser Decorative Engraving Business, including, without limitation, the purchase of
Crystal Blanks and any and all cost, damage or expense to the Retail Centers or the property of owners or tenants
thereof. Owner and Crystal Magic shall each pay all of their respective fees, costs and expenses (including those of
accountants and attorneys) incurred in connection with or related to the preparation, negotiation, execution, delivery,
satisfaction; compliance and consummation of this Agreement and the transactions contemplated hereby and the
closing matters hereunder.
14.
TAXES. Crystal Magic shall pay directly (or reimburse, but only if instructed by Owner) all
taxes, fees, and assessments that may be imposed by any taxing authority in connection with the Laser Decorative
Engraving Business or on the Laser Equipment, its purchase, use, ownership, delivery, possession, operation,
rental, or return to Owner (collectively, Taxes); provided, however, that Crystal Magic shall not be liable for any
such Taxes (whether imposed by the United States of America or by any other domestic or foreign taxing authority)
imposed or measured by Owner’s net income or tax preference items. Crystal Magic’s obligation includes, but is not
limited to, the obligation to pay all license and registration fees and all sales, use, personal property and other taxes
and governmental charges, together with any penalties, fines and interest thereon, that may be imposed during the
License Term. Crystal Magic is liable for these Taxes whether they are imposed upon Owner, Crystal Magic, the
Laser Equipment, or this Agreement. If Crystal Magic is required by law or administrative practice to make any
refund or return with respect to such Taxes, Crystal Magic shall promptly advise Owner thereof in writing and shall
cooperate with Owner to ensure that such reports are properly filed and accurately reflect Owner’s interest in the
Laser Equipment. Owner has no obligation to contest any such Taxes, however Crystal Magic may do so provided
that; (a) Crystal Magic does so in its own name and at its own expense, (b) the contest does not and will not result in
any lien attaching to any Laser Equipment or otherwise jeopardize Owner’s right to any Laser Equipment; and (c)
Crystal Magic indemnifies Owner for all expenses (including legal fees and costs), liabilities and losses that Owner
incurs as a result of any such contest.
15.
CONFIDENTIALITY. As a material inducement to this Agreement, Owner and Crystal Magic
shall enter into a Confidentiality and Non-Circumvention Agreement in the form attached hereto as Exhibit B.
16.
LAWS AND REGULATIONS. Crystal Magic, at Crystal Magic’s sole cost, shall (a) comply
with all Legal Requirements and Insurance Requirements applicable to Crystal Magic’s use and occupancy of the
Retail Centers, and (b) take all measures necessary to assure that it strictly complies with all applicable Legal
Requirements, Owner shall (a) comply with all Legal Requirements of its Patent Sublicense with LDI or other
licensor and take all measures necessary to assure that it strictly complies with all applicable Legal Requirements.
17.
NO WARRANTY. CRYSTAL MAGIC ACKNOWLEDGES AND AGREES THAT
OWNER HAS MADE NO REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, TO THE
EFFECT THAT ANY RETAIL CENTER OR THE LASER EQUIPMENT ARE ADEQUATE FOR THE
OPERATION OF CRYSTAL MAGIC’S BUSINESS OR FOR ANY PARTICULAR PURPOSE
WHATSOEVER, NOR THAT THE LOCATION OF EACH RETAIL CENTER OR ITS OPERATIONS WELL
RESULT IN FINANCIALLY SUCCESSFUL RESULTS TO CRYSTAL MAGIC. OWNER MAKES NO
REPRESENTATIONS OR WARRANTIES EXCEPT AS SPECIFICALLY SET FORTH HEREIN. SOME
JURISDICTIONS DO NOT ALLOW THE EXCLUSION OF IMPLIED WARRANTIES, SO THE ABOVE
EXCLUSION MAY NOT APPLY TO YOU.
OWNER ACKNOWLEDGES AND AGREES THAT CRYSTAL MAGIC HAS MADE NO
REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, TO THE EFFECT THAT ANY RETAIL
CENTER OR THE LASER EQUIPMENT ARE ADEQUATE FOR THE OPERATION OF CRYSTAL
MAGIC'S BUSINESS OR FOR ANY PARTICULAR PURPOSE WHATSOEVER, NOR THAT THE
LOCATION OF EACH RETAIL CENTER OR ITS OPERATIONS WILL RESULT IN FINANCIALLY
SUCCESSFUL RESULTS TO CRYSTAL MAGIC, CRYSTAL MAGIC MAKES NO REPRESENTATIONS
OR WARRANTIES EXCEPT AS SPECIFICALLY SET FORTH HEREIN. SOME JURISDICTIONS DO NOT
ALLOW THE EXCLUSION OF IMPLIED WARRANTIES, SO THE ABOVE EXCLUSION MAY NOT
APPLY TO YOU.
18.
ENTRY AND INSPECTION BY OWNER. Crystal Magic shall permit Owner. and its
employees, agents, contractors, or representatives, to have access to any portion of the Retail Centers at all times to
inspect the same, to clean or make repairs, alterations or additions thereto.
19.
INDEMNIFICATION.
a)
CRYSTAL MAGIC WILL INDEMNIFY AND HOLD HARMLESS OWNER, ITS
AGENTS, SERVANTS, OWNERS AND EMPLOYEES (COLLECTIVELY, “OWNER”) FROM AND
AGAINST (1) ANY LOSS, COST, CLAIM, LIABILITY, DAMAGE, EXPENSE (INCLUDING
REASONABLE ATTORNEY FEES), RELATING TO OR ARISING OUT OF NEGLIGENCE, GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT OF CRYSTAL MAGIC INCLUDING. WITHOUT
LIMITATION, (i) THE INSTALLATION, OPERATION, REPAIR, AND MAINTENANCE OF THE LASER
EQUIPMENT, THE OPERATION OF THE LASER DECORATIVE ENGRAVING BUSINESS, AND ANY
OTHER BUSINESS ACTIVITIES OF CRYSTAL MAGIC EXCEPT TO THE EXTENT ANY LIABILITY,
CLAIMS OR DAMAGES ARISE DIRECTLY FROM THE GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT OF OWNER; AND (2) ALL LIABILITY AND CLAIMS FOR PATENT ROYALTIES
PAYABLE BASED UPON THE SALE OF LICENSED DECORATIVE PRODUCTS MADE BY THE LASER
EQUIPMENT. CRYSTAL MAGIC WILL ALSO DEFEND ANY ACTION OR SUIT BROUGHT BY A
THIRD PARTY AGAINST OWNER AND INDEMNIFY AND HOLD HARMLESS OWNER FOR ANY
LOSS, CLAIM, LIABILITY, DAMAGE, OR EXPENSE RELATING TO OR ARISING OUT OF THE
NEGLIGENCE, GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF CRYSTAL MAGIC, ITS
DIRECTORS, OFFICERS, EMPLOYEES, AGENTS, OR CONTRACTORS, IN THE PERFORMANCE OF
THIS AGREEMENT.
b)
THE PARTIES ALSO ACKNOWLEDGE THAT (1) THE PROVISIONS OF THIS
SECTION SPECIFY THE PARTIES’ AGREEMENT REGARDING ALLOCATION OF RISK AND (2)
SUCH PROVISIONS ARE AN ESSENTIAL AND CENTRAL FART OF THIS AGREEMENT.
c)
Owner shall protect, defend, indemnify, and hold Crystal Magic harmless from all
liability and claims in connection with any other business activities of Owner unrelated to the Laser Decorative
Engraving Business, except to the extent any liability, claims or damages arise from the negligence, gross negligence
or willful misconduct of Crystal Magic.
20.
DAMAGE. Crystal Magic shall be liable to Owner for any loss or damage to all or any
part of the Laser Equipment to the extent not reimbursed by Insurance.
21.
INSURANCE. At its own expense, Crystal Magic shall provide and maintain (or
reimburse Owner for providing and maintaining) the following insurance: (a) insurance against the loss or theft of
or damage to the Laser Equipment for the fall replacement value thereof, naming Owner as a loss payee; and (b)
public liability and third party property damage insurance, naming Owner as an additional insured (collectively,
“Insurance”). Such Insurance shall be in a form, amount and with companies reasonably satisfactory to Owner, shall
contain the insurer’s agreement to give Owner 30 days’ prior written notice before cancellation or material change
thereof, and shall be payable to Owner regardless of any act, omission or breach by Crystal Magic. Crystal Magic
shall deliver to Owner the Insurance policies or copies thereof or certificates of such Insurance on or before the
Effective Date hereof, and at such other times as Owner may reasonably request.
22.
TRANSFERS BY CRYSTAL MAGIC. Crystal Magic shall not assign, convey, mortgage,
pledge, hypothecate, encumber, or otherwise transfer the Laser Equipment or the Agreement or grant any license,
concession, or other right with respect to the Laser Equipment or the Agreement without the prior written consent of
Owner, which consent may be granted or withheld in Owner’s sole option; and the Agreement shall, at Owner’s
sole option, terminate upon the occurrence of any attempted transfer of the Laser Equipment.
23.
NEGATIVE COVENANTS. Owner shall not establish or compete with Crystal Magic directly
or indirectly in any Disney owned or operated Theme Park, any Universal Studios owned or operated Theme Park
or any engraving location owned or operated by Cashman Photo Enterprises, Inc., Should Owner desire to establish
a sales operation in any Theme Park where Crystal Magic is not established, Owner agrees to notify Crystal Magic
of Owner’s intent and provide Crystal Magic rights of first refusal. If Crystal Magic does not exercise its right of
first refusal within 90 days after Owner’s notice, Owner may independently establish a business in such Theme
Park.
Until Crystal Magic pays the outstanding unamortized cost of Assets provided by Owner, Crystal Magic
will not, without the express written consent of Owner which consent shall not be unreasonably withheld:
a
b)
permit any change in directors, executive officers, or other control persons in other than by
operation of law; or
d) c)
issue stock, options or other beneficial interest.
In addition. Crystal Magic shall operate its Business consistent with past practice, in the ordinary
course of business, and not intentionally allow any material adverse change in its Business, the Laser Equipment or
in the operation, condition (financial or otherwise), assets, properties, liabilities or Business prospects. Without
limiting the generality of the foregoing, and until Crystal Magic pays the outstanding unamortized cost of Assets
provided by Owner, Crystal Magic will not, without the express written permission of Owner which consent shall
not be unreasonably withheld (other than as contemplated by this Agreement):
a)
Subject any of their respective assets (collectively, “Asset”) or permit any Asset to become subject
to, or incur, any mortgages, deeds of trust, claims, liens, security interests, pledges, leases, conditional sale contracts,
rights of first refusal, options, charges, liabilities, obligations, agreements, easements, rights-of-way, powers of
attorney, limitations, reservations, restrictions and other encumbrances of any kind (collectively, “Lien”) (whether
voluntary or by operation of law) absolute, accrued, contingent or otherwise, whether due or to become due except
for current Liens and liabilities for trade and business obligations incurred in connection with the purchase of goods
or services in the ordinary course of business consistent with past practice;
b)
sell, transfer, mortgage, assign, lease, license or otherwise dispose any material Asset other than
inventory sold in the ordinary course of business and consistent with past practice;
c)
make any capital expenditures, capital additions or improvements or incur any debt obligations in
excess of an aggregate of $10.000 or make any legally binding commitments therefor;
d)
enter into any material contract, agreement, instrument or understanding (whether written or oral),
or make or agree (whether in writing or orally) to any amendment, modification or termination to any material
contract, agreement, instrument or understanding, other than in the ordinary course of business and consistent with
past practice;
e)
fail to replenish inventories of the Business in a normal and customary manner consistent with
prior practice and prudent business practices prevailing in the industry, or make any purchase commitment in excess
of the normal, ordinary and usual requirements of the Business or at any price in excess of the then current market
price or upon the terms and conditions more onerous than those usual and customary in the industry, or make any
change in its selling, pricing, advertising or personnel practices of the Business inconsistent with past practice and
prudent business practices prevailing in the industry;
f)
defer payment on any liabilities outside the ordinary course of business or otherwise treat
suppliers of the Business in such a way that could negatively affect the future relationship;
g)
accept or enter into any purchase order or quotation, arrangement or understanding (whether
written or oral) for future sale of services or Crystal Products by or in the Business which Crystal Magic knows, or
should know at the time of such acceptance or execution, would not be profitable in any material respect;
h)
adopt or amend any bonus, profit sharing, pension, retirement or other compensation plan or
(except for cost of living adjustments) make any material change in the rate of compensation, commission, bonus or
other direct or indirect remuneration payable, or pay or agreed or orally promised to pay, conditionally or otherwise,
any bonus, incentive, retention or other compensation, retirement, welfare, fringe or severance benefit or vacation
pay to or in respect of any director, officer, employee, salesman, distributor, consultant or agent providing services
to the Business other than in the ordinary course of business and consistent with past practice;
i)
institute, settle or agree to settle any proceeding before any court or governmental body other than
in the ordinary course of business consistent with past practices but not in any case involving amounts in excess of
$5,000;
j)
enter into any transaction related to the Business other than those contemplated by this Agreement,
any other agreement between the parties hereto, or considered to be in the ordinary course of business;
k)
practice; or
vary insurance coverage other than in the ordinary course of business and consistent with past
1)
enter into any agreement or understanding to do or permit any of the foregoing, or taken any
action or omitted to take any action that could reasonably be expected to result in the occurrence of any of the
foregoing other than in the ordinary course of business and consistent with past practice.
24.
REFORMATION. It is expressly understood and agreed that although Owner and Crystal
Magic consider the restrictions and provisions contained herein to be reasonable, if a final judicial determination is
made by a court having jurisdiction that any restriction or provision contained in this Agreement is an unreasonable
or otherwise unenforceable restriction against Owner and/or Crystal Magic, the parties hereto do hereby authorize
such court to revise and amend this Agreement so as to produce a legally enforceable agreement.
25.
DEFAULT AND REMEDIES / TERMINATION.
a)
Security Agreements. Crystal Magic and Owner shall enter into a Security Agreement in the form
attached hereto as Exhibit C and Crystal Magic hereby consents to the filing of any applicable Uniform Commercial
Code Financing Statement (UCC-1) in connection therewith, as well as any security agreements and Financing
Statements affecting Owner’s interest in the Laser Equipment.
b)
Events of Default. Any of the following shall constitute an Event of Default under this Agreement
and all Schedules; (a) Crystal Magic fails to pay any Fee or any other amount payable to Owner hereunder as
provided herein; or (b) Crystal Magic fails to perform or observe any other representation, warranty, covenant,
condition or agreement to be performed or observe by Crystal Magic hereunder or in any other agreement with
Owner, and Crystal Magic fails to cure any such breach within 30 days after notice thereof; or (c) Crystal Magic
makes an assignment for the benefit of creditors, whether voluntary or involuntary; or (d) a proceeding under any
bankruptcy, reorganization, arrangement of debts, insolvency or receivership law is filed by or against Crystal
Magic or Crystal Magic takes any action to authorize any of the foregoing matters; or (e) Crystal Magic becomes
insolvent or fails generally to pay its debts as they become due, the Laser Equipment is levied against, seized or
attached; or (f) Crystal Magic seeks to effectuate a bulk sale of Crystal Magic’s inventory or assets; or (g) Crystal
Magic voluntarily or involuntarily dissolves or is dissolved, or terminates or is terminated.
c)
Remedies. If an Event of Default occurs by Crystal Magic, Owner may, in its sole discretion,
exercise one or more of the following remedies but must provide Crystal Magic with a written 60 days’ notice and
opportunity to cure any default: (a) terminate this Agreement; or (b)take possession of, or render unusable, any
Laser Equipment wherever the Laser Equipment may be located, without demand or notice, without any court order
or other process of law and without liability to Crystal Magic for any damages occasioned by such action, and no
such action shall constitute a termination of this Agreement; or (c) require Crystal Magic to deliver the Laser
Equipment at a location designated by Owner at Crystal Magic’s sole expense; or (d) proceed by court action to
enforce specific performance by Crystal Magic of any provision or covenant hereof and/or to recover all damages
and expenses incurred by Owner by reason of any Event of
Default or (e) terminate any other agreement that Owner may have with Crystal Magic. In addition, Crystal Magic
shall pay Owner all costs and expenses (including legal fees and cost and fees of collection agencies) incurred by
Owner in enforcing any of the terms, conditions or provisions of this Agreement Upon repossession or surrender of
any Laser Equipment, Crystal Magic shall remain liable to Owner for any damages or liability notwithstanding such
repossession. Crystal Magic agrees that with respect to any notice of a sale required by law to be given, 180 days’
notice shall constitute reasonable notice. These remedies are cumulative of every other right or remedy given
hereunder or now or hereafter existing at law or in equity or by statute or otherwise, and may be enforced
concurrently therewith or from time to time. If an Event of Default occurs by Owner, Owner must provide Crystal
Magic with a written 180 days’ notice in order to take possession of any Laser Equipment. If an Owner default
occurs after September 3. 2005, Owner will forfeit any displays provided to Crystal Magic.
d)
Delivery of Equipment If Owner fails to deliver Laser Equipment on a timely basis, Crystal Magic
shall notify Owner in writing within three (3) calendar days of such occurrence, and Owner shall have sixty (60)
days to deliver such equipment.
e)
Cross-Default Provisions. A material breach or default of this Agreement shall constitute a
material breach of the Operative Agreements, and vice versa.
f)
Force Majeure. Neither party shall be in default hereunder by reason of any failure or delay in the
performance of any obligation under this Agreement where such failure or delay arises out of any cause beyond the
reasonable control and without the fault or negligence of such party.
e)
Termination by Owner. Owner shall have the right, but not the obligation, to immediately
terminate this Agreement in the event of any disagreement, conflict, alleged breach or default, or other notice of a
potential or actual dispute in connection with or related to the Patent Sublicense and/or royalties payable thereunder.
If this termination occurs by Owner, Owner must provide Crystal Magic with a written 180 days’ notice in order to
take possession of any Laser Equipment If a Termination by Owner occurs after September 3, 2005, Owner will
forfeit any displays provided to Crystal Magic.
26.
SURVIVAL. Certain provisions of this Agreement relate to the rights and obligations of Owner
and Crystal Magic subsequent to the termination or expiration of the Agreement Term. Such provisions include,
without limitation, the indemnification obligations under Paragraph 19 hereof. Such provisions shall survive the
expiration or other termination of the Agreement Term and the License granted to Crystal Magic hereunder.
27.
ASSIGNMENT. Neither party hereto may assign this Agreement or any of the rights or
obligations established herein, in whole or in part, without the prior written consent of the other party hereto. Any
purported assignment without such consent shall be void. Notwithstanding the foregoing, the rights and duties of
Owner hereunder may be assigned by Owner, without the consent of Crystal Magic, to any successor-in-interest,
subsidiary, affiliate or related party of Owner.
28.
APPLICABLE LAW THIS AGREEMENT SHALL BE GOVERNED BY THE INTERNAL
LAWS (AS OPPOSED TO CONFLICTS OF LAW PROVISIONS) OF THE STATE OF TEXAS. Owner and
Crystal Magic consent to the jurisdiction of any local, state or Federal court located within the State of Texas, and
waive any objection relating to improper venue or forum non conveniens to the conduct of any proceeding in any
such court.
29.
CAPTIONS; COUNTERPARTS; INTEGRATION: ENTIRE AGREEMENT. The
captions contained in this Agreement are for convenience only and shall not affect the interpretation of this
Agreement. This Agreement may be executed in any number of counterparts, and each such counterpart hereof shall
be deemed to be an original instrument, but all such counterparts together shall constitute but one agreement. This
Agreement may also be executed by facsimile signature. This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their permitted successors or assigns. This Agreement and all other Operative
Documents executed by both Owner and Crystal Magic constitute the entire agreement between the parties hereto
relating to the matters hereof, and supersede all prior agreements relating thereto, whether written or oral, and may
not be amended or modified except in a writing signed by the parties hereto.
30.
SEVERABILITY. If any provision of this Agreement, including any phrase, sentence, clause,
section or subsection, is legally inoperative or unenforceable for any reason, such circumstances shall not have the
effect of rendering any other provision or provisions herein contained invalid, inoperative, or unenforceable to any
extent whatsoever.
31.
NOTICES. All notices, claims, certificates, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given if delivered personally or mailed (by first
class registered or certified mail, postage prepaid, return receipt requested), or via Federal Express or other
nationally recognized service as follows:
To Owner:
Laser Crystal Works, LP
100 Bowie Dr.
Red Oak, Texas 75154
To Crystal Magic:
Crystal Magic, Inc.
3329 Bartlett Blvd.
Orlando, Florida 32811
With A Copy To:
Vial, Hamilton, Koch & Knox, L.L.P.
1700 Pacific Ave., Suite 2800
Dallas, Texas 75201
Attn: Paul D. Schoonover, Esq.
or to such other address as the party to whom notice is to be given may have furnished to the other parties in writing
in accordance herewith.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the Effective Date.
OWNER:
LASER CRYSTAL WORKS, LP
a Texas limited partnership
By:
PTC MANAGEMENT, L.L.C,
a Texas limited liability company, and its general partner
Date Executed on
Behalf of Owner:
By: /s/ Richard Lamden
Name: Richard Lamden
Title: Manager
LICENSEE:
CRYSTAL MAGIC, INC.,
a Florida corporation
Date Executed on
Behalf of Crystal Magic:
By: /s/ Steven M. Rhodes
Name: Steven M. Rhodes
Title: President
APPENDIX A
FEES AND EQUIPMENT SCHEDULE
I.
Owner agrees to provide Crystal Magic with Five Hundred Forty Four Thousand Dollars ($544,000) of
fixed assets at OEM pricing as identified below to and including laser systems, 3D digital Cameras,
Fixtures or Kiosks or other assets as both parties may agree to from time to time. Such assets will be
provided by owner to Crystal Magic in a timely manner, but not to exceed sixty days (60) from the time
of notification, exceptions being unforeseen vendors delays.
ASSET SCHEDULE
532 Wavelength Laser, $80,000, Delivered March 3. 2003
532 Wavelength Laser, $80,000, Delivered March 3, 2003
Minolta 3D Digital Camera, $13,000, Delivered March 3, 2003
Minolta 3D Digital Camera, $8,000, Delivered March 3, 2003
532 Wavelength Laser, $80,000, Delivery On or Before. August 30, 2003
6 3D Digital Cameras, Manufactured to be decided upon by Crystal Magic, and delivered by vendor as soon as
possible at OEM cost.
Retail Fixtures, Manufacturer to be decided upon by Crystal Magic and delivered by Manufacturer as soon as
possible
Owner agrees to sell to Crystal Magic for company operations additional equipment at OEM cost while this
agreement is in effect.
Owner and Crystal Magic agree to each fund fifty percent (50%) of the cost of any assets needed above the Five
Hundred Forty Four Thousand Dollars ($544,000) of fixed assets at OEM pricing to further grow Crystal
Magic’s business.
APPENDIX B
1.
On a monthly basis, Crystal Magic agrees to pay to Owner monthly fees equivalent to the cost of fixed
assets provided by Owner, amortized over a sixty (60) month period at a fixed rate of 8% interest.
a.
In the event that Crystal Magic cannot make the monthly payment, the calculated interest will be
added back to the principal balance of the outstanding amount due and the payment will be
reamortized.
b.
On an annual basis but paid and adjusted quarterly and until Crystal Magic pays the outstanding
unamortized cost of Assets provided by Owner, Crystal Magic agrees to pay to Owner Forty
Percent (20%) of Crystal Magic’s non Commercial Business Earnings Before Interest,
Depreciation, and Amortization but not less than the sum of monthly fees paid for the annual
period.
i.
ii.
2.
Upon Crystal Magic’s payment in full of the costs of Assets provided by Owner,
Crystal Magic agrees to pay to Owner Thirty Three and One Third Percent (13.33%) of
Crystal Magic’s non Commercial Business Earnings Before Interest, Depreciation, and
Amortization. Crystal Magic agrees to apply the additional 6.67% to service CM debt.
Upon Crystal Magic’s payment in full of its debt existing as of the date hereof, CM
agrees to pay to Owner Fifty Percent (30°/o) of Crystal Magic’s non Commercial
Business Earnings Before Interest Depreciation, and Amortization.
On a quarterly basis, Crystal Magic will pay to owner etching fees for all non commercial etching services
(tolling) for Crystal Products sold for Twenty Percent (20%) of Crystal Magic’s non Commercial
Business Earnings Before Interest, Depreciation, and Amortization. Additionally, and on a quarterly
basis, Crystal Magic will pay to owner royalty fees equal to Ten Percent (10%) of the etching fees as
calculated in this paragraph plus Ten Percent (10%) of the operating labor costs incurred by owner for
etching services provided hereunder.
Exhibit 10.17
SUBSURFACE ETCHING AND SERVICING AGREEMENT
THIS SUBSURFACE ETCHING AND SERVICING AGREEMENT (“Agreement”) is made and entered into
as of the 26 day of April, 2003, by and between LASER CRYSTAL WORKS, LP, a Texas limited partnership
(“Owner” or “Laser Crystal Works”), whose address is 100 Bowie Dr., Red Oak, Texas 75154, and CRYSTAL
MAGIC, INC., a Florida corporation (“Crystal Magic”), whose address is 3329 Bartlett Blvd., Orlando, Florida
32811.
1.
DEFINED TERMS. For purposes of this Agreement all terms defined in this Agreement (including
other exhibits to this Agreement) will be used in this Agreement without further definition. In addition,
when delineated with initial capital letters, the following terms will have the following respective
meanings:
a)
“Crystal Blanks” means Crystal Products prior to subsurface engraving.
b)
“Crystal Products” means leaded or optical glass materials which have been etched by subsurface
engraving by Laser Equipment.
c)
“Insurance Requirements” shall mean all terms of any Insurance policy obtained by Owner or
Crystal Magic covering or applicable to the Laser Equipment, the Retail Center or the Laser
Decorative Engraving Business.
d)
“Laser Equipment” means laser subsurface engraving machines.
e)
“Laser Decorative Engraving Business” means the etching of the Crystal Blanks.
f)
“Legal Requirements” shall mean all laws, statutes, codes, acts, ordinances, orders, judgments,
decrees, injunctions, rules, regulations, permits, licenses, authorizations, and requirements of all
governmental authorities, foreseen or unforeseen, which now or at any time hereafter may be
applicable to the Retail Centers or the Laser Decorative Engraving Business, including (a) all
federal, state, and local laws, regulations, and ordinances pertaining to employment laws, (b) all
federal, state, and local laws, regulations, and ordinances pertaining to tax matters; and (c) all laws,
codes, and regulations pertaining to zoning, land use, healthy or safety.
g)
“Licensed Decorative Products” means Crystal Products which are used for decorative purposes
under a Patent Sub-License Agreement (“Patent Sublicense”) to which Owner is a party.
h)
“Operative Documents” means this Agreement, the Confidentiality and Non-Circumvention
Agreement, the Security Agreement, and all other agreements, instruments, documents, exhibits,
schedules and certificates executed and delivered by or on behalf of Owner or Crystal Magic
pursuant to this Agreement
i)
“Retail Business” means the sale of Crystal Products at Retail Centers to final customers
(consumers).
j)
“Theme Park” means any amusement complex such as Disneyland, Six Flags, Sea World, but
shall exclude gaming and general vacation sites.
With respect to any Business of Crystal Magic, the definitions of its Business shall include the Business
activities of Crystal Magic as well as its subsidiaries, partners, affiliates, owners, and other entities in common control
(whether wholly or in part) with Crystal Magic.
2.
ENGRAVING SERVICES. Subject to and upon the terms set forth in this Agreement, Owner
will provide etching services to Crystal Magic for purposes of selling Crystal Products at such Retail Centers as are
approved in writing by Owner. During the period the Sublicense Agreement is in place, this License is granted only
with respect to Licensed Decorative Products.
3.
TERM. This Agreement shall be in effect beginning the 3rd day of March, 2003 and shall continue
until terminated as provided herein. At the termination of this Agreement by breach, Crystal Magic shall cause all of
Owner’s property, including the Laser Equipment, to be delivered to Owner at Crystal Magic’s expense to such
locations as directed by Owner.
4.
RETAIL CENTER PREPARATON. Owner shall hire its own employees or independent
contractors to operate the Laser Equipment and shall be responsible for all such individuals at Crystal Magic Retail
Centers. Owner specifically represents and warrants that it has reviewed the scope of Crystal Magic’s Retail Business
and that Crystal Magic’s Retail Business does not violate Owners Laser Equipment Patent License with LDI or any
other Licensor, Crystal Magic understands that the Laser Equipment must be kept secure at all times and must not be
a danger to the public. Owner shall at all times retain ownership of the Laser Equipment and have ultimate
supervision and authority with respect to its use.
5.
DELIVERY AND SHIPPING. The delivery and shipping charges of the Laser Equipment in
each Retail Center shall be at the sole cost and expense of Owner and shall be performed by Owner’s employees or
representatives, with assistance from Crystal Magic employees at the installation site. Crystal Magic shall provide
Owner with the location of each Retail Center and shall assist Owner in obtaining access to each Retail Center.
Owner will initially provide Assets as set forth in Appendix A hereto.
6.
FEES AND EXPENSE PAYMENTS.
a)
The Fees are described in Appendix B and shall be calculated in part based on Crystal Magic’s
Net Profit (as defined below) as determined pursuant to Appendix B and shall be due and payable
as provided therein.
“Gross Revenues” means revenues from all the operation of all sources of business related to the sale of
crystal - products, equipment and accessories of Crystal Magic as well as its subsidiaries (minority or
majority), partners, affiliates, owners, and other entities in common control (whether wholly or in part) with
Crystal Magic including, without limitation, income received from the Cashman Photo Enterprises business
excluding revenues directly attributable to laser engraving of Crystal Products which are not Licensed
Decorative Products. “Net profit” means Gross Revenues less all ordinary, reasonable, and necessary
expenses, either paid or accrued in accordance with the accounting system used by the Crystal Magic for
federal income tail purposes; provided however, that no deduction shall be made for the following items:
· depreciation and amortization
· amounts paid to spouses of - officers, directors, employees, or owners of Crystal Magic
· amounts paid to Steven M. Rhodes and John C. Wolf (or the replacement or substitution of such
executive officer) in excess of $250,000 per year combined.
· expenses directly attributable to laser engraving of Crystal Products which are not Licensed
Decorative Products
· fees, expenses, settlements and costs of litigation in excess of $16,000 per calendar year
· damages or other awards from litigation
· payments on debt, including principal and interest
Notwithstanding the foregoing, no deduction shall be made for damages by way of judgment, consent, or
otherwise or other awards related to or in connection with laser etching licensing or patent matters.
In considerations of calculating profits and distributions, and as agreed by both parties, a sufficient level of
earnings will remain as future operating capital.
The cost of any Owner’s employee to operate lasers (including, without limitation, salary, taxes, benefits,
workers compensation insurance premiums, etc.) will be reimbursed by Crystal Magic to Owner per
Appendix B.
b)
In addition to the Fees, Crystal Magic shall pay Owner the expense reimbursements and costs as
determined under Appendix B as well as any sales, use or other taxes or assessments which are assessed or
due by reason of this License hereunder.
c)
Crystal Magic shall keep accurate sets of books and records prepared in accordance with
Generally Accepted Accounting Principles consisting of a profit and loss statement, balance sheet,
and earnings statement, and all supporting records such as sales receipts, expense receipts, and
other records which are necessary to verify and substantiate the amount of the Fees and expenses,
and deliver a true correct copy of the profit and loss statement, balance sheet, and earnings
statement to Owner on a quarterly basis no later than 30 calendar days following the end of each
quarter, and a true and correct copy of Crystal Magic’s Federal income tax return within 5
calendar days after filing same. All such books and records shall be retained and preserved for at
least five (5) years after the end of the calendar year to which they relate and shall be subject to
inspection and audit by Owner and its agents at all reasonable times. In the event Owner is not
satisfied with any monthly statement or annual statement submitted by Crystal Magic, it shall have
the right to have its auditors make a special audit of all books and records during the period in
question. If such statements are found to be incorrect to an extent of more than two percent (2%)
over the figure submitted, Crystal Magic shall pay for such audit. Crystal Magic shall promptly
pay to Owner any deficiency or Owner shall promptly refund any overpayment, as the case may
be, which is established by such audit.
7.
RETAIL CENTER AREAS. Crystal Magic shall use its best commercial efforts to obtain
authorization from the property owner or lessee of the Retail Centers for the installation, operation and maintenance,
of the Laser Equipment in the Retail Centers.
8.
MAINTENANCE ANP REPAIR. At Crystal Magic’s expense, Owner shall maintain and repair
the Laser Equipment which may be required from time to time, and crystal Magic shall inform owner of the need for
such required repairs on a timely basis. All other maintenance and repair items relating to the Retail Center and Laser
Decorative Engraving Business shall be the responsibility of Crystal Magic. Cost of labor and parts will be charged at
full OEM cost and Owner shall obtain warranty work when possible. Owner will stock major laser parts required to
repair a laser system efficiently.
9.
10.
CRYSTAL BLANKS. Crystal Magic shall purchase the Crystal Blanks at its own expense.
RIGHT OF FIRST REFUSAL.
a)
In the event Crystal Magic or any shareholder thereof receives a bona fide offer for the purchase of
common stock, and Crystal Magic and/or any shareholder thereof desires to accept such offer, such
person (the “Offering Person”) agrees to promptly give written notice of such offer to Owner. The
notice must set forth the name and address of the proposed transferee and the qualifications of such
transferee to hold the common stock (the “Offered Stock”), price and all other terms and conditions of
the proposed transfer. On receipt of the notice with respect to such offer, Owner will have the
exclusive right and option exercisable at any time during a period of sixty (60) days from the date
notice is received, to purchase the Offered Stock upon the same terms and conditions as contained in
the offer from the third party. If Owner elects to exercise its option to purchase the Offered Stock,
Owner will give written notice to that effect to the Offering Person. If Owner does not desire to
purchase the Offered Stock, the Offering Person will have the right to transfer the Offered Stock, or
available portion thereof, to the third party purchaser pursuant to the terms of the offer.
b.
In the event Owner or any limited partner thereof receives a bona fide offer for the purchase of limited
partnership interests, and Owner and/or any limited partner thereof desires to accept such offer, such
person (the “Offering Person”) agrees to promptly give written notice of such offer to Crystal Magic.
The notice must set forth the name and address of the proposed transferee and the qualifications of
such transferee to hold the limited partnership interests (the “Offered Interests”), price and all other
terms and conditions of the proposed transfer. On receipt of the notice with respect to such offer,
Crystal Magic will have the exclusive right and option exercisable at any time during a period of sixty
(60) days from the date notice is received, to purchase the Offered Interests upon the same terms and
conditions as contained in the offer from the third party. If Crystal Magic elects to exercise its option to
purchase the Offered Interests, Crystal Magic will give written notice to that effect to the Offering
Person. If Crystal Magic does not desire to purchase the Offered Interests, the Offering Person will
have the right to transfer the Offered Interests, or available portion thereof, to the third party purchaser
pursuant to the terms of the offer, subject to the consent of Crystal Magic as provided in Paragraph
23(a) below.
c.
This Section 10 shall only apply to offers from persons unaffiliated with each entity and shall not apply
to transfers among existing equity owners, their family members, persons under common control, or
involuntary transfers such as death, bankruptcy or divorce.
11.
RELATIONSHIP. Owner is providing Laser Equipment to Crystal Magic, and is performing the
repair and maintenance services, as well as other services hereunder, as an independent contractor and not as an
employee of Crystal Magic, and Owner shall not be entitled to receive any compensation, benefits or other incidents
of employment from Crystal Magic. Nothing in this Agreement shall be deemed to constitute a partnership, joint
venture, or other related party relationship between Crystal Magic and Owner, nor shall anything in this Agreement
be deemed to constitute Crystal Magic or Owner the agent of the other. Neither Owner nor Crystal Magic shall be or
become liable or bound by any representation, act, or omission whatsoever of the other.
12.
LICENSES AND PERMITS. Prior to commencing any work in any Retail Center, Crystal
Magic shall obtain all necessary licenses, permits and consents related to the Laser Decorative Engraving Business
and to the operation and use of the Laser Equipment and provide copies of same to Owner. Owner shall have the
right to monitor all such work, at the expense of Crystal Magic.
13.
COSTS. IT addition to the fees and expenses referenced in Section 6, Crystal Magic shall be
responsible for any and all cost, damage or expense arising from the installation, maintenance, repair or operation of
the Laser Equipment and the Laser Decorative Engraving Business, including, without limitation, the purchase of
Crystal Blanks and any and all cost, damage or expense to the Retail Centers or the property of owners or tenants
thereof. Owner and Crystal Magic shall each pay all of their respective fees, costs and expenses (including those of
accountants and attorneys) incurred in connection with or related to the preparation, negotiation, execution, delivery,
satisfaction; compliance and consummation of this Agreement and the transactions contemplated hereby and the
closing matters hereunder.
14.
TAXES. Crystal Magic shall pay directly (or reimburse, but only if instructed by Owner) all
taxes, fees, and assessments that may be imposed by any taxing authority in connection with the Laser Decorative
Engraving Business or on the Laser Equipment, its purchase, use, ownership, delivery, possession, operation, rental,
or return to Owner (collectively, Taxes); provided, however, that Crystal Magic shall not be liable for any such Taxes
(whether imposed by the United States of America or by any other domestic or foreign taxing authority) imposed or
measured by Owner’s net income or tax preference items. Crystal Magic’s obligation includes, but is not limited to,
the obligation to pay all license and registration fees and all sales, use, personal property and other taxes and
governmental charges, together with any penalties, fines and interest thereon, that may be imposed during the License
Term. Crystal Magic is liable for these Taxes whether they are imposed upon Owner, Crystal Magic, the Laser
Equipment, or this Agreement. If Crystal Magic is required by law or administrative practice to make any refund or
return with respect to such Taxes, Crystal Magic shall promptly advise Owner thereof in writing and shall cooperate
with Owner to ensure that such reports are properly filed and accurately reflect Owner’s interest in the Laser
Equipment. Owner has no obligation to contest any such Taxes, however Crystal Magic may do so provided that: (a)
Crystal Magic does so in its own name and at its own expense, (b) the contest does not and will not result in any lien
attaching to any Laser Equipment or otherwise jeopardize Owner’s right to any Laser Equipment; and (c) Crystal
Magic indemnifies Owner for all expenses (including legal fees and costs), liabilities and losses that Owner incurs as
a result of any such contest.
15.
CONFIDENTIALITY. As a material inducement to this Agreement, Owner and Crystal Magic
shall enter into a Confidentiality and Non-Circumvention Agreement in the form attached hereto as Exhibit B.
16.
LAWS AND REGULATIONS. Crystal Magic, at Crystal Magic’s sole cost, shall (a) comply
with all Legal Requirements and Insurance Requirements applicable to Crystal Magic’s use and occupancy of the
Retail Centers, and (b) take all measures necessary to assure that it strictly complies with all applicable Legal
Requirements.
17.
NO WARRANTY. CRYSTAL MAGIC ACKNOWLEDGES AND AGREES THAT
OWNER HAS MADE NO REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, TO THE
EFFECT THAT ANY RETAIL CENTER OR THE LASER EQUIPMENT ARE ADEQUATE FOR THE
OPERATION OF CRYSTAL MAGIC’S BUSINESS OR FOR ANY PARTICULAR PURPOSE
WHATSOEVER, NOR THAT THE LOCATION OF EACH RETAIL CENTER OR ITS OPERATIONS WILL
RESULT IN FINANCIALLY SUCCESSFUL RESULTS TO CRYSTAL MAGIC. OWNER MAKES NO
REPRESENTATIONS OR WARRANTIES EXCEPT AS SPECIFICALLY SET FORTH HEREIN. SOME
JURISDICTIONS DO NOT ALLOW THE EXCLUSION OF IMPLIED WARRANTIES, SO THE ABOVE
EXCLUSION MAY NOT APPLY TO YOU.
OWNER ACKNOWLEDGES AND AGREES THAT CRYSTAL MAGIC HAS MADE NO
REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, TO THE EFFECT THAT ANY RETAIL
CENTER OR THE LASER EQUIPMENT ARE ADEQUATE FOR THE OPERATION OF CRYSTAL
MAGIC’S BUSINESS OR FOR ANY PARTICULAR PURPOSE WHATSOEVER, NOR THAT THE
LOCATION OF EACH RETAIL CENTER OR ITS OPERATIONS WILL RESULT IN FINANCIALLY
SUCCESSFUL RESULTS TO CRYSTAL MAGIC, CRYSTAL MAGIC MAKES NO REPRESENTATIONS
OR WARRANTIES EXCEPT AS SPECIFICALLY SET FORTH HEREIN. SOME JURISDICTIONS DO NOT
ALLOW THE EXCLUSION OF IMPLIED WARRANTIES, SO THE ABOVE EXCLUSION MAY NOT
APPLY TO YOU.
18.
ENTRY AND INSPECTION BY OWNER. Crystal Magic shall permit Owner. and its
employees, agents, contractors, or representatives, to have access to any portion of the Retail Centers at all times to
inspect the same, to clean or make repairs, alterations or additions thereto.
19.
INDEMNIFICATION.
a)
CRYSTAL MAGIC WILL INDEMNIFY AND HOLD HARMLESS OWNER, ITS
AGENTS, SERVANTS, OWNERS AND EMPLOYEES (COLLECTIVELY, “OWNER”) FROM AND
AGAINST (1) ANY LOSS, COST, CLAIM, LIABILITY, DAMAGE, EXPENSE (INCLUDING
REASONABLE ATTORNEY FEES), RELATING TO OR ARISING OUT OF NEGLIGENCE, GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT OF CRYSTAL MAGIC INCLUDING. WITHOUT
LIMITATION, (i) THE INSTALLATION, OPERATION, REPAIR, AND MAINTENANCE OF THE LASER
EQUIPMENT, THE OPERATION OF THE LASER DECORATIVE ENGRAVING BUSINESS, AND ANY
OTHER BUSINESS ACTIVITIES OF CRYSTAL MAGIC EXCEPT TO THE EXTENT ANY LIABILITY,
CLAIMS OR DAMAGES ARISE DIRECTLY FROM THE GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT OF OWNER; AND (2) ALL LIABILITY AND CLAIMS FOR PATENT ROYALTIES
PAYABLE BASED UPON THE SALE OF LICENSED DECORATIVE PRODUCTS MADE BY THE LASER
EQUIPMENT. CRYSTAL MAGIC WILL ALSO DEFEND ANY ACTION OR SUIT BROUGHT BY A
THIRD PARTY AGAINST OWNER AND INDEMNIFY AND HOLD HARMLESS OWNER FOR ANY
LOSS, CLAIM, LIABILITY, DAMAGE, OR EXPENSE RELATING TO OR ARISING OUT OF THE
NEGLIGENCE, GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF CRYSTAL MAGIC, ITS
DIRECTORS, OFFICERS, EMPLOYEES, AGENTS, OR CONTRACTORS, IN THE PERFORMANCE OF
THIS AGREEMENT.
b)
THE PARTIES ALSO ACKNOWLEDGE THAT (1) THE PROVISIONS OF THIS
SECTION SPECIFY THE PARTIES’ AGREEMENT REGARDING ALLOCATION OF RISK AND (2) SUCH
PROVISIONS ARE AN ESSENTIAL AND CENTRAL FART OF THIS AGREEMENT.
c)
Owner shall protect, defend, indemnify, and hold Crystal Magic harmless from all liability
and claims in connection with any other business activities of Owner unrelated to the Laser Decorative Engraving
Business, except to the extent any liability, claims or damages arise from the negligence, gross negligence or willful
misconduct of Crystal Magic.
20.
DAMAGE. Crystal Magic shall be liable to Owner for any loss or damage to all or any
part of the Laser Equipment to the extent not reimbursed by Insurance.
21.
INSURANCE. At its own expense, Crystal Magic shall provide and maintain (or reimburse
Owner for providing and maintaining) the following insurance: (a) insurance against the loss or theft of or damage to
the Laser Equipment for the fall replacement value thereof, naming Owner as a loss payee; and (b) public liability and
third party property damage insurance, naming Owner as an additional insured (collectively, “Insurance”). Such
Insurance shall be in a form, amount and with companies reasonably satisfactory to Owner, shall contain the insurer’s
agreement to give Owner 30 days’ prior written notice before cancellation or material change thereof, and shall be
payable to Owner regardless of any act, omission or breach by Crystal Magic. Crystal Magic shall deliver to Owner
the Insurance policies or copies thereof or certificates of such Insurance on or before the Effective Date hereof, and at
such other times as Owner may reasonably request.
22.
TRANSFERS BY CRYSTAL MAGIC. Crystal Magic shall not assign, convey, mortgage,
pledge, hypothecate, encumber, or otherwise transfer the “Equipment in Appendix A or the Agreement or grant any
license, concession, or other right with respect to the “Equipment or the Agreement without the prior written consent
of Owner, which consent may be granted or withheld in Owner’s sole option; and the Agreement shall, at Owner’s
sole option, terminate upon the occurrence of any attempted transfer of the Laser Equipment.
23.
NEGATIVE COVENANTS. Owner shall not establish or compete with Crystal Magic directly
or indirectly in any Disney owned or operated Theme Park, any Universal Studios owned or operated Theme Park or
direct or indirect Customer of Crystal magic. Crystal Magic will not compete directly or indirectly for sales to
Owner’s customers. On at least a quarterly basis, Crystal Magic and Owner will supply each other with a current
Customer list. Should Owner desire to establish a sales operation in any Theme Park where Crystal Magic is not
established, Owner agrees to notify Crystal Magic of Owner’s intent and provide Crystal Magic rights of first
refusal. If Crystal Magic does not exercise its right of first refusal within 90 days after Owner’s notice, Owner may
independently establish a business in such Theme Park. “Customer” shall only include those persons or entities who
have consummated a retail or wholesale purchase of engraved products, directly or though distributors, and shall not
include merely potential prospects. In the event of a disagreement as to whose Customer a person or entity is, the date
of first sale, of product to that Customer shall control. If no sales are made to an existing Customer for a period of 90
consecutive days, then that Customer shall be considered to be removed “Customer” status.
Upon Owner providing and Crystal Magic accepting delivery of Assets from Owner in the amount of
$544,000, Crystal Magic will not, without the express written consent of Owner which consent shall not be
unreasonably withheld;
a)
permit any change in beneficial ownership of Crystal Magic other than by operation of law (e.g.,
descent and distribution) or pursuant to this Agreement, or permit any change in directors,
executive officers, or other control persons in other than by operation of law; or
b)
issue stock, options or other beneficial interest, unless to employees of Crystal Magic; or
c)
Hire any personnel with a salary greater than $75,000 without the consent of Owner.
In addition. Crystal Magic shall operate its Business consistent with past practice, in the ordinary
course of business, and not intentionally allow any material adverse change in its Business, the Laser Equipment or in
the operation, condition (financial or otherwise), assets, properties, liabilities or Business prospects. Without limiting
the generality of the foregoing, and upon Owner providing and Crystal Magic accepting delivery of Assets from
Owner in the amount of $544,000, Crystal Magic will not, without the express written permission of Owner which
consent shall be unreasonably withheld (other than as contemplated by this Agreement);
a.
[intentionally omitted];
b.
[intentionally omitted];
c.
[intentionally omitted];
d.
[intentionally omitted];
e)
fail to replenish inventories of the Business in a normal and customary manner consistent with prior
practice and prudent business practices prevailing in the industry, or make any purchase commitment in excess of the
normal, ordinary and usual requirements of the Business or at any price in excess of the then current market price or
upon the terms and conditions more onerous than those usual and customary in the industry, or make any change in
its selling, pricing, advertising or personnel practices of the Business inconsistent with past practice and prudent
business practices prevailing in the industry;
f)
defer payment on any liabilities outside the ordinary course of business or otherwise treat suppliers
of the Business in such a way that could negatively affect the future relationship;
g)
accept or enter into any purchase order or quotation, arrangement or understanding (whether
written or oral) for future sale of services or Crystal Products by or in the Business which Crystal Magic knows, or
should know at the time of such acceptance or execution, would not be profitable in any material respect;
h)
adopt or amend any bonus, profit sharing, pension, retirement or other compensation plan or
(except for cost of living adjustments) make any material change in the rate of compensation, commission, bonus or
other direct or indirect remuneration payable, or pay or agreed or orally promised to pay, conditionally or otherwise,
any bonus, incentive, retention or other compensation, retirement, welfare, fringe or severance benefit or vacation pay
to or in respect of any director, officer, employee, salesman, distributor, consultant or agent providing services to the
Business other than in the ordinary course of business and consistent with past practice;
i.
[intentionally omitted];
j.
[intentionally omitted];
k)
practice; or
1.
vary insurance coverage other than in the ordinary course of business and consistent with past
[intentionally omitted];
24.
REFORMATION. It is expressly understood and agreed that although Owner and Crystal
Magic consider the restrictions and provisions contained herein to be reasonable, if a final judicial determination is
made by a court having jurisdiction that any restriction or provision contained in this Agreement is an unreasonable or
otherwise unenforceable restriction against Owner and/or Crystal Magic, the parties hereto do hereby authorize such
court to revise and amend this Agreement so as to produce a legally enforceable agreement.
25.
DEFAULT AND REMEDIES / TERMINATION.
a)
Security Agreements. Crystal Magic and Owner shall enter into a Security Agreement in the form
attached hereto as Exhibit C and Crystal Magic hereby consents to the filing of any applicable Uniform Commercial
Code Financing Statement (UCC-1) in connection therewith, as well as any security agreements and Financing
Statements affecting Owner’s interest in the Laser Equipment.
b)
Events of Default. Any of the following shall constitute an Event of Default under this Agreement
and all Schedules; (a) Crystal Magic fails to pay any Fee or any other amount payable to Owner hereunder as
provided herein; or (b) Crystal Magic fails to perform or observe any other representation, warranty, covenant,
condition or agreement to be performed or observe by Crystal Magic hereunder or in any other agreement with
Owner, and Crystal Magic fails to cure any such breach within 30 days after notice thereof; or (c) Crystal Magic
makes an assignment for the benefit of creditors, whether voluntary or involuntary; or (d) a proceeding under any
bankruptcy, reorganization, arrangement of debts, insolvency or receivership law is filed by or against Crystal Magic
or Crystal Magic takes any action to authorize any of the foregoing matters; or (e) Crystal Magic becomes insolvent
or fails generally to pay its debts as they become due, the Laser Equipment is levied against, seized or attached; or (f)
Crystal Magic seeks to effectuate a bulk sale of Crystal Magic’s inventory or assets; or (g) Crystal Magic voluntarily
or involuntarily dissolves or is dissolved, or terminates or is terminated.
c)
Remedies. If an Event of Default occurs by Crystal Magic, Owner may, in its sole discretion,
exercise one or more of the following remedies but must provide Crystal Magic with a written 60 days’ notice and
opportunity to cure any default: (a) terminate this Agreement; or (b)take possession of, or render unusable, any Laser
Equipment wherever the Laser Equipment may be located, without demand or notice, without any court order or other
process of law and without liability to Crystal Magic for any damages occasioned by such action, and no such action
shall constitute a termination of this Agreement; or (c) require Crystal Magic to deliver the Laser Equipment at a
location designated by Owner at Crystal Magic’s sole expense; or (d) proceed by court action to enforce specific
performance by Crystal Magic of any provision or covenant hereof and/or to recover all damages and expenses
incurred by Owner by reason of any Event of Default or (e) terminate any other agreement that Owner may have with
Crystal Magic. In addition, Crystal Magic shall pay Owner all costs and expenses (including legal fees and cost and
fees of collection agencies) incurred by Owner in enforcing any of the terms, conditions or provisions of this
Agreement Upon repossession or surrender of any Laser Equipment, Crystal Magic shall remain liable to Owner for
any damages or liability notwithstanding such repossession. Crystal Magic agrees that with respect to any notice of a
sale required by law to be given, 180 days’ notice shall constitute reasonable notice. These remedies are cumulative of
every other right or remedy given hereunder or now or hereafter existing at law or in equity or by statute or
every other right or remedy given hereunder or now or hereafter existing at law or in equity or by statute or
otherwise, and may be enforced concurrently therewith or from time to time.
d)
Crystal Magic shall be liable for the prorated value of diode replacement of each laser returned
upon default or termination under this agreement. Diode replacement is $7,500 amortized over an average 4,000 hour
operational life. LCW software reflecting hourly operation shall not be changed or affected in its operation.
e)
If an Event of Default occurs by Owner, Crystal Magic has the right, but not the obligation, to
continue this Agreement for an additional 180 days. Owner must provide Crystal Magic with a written 160 days’
notice in order to take possession of assets as listed in Appendix A after Default by Owner. If an Owner default
occurs after September 3, 2005, Owner will forfeit any displays provided to Crystal Magic.
f)
Delivery of Equipment If Owner fails to deliver Laser Equipment on a timely basis, Crystal Magic
shall notify Owner in writing within three (3) calendar days of such occurrence, and Owner shall have sixty (60)
days to deliver such equipment. The acceptance of Laser Equipment by Crystal Magic constitutes its stipulation and
acknowledgment of Owner’s substantial compliance with the delivery requirements.
g)
Cross-Default Provisions. A material breach or default of this Agreement shall constitute a material
breach of the Operative Agreements, and vice versa.
h)
Force Majeure. Neither party shall be in default hereunder by reason of any failure or delay in the
performance of any obligation under this Agreement where such failure or delay arises out of any cause beyond the
reasonable control and without the fault or negligence of such party.
i)
Termination by Owner. Owner shall have the right, but not the obligation, to immediately terminate
this Agreement in the event of any disagreement, conflict, alleged breach or default, or other notice of a potential or
actual dispute in connection with or related to the Patent Sublicense and/or royalties payable thereunder. If this
termination occurs by Owner, Owner must provide Crystal Magic with a written 180 days’ notice in order to take
possession of any Laser Equipment If a Termination by Owner occurs after September 3, 2005, Owner will forfeit
any displays provided to Crystal Magic.
26.
SURVIVAL. Certain provisions of this Agreement relate to the rights and obligations of Owner
and Crystal Magic subsequent to the termination or expiration of the Agreement Term. Such provisions include,
without limitation, the indemnification obligations under Paragraph 19 hereof. Such provisions shall survive the
expiration or other termination of the Agreement Term and the License granted to Crystal Magic hereunder.
27.
ASSIGNMENT. Neither party hereto may assign this Agreement or any of the rights or
obligations established herein, in whole or in part, without the prior written consent of the other party hereto. Any
purported assignment without such consent shall be void. Notwithstanding the foregoing, the rights and duties of
Owner hereunder may be assigned by Owner, without the consent of Crystal Magic, to any successor-in-interest,
subsidiary, affiliate or related party of Owner.
28.
APPLICABLE LAW THIS AGREEMENT SHALL BE GOVERNED BY THE INTERNAL
LAWS (AS OPPOSED TO CONFLICTS OF LAW PROVISIONS) OF THE STATE OF TEXAS. Owner and
Crystal Magic consent to the jurisdiction of any local, state or Federal court located within the State of Texas, and
waive any objection relating to improper venue or forum non conveniens to the conduct of any proceeding in any
such court.
29.
CAPTIONS; COUNTERPARTS; INTEGRATION: ENTIRE AGREEMENT. The
captions contained in this Agreement are for convenience only and shall not affect the interpretation of this
Agreement. This Agreement may be executed in any number of counterparts, and each such counterpart hereof shall
be deemed to be an original instrument, but all such counterparts together shall constitute but one agreement. This
Agreement may also be executed by facsimile signature. This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their permitted successors or assigns. This Agreement and all other Operative
Documents executed by both Owner and Crystal Magic constitute the entire agreement between the parties hereto
relating to the matters hereof, and supersede all prior agreements relating thereto, whether written or oral, and may not
be amended or modified except in a writing signed by the parties hereto.
30.
SEVERABILITY. If any provision of this Agreement, including any phrase, sentence, clause,
section or subsection, is legally inoperative or unenforceable for any reason, such circumstances shall not have the
effect of rendering any other provision or provisions herein contained invalid, inoperative, or unenforceable to any
extent whatsoever.
31.
NOTICES. All notices, claims, certificates, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given if delivered personally or mailed (by first
class registered or certified mail, postage prepaid, return receipt requested), or via Federal Express or other nationally
recognized service as follows:
To Owner:
With A Copy To:
Vial, Hamilton, Koch & Knox, L.L.P.
1700 Pacific Ave., Suite 2800
Dallas, Texas 75201
Attn: Paul D. Schoonover, Esq.
Laser Crystal Works, LP
100 Bowie Dr.
Red Oak, Texas 75154
To Crystal Magic:
Crystal Magic, Inc.
3329 Bartlett Blvd.
Orlando, Florida 32811
or to such other address as the party to whom notice is to be given may have furnished to the other parties in writing
in accordance herewith.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the Effective Date.
OWNER:
LASER CRYSTAL WORKS, LP
a Texas limited partnership
By:
PTC MANAGEMENT, L.L.C,
a Texas limited liability company, and its general partner
Date Executed on
Behalf of Owner:
By: /s/ Richard Lamden
Name: Richard Lamden
Title: Manager
LICENSEE:
CRYSTAL MAGIC, INC.,
a Florida corporation
Date Executed on
Behalf of Crystal Magic:
By: /s/ Steven M. Rhodes
Name: Steven M. Rhodes
Title: President
APPENDIX A
FEES AND EQUIPMENT SCHEDULE
Owner agrees to provide Crystal Magic has accepted assets to equal Two Hundred Eighteen Thousand Dollars
($218,000) of fixed assets at OEM pricing as identified below for consideration of a Base Percentage of 26.0 percent.
Based on laser systems meeting tiling performance capabilities consistent with the laser etching industry, Owner has
the option by December 31, 2004 to fund an additional amount not to exceed Three Hundred Twenty Six Thousand
Dollars ($ 326,000) in additional assets. The full $ 326,000 will increase the base percentage an additional 24.0
percent to yield 50 percent. The calculation of the base percentage is pro rata according to actual amount funded.
Additional funding after December 31, 2004 may only be accepted at Crystal Magic’s option.
Assets Funded
1
532 Laser System
1202 Delivered: Mar 3, 2003
1
532 Laser System
0203 Delivered: Mar 3, 2003
2
Mar 3, 2003
Computer Systems
1
3D Minolta 300
Delivered; Mar 3, 2003
1
3D Minolta 300
Delivered; Mar 3, 2003
1
Display
Dec 1, 2003
Cash Funding
$ 80,000
LCW-532-
$ 80,000
LCW-532-
$ 2,000
Delivered;
$13,000
1001054
$ 8, 000
1001103
$ 7,842
$218,000
Delivered;
$27,158
Cash funding maybe used for the purchase of- laser equipment, displays, electronic and computer equipment, 3D
camera systems or point clouding software. Operational, Tiling, and Motion Control upgrades provided at no
additional charge. LCW vendor provided point clouding software available at $3000 / copy OEM cost. All laser
systems for Crystal Magic operations shall be provided at Owners manufacturing cost.
This Appendix shall be amended from time to time to reflect equipment and funding received.
Initialed for Identification:
day of April, 2004.
this
APPENDIX B
As set forth in detail below Crystal Magic agrees to pay owner etching fees, royalty plus a percent of Crystal Magic’s
Net Profit.
ETCHING FEES
A monthly etching fee paid by the l5th of the following month shall be determined as the greater of items 1 or 2
specified below.
1.
An hourly etching cost for actual laser time to etch each crystal decorative product, this hourly rate shall be
adjustable monthly based on market tolling rates as agreed by both parties.
Hourly Etch Fee = Laser Hourly Rate + Labor Cast
2.
A minimum etch fee regardless of sales volume.
Min Etch Fee = Laser Equipment Fee + Labor Cost
The minimum etch fee will vary with labor cost changes and the Laser Equipment Fee portion will be $1622 per laser
for a 60 month period.
Crystal Magic is responsible for the procurement and cost of crystal.
The Etch Pees may not be prorated, or offset due to laser performance or repair time.
in the event of unforeseen circumstances and Crystal Magic can not pay the Min Etch fee, the labor portion must be
paid in full and the laser equipment fee will accumulate at 8% interest yearly.
ROYALTY PAYMENT
Crystal Magic shall pay Owner by the 15th of the month following the quarter end, a royalty payment of ten percent
(10%) of the greater of items 1 & 2 above. This payment is only due and owing during the period that Owner is
subject to the Patent Sublicense Agreement or such date Owner determines such agreement is contractually
unenforceable.
PROFIT SHARE PAYMENT
Crystal Magic shall pay Owner a percentage of Crystal Magic’s Net Profit as calculated below. Owner and
Crystal Magic have agreed to set profit percentages as described below - (X,Y,Z) The profit share payment
due Owner shall equal the set profit percentage times the Net Profit, less hourly laser fees and/or equipment
fees paid to Owner plus any delinquent portion of etching fees due. Profit percentages shall apply as of the
date of amount funded.
Profit Percentage (X)
Funding
50 percent
$544,000
Date
$218,000
26 percent
Full
Funded to
*(X) shall be known as base percentage, based on final amount funded.
Actual Base percentage (X) will be determined by amount funded on December 31, 2004. Any amount
greater than the guaranteed amount will be pro rata not to exceed hill funding.
Profit Percentage (Y)
if X equals 50%,
26%,
Y = 40.00 percent
Y = 20.80 percent
Profit Percentage shall be equal to (Y) until the sum of etching fees less Owners manufacturing labor plus
non etching equipment payments and profit share payments equals the value of provided assets listed in
appendix A up to $544,000.
Then,
Profit Percentage (Z)
percent
if X equals 50%
26%
Y = 26.00
Y = 13.52 percent
Profit Percentage shall be equal to (Z) until Crystal Magic’s debt has been paid in full as of the date of this
agreement. Crystal Magic agrees to utilize average cash balances in excess of $200,000, unless otherwise
agreed to by both parties, to pay down debt principal on a monthly basis.
Then,
Profit percentage shall be equal to (X) upon Crystal Magic’s debt paid in full.
Profit Share payments to Owner shall be paid bi-annually June 31st and December 31st, payable for each
period within 30 days. Payment schedule becomes quarterly upon Crystal Magic experiencing four (4)
consecutive Net Profit quarters. Any Quarter resulting in a loss will revert the payment schedule to biannually for the term of this contract unless agreed by both parties.
Upon approval by owner a portion of this profit payment maybe loaned to Crystal Magic for the purpose of
meeting shortfalls in operating capital. This amount is to be repaid within the following quarter at 6% interest
yearly.
NON ETCHING EQUIPMENT PAYMENTS
On a quarterly basis, Crystal Magic will pay owner for the use of Non Etching Equipment payments equal to
Owner’s cost of the equipment amortized over 60 months at an interest rate of 8%.
Exhibit 10.18
FORM: STORE
Non-Apparel – NPR
LICENSEE:
AGREEMENT
ADDRESS:
CRYSTAL MAGIC INC.
RETAIL PRODUCT LICENSE
7703 Kingspointe Parkway
Suite 300
Oriando,FL32819
THIS RETAIL PRODUCT LICENSE AGREEMENT is entered into by NBA Properties. Inc. (“NBAP”), with its principal
office at 645 Fifth Avenue, New York, New York 10022. and the licensee listed above (“LICENSEE”) with regard to the
commercial use of certain names, logos, symbols, emblems, designs and uniforms and all identifications, labels, insignia, indicia or
trade dress thereof (the “Marks”) of the National Basketball Association (the “NBA”), the Women’s National Basketball
Association (the “WNBA”) and their respective Member Teams (separately, the “NBA Marks” and the “WNBA Marks”). Subject
to the terms of this Agreement and the attached NBAP Standard Terms and Conditions, NBAP hereby grants to LICENSEE, and
LICENSEE hereby accepts, the non-exclusive right and license to use the NBA Marks and the WNBA Marks (collectively, the
“Licensed Marks”) solely in connection with the manufacture, distribution and sale of the products described in Paragraph A below
(“Licensed Products”) to the Authorized Purchasers described in Paragraph C below. No license or right is granted for the use of
the NBA Marks or the WNBA Marks for any purpose other than on the Licensed Products sold to the Authorized Purchasers in
accordance with this Agreement.
A.
LICENSED PRODUCTS: Crystal awards and crystal desktop accessories.
B.
TERM: The rights granted hereunder shall be perpetual, unless sooner terminated in accordance with the provisions of
this Agreement (the “Term”).
C.
TERRITORY; NBA controlled channels, including without limitation. In-arena concessionaires of the Member Teams,
The NBA Store on 5th Avenue in New York City, the NBA Store on NBA.com (or other such URL designated by
NBAP). and NBA City (collectively, the “Authorized Purchasers”).
D.
PURCHASES; ROYALTY RATES; STATEMENTS; LICENSEE shall make Licensed Products only for sale to
the Authorized Purchasers and only pursuant to purchase orders duly issued by the Authorized Purchasers (the
“Purchase Order”). LICENSEE shall pay to NBAP a combined royalty and advertising promotion payment equal to 12%
of the aggregate price of all. Licensed Products purchased by the Authorized Purchasers from LICENSEE (hereinafter
referred to as a “Combined Royalty Payment”),
Within thirty (30) days following the end of each month, LICENSEE shall furnish to NBAP (on forms provided-by NBAP),
a full and accurate statement indicating units sold, unit price, and the calculation of Combined Royalty Payments and,
simultaneously with the submission of each such statement, LICENSEE shall make all Combined Royalty Payments due
under this Agreement.
E
ADVERTISING AND PROMOTION:
Consistent with NBAP’s past practice of creating, undertaking and supporting advertising and promotion activities with
respect to NBAP-licensed products sold at retail, NBAP shall devote up to two percent (2%) of the Combined Royalty
Payments made by LICENSEE pursuant to Paragraph D above to cover the expenses incurred by MBAP in connection with
such advertising and promotion activities.
AGREED TO AND ACCEPTED, subject
to and incorporating the attached NBAP
Standard Terms and Conditions which
the undersigned has read:
CRYSTAL MAGIC INC.
Executive Vice President
Global merchandising Group
AGREED TO AND ACCEPTED:
NBA PROPERTIES, INC.
By:
Salvatore LaRocca
By: /s/Steven M. Rhodes
Title: President
Dated: 10/23/07
2
NBAP STANDARD TERMS AND CONDITIONS
1.
STATEMENTS AND PAYMENTS
LICENSEE shall not deduct or withhold from any payment to NBAP any amounts by reason of any tax (including any
taxes imposed on NBAP). Any tax applicable to the distribution and sale of the Licensed Products shall be borne, and paid
directly, by LICENSEE. All computations and payments shall be in U.S. dollars, from a U.S. source approved by NBAP, at
the spot rate for the local currency as published in the Wall Street Journal for the last business day of the preceding month. If
LICENSEE shall fail to timely pay any amount due under this Agreement, then without prejudice to any other rights that
NBAP may have under this Agreement or otherwise, LICENSEE shall pay interest on such amount at a rate equal to the
lesser of (i) three percent (3%) per annum over the highest prime rate (announced by JP Morgan Chase Manhattan Bank,
New York branch) prevailing during the period between the date the payment first became due and the date such payment is
actually paid or (ii) the highest rate permitted by law during the period between the date the payment first became due and the
date such payment is actually paid. The receipt or acceptance by NBAP of any of the statements furnished or Combined
Royalty Payments made by LICENSEE (including the cashing by NBAP of any checks) shall not preclude NBAP from
auditing LICENSEE’S books and records pursuant to Paragraph 8 or claiming any shortfall in payments due hereunder.
2.
NON-RESTRICTIVE GRANT; RIGHTS RESERVED
Nothing in this Agreement shall prevent NBAP from granting any other licenses and rights. All rights not exclusively
granted to LICENSEE in this Agreement are expressly reserved by NBAP. LICENSEE shall have no right to continue
manufacturing or selling Licensed Products after the termination of this Agreement.
3.
OWNERSHIP OF MARKS AND GOODWILL
LICENSEE acknowledges that the NBA Marks and the WNBA Marks and the goodwill attached thereto belong exclusively
to NBAP, the NBA, the WNBA and their respective Member Teams. LICENSEE also acknowledges (i) the great value of
the goodwill associated with the NBA Marks and the-WNBA Marks, (ii) that the NBA Marks and the WNBA Marks are
famous and (iii) that the NBA Marks and the WNBA Marks have secondary meanings in the minds of the public.
LICENSEE agrees that all use by LICENSEE of the NBA Marks and the WNBA Marks shall inure to the benefit of
NBAP, the NBA, the WNBA and their respective Member Teams, and any right that may accrue to LICENSEE related
thereto shall be assigned to NBAP or its designee upon NBAP’s request. LICENSEE shall not, during the Term or
thereafter, challenge (y) the rights of the Member Teams, whether severally owned or held in association as the NBA,
WNBA or NBAP’s rights, in and to the NBA Marks and the WNBA Marks, or (z) the validity, legality or enforceability of
this Agreement. LICENSEE shall not. without NBAP’s specific authorization, use, during or after the Term, (i) any
Licensed Marks or (ii) any Marks or other material in connection with the Licensed Marks that are confusingly similar to the
Licensed Marks, and/or that relate or refer to any Licensed Mark, Member Team or event or activity involving the NBA, the
WNBA or a Member Team.
4.
PROTECTION OF RIGHTS
Assistance in Protecting Marks: LICENSEE shall cooperate to the fullest extent necessary to assist NBAP in the
protection of the rights of NBAP, the NBA, the WNBA and their respective Member Teams in and to the Licensed
Marks. Without limiting the effect of the preceding sentence, if any of LICENSEE’S authorized Third Party
Contributors (as defined in Paragraph 7 below) uses the Licensed Marks for any unauthorized purpose, LICENSEE
shall be responsible for, and shall cooperate fully and use its best efforts to stop, such unauthorized use.
(b)
Ownership of Other Intellectual Property: LICENSEE acknowledges that NBAP and/or the Member Teams are
the exclusive owners of all variations of the Licensed Marks and all designs or graphics that incorporate any aspect
of the Licensed Marks. Any intellectual property rights in the Licensed Marks that may accrue to LICENSEE shall
inure to the benefit of NBAP and shall be assigned to NBAP upon its request.
(a)
3
Any copyright, trademark, service mark or other intellectual property right used, created, developed or procured by or on behalf
of LICENSEE with respect to or involving (i) any Licensed Product or (ii) the Licensed Marks, derivations or adaptations of the
Licensed Marks or (iii) any word, symbol or design which uses or is similar to the Licensed Marks so as to suggest association
with or sponsorship by the NBA, the WNBA, one of their respective Member Teams or any of their affiliates, is hereby
assigned, or in the case of rights not yet assignable, shall be assigned to NBAP, and upon NBAP’s request, LICENSEE shall, at
its sole expense, apply for registration of such intellectual property right in the name of NBAP or its designee. To the extent such
intellectual property right was not created by LICENSEE, LICENSEE shall take all necessary steps to secure an assignment to
NBAP of such intellectual property, including, but not limited to, any copyright from a creator of any original work of authorship
that does not constitute a work made for hire. Any copyright, trademark, service mark or other intellectual property right affecting
or relating to the Licensed Marks procured in the name of LICENSEE or applied for in the name of LICENSEE is hereby
assigned to NBAP. LICENSEE shall supply NBAP with any necessary supporting materials required to obtain registrations of
any intellectual property right required to be assigned to NBAP under this Agreement.
(c)
Designs: All designs of the Licensed Products, including any packages, containers or tags, shall be subject to NBAP’s
prior written approval and shall be used solely in furtherance of this Agreement, and such designs will not be used in any
other respect by LICENSEE nor will LICENSEE permit any third party to use such designs, except as may be authorized
by NBAP. Notwithstanding the foregoing, NBAP acknowledges that LICENSEE may hold other licenses pursuant to
which LICENSEE manufactures, distributes or sells products similar in design to the Licensed Products, and nothing in
this Agreement is intended to prohibit LICENSEE’S manufacture, distribution or sale of such products not bearing or
relating to the Licensed Marks.
(d)
Notices, Labeling and Records: NBAP may from time-to-time designate such copyright, trademark or service mark
notices (including the form, location and content of such notices) that LICENSEE shall cause to appear on or within each
Licensed Product sold, by means of a tag, label, imprint or other appropriate device, in every instance in which any
Licensed Mark is used. The following applicable, general notice (in the English language and the language of the country
where the Licensed Products will be sold) must be included on a label, the packaging material or on a separate slip of
paper packed with or attached to the Licensed Product:
“The NBA and individual NBA member team identifications reproduced on this product are trademarks
and copyrighted designs, and/or other forms of intellectual property, that are the exclusive property of
NBA Properties, Inc. and the respective NBA member teams and may not be used, in whole or in part,
without the prior written consent of NBA Properties, Inc. © 200_ NBA Properties, Inc. All rights
reserved.”
“The WNBA and individual WNBA team identifications reproduced on this product are trademarks and
copyrighted designs, and/or other forms of intellectual property, that are the exclusive property of WNBA
Enterprises, LLC and may not be used, in whole or in part, without the prior written consent of WNBA
Enterprises, LLC. © 200_ WNBA Enterprises, LLC. All rights reserved.”
LICENSEE shall: (i) cause all Licensed Products to bear the NBA logo or WNBA logo on either the article or its packaging in such
place, in such prominence, and in such form as NBAP may designate from time-to-time, (ii) faithfully comply with and adhere to
NBAP’s mandatory holographic label and hang tag system, or such other shipment tracking, identification and anti-counterfeiting
systems, packaging tags and labels that NBAP may establish from time-to-time, (iii) unless approved in writing by NBAP, not
cross-license or otherwise use other licensed properties or other Marks with the Licensed Products or Licensed Marks and (iv) keep
appropriate records, and advise NBAP, of the date when each of the Licensed Products is first placed on sale or sold in each
country of the Territory and the date of first use in each country of each different Licensed Mark on the Licensed Products and any
promotional or packaging materials, 5.
4
5.
INDEMNIFICATIONS
LICENSEE Indemnification; LICENSEE shall be solely responsible for, and shall defend, hold harmless and
indemnify NBAP, NBA Media Ventures, LLC (“NBAMV”), the NBA, the WNBA, their respective Member Teams
and the National Basketball Players Association (“NBPA”), and their respective affiliates, owners, directors,
governors, officers, employees and agents (collectively “NBA Parties”) against any claims, demands, disputes
(including disputes arising out of or in connection with this Agreement between the parties hereto) causes of action
or damages, including attorneys’ fees (collectively, “Claims”), arising out of an allegation relating or referring to: (i)
any act or omission of LICENSEE, any Third Party Contributor (as defined In Paragraph 7 below) or any other
entity acting on LICENSEE’S behalf (whether or not approved by NBAP pursuant to this Agreement), (ii) any
breach of this Agreement by LICENSEE, any Third Party Contributor or any other entity acting on LICENSEE’S
behalf (whether or not approved by NBAF pursuant to this Agreement), (iii) the manufacture, distribution, sale,
possession or use of any Licensed Product (including, but not limited to, claims relating to (w) any alleged defect
(whether obvious or hidden and whether or not present in any sample approved by NBAP) in a Licensed Product or
in any packaging or other materials, (x) any alleged injuries to persons or property, (y) any infringement of any rights
of any person or entity or (z) the alleged failure by LICENSEE, any Third Party Contributor or any other entity
acting on LICENSEE’S behalf (whether or. not approved by NBAP pursuant to this Agreement), to comply with
applicable laws, regulations, standards, the terms of the NBAP vendor compliance guide, as amended from time to
time by NBAP (the “Compliance Guide”), or the terms of the NBAP Code of Conduct, as amended from time to
time by NBAP (the “Code of Conduct”), attached hereto as Exhibit A or (iv) any claim that any Licensed Product or
element thereof violates or infringes upon the trademark, copyright or other intellectual property rights (including
trade dress and rights of publicity and privacy) of a third party, provided LICENSEE is given prompt written notice
of any such Claim. NBAP shall have the option to undertake and conduct the defense of any such Claim at
LICENSEE’S expense. In the event NBAP has opted to allow LICENSEE to undertake and conduct the defense of
any Claim in any instance to which the foregoing indemnities pertain, NBAP shall approve of the counsel who shall
conduct the defense of such Claim. In any instance to which such indemnities pertain, LICENSEE shall keep NBAP
fully advised of all developments pertaining to such Claim and shall not enter into a settlement of such Claim or admit
liability or fault without NBAP’s prior written approval. LICENSEE shall obtain and maintain product liability
insurance providing protection for the NBA Parties against any Claims arising out of any alleged defects in the
Licensed Products or any use of the Licensed Products, in an amount and providing coverage satisfactory to NBAP
(including the amount of the deductible, rating of insurance and notice provisions). Such insurance obligations shall
not limit LICENSEE’S indemnity obligations.
(b)
NBAP Indemnification: NBAP shall be solely responsible for, and shall defend, hold harmless and indemnify
LICENSEE, its directors, officers, employees and agents against any Claims arising out of an allegation relating or
referring to: (i) a claim that the use of the Licensed Marks as specifically approved by NBAP in accordance with the
terms of this Agreement violates or infringes upon the trademark, copyright or other intellectual property rights
(including trade dress) of a third party in or to the Licensed Marks or (ii) any breach of this Agreement by NBAP,
provided NBAP is given prompt written notice of and shall have the option to undertake and conduct the defense of
any such Claim. In any instance to which the foregoing indemnities pertain, LICENSEE shall cooperate fully with
and assist NBAP in all respects in connection with any such defense. In any instance to which such indemnities
pertain, , NBAP shall not enter into a settlement of such Claim or admit liability or fault without LICENSEE’S prior
written approval.
(a)
5
(c)
Release: In consideration of the rights granted under this Agreement, except with respect to Claims for which NBAP
indemnifies LICENSEE pursuant to Paragraph 5(b), LICENSEE hereby releases the NBA Parties from any Claims
that, now or in the future arise out Of or in any manner relate to the manufacture, distribution or sale of the Licensed
Products.
QUALITY; APPROVALS; SAMPLES
LICENSEE shall cause the Licensed Products to meet and conform to high standards of style, quality and appearance. In
order to assure NBAP that it is in compliance with such standards and other provisions of this Agreement, with respect to
any Licensed Product, LICENSEE must obtain the approval of NBAP with respect to such Licensed Product before
producing or distributing such Licensed Product:
6.
(a)
(b)
(c)
7.
Pre-Production: Before producing or distributing of any product bearing a Licensed Mark, LICENSEE shall submit
to NBAP all artwork, three dimensional models (if any), prototypes, mock-ups and samples of each product in
accordance with the procedures set forth in the Compliance Guide. NBAP shall approve or disapprove in writing all
submissions, in its sole discretion, before LICENSEE shall be entitled to distribute, use, produce commercial
quantities of or sell any item relating to any such submission. All approvals or authorizations by NBAP are to be
granted or withheld in NBAP’s sole discretion and must be evidenced in writing. LICENSEE acknowledges that
NBAP’s approval of an article does not imply approval of, or license to use, any elements not owned or controlled
exclusively by NBAP contained in the article.
Promotional Use of Product: If NBAP wishes to purchase Licensed Products for give-away purposes and not for
resale, LICENSEE shall sell the Licensed Products to NBAP at LICENSEE’S direct manufacturing cost for such
Licensed Products and LICENSEE shall not be required to make Combined Royalty Payments on such sales to
NBAP.
Rejections and Non-Compliance: All submissions or samples not approved by NBAP shall promptly be
destroyed by LICENSEE. In the event of LICENSEE’s unapproved or unauthorized manufacture, distribution, use
or sale of any products or materials bearing the Licensed Marks, or the failure of LICENSEE to comply with
Paragraphs 6, 7(a) or 7(b), NBAP shall have the right: (i) to revoke LICENSEE’S rights with respect to any
Licensed Product and cancel any Purchase Order for any Licensed Product, without liability, whether or not such
Licensed Product has already been received and/or accepted by NBAP, and if already received by NBAP, such
Licensed Product shall be returned to LICENSEE at Its own expense and risk and/or (ii) at LICENSEE’S expense, to
confiscate or order the destruction of such unapproved, unauthorized or non-complying products. Such right(s) shall
be without prejudice to any other rights NBAP may have under this Agreement, the Purchase Order or otherwise.
COMPLIANCE
(a)
Third Party Contributors: If LICENSEE desires to use a third party manufacturer, supplier, subcontractor or
sublicensee (each, a “Third Party Contributor”) in connection with the manufacturing of all or any part of a Licensed
Product, LICENSEE must first notify NBAP of the name and address of such proposed Third Party Contributor and
of the Licensed Product LICENSEE desires such proposed Third Party Contributor to manufacture. NBAP shall
have the right, in its sole discretion, to withhold or withdraw approval of any proposed Third Party Contributor and
may predicate its approval on any terms or conditions as NBAP shall determine in its sole discretion. LICENSEE
may not use a Third Party Contributor in connection with the manufacture of all or any part of a Licensed Product
prior to receiving such approval from NBAP. Attached as Schedule A is a true and complete list of all Third Party
Contributors authorized by NBAP as of the date of execution of this Agreement.
(b)
Conduct Requirements: LICENSEE represents and warrants to NBAP that LICENSEE shall faithfully comply
with and adhere to, and LICENSEE shall take all steps necessary to ensure that all Third Party Contributors shall
faithfully comply with and adhere to, all of the terms, provisions and policies contained in this Agreement, the Code
of Conduct and the Compliance Guide and all applicable United States and foreign laws, government rules and
regulations, court and administrative decrees and the highest standard of business ethics then prevailing in the
industry with regard to the conduct of all aspects of LICENSEE’S (or any Third Party Contributors) business and
the manufacture, distribution, sale, testing and use of all Licensed Products (collectively, “Conduct Requirements”).
NBAP and its authorized representatives shall have the right, upon reasonable prior notice, to examine and audit
LICENSEE to ensure compliance with the Conduct Requirements, LICENSEE shall allow NBAP or its designee or
NBAP’s or its designee’s authorized representatives access to any of its premises, personnel and business records at
all reasonable times for the purposes of such auditing. LICENSEE shall take all necessary steps in negotiating
contracts with Third Party Contributors to provide NBAP and its authorized representatives with a contractual right
to audit such Third Party Contributors to ensure compliance with the Conduct Requirements, including the right of
NBAP to have access to the premises and personnel of any Third Party Contributor at all reasonable times for the
purposes of such auditing.
6
(c)
Governmental Approvals: It shall be LICENSEE’S sole responsibility, at its sole expense, to obtain all approvals
of all governmental authorities which may be necessary in connection with the Licensed Products and LICENSEE’S
performance under this Agreements.
8.
RECORDS; AUDITS
LICENSEE shall keep accurate books of account and records covering all transactions relating to the license granted in this
Agreement. NBAP and its authorized representatives shall have the right, upon reasonable prior notice, to examine and audit
such books of account and records and all other documents and materials in LICENSEE’S possession or under its control
(including records of LICENSEE’S parents, subsidiaries, affiliates and third parties, if they are involved in activities which
relate to this Agreement) relating to this Agreement. NBAP shall have free and full access for such purposes and for the
purpose of making extracts and copies. Should an audit by NBAP establish a deficiency between the amount found to be
due NBAP and the amount LICENSEE actually paid or reported, the LICENSEE shall pay the amount of such deficiency,
plus interest at the then current prime rate (as announced by Chase Manhattan Bank, New York branch) from the date such
amount should have been paid until the date of payment Should such audit establish a deficiency of more than five percent
(5%), LICENSEE shall also pay for the cost of the audit. .LICENSEE shall pay such amount within thirty (30) days. All
such books of account and records shall be kept available for at least one (1) year after the termination of this Agreement.
LICENSEE shall supply NBAP with true and complete copies of any agreement it has entered into, or in the future enters
into, with any Member Team or any NBA or WNBA player
9.
EARLY TERMINATION
Without prejudice to any other rights NBAP may have pursuant to this Agreement or otherwise, NBAP shall have the right,
upon five (5) days’ written notice, to terminate this Agreement LICENSEE shall pay NBAP, within thirty (30) days after
such termination, all Combined Royalty Payments payable to NBAP under this Agreement After termination of this
Agreement, LICENSEE shall have no further right hereunder to manufacture, distribute or sell (or authorize any third party
to manufacture, distribute or sell), any Licensed Product or otherwise use any NBA Mark or WNBA Mark.
10.
DISPOSAL OF STOCK
Ten (10) days after any termination under Paragraphs 6 or 9, LICENSEE will furnish to NBAP a certificate showing the
number and description of Licensed Products on hand or in process of manufacture and LICENSEE shall destroy all such
Licensed Products.
7
11.
EQUITABLE RELIEF
LICENSEE acknowledges that (i) the Licensed Marks possess a special, unique and extraordinary character which makes
difficult the assessment of the monetary damage which NBAP would sustain as a result of the unauthorized use thereof and
(ii) any unauthorized or unapproved use of the Licensed Marks would cause immediate and irreparable damage to NBAP
for which NBAP would not have an adequate remedy at law. Therefore, LICENSEE agrees that, in the event of a breach of
this Agreement by LICENSEE, in addition to such other legal and equitable rights and remedies as shall be available to
NBAP, NBAP shall be entitled to injunctive and other equitable relief, without the necessity of proving damages or
furnishing a bond or other security.
12.
NOTICES
All notices and statements to be given and all payments to be made under this Agreement shall be given or made at the
respective address of the parties as set forth above, unless notification of a change of address is given in writing. Any notice
of breach or default must be in writing and sent by facsimile, overnight express delivery, or registered or certified mail,
return receipt requested, properly addressed and stamped. Any written notice shall be deemed to have been given at the time
it is sent.
13.
NO JOINT VENTURE
Nothing in this Agreement shall be construed to place the parties in the relationship of partners or joint venturers. Neither
party shall have the power to obligate or bind the other to a third party in any manner whatsoever
14.
ARBITRATION OF CERTAIN MATTERS
Any dispute or disagreement between the parties relating solely to the amount of Combined Royalty Payments owing under
this Agreement shall be settled by arbitration in New York City under the rules then in effect of the American Arbitration
Association. Judgment upon the award may be entered in any court having jurisdiction. No other dispute or disagreement
between the parties (including any claim by NBAP that LICENSEE is using the Licensed Marks in a manner not authorized
by this Agreement or is otherwise in breach of this Agreement) shall be settled by arbitration. All decisions by NBAP
relating to disapproval of any Licensed Product shall be final and binding on LICENSEE and shall not be subject to review
in any proceeding.
15.
NO USE OF PLAYERS
LICENSEE acknowledges that this Agreement does not grant to LICENSEE any licenses or rights with respect to the use of
the names, likenesses or other attributes of any NBA or WNBA player (collectively, “Player Attributes”). The license
granted under this Agreement does not include, and shall not be used to imply, a testimonial or endorsement of any Licensed
Products by any NBA player. LICENSEE shall not use Player Attributes in any manner that may imply such a testimonial
or endorsement without first obtaining written authorization from the subject player(s). LICENSEE shall not (a) enter into
any endorsement or other form of agreement with any NBA or WNBA player without the prior written approval of NBAP
(which approval may be granted, withheld or conditioned in NBAP’s sole discretion), (b) take any action to cause or induce
any NBA or WNBA player to “opt-out” of any group license agreement between NBAP and NBPA (or its successor) or
WNBA Enterprises, LLC (“WNBAE”) and WNBPA (or its successor), to breach any collective bargaining agreement
between the NBA and NBPA (or its successor) or WNBAE and WNBPA (or its successor) or to breach any NBA or
WNBA Uniform Player Contract, and/or (c) take any action to cause or induce any NBA or WNBA player to wear or use
any apparel or accessory products and/or not to wear any “on-court” product manufactured by an NBAP licensee, in either
case, during a game (including warm-up periods, going to and from the locker room to the playing floor and pre- and postgame media sessions) or a team practice.
16.
WARRANTIES
Each party represents and warrants that it has the right and authority to enter into and perform this Agreement and NBAP
represents and warrants that it has the right to grant the rights to use the Licensed Marks in accordance with the terms and
conditions of this Agreement. LICENSEE represents and warrants that the Licensed Products shall comply with the
Conduct Requirements. NBAP’s approval of such materials will not imply a representation or belief that NBAP believes
such materials are sufficient to meet applicable laws, regulations and standards. LICENSEE further represents and warrants
that the Licensed Products and all graphics used on Licensed Products will not violate the intellectual property rights of any
third party.
8
17.
SEVERABILITY
In the event any provision of this Agreement is found to be void, invalid or unenforceable as a result of any judicial or
administrative proceeding or decree, this Agreement shall be construed and enforced as if such provision were not contained
in this Agreement,
18.
ASSIGNMENT
This Agreement and any rights granted under this Agreement are personal to LICENSEE and shall not be assigned,
sublicensed, subcontracted or encumbered, directly or indirectly, by law or by contract, without NBAP’s prior written
consent.
19.
(a)
(b)
(c)
(d)
(e)
MISCELLANEOUS
Waiver: None of the provisions of this Agreement can be waived or modified except expressly by a writing signed
by both parties. There are no representations, promises, agreements, warranties, covenants or undertakings by either
party other than those contained in this Agreement No failure on the part of NBAP to exercise any right under this
Agreement shall operate as a waiver of such right; nor shall any single or partial exercise of any right preclude any
other or further exercise or the exercise of any other rights.
Survival: No termination of this Agreement shall relieve LICENSEE of its obligation to pay NBAP any amounts
due to NBAP at the time of termination, regardless of whether these amounts are then or thereafter payable. The
provisions of Paragraphs 8 and 19(d) shall survive the termination of this Agreement.
Governing Law and Jurisdiction: This Agreement shall be construed in accordance with the laws of the State of
New York, USA, without regard to its principles of conflicts of laws. Any claim arising under this Agreement
(except as provided under Paragraph 14) shall be prosecuted only in a federal or state court of competent jurisdiction
located within the City of New York, USA and LICENSEE consents to the jurisdiction of such court and to the
service of process by mail.
Confidentiality: LICENSEE shall not (nor shall it permit or cause its employees or agents or any Third Party
Contributor to) divulge, disseminate or publicize the terms of, or the information relating to, this Agreement to any
third party (other than its attorneys or accountants), except as may be required by law or to fulfill the terms of this
Agreement.
Construction: This Agreement has been executed in a text using the English language, which text shall be
controlling. This Agreement, together with any exhibits or attachments, when fully-executed shall constitute the entire
agreement and understanding between the parties and cancels, terminates and supersedes any prior agreement or
understanding relating to the subject matter of this Agreement between LICENSEE and the NBA, WNBA any
Member Team, NBAP or NBAMV. The headings in this Agreement are for reference purposes only and shall not
affect the interpretation of this Agreement. This Agreement shall not be binding on NBAP until signed on its behalf
by its President or Executive Vice President. Global Merchandising Group or such other executive designated by the
President to sign # # #
9
SCHEDULE A
Third Party Contributors
[To be provided by LICENSEE]
10
EXHIBIT A
LICENSEE AND SUPPLIER CODE OF CONDUCT
The NBA’s mission is to be the most respected and successful sports league and sports marketing organization in the world. In
keeping with this mission, NBA Properties, Inc., WNBA Enterprises, LLC and NBA Development League, LLC (collectively, the
“NBA Entities”) are committed to conducting their business in a socially responsible and ethical manner. We expect all NBA
Entities licensees, including their contractors, engaged in the manufacture and sourcing of products bearing NBA, WNBA, NBADL
and USA Basketball Marks (collectively “Product Suppliers”) to share this commitment. At a minimum, all Product Suppliers must
adhere to the following Licensee and Supplier Code of Conduct:
1.
ETHICAL STANDARDS
Product Suppliers shall conduct their businesses in accordance with the highest standards of ethical behavior.
2.
COMPLIANCE WITH APPLICABLE LAWS
Product Suppliers shall comply with all applicable laws and regulations of the countries, states and localities in which they
operate.
3.
EMPLOYMENT PRACTICES
The NBA Entities will only do business with Product Suppliers whose employees are appropriately compensated, present at
work voluntarily, not at undue risk of physical harm and not exploited in any way. In addition, Product Suppliers must comply
with the following specific standards:
· Wages and Benefits: Product Suppliers shall provide wages, overtime compensation and benefits at not less than the
minimum levels required by applicable laws and regulations or the prevailing local industry levels, if higher.
· Working Hours: Product Suppliers shall, at a minimum, comply with all applicable working hours laws and regulations.
Except in unusual business circumstances, employees shall not be required to work more than the lesser of (a) 48 hours
per week and 12 hours of overtime or (b) the limits on regular and overtime hours allowed by local law or, where local
law does not limit the hours of work, the regular work week in such locality plus 12 hours of overtime. In addition,
except in unusual business circumstances, employees shall be entitled to at least one day off in every seven-day period.
· Child Labor: Product Suppliers shall not employ any person under the age of 15 (or 14 where allowed by local law) or
under the local age for completing compulsory education, if higher
· Forced Labor: Product Suppliers shall not use any forced labor, whether in the form of prison labor, indentured labor,
bonded labor or otherwise.
· Harassment or Abuse: Product Suppliers shall treat each employee with dignity and respect, and shall not use corporal
punishment, threats of violence or other forms of physical, sexual, psychological or verbal harassment or abuse.
· Nondiscrimination: Product Suppliers shall not discriminate in employment practices on the basis of race, religion, age,
nationality, social or ethnic origin, gender, sexual orientation, political opinion or disability.
11
· Freedom of Associations Product Suppliers shall recognize and respect the right of employees to join organizations of
their own choosing and shall neither threaten nor penalize employees for their efforts to organize or bargain collectively.
· Health and Safety: Product Suppliers shall provide employees with a safe and healthy working environment.
Manufacturing facilities shall, at a minimum, contain clean restrooms, potable water, adequate fighting, adequate
ventilation and fire exits, Residential facilities, if provided, shall also be kept sanitary and safe.
4.
ENVIRONMENTAL REQUIREMENTS
Product Suppliers shall comply with all applicable environmental laws and regulations.
5.
COMMUNICATION
Product Suppliers shall take appropriate steps to ensure that the provisions of this Code are communicated to employees,
including the prominent posting of the Code (in the local language) in their manufacturing facilities,
6.
MONITORING AND COMPLIANCE
Product Suppliers shall conduct periodic audits of manufacturing facilities, on the basis of which they shall certify to the NBA
Entities on request either that (a) all products bearing NBA, WNBA, NBADL and USA Basketball trademarks have been
manufactured in compliance with this Code, or (b) identified facilities have been found not to be in compliance with this Code, in
which event the Product Supplier shall specify appropriate and effective steps to remedy the non-compliance. The NBA Entities
or their representatives are authorized to engage in monitoring activities to confirm compliance with this Code, including on-site
inspections of manufacturing facilities and residential facilities, audits of records relating to employment matters and private
Interviews with employees at all levels. Product Suppliers shall retain and make available to the NBA Entities or their
representatives, either on site or at agreed upon locations, all documentation that may be required to assess whether or not the
Product Supplier is in compliance with this Code.
FAILURE TO COMPLY
The NBA Entities reserve the right, in addition to all other legal and contractual rights, to terminate its relationship with any
Product Supplier found to be in violation of this Code.
7.
12
Exhibit 10.19
PREPARED BY
Liberty National Bank
Sandra L Everidge
503N. Hwy. 17-92
Longwood FL 32750
NOTE MODIFICATION AGREEMENT
THIS NOTE MODIFICATION AGREEMENT, made this 12th day of May, 2004 with an effective date of
May 1, 2004 between CRYSTAL MAGIC, INC., a. Florida corporation, by Steven M. Rhodes, President,
hereinafter referred to as the Borrower, and LIBERTY NATIONAL BANK, hereinafter referred to as the Lender.
The Promissory Note herein modified was given to secure a loan which was made under a United States
Small Business Administration (SBA) nationwide program which uses tax dollars to assist small business owners. If
the United States is seeking to enforce this document, then under SBA regulations:
a.
When SBA is the holder of the Note, this document and all documents evidencing or securing this
Loan will be construed in accordance with federal law.
b.
Lender of SBA may use local or state procedures for purposes such as filing papers, recording
documents, giving notice, foreclosing liens, and other purposes. By using these procedures, SBA does
not waive any federal immunity from local or state control, penalty, tax or liability. No Borrower or
Guarantor may claim or assert against SBA any local or state law to deny any obligation of Borrower,
or defeat any claim of SBA with respect to this Loan.
Any clause in this document requiring arbitration is not enforceable when SBA is the holder of the Note
secured by this instrument.
WITNESSETH:
WHEREAS, the Lender is the owner and holder of that certain $250,000.00 Note dated October 13, 2000
executed and delivered by the Borrower, payable interest only for the first three (3) mouths and thereafter in initial
monthly installments of $4,452.00 beginning on the first day of the fourth (4th) month from the date of the Note and
further modified by a Note Modification Agreement dated December 20, 2002 and effective November 1, 2002 and
again further modified by a Note Modification Agreement dated November 25, 2003 and effective November 1,
2003; on which there is now owing the principal sum of $211,000.59,
WHEREAS, it is the mutual desire of the parties that the terms and conditions of said Note be modified.
NOW THEREFORE, in consideration of the foregoing and the payment of One Dollar ($ 1.00) in hand paid
by the Borrower to the Lender and other good ‘and valuable consideration, the receipt whereof is hereby
acknowledged, the terms and conditions of the Note are hereby modified as follows:
A.
A six month maturity based on a twenty (20) year amortization calculated from November 1, 2002.
This modification is effective May 1, 2004 and due and payable on November 1, 2004. The interest
paid to date of loan is April 9,2004. The Borrower shall pay the unpaid principal balance and accrued
interest in monthly installments of $1,607.00 commencing on the 1st day of June, 2004 and continuing
on the 1st day of each and every month thereafter until November 1, 2004, The interest rate shall be
fixed at 6,25%. The total amount of principal and interest remaining on November 1, 2004 will be due
and payable.
B.
The Borrower covenants and agrees to pay that unpaid principal and interest as above set forth and to
comply with all of the terms, covenants and conditions of said Note as hereby modified.
C.
Borrower acknowledges, covenants and represents to the Lender that:
1.
all documents executed in connection with the loan evidenced the Note and Mortgage, and any
future advance, are valid and binding and are enforceable m accordance with their terms;
2.
there are no defenses, set-offs, counter-claims, cross-actions or equities to or against the
enforcement of the loan documents executed in connection with the loan; and
3.
no agreements, oral or otherwise, have been made by Lender to make any additional modifications,
amendments or extensions note and loan documents.
D.
Except as modified herein, all of the terms and conditions of the Note dated October 13, 2000, shall
remain in full force and effect.
E.
In the event that the Modified Note is not completely paid off at maturity, to include all principal and
interest, on November 1, 2004, the original terms of the Original Note dated October 13, 2000 shall
remain in full force and effect.
IN WITNESS WHEREOF, CRYSTAL MAGIC, INC., and Liberty National Bank have caused this Mortgage and
Note Modification Agreement to be executed in their names and on their behalves and their corporate seals to be
affixed by and through their respective duly authorized officers, Louise Long and Steven M. Rhodes have set forth
their hands the day and year first above written.
Signed and sealed in the presence of:
/s/ Stacy L. Coleman
CRYSTAL MAGIC, INC.
By: Steven M. Rhodes, Its President
STATE OF FLORIDA
COUNTY OF SEMINOLE
Sworn to and subscribed before me this 12 day of May, 2004 by Steven M. Rhodes, the President and Secretary of
Crystal Magic, Inc., a Florida Corporation, on behalf of the corporation, who provided a Florida Drivers License as
identification.
NOTARY PUBLIC: /s/ Stacy L. Coleman
My Commission Expires: 12/26/06
Signed and sealed in the presence of:
Liberty National Bank:
/s/ Stacey L. Coleman
By: Louise Long, Its Vice President
STATE OF FLORIDA
COUNTY OF SEMINOLE
Sworn to and subscribed before me this 12 day of May, 2004 by Louise Long who is Sr. Vice Pres Liberty Nation
Bank or has provided a Florida Driver’s License as identification
NOTARY PUBLIC: /s/ Stacy L. Coleman
My Commission Expires: 12/26/06
EXHIBIT 10.20
EMPLOYMENT AGREEMENT
This Employment Agreement, Dated as of the Effective Date of Merger (as Merger is defined in Section
1.01 below), between Propell Corporation, a Delaware Corporation (“Company”) with its principal place of
business located at 7703 Kingspointe Parkway, Suite 300, Orlando, Florida 32819, and John Wolf (“Employee”)
with a residence of business at [____________], in consideration of the mutual promises made herein, recites
and provides as follows:
WHEREAS, Company desires to retain the services of Employee on the terms and conditions set forth
herein; and
herein;
WHEREAS, Employee desires to be employed by the Company on the terms and conditions set forth
NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants herein
contained, Company and Employee agree as follows:
ARTICLE 1. TERM OF EMPLOYMENT
Specified Period
1.01
Company employs Employee and Employee accepts employment with Company for a period
of three (3) years (36 months) beginning on the Effective Date of the Merger of Company with
Crystal Magic, Inc., (currently expected to occur in April 2008), and terminating on the same
date in 2011. If the parties do not execute a new written agreement upon expiration of this
Agreement, the employment of Employee shall continue on an at-will basis.
“Employment Term” Defined
1.02
“Employment Term” refers to the entire period of employment of Employee by Company,
whether for the periods provided above, or whether terminated earlier as hereinafter provided
or extended by mutual agreement between Company and Employee.
ARTICLE 2. DUTIES AND OBLIGATIONS OF EMPLOYEE
General Duties
2.01
Employee shall serve as the Executive Vice President (EVP) of Propell Corporation and
General Manager (GM) of Company’s Online Division. In his capacity as EVP of Propell
Corporation and GM of Company’s Online Division, Employee shall do and perform all
services, acts, or things necessary or advisable as EVP of Propell Corporation and GM of
Company’s Online Division. Employee shall be based in Company’s Orlando, Florida office
and shall also work out of Employee’s Jacksonville, Florida home office. Any change or
relocation of the Orlando, Florida office, further than fifty (50) miles, shall be considered
“relocation” pursuant to Section 7.02 (c) below.
Outside Employment
2.02
Employee shall not engage in outside employment that interferes with any of the duties under
this Agreement.
Competitive Activities
2.03
During the term of this contract Employee shall not, directly or indirectly, either as an
employee, company consultant, agent, principal, partner, stockholder, corporate officer,
director, or in any other individual or representative capacity, engage or participate in any
business that is in competition in with the business of Company and/or its
subsidiaries. Employee shall not be precluded from engaging in investment activities of a
personal nature. Employee shall not be precluded from accepting Board of Directors positions
with other for profit business entities not in competition with the Company, so long as
Employee obtains the written permission from the Board of Directors, which written
permission shall not be unreasonably withheld.
Adherence to Rules
2.04
Employee, at all times during the performance of this Agreement, shall strictly adhere to and
obey all the rules and regulations now in effect or as subsequently modified governing the
conduct of employees of Company and its wholly owned subsidiaries.
ARTICLE 3. COMPENSATION OF EMPLOYEE
Annual Salary
3.01
(a) As compensation for the services to be performed hereunder, Employee shall receive a
salary at the rate of One Hundred and Sixty Thousand Dollars ($160,000.00) per annum,
payable in equal installments on a bi-weekly basis.
(b) Employee shall receive such annual increases in salary, if any, as may be determined by
Company’s Board of Directors, in its sole discretion.
Discretionary Bonus
3.02
In addition to the Employee’s Annual Salary, the Board of Directors of Company may, in its
sole discretion, award to Employee bonus(es) in an amount, if any, in the Board’s sole
discretion.
Stock
3.03
Company hereby grants to Employee an option to purchase, One Hundred Thousand
(100,000) shares of common stock of the Company at the purchase/exercise price as set forth
below and pursuant to the terms of the Propell Corporation 2008 Stock Option Plan (“SOP”),
a copy of which shall be given to Employee. It is the intent that both the SOP and the grant to
Employee of Options shall be approved at the first Board of Directors meeting after the
Merger.
(a) This Option may be exercised only with respect to the portion of stock that is vested in
Employee. Except as set forth in Section 3.03(b) below, Employee’s right to exercise this
option shall be vested in annual increments beginning with the first anniversary date of
Employee’s employment according to the following vesting schedule:
(i) On the first anniversary date of Employee’s employment, 12/36ths of the Option
shares shall vest; and
(ii) On the second anniversary date of Employee’s employment, an additional 12/36 ths of
Option shares shall vest; and
(iii) On the third anniversary date of Employee’s employment, the remaining 12/36 ths of
the Option shares shall vest.
(b) Notwithstanding the above, after the first anniversary date of Employee’s employment, in
the event (i) Employee is terminated without Cause, or (ii) Employee terminates for Good
Reason, Employee shall be entitled to additional vesting in the amount of 1/36th for each
month of employment completed after the most recent anniversary date of employment. In
such event, Employee shall have ninety (90) days after the date of termination in which to
purchase/exercise any such Option(s).
(c) The purchase price shall be the fair market value of the Company’s common stock as
determined by the first Five Hundred Thousand Dollars ($500,000) in capital invested
after the Merger is effective.
(d) This Option is not assignable and may only be exercised by Employee during the term of
employment under this Agreement upon termination in Section 3.03(b), except as set forth
above.
Vacation
3.04
During the Employment Term, Employee shall be entitled to fifteen (15) days paid vacation per
year, which may be used in accordance with the policies, programs and practices of Company,
which are in effect generally from time to time with respect to other peer executives of
Company.
Employee’s Sick Leave
3.05
During the Employment Term, Employee shall be entitled to paid sick leave in accordance with
the policies, programs and practices of Company, which are in effect with respect to other peer
executives of Company.
Savings and Retirement Plans
3.06
During the Employment Term, Employee shall be entitled to participate in all savings and
retirement plans to the extent applicable generally to other peer executives of Company,
including any 401(k) plan maintained by Company, if any.
Benefit Plans
3.07
During the Employment Term, the Employee and/or the Employee’s family and dependents, as
the case may be, shall be eligible for participation in and shall receive all benefits under all
welfare benefit plans provided by Company (including, without limitation, medical,
prescription, dental, disability, salary continuance, employee life, group life, and accidental
death and travel accident insurance plans) to the extent applicable generally to other peer
executives of Company.
ARTICLE 4. BUSINESS EXPENSES
Travel, Entertainment, and Other Expenses
4.01
It is recognized and agreed by the Parties to this Agreement that in connection with the services
to be performed for Company, Employee will be obliged to expend money for travel,
entertainment of customers, gifts, and similar business expenses. Employee is authorized to
incur reasonable business expenses for promoting the business of Company, in accordance
with the policies, practices and procedures of Company.
Reimbursement of Business Expenses
4.02
(a) Company shall promptly reimburse Employee for all reasonable business expenses
incurred by Employee in connection with the business of Company.
(b) Each such expenditure shall be reimbursable only if it is of a nature qualifying it as a
proper deduction on the federal and state income tax return of Company.
(c) Each such expenditure shall be reimbursable only if Employee furnishes to Company
adequate records and other documentary evidence required by federal and state statutes
and regulations issued by the appropriate taxing authorities for the substantiation of each
such expenditure as an income tax deduction.
ARTICLE 5. PROPERTY RIGHTS OF THE PARTIES
TRADE SECRETS / CONFIDENTIAL INFORMATION
Confidential Information
5.01
As used in this Agreement “Confidential Information” includes, without limitation, [design
information, manufacturing information, business, financial, and technical information, sales
and processing information, product information, customers, customer lists, vendors, vendor
lists, pricing information, corporation and personal business contact and relationships,
corporation and personal business opportunities, software, computer disks or files, or any
other electronic information of any kind, Rolodex cards or other lists of names, addresses or
telephone numbers, financial information, projects, potential projects, current projects, projects
in development and future projects, forecasts, plans, contracts, releases, and other documents,
materials or writings that belong to Company, including those which are prepared or created by
Employee or come into the possession of Employee by any means or manner and which relate
directly or indirectly to Company, and each of its owners, predecessors, successors,
subsidiaries, affiliates, and all of its shareholders, directors and officers (all of the above
collectively referred to as “Confidential Information”). Confidential Information includes
information developed by Employee in the course of Employee’s services for Company for the
benefit of Company, as well as other Confidential Information to which Employee may have
access in connection with Employee’s services. Confidential Information also includes the
confidential information of other individuals or entities with which Company has a business
relationship.
Duty of Confidentiality
5.02
Employee will maintain in confidence and will not, directly or indirectly, disclose or use (or
allow others working with Employee to disclose or use), either during the term of this
Agreement, and for a period of one (1) year after termination of Employee’s employment, any
Confidential Information belonging to Company, whether in oral, written, electronic or
permanent form, except solely to the extent necessary to perform services on behalf of
Company prior to its termination, Employee shall deliver forthwith possession or control
belonging to Company and all tangible items embodying or containing Confidential
Information.
Documents, Records, Etc.
5.03
All documents, records, data, equipment and other physical property, whether or not pertaining
to Confidential Information, which are furnished to Employee by Company or produced by
Employee in connection with Employee’s services will be and remain the sole property of
Company. Employee will return to Company forthwith all such materials and property upon
the termination of this Agreement or sooner if requested by Company.
Assignment of Rights
5.04
Employee shall make full and prompt disclosure to Company of any and all designs,
intellectual property, software, inventions, discoveries, or improvements (individually and
collectively, “Inventions”) made by Employee as a result or product of his employment
relationship with Company. Employee hereby assigns to Company without additional
compensation the entire worldwide right, title and interest in and to such Inventions, and
related intellectual property rights and without limitation all copyrights, copyright renewals or
reversions, trademarks, trade names, trade dress rights, industrial design, industrial model,
inventions, priority rights, patent rights, patent applications, patents, design patents and any
other rights or protections in connection therewith or related thereto, for exploitation in any
form or medium, of any kind or nature whatsoever, whether now known or hereafter
devised. To the extent that any work created by Employee can be a work for hire pursuant to
U.S. Copyright Law, the parties deem such work a “work for hire” and Employee should be
considered the author thereof. Employee shall, at the request of Company, without additional
compensation, from time to time execute, acknowledge and deliver to Company such
instruments and documents as Company may require to perfect, transfer and vest in Company
the entire rights, title and interest in and to such inventions. In the event that Employee does
not timely perform such obligations, Employee shall cooperate with Company upon
Company’s request and at Company’s cost but without additional compensation in the
preparation and prosecution of patent, trademark, industrial design and model, and copyright
applications worldwide for protection of rights to any Inventions.
Injunctive Relief
5.05
Employee acknowledges that a violation or attempted violation on Employee’s part of any
agreement in this Article 5 will cause irreparable damage to Company, and accordingly,
Employee agrees that Company shall be entitled as a manner of right to an injunction from any
court of competent jurisdiction restraining any violation or further violation of such agreement
by Employee; such right to an injunction, however, shall be cumulative and in addition to
whatever other remedies that Company may have. Terms and agreements set forth in this
Section 5 shall survive the expiration of the term of this Agreement.
Disclosure of Information to Others
5.06
Employee shall not divulge any Confidential Information to anyone outside Company without
obtaining both Company’s prior written consent and the disclosee’s signed written
confidentiality agreement as approved by Company.
ARTICLE 6. OBLIGATIONS OF COMPANY
Indemnification of Losses of Employee
6.01
Company shall indemnify and defend and hold harmless Employee for all necessary
expenditures, losses or claims incurred by Employee in direct consequence of the discharge of
his duties.
ARTICLE 7. TERMINATION
By Company For Cause
7.01
(a) Company may terminate Employee’s employment during the Employment Term for
Cause. For purposes of this Agreement, “Cause” shall mean (i) the conviction of
Employee for committing an act of fraud, embezzlement, theft or other act constituting an
economic crime or the guilty or nolo contendere pleas of Employee to such a crime; or (ii)
fraudulent conduct or an act of dishonesty or breach of trust on the part of Employee in
connection with Company’s business, or (iii) breach of the confidentiality or non
competition provisions of this Agreement.
By Company Without Cause
(b) Company may terminate Employee’s employment at any time without cause.
By Company Upon Employee’s Death or Disability
(c) Employee’s employment shall terminate automatically upon Employee’s death or upon a
good faith determination by Company that Employee is disabled. Company will deem
Employee disabled if and when, in the good faith judgment of Company, Employee is
unable to perform the material functions of Employee’s job, even with reasonable
accommodation, for a total of ninety (90) days out of any six (6) month period.
Termination By Employee For Good Reason
7.02
Employee may terminate his employment with Company for Good Reason. For purposes of
this Agreement, “Good Reason” shall mean, in the absence of the consent of Employee, a
reasonable determination by Employee that any of the following has occurred:
(a) the assignment to Employee of any duties inconsistent in any material respect with
Employee’s position (including titles and reporting requirements, authority, duties or
responsibilities as contemplated by Section 2.01 of this Agreement), or any other action by
Company which results in a material diminution in such position, authority, duties or
responsibilities, excluding for this purpose an isolated and insubstantial action not taken in
bad faith and which is remedied by Company promptly after receipt of notice thereof given
by Employee; or
(b) any failure by Company to comply with any of the provisions of this Agreement
applicable to it, other than any isolated and insubstantial failure not occurring in bad faith
and which is remedied promptly after notice thereof from Employee.
(c) Relocation, unless such relocation is mutually agreed upon in writing.
ARTICLE 8. OBLIGATION OF COMPANY
UPON EARLY TERMINATION
Termination For Cause
8.01
If Employee’s employment shall be terminated for Cause, this Agreement shall terminate
without any further obligation to Employee whatsoever, other than any obligation that may be
required by law.
Termination By Company Without Cause;
Termination By Employee For Good Reason
8.02
In the event Company terminates Employee’s employment during the Employment Term
without cause, or Employee terminates his employment for Good Reason, then Company shall
pay or provide to Employee the following:
(a) Company shall pay to Employee, within thirty (30) days after the Date of Termination, any
accrued Annual Base Salary, bonuses that have been declared, vacation pay, expense
reimbursement and any other entitlements accrued by Employee under Article 3 above, to
the extent not theretofore paid (the sum of these amounts shall hereinafter by referred to as
the “Accrued Obligations”).
(b) Company shall continue to pay to Employee, in regular bi-weekly installments,
Employee’s Annual Salary under this Agreement for six (6) months. However, if the
employment of Employee becomes at-will, Company will continue to pay to Employee, in
regular bi-weekly installments, Employee’s Annual Salary under this Agreement for the
duration of six (6) months.
(c) Company shall continue to provide and pay for benefits to Employee and/or Employee’s
family and dependents at least equal to those which would have been provided to them in
accordance with the plans, programs, practices and policies which are generally applicable
to peer executives, for three months. If Employee commences employment with another
employer and is eligible to receive medical or other welfare benefits under another
employer-provider plan, the medical and other welfare benefits to be provided by
Company as described herein shall terminate.
Upon Death of Employee
8.03
If Employee’s employment is terminated by reason of Employee’s death during the
Employment Term, this Agreement shall terminate without further obligation to Employee,
other than payment of any Accrued Obligations (which shall be paid to Employee’s estate or
beneficiary, as applicable, in a lump sum in cash within thirty (30) days of the Date of
Termination, and the timely payment or provision of all welfare benefit plans.
Upon Disability of Employee
8.04
If Employee’s employment shall be terminated by reason of Employee’s Disability during the
Employment Term, this Agreement shall terminate without further obligation to Employee,
other than for payment of any Accrued Obligations (which shall be paid to Employee in a lump
sum in cash within 30 days of the Date of Termination, and the timely payment or provision of
all welfare benefit plans.
ARTICLE 9. POST TERMINATION
Non Solicitation of Customers
9.01
For a period of One (1) year immediately following the termination of Employee’s
employment with Company, Employee shall not directly or indirectly make known to any
person, firm, corporation, etc., the names or addresses of any of the customers of Company
and/or its subsidiaries, of the information pertaining to them, or call on, solicit, or take away
from any of the customers of Company of whom Employee called or with whom Employee
became acquainted during Employee’s employment with Company, either for himself or for
any other person, firm, corporation, etc.
Non Solicitation of Employees of Company
9.02
For a period of One (1) year immediately following the termination of Employee’s
employment with Company, Employee shall not directly or indirectly solicit, recruit, or
encourage any other employee of Company or any of its related entities or subsidiaries, or any
of its subsidiaries, to leave the employment of Company or work for any person or entity that
is in competition with Company, or its subsidiaries.
Non Competition
9.03
To the extent allowed by law, for a period of One (1) year immediately following the
termination of Employee’s employment with Company, Employee agrees that Employee will
not directly or indirectly, in any capacity, compete or attempt to compete with the business of
Company or any of its subsidiaries, whether by taking employment with a competitor,
consulting to a competitor, as an owner of a business entity competing with Company, or
otherwise.
ARTICLE 10. GENERAL PROVISIONS
Notices
10.01
Any notice to be given hereunder by either party to the other shall be in writing and may be
transmitted by personal delivery or by mail, registered or certified, postage prepaid with return
receipt requested. Mailed notices shall be addressed to the parties at the addresses appearing in
the introductory paragraph of this Agreement, accompanied by courtesy e-mails and faxes to
the e-mail addresses and fax numbers set forth in the introductory paragraph of this
Agreement, but each party may change that address and/or email address and/or fax number by
written notice in accordance with this section. Notices delivered personally shall be deemed
communicated as of the date of actual receipt; mailed notices shall be deemed communicated as
of three (3) days after the date of mailing.
Arbitration
10.02
(a)
No dispute between Company (or any of its officers, directors, employees, subsidiaries or
affiliates) and Employee, which is in any way related to the employment of Employee
(including but not limited to claims of wrongful termination; racial, sexual or other
discrimination or harassment; defamation; and other employment-related claims or
allegations) shall be the subject of a lawsuit filed in state or federal court. Instead, any
such dispute shall be submitted to binding arbitration before a sole arbitrator of the
American Arbitration Association (AAA) or any other individual or organization on
which the Parties agree or which a court may appoint. It is understood that both sides are
hereby waiving the right to a jury trial.
(b) In order to commence an arbitration proceeding, the claimant shall file with the AAA (or
other agreed or appointed arbitrator) and serve on the other party a complaint in
accordance with the laws of the State of California; the other party shall file and serve a
response in accordance with the laws of that state. The arbitration shall be initiated in San
Francisco, California. The arbitration must be filed within one (1) year of the act or
omission which gives rise to the claim. Each Party shall be entitled to take a minimum of
one deposition, and to take any other discovery as is permitted by the Arbitrator. In
determining the extent of discovery, the Arbitrator shall exercise discretion, but shall
consider the expense of the desired discovery and the importance of the discovery to a just
adjudication. The Arbitrator shall hear motions pertaining to the pleadings, discovery or
summary judgment or adjudication, in accordance with the law as it would be applied by a
court of the State of California.
(c) The Arbitrator shall render a decision which conforms to the facts, supported by
competent evidence (except that the Arbitrator may accept written declarations under
penalty of perjury, in addition to live testimony), and the law as it would be applied by a
court sitting in the state in which the arbitration is brought. The Arbitrator shall not
impose any requirement of “just cause,” not otherwise imposed by law. At the conclusion
of the arbitration, the Arbitrator shall make written findings of fact, and state the
evidentiary basis for each such finding. The Arbitrator shall also issue a ruling and
explain how the findings of fact justify his or her ruling.
(d) Any party may apply to a court of competent jurisdiction for entry of judgment on the
arbitration award. The court shall review the arbitration award, including the ruling and
findings of fact, and shall determine whether they are supported by competent evidence
and by a proper application of law to the facts. If the court finds that the award is properly
supported by the facts and law, then it shall enter judgment on the award; if the court finds
that the award is not supported by the facts or the law, then the court may enter a different
judgment (if such is compelled by the uncontradicted evidence) or may direct the parties to
return to arbitration for further proceedings consistent with the order of the court.
(e) Notwithstanding the above, either Company or Employee may file with an appropriate
state or federal court a claim for injunctive relief in any case where the filing party seeks
provisional injunctive relief or where permanent injunctive relief is not available in
arbitration. The filing of a claim for injunctive relief in state or federal court shall not
allow either party to raise any other claim outside of arbitration.
Entire Agreement
10.03
This agreement supersedes any and all other agreements, either oral or in writing, between the
parties hereto with respect to the employment of Employee by Company and contains all of the
covenants and agreements between the parties with respect to that employment in any manner
whatsoever. Each Party to this agreement acknowledges that no representation, inducements,
promises, or agreements regarding Employee’s employment, orally or otherwise, have been
made by any party, or anyone acting on behalf of any party, with respect to the employment of
Employee, which are not embodied herein, and that no other Agreement, statement, or promise
not contained in this Agreement shall be valid or binding on either party. Any modification of
this Agreement will be effective only if it is in writing signed by the party to be charged.
Partial Invalidity
10.04
If any provision in this agreement is held by a court of competent jurisdiction to be invalid,
void, or unenforceable, the remaining provisions shall nevertheless continue in full force
without being impaired or invalidated in any way.
Law Governing Agreement
10.05
This agreement shall be governed by and constructed in accordance with the laws of the State
of Florida.
Payment of Sums Due Deceased Employee
10.06
If Employee dies prior to the expiration of the term of his employment, any moneys that may
be due him from Company under this agreement as of the date of death shall be paid to
Employee’s executors, administrators, heirs, personal representatives, successors, and assigns.
IN WITNESS WHEREOF, the Parties so agree:
COMPANY:
Propell Corporation
EMPLOYEE:
By: /s/ Edward L. Bernstein
Edward L. Bernstein
By: /s/ John Wolf
John Wolf
President and CEO
EXHIBIT 10.21
EMPLOYMENT AGREEMENT
This Employment Agreement, Dated as of the Effective Date of Merger (as Merger is defined in Section
1.01 below), between Propell Corporation, a Delaware Corporation (“Company”) with its principal place of
business located at 7703 Kingspointe Parkway, Suite 300, Orlando, Florida 32819, and Jim Wallace
(“Employee”) with a residence at [_____________], in consideration of the mutual promises made herein, recites
and provides as follows:
WHEREAS, Company desires to retain the services of Employee on the terms and conditions set forth
herein; and
herein;
WHEREAS, Employee desires to be employed by the Company on the terms and conditions set forth
NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants herein
contained, Company and Employee agree as follows:
ARTICLE 1. TERM OF EMPLOYMENT
Specified Period
1.01
Company employs Employee and Employee accepts employment with Company for a period
of three (3) years (36 months) beginning on the Effective Date of the Merger of Company with
Crystal Magic, Inc., and Mountain Capital d/b/a Arrow Media Solutions (currently expected to
occur in April 2008), and terminating on the same date in 2011. If the parties do not execute a
new written agreement upon expiration of this Agreement, the employment of Employee shall
continue on an at-will basis.
“Employment Term” Defined
1.02
“Employment Term” refers to the entire period of employment of Employee by Company,
whether for the periods provided above, or whether terminated earlier as hereinafter provided
or extended by mutual agreement between Company and Employee.
ARTICLE 2. DUTIES AND OBLIGATIONS OF EMPLOYEE
General Duties
2.01
Employee shall serve as the Vice President (VP) of Operations of Company’s Kiosk Solutions
division, and such other roles of similar responsibility as the Company may see fit from time to
time as the position and the Company’s needs evolve. In his capacity as VP of Operations of
the Kiosk Solutions division, Employee shall do and perform all services, acts, or things
necessary or advisable as VP of Operations of Kiosk Solutions. Employee shall be based in
Company’s Lake Placid, New York office, which shall be shortly relocating to Connecticut
office. Any change or relocation of the Connecticut office, or in case the move does not occur,
the Lake Placid office, further than fifty (50) miles, shall be considered “relocation” pursuant to
Section 7.02 (c) below.
Outside Employment
2.02
Employee shall not engage in outside employment that interferes with any of the duties under
this Agreement.
Competitive Activities
2.03
During the term of this contract Employee shall not, directly or indirectly, either as an
employee, company consultant, agent, principal, partner, stockholder, corporate officer,
director, or in any other individual or representative capacity, engage or participate in any
business that is in competition in with the business of Company and/or its subsidiaries.
Adherence to Rules
2.04
Employee, at all times during the performance of this Agreement, shall strictly adhere to and
obey all the rules and regulations now in effect or as subsequently modified governing the
conduct of employees of Company and its wholly owned subsidiaries.
ARTICLE 3. COMPENSATION OF EMPLOYEE
Annual Salary
3.01
(a) As compensation for the services to be performed hereunder, Employee shall receive a
salary at the rate of One Hundred and Twenty Five Thousand Dollars ($125,000.00) per
annum, payable in equal installments on a bi-weekly basis.
(b) Employee shall receive such annual increases in salary, if any, as may be determined by
Company’s Board of Directors, in its sole discretion.
Discretionary Bonus
3.02
In addition to the Employee’s Annual Salary, the Board of Directors of Company may, in its
sole discretion, award to Employee bonus(es) in an amount, if any, in the Board’s sole
discretion.
Stock
3.03
Company hereby grants to Employee an option to purchase, One Hundred Twenty Five
Thousand (125,000) shares of common stock of the Company at the purchase/exercise price as
set forth below and pursuant to the terms of the Propell Corporation 2008 Stock Option Plan
(“SOP”), a copy of which shall be given to Employee. It is the intent that both the SOP and
the grant to Employee of Options shall be approved at the first Board of Directors meeting
after the Merger.
(a) This Option may be exercised only with respect to the portion of stock that is vested in
Employee. Except as set forth in Section 3.03(b) below, Employee’s right to exercise this
option shall be vested in annual increments beginning with the first anniversary date of
Employee’s employment according to the following vesting schedule:
(i) On the first anniversary date of Employee’s employment, 12/36ths of the Option shares
shall vest; and
(ii) On the second anniversary date of Employee’s employment, an additional 12/36 ths of
Option shares shall vest; and
(iii) On the third anniversary date of Employee’s employment, the remaining 12/36 ths of
the Option shares shall vest.
(b) Notwithstanding the above, after the first anniversary date of Employee’s employment, in
the event (i) Employee is terminated without Cause, or (ii) Employee terminates for Good
Reason, Employee shall be entitled to additional vesting in the amount of 1/36th for each
month of employment completed after the most recent anniversary date of employment. In
such event, Employee shall have ninety (90) days after the date of termination in which to
purchase/exercise any such Option(s).
(c) The purchase price shall be the fair market value of the Company’s common stock as
determined by the first Five Hundred Thousand Dollars ($500,000) in capital invested
after the Merger is effective.
(d) This Option is not assignable and may only be exercised by Employee during the term of
employment under this Agreement upon termination in Section 3.03(b), except as set forth
above.
Vacation
3.04
During the Employment Term, Employee shall be entitled to fifteen (15) days paid vacation per
year, which may be used in accordance with the policies, programs and practices of Company,
which are in effect generally from time to time with respect to other peer executives of
Company.
Employee’s Sick Leave
3.05
During the Employment Term, Employee shall be entitled to paid sick leave in accordance with
the policies, programs and practices of Company, which are in effect with respect to other peer
executives of Company.
Savings and Retirement Plans
3.06
During the Employment Term, Employee shall be entitled to participate in all savings and
retirement plans to the extent applicable generally to other peer executives of Company,
including any 401(k) plan maintained by Company, if any.
Benefit Plans
3.07
During the Employment Term, the Employee and/or the Employee’s family and dependents, as
the case may be, shall be eligible for participation in and shall receive all benefits under all
welfare benefit plans provided by Company (including, without limitation, medical,
prescription, dental, disability, salary continuance, employee life, group life, and accidental
death and travel accident insurance plans) to the extent applicable generally to other peer
executives of Company.
ARTICLE 4. BUSINESS EXPENSES
Travel, Entertainment, and Other Expenses
4.01
It is recognized and agreed by the Parties to this Agreement that in connection with the services
to be performed for Company, Employee will be obliged to expend money for travel,
entertainment of customers, gifts, and similar business expenses. Employee is authorized to
incur reasonable business expenses for promoting the business of Company, in accordance
with the policies, practices and procedures of Company.
Reimbursement of Business Expenses
4.02
(a) Company shall promptly reimburse Employee for all reasonable business expenses
incurred by Employee in connection with the business of Company.
(b) Each such expenditure shall be reimbursable only if it is of a nature qualifying it as a
proper deduction on the federal and state income tax return of Company.
(c) Each such expenditure shall be reimbursable only if Employee furnishes to Company
adequate records and other documentary evidence required by federal and state statutes
and regulations issued by the appropriate taxing authorities for the substantiation of each
such expenditure as an income tax deduction.
ARTICLE 5. PROPERTY RIGHTS OF THE PARTIES
TRADE SECRETS / CONFIDENTIAL INFORMATION
Confidential Information
5.01
As used in this Agreement “Confidential Information” includes, without limitation, [design
information, manufacturing information, business, financial, and technical information, sales
and processing information, product information, customers, customer lists, vendors, vendor
lists, pricing information, corporation and personal business contact and relationships,
corporation and personal business opportunities, software, computer disks or files, or any
other electronic information of any kind, Rolodex cards or other lists of names, addresses or
telephone numbers, financial information, projects, potential projects, current projects, projects
in development and future projects, forecasts, plans, contracts, releases, and other documents,
materials or writings that belong to Company, including those which are prepared or created by
Employee or come into the possession of Employee by any means or manner and which relate
directly or indirectly to Company, and each of its owners, predecessors, successors,
subsidiaries, affiliates, and all of its shareholders, directors and officers (all of the above
collectively referred to as “Confidential Information”). Confidential Information includes
information developed by Employee in the course of Employee’s services for Company for the
benefit of Company, as well as other Confidential Information to which Employee may have
access in connection with Employee’s services. Confidential Information also includes the
confidential information of other individuals or entities with which Company has a business
relationship.
Duty of Confidentiality
5.02
Employee will maintain in confidence and will not, directly or indirectly, disclose or use (or
allow others working with Employee to disclose or use), either during the term of this
Agreement, and for a period of one (1) year after termination of Employee’s employment, any
Confidential Information belonging to Company, whether in oral, written, electronic or
permanent form, except solely to the extent necessary to perform services on behalf of
Company prior to its termination, Employee shall deliver forthwith possession or control
belonging to Company and all tangible items embodying or containing Confidential
Information.
Documents, Records, Etc.
5.03
All documents, records, data, equipment and other physical property, whether or not pertaining
to Confidential Information, which are furnished to Employee by Company or produced by
Employee in connection with Employee’s services will be and remain the sole property of
Company. Employee will return to Company forthwith all such materials and property upon
the termination of this Agreement or sooner if requested by Company.
Assignment of Rights
5.04
Employee shall make full and prompt disclosure to Company of any and all designs,
intellectual property, software, inventions, discoveries, or improvements (individually and
collectively, “Inventions”) made by Employee as a result or product of his employment
relationship with Company. Employee hereby assigns to Company without additional
compensation the entire worldwide right, title and interest in and to such Inventions, and
related intellectual property rights and without limitation all copyrights, copyright renewals or
reversions, trademarks, trade names, trade dress rights, industrial design, industrial model,
inventions, priority rights, patent rights, patent applications, patents, design patents and any
other rights or protections in connection therewith or related thereto, for exploitation in any
form or medium, of any kind or nature whatsoever, whether now known or hereafter
devised. To the extent that any work created by Employee can be a work for hire pursuant to
U.S. Copyright Law, the parties deem such work a “work for hire” and Employee should be
considered the author thereof. Employee shall, at the request of Company, without additional
compensation, from time to time execute, acknowledge and deliver to Company such
instruments and documents as Company may require to perfect, transfer and vest in Company
the entire rights, title and interest in and to such inventions. In the event that Employee does
not timely perform such obligations, Employee shall cooperate with Company upon
Company’s request and at Company’s cost but without additional compensation in the
preparation and prosecution of patent, trademark, industrial design and model, and copyright
applications worldwide for protection of rights to any Inventions.
Injunctive Relief
5.05
Employee acknowledges that a violation or attempted violation on Employee’s part of any
agreement in this Article 5 will cause irreparable damage to Company, and accordingly,
Employee agrees that Company shall be entitled as a manner of right to an injunction from any
court of competent jurisdiction restraining any violation or further violation of such agreement
by Employee; such right to an injunction, however, shall be cumulative and in addition to
whatever other remedies that Company may have. Terms and agreements set forth in this
Section 5 shall survive the expiration of the term of this Agreement.
Disclosure of Information to Others
5.06
Employee shall not divulge any Confidential Information to anyone outside Company without
obtaining both Company’s prior written consent and the disclosee’s signed written
confidentiality agreement as approved by Company.
ARTICLE 6. OBLIGATIONS OF COMPANY
Indemnification of Losses of Employee
6.01
Company shall indemnify and defend and hold harmless Employee for all necessary
expenditures, losses or claims incurred by Employee in direct consequence of the discharge of
his duties.
ARTICLE 7. TERMINATION
By Company For Cause
7.01
(a) Company may terminate Employee’s employment during the Employment Term for
Cause. For purposes of this Agreement, “Cause” shall mean (i) the conviction of
Employee for committing an act of fraud, embezzlement, theft or other act constituting an
economic crime or the guilty or nolo contendere pleas of Employee to such a crime; or (ii)
fraudulent conduct or an act of dishonesty or breach of trust on the part of Employee in
connection with Company’s business, or (iii) breach of the confidentiality or non
competition provisions of this Agreement.
By Company Without Cause
(b) Company may terminate Employee’s employment at any time without cause.
By Company Upon Employee’s Death or Disability
(c) Employee’s employment shall terminate automatically upon Employee’s death or upon a
good faith determination by Company that Employee is disabled. Company will deem
Employee disabled if and when, in the good faith judgment of Company, Employee is
unable to perform the material functions of Employee’s job, even with reasonable
accommodation, for a total of ninety (90) days out of any six (6) month period.
Termination By Employee For Good Reason
7.02
Employee may terminate his employment with Company for Good Reason. For purposes of
this Agreement, “Good Reason” shall mean, in the absence of the consent of Employee, a
reasonable determination by Employee that any of the following has occurred:
(a) the assignment to Employee of any duties inconsistent in any material respect with
Employee’s position (including titles and reporting requirements, authority, duties or
responsibilities as contemplated by Section 2.01 of this Agreement), or any other action by
Company which results in a material diminution in such position, authority, duties or
responsibilities, excluding for this purpose an isolated and insubstantial action not taken in
bad faith and which is remedied by Company promptly after receipt of notice thereof given
by Employee; or
(b) any failure by Company to comply with any of the provisions of this Agreement
applicable to it, other than any isolated and insubstantial failure not occurring in bad faith
and which is remedied promptly after notice thereof from Employee.
(c) Relocation, unless such relocation is mutually agreed upon in writing.
ARTICLE 8. OBLIGATION OF COMPANY
UPON EARLY TERMINATION
Termination For Cause
8.01
If Employee’s employment shall be terminated for Cause, this Agreement shall terminate
without any further obligation to Employee whatsoever, other than any obligation that may be
required by law.
Termination By Company Without Cause;
Termination By Employee For Good Reason
8.02
In the event Company terminates Employee’s employment during the Employment Term
without cause, or Employee terminates his employment for Good Reason, then Company shall
pay or provide to Employee the following:
(a) Company shall pay to Employee, within thirty (30) days after the Date of Termination, any
accrued Annual Base Salary, bonuses that have been declared, vacation pay, expense
reimbursement and any other entitlements accrued by Employee under Article 3 above, to
the extent not theretofore paid (the sum of these amounts shall hereinafter by referred to as
the “Accrued Obligations”).
(b) Company shall continue to pay to Employee, in regular bi-weekly installments,
Employee’s Annual Salary under this Agreement for six (6) months. However, if the
employment of Employee becomes at-will, Company will continue to pay to Employee, in
regular bi-weekly installments, Employee’s Annual Salary under this Agreement for the
duration of six (6) months.
(c) Company shall continue to provide and pay for benefits to Employee and/or Employee’s
family and dependents at least equal to those which would have been provided to them in
accordance with the plans, programs, practices and policies which are generally applicable
to peer executives, for three months. If Employee commences employment with another
employer and is eligible to receive medical or other welfare benefits under another
employer-provider plan, the medical and other welfare benefits to be provided by
Company as described herein shall terminate.
Upon Death of Employee
8.03
If Employee’s employment is terminated by reason of Employee’s death during the
Employment Term, this Agreement shall terminate without further obligation to Employee,
other than payment Accrued Obligations (which shall be paid to Employee’s estate or
beneficiary, as applicable, in a lump sum in cash within thirty (30) days of the Date of
Termination, and the timely payment or provision of all welfare benefit plans.
Upon Disability of Employee
8.04
If Employee’s employment shall be terminated by reason of Employee’s Disability during the
Employment Term, this Agreement shall terminate without further obligation to Employee,
other than for payment of any Accrued Obligations (which shall be paid to Employee in a lump
sum in cash within 30 days of the Date of Termination, and the timely payment or provision of
all welfare benefit plans.
ARTICLE 9. POST TERMINATION
Non Solicitation of Customers
9.01
For a period of One (1) year immediately following the termination of Employee’s
employment with Company, Employee shall not directly or indirectly make known to any
person, firm, corporation, etc., the names or addresses of any of the customers of Company
and/or its subsidiaries, of the information pertaining to them, or call on, solicit, or take away
from any of the customers of Company of whom Employee called or with whom Employee
became acquainted during Employee’s employment with Company, either for himself or for
any other person, firm, corporation, etc.
Non Solicitation of Employees of Company
9.02
For a period of One (1) year immediately following the termination of Employee’s
employment with Company, Employee shall not directly or indirectly solicit, recruit, or
encourage any other employee of Company or any of its related entities or subsidiaries, or any
of its subsidiaries, to leave the employment of Company or work for any person or entity that
is in competition with Company, or its subsidiaries.
Non Competition
9.03
To the extent allowed by law, for a period of One (1) year immediately following the
termination of Employee’s employment with Company, Employee agrees that Employee will
not directly or indirectly, in any capacity, compete or attempt to compete with the business of
Company or any of its subsidiaries, whether by taking employment with a competitor,
consulting to a competitor, as an owner of a business entity competing with Company, or
otherwise.
ARTICLE 10. GENERAL PROVISIONS
Notices
10.01
Any notice to be given hereunder by either party to the other shall be in writing and may be
transmitted by personal delivery or by mail, registered or certified, postage prepaid with return
receipt requested. Mailed notices shall be addressed to the parties at the addresses appearing in
the introductory paragraph of this Agreement, accompanied by courtesy e-mails and faxes to
the e-mail addresses and fax numbers set forth in the introductory paragraph of this
Agreement, but each party may change that address and/or email address and/or fax number by
written notice in accordance with this section. Notices delivered personally shall be deemed
communicated as of the date of actual receipt; mailed notices shall be deemed communicated as
of three (3) days after the date of mailing.
Arbitration
10.02
(a) No dispute between Company (or any of its officers, directors, employees,subsidiaries or
affiliates) and Employee, which is in any way related to the employment of Employee
(including but not limited to claims of wrongful termination; racial, sexual or other
discrimination or harassment; defamation; and other employment-related claims or
allegations) shall be the subject of a lawsuit filed in state or federal court. Instead, any such
dispute shall be submitted to binding arbitration before a sole arbitrator of the American
Arbitration Association (AAA) or any other individual or organization on which the
Parties agree or which a court may appoint. It is understood that both sides are hereby
waiving the right to a jury trial.
(b) In order to commence an arbitration proceeding, the claimant shall file with the AAA (or
other agreed or appointed arbitrator) and serve on the other party a complaint in accordance
with the laws of the State of ; the other party shall file and serve a response in accordance
with the laws of that state. The arbitration shall be initiated in Orlando, Florida. The
arbitration must be filed within one (1) year of the act or omission which gives rise to the
claim. Each Party shall be entitled to take a minimum of one deposition, and to take any
other discovery as is permitted by the Arbitrator. In determining the extent of discovery,
the Arbitrator shall exercise discretion, but shall consider the expense of the desired
discovery and the importance of the discovery to a just adjudication. The Arbitrator shall
hear motions pertaining to the pleadings, discovery or summary judgment or adjudication,
in accordance with the law as it would be applied by a court of the State of Florida.
(c) The Arbitrator shall render a decision which conforms to the facts, supported by competent
evidence (except that the Arbitrator may accept written declarations under penalty of
perjury, in addition to live testimony), and the law as it would be applied by a court sitting
in the state in which the arbitration is brought. The Arbitrator shall not impose any
requirement of “just cause,” not otherwise imposed by law. At the conclusion of the
arbitration, the Arbitrator shall make written findings of fact, and state the evidentiary basis
for each such finding. The Arbitrator shall also issue a ruling and explain how the findings
of fact justify his or her ruling.
(d) Any party may apply to a court of competent jurisdiction for entry of judgment on the
arbitration award. The court shall review the arbitration award, including the ruling and
findings of fact, and shall determine whether they are supported by competent evidence and
by a proper application of law to the facts. If the court finds that the award is properly
supported by the facts and law, then it shall enter judgment on the award; if the court finds
that the award is not supported by the facts or the law, then the court may enter a different
judgment (if such is compelled by the uncontradicted evidence) or may direct the parties to
return to arbitration for further proceedings consistent with the order of the court.
(e) Notwithstanding the above, either Company or Employee may file with an appropriate state
or federal court a claim for injunctive relief in any case where the filing party seeks
provisional injunctive relief or where permanent injunctive relief is not available in
arbitration. The filing of a claim for injunctive relief in state or federal court shall not allow
either party to raise any other claim outside of arbitration.
Entire Agreement
10.03
This agreement supersedes any and all other agreements, either oral or in writing, between the
parties hereto with respect to the employment of Employee by Company and contains all of the
covenants and agreements between the parties with respect to that employment in any manner
whatsoever. Each Party to this agreement acknowledges that no representation, inducements,
promises, or agreements regarding Employee’s employment, orally or otherwise, have been
made by any party, or anyone acting on behalf of any party, with respect to the employment of
Employee, which are not embodied herein, and that no other Agreement, statement, or promise
not contained in this Agreement shall be valid or binding on either party. Any modification of
this Agreement will be effective only if it is in writing signed by the party to be charged.
Partial Invalidity
10.04
If any provision in this agreement is held by a court of competent jurisdiction to be invalid,
void, or unenforceable, the remaining provisions shall nevertheless continue in full force
without being impaired or invalidated in any way.
Law Governing Agreement
10.05
This agreement shall be governed by and constructed in accordance with the laws of the State
of Florida.
Payment of Sums Due Deceased Employee
10.06
If Employee dies prior to the expiration of the term of his employment, any moneys that may
be due him from Company under this agreement as of the date of death shall be paid to
Employee’s executors, administrators, heirs, personal representatives, successors, and assigns.
IN WITNESS WHEREOF, the Parties so agree:
COMPANY:
Propell Corporation
EMPLOYEE:
By: /s/ Edward L. Bernstein
Edward L. Bernstein
By: /s/ Jim Wallace
Jim Wallace
President and CEO
EXHIBIT 10.22
EMPLOYMENT AGREEMENT
This Employment Agreement, Dated as of the Effective Date of Merger (as Merger is defined in Section
1.01 below), between Propell Corporation, a Delaware Corporation (“Company”) with its principal place of
business located at 7703 Kingspointe Parkway, Suite 300, Orlando, Florida 32819, and and Paul Scapatici
(“Employee”) with a residence at [___________], in consideration of the mutual promises made herein, recites
and provides as follows:
WHEREAS, Company desires to retain the services of Employee on the terms and conditions set forth
herein; and
herein;
WHEREAS, Employee desires to be employed by the Company on the terms and conditions set forth
NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants herein
contained, Company and Employee agree as follows:
ARTICLE 1. TERM OF EMPLOYMENT
Specified Period
1.01
Company employs Employee and Employee accepts employment with Company for a period of
three (3) years (36 months) beginning on the Effective Date of the Merger of Company with
Crystal Magic, Inc., and Mountain Capital d/b/a Arrow Media Solutions (currently expected to
occur in April 2008), and terminating on the same date in 2011. If the parties do not execute a
new written agreement upon expiration of this Agreement, the employment of Employee shall
continue on an at-will basis.
“Employment Term” Defined
1.02
“Employment Term” refers to the entire period of employment of Employee by Company,
whether for the periods provided above, or whether terminated earlier as hereinafter provided or
extended by mutual agreement between Company and Employee.
ARTICLE 2. DUTIES AND OBLIGATIONS OF EMPLOYEE
General Duties
2.01
Employee shall serve as an Executive Vice President (EVP) of Propell and General Manager
(GM) of Company’s Kiosk Solutions division. In his capacity as EVP of Company and GM of
Company’s Kiosk Solutions division, Employee shall do and perform all services, acts, or things
necessary or advisable as EVP of Company and GM of Kiosk Solutions division and such other
roles of similar responsibility as the Company may see fit from time to time as the position and
the Company’s needs evolve. Employee shall be based in Company’s Lake Placid, New York
office, which shall be shortly relocating to Connecticut office. Any change or relocation of the
Connecticut office, or in case the move does not occur, the Lake Placid office, further than fifty
(50) miles, shall be considered “relocation” pursuant to Section 7.02 (c) below.
Outside Employment
2.02
Employee shall not engage in outside employment that interferes with any of the duties under this
Agreement.
Competitive Activities
2.03
During the term of this contract Employee shall not, directly or indirectly, either as an employee,
company consultant, agent, principal, partner, stockholder, corporate officer, director, or in any
other individual or representative capacity, engage or participate in any business that is in
competition in with the business of Company and/or its subsidiaries.
Adherence to Rules
2.04
Employee, at all times during the performance of this Agreement, shall strictly adhere to and obey
all the rules and regulations now in effect or as subsequently modified governing the conduct of
employees of Company and its wholly owned subsidiaries.
ARTICLE 3. COMPENSATION OF EMPLOYEE
Annual Salary
3.01
(a) As compensation for the services to be performed hereunder, Employee shall receive a salary
at the rate of One Hundred and Twenty Five Thousand Dollars ($125,000.00) per annum,
payable in equal installments on a bi-weekly basis.
(b) Employee shall receive such annual increases in salary, if any, as may be determined by
Company’s Board of Directors, in its sole discretion.
Discretionary Bonus
3.02
In addition to the Employee’s Annual Salary, the Board of Directors of Company may, in its sole
discretion, award to Employee bonus(es) in an amount, if any, in the Board’s sole discretion.
Stock
3.03
Company hereby grants to Employee an option to purchase, One Hundred Twenty Five
Thousand (125,000) shares of common stock of the Company at the purchase/exercise price as
set forth below and pursuant to the terms of the Propell Corporation 2008 Stock Option Plan
(“SOP”), a copy of which shall be given to Employee. It is the intent that both the SOP and the
grant to Employee of Options shall be approved at the first Board of Directors meeting after the
Merger.
(a) This Option may be exercised only with respect to the portion of stock that is vested in
Employee. Except as set forth in Section 3.03(b) below, Employee’s right to exercise this
option shall be vested in annual increments beginning with the first anniversary date of
Employee’s employment according to the following vesting schedule:
(i) On the first anniversary date of Employee’s employment, 12/36ths of the Option shares
shall vest; and
(ii) On the second anniversary date of Employee’s employment, an additional 12/36 ths of
Option shares shall vest; and
(iii) On the third anniversary date of Employee’s employment, the remaining 12/36 ths of the
Option shares shall vest.
(b) Notwithstanding the above, after the first anniversary date of Employee’s employment, in the
event (i) Employee is terminated without Cause, or (ii) Employee terminates for Good
Reason, Employee shall be entitled to additional vesting in the amount of 1/36th for each
month of employment completed after the most recent anniversary date of employment. In
such event, Employee shall have ninety (90) days after the date of termination in which to
purchase/exercise any such Option(s).
(c) The purchase price shall be the fair market value of the Company’s common stock as
determined by the first Five Hundred Thousand Dollars ($500,000) in capital invested after
the Merger is effective.
(d) This Option is not assignable and may only be exercised by Employee during the term of
employment under this Agreement upon termination in Section 3.03(b), except as set forth
above.
Vacation
3.04
During the Employment Term, Employee shall be entitled to fifteen (15) days paid vacation per
year, which may be used in accordance with the policies, programs and practices of Company,
which are in effect generally from time to time with respect to other peer executives of Company.
Employee’s Sick Leave
3.05
During the Employment Term, Employee shall be entitled to paid sick leave in accordance with
the policies, programs and practices of Company which are in effect with respect to other peer
executives of Company.
Savings and Retirement Plans
3.06
During the Employment Term, Employee shall be entitled to participate in all savings and
retirement plans to the extent applicable generally to other peer executives of Company, including
any 401(k) plan maintained by Company, if any.
Benefit Plans
3.07
During the Employment Term, the Employee and/or the Employee’s family and dependents, as
the case may be, shall be eligible for participation in and shall receive all benefits under all
welfare benefit plans provided by Company (including, without limitation, medical, prescription,
dental, disability, salary continuance, employee life, group life, and accidental death and travel
accident insurance plans) to the extent applicable generally to other peer executives of Company.
ARTICLE 4. BUSINESS EXPENSES
Travel, Entertainment, and Other Expenses
4.01
It is recognized and agreed by the Parties to this Agreement that in connection with the services
to be performed for Company, Employee will be obliged to expend money for travel,
entertainment of customers, gifts, and similar business expenses. Employee is authorized to
incur reasonable business expenses for promoting the business of Company, in accordance with
the policies, practices and procedures of Company.
Reimbursement of Business Expenses
4.02
(a) Company shall promptly reimburse Employee for all reasonable business expenses incurred
by Employee in connection with the business of Company.
(b) Each such expenditure shall be reimbursable only if it is of a nature qualifying it as a proper
deduction on the federal and state income tax return of Company.
(c) Each such expenditure shall be reimbursable only if Employee furnishes to Company
adequate records and other documentary evidence required by federal and state statutes and
regulations issued by the appropriate taxing authorities for the substantiation of each such
expenditure as an income tax deduction.
ARTICLE 5. PROPERTY RIGHTS OF THE PARTIES
TRADE SECRETS / CONFIDENTIAL INFORMATION
Confidential Information
5.01
As used in this Agreement “Confidential Information” includes, without limitation, [design
information, manufacturing information, business, financial, and technical information, sales and
processing information, product information, customers, customer lists, vendors, vendor lists,
pricing information, corporation and personal business contact and relationships, corporation and
personal business opportunities, software, computer disks or files, or any other electronic
information of any kind, Rolodex cards or other lists of names, addresses or telephone numbers,
financial information, projects, potential projects, current projects, projects in development and
future projects, forecasts, plans, contracts, releases, and other documents, materials or writings
that belong to Company, including those which are prepared or created by Employee or come
into the possession of Employee by any means or manner and which relate directly or indirectly
to Company, and each of its owners, predecessors, successors, subsidiaries, affiliates, and all of
its shareholders, directors and officers (all of the above collectively referred to as “Confidential
Information”). Confidential Information includes information developed by Employee in the
course of Employee’s services for Company for the benefit of Company, as well as other
Confidential Information to which Employee may have access in connection with Employee’s
services. Confidential Information also includes the confidential information of other individuals
or entities with which Company has a business relationship.
Duty of Confidentiality
5.02
Employee will maintain in confidence and will not, directly or indirectly, disclose or use (or allow
others working with Employee to disclose or use), either during the term of this Agreement and
for a period of one (1) year after termination of Employee’s employment, any Confidential
Information belonging to Company, whether in oral, written, electronic or permanent form,
except solely to the extent necessary to perform services on behalf of Company prior to its
termination, Employee shall deliver forthwith possession or control belonging to Company and
all tangible items embodying or containing Confidential Information.
Documents, Records, Etc.
5.03
All documents, records, data, equipment and other physical property, whether or not pertaining to
Confidential Information, which are furnished to Employee by Company or produced by
Employee in connection with Employee’s services will be and remain the sole property of
Company. Employee will return to Company forthwith all such materials and property upon the
termination of this Agreement or sooner if requested by Company.
Assignment of Rights
5.04
Employee shall make full and prompt disclosure to Company of any and all designs, intellectual
property, software, inventions, discoveries, or improvements (individually and collectively,
“Inventions”) made by Employee as a result or product of his employment relationship with
Company. Employee hereby assigns to Company without additional compensation the entire
worldwide right, title and interest in and to such Inventions, and related intellectual property
rights and without limitation all copyrights, copyright renewals or reversions, trademarks, trade
names, trade dress rights, industrial design, industrial model, inventions, priority rights, patent
rights, patent applications, patents, design patents and any other rights or protections in
connection therewith or related thereto, for exploitation in any form or medium, of any kind or
nature whatsoever, whether now known or hereafter devised. To the extent that any work
created by Employee can be a work for hire pursuant to U.S. Copyright Law, the parties deem
such work a “work for hire” and Employee should be considered the author thereof. Employee
shall, at the request of Company, without additional compensation, from time to time execute,
acknowledge and deliver to Company such instruments and documents as Company may require
to perfect, transfer and vest in Company the entire rights, title and interest in and to such
inventions. In the event that Employee does not timely perform such obligations, Employee shall
cooperate with Company upon Company’s request and at Company’s cost but without additional
compensation in the preparation and prosecution of patent, trademark, industrial design and
model, and copyright applications worldwide for protection of rights to any Inventions.
Injunctive Relief
5.05
Employee acknowledges that a violation or attempted violation on Employee’s part of any
agreement in this Article 5 will cause irreparable damage to Company, and accordingly,
Employee agrees that Company shall be entitled as a manner of right to an injunction from any
court of competent jurisdiction restraining any violation or further violation of such agreement by
Employee; such right to an injunction, however, shall be cumulative and in addition to whatever
other remedies that Company may have. Terms and agreements set forth in this Section 5 shall
survive the expiration of the term of this Agreement.
Disclosure of Information to Others
5.06
Employee shall not divulge any Confidential Information to anyone outside Company without
obtaining both Company’s prior written consent and the disclosee’s signed written confidentiality
agreement as approved by Company.
ARTICLE 6. OBLIGATIONS OF COMPANY
Indemnification of Losses of Employee
6.01
Company shall indemnify and defend and hold harmless Employee for all necessary
expenditures, losses or claims incurred by Employee in direct consequence of the discharge of
his duties.
ARTICLE 7. TERMINATION
By Company For Cause
7.01
(a) Company may terminate Employee’s employment during the Employment Term for
Cause. For purposes of this Agreement, “Cause” shall mean (i) the conviction of Employee
for committing an act of fraud, embezzlement, theft or other act constituting an economic
crime or the guilty or nolo contendere pleas of Employee to such a crime; or (ii) fraudulent
conduct or an act of dishonesty or breach of trust on the part of Employee in connection with
Company’s business, or (iii) breach of the confidentiality or non competition provisions of
this Agreement.
By Company Without Cause
(b) Company may terminate Employee’s employment at any time without cause.
By Company Upon Employee’s Death or Disability
(c) Employee’s employment shall terminate automatically upon Employee’s death or upon a
good faith determination by Company that Employee is disabled. Company will deem
Employee disabled if and when, in the good faith judgment of Company, Employee is unable
to perform the material functions of Employee’s job, even with reasonable accommodation,
for a total of ninety (90) days out of any six (6) month period.
Termination By Employee For Good Reason
7.02
Employee may terminate his employment with Company for Good Reason. For purposes of this
Agreement, “Good Reason” shall mean, in the absence of the consent of Employee, a reasonable
determination by Employee that any of the following has occurred:
(a) the assignment to Employee of any duties inconsistent in any material respect with
Employee’s position (including titles and reporting requirements, authority, duties or
responsibilities as contemplated by Section 2.01 of this Agreement), or any other action by
Company which results in a material diminution in such position, authority, duties or
responsibilities, excluding for this purpose an isolated and insubstantial action not taken in
bad faith and which is remedied by Company promptly after receipt of notice thereof given
by Employee; or
(b) any failure by Company to comply with any of the provisions of this Agreement applicable
to it, other than any isolated and insubstantial failure not occurring in bad faith and which is
remedied promptly after notice thereof from Employee.
(c) Relocation, unless such relocation is mutually agreed upon in writing.
ARTICLE 8. OBLIGATION OF COMPANY
UPON EARLY TERMINATION
Termination For Cause
8.01
If Employee’s employment shall be terminated for Cause, this Agreement shall terminate without
any further obligation to Employee whatsoever, other than any obligation that may be required by
law.
Termination By Company Without Cause;
Termination By Employee For Good Reason
8.02
In the event Company terminates Employee’s employment during the Employment Term without
cause, or Employee terminates his employment for Good Reason, then Company shall pay or
provide to Employee the following:
(a) Company shall pay to Employee, within thirty (30) days after the Date of Termination, any
accrued Annual Base Salary, bonuses that have been declared, vacation pay, expense
reimbursement and any other entitlements accrued by Employee under Article 3 above, to the
extent not theretofore paid (the sum of these amounts shall hereinafter by referred to as the
“Accrued Obligations”).
(b) Company shall continue to pay to Employee, in regular bi-weekly installments, Employee’s
Annual Salary under this Agreement for six (6) months. However, if the employment of
Employee becomes at-will, Company will continue to pay to Employee, in regular bi-weekly
installments, Employee’s Annual Salary under this Agreement for the duration of six (6)
months.
(c) Company shall continue to provide and pay for benefits to Employee and/or Employee’s
family and dependents at least equal to those which would have been provided to them in
accordance with the plans, programs, practices and policies which are generally applicable to
peer executives, for three months. If Employee commences employment with another
employer and is eligible to receive medical or other welfare benefits under another employerprovider plan, the medical and other welfare benefits to be provided by Company as
described herein shall terminate.
Upon Death of Employee
8.03
If Employee’s employment is terminated by reason of Employee’s death during the Employment
Term, this Agreement shall terminate without further obligation to Employee, other than payment
of any Accrued Obligations (which shall be paid to Employee’s estate or beneficiary, as
applicable, in a lump sum in cash within thirty (30) days of the Date of Termination, and the
timely payment or provision of all welfare benefit plans.
Upon Disability of Employee
8.04
If Employee’s employment shall be terminated by reason of Employee’s Disability during the
Employment Term, this Agreement shall terminate without further obligation to Employee, other
than for payment of any Accrued Obligations (which shall be paid to Employee in a lump sum in
cash within 30 days of the Date of Termination, and the timely payment or provision of all
welfare benefit plans.
ARTICLE 9. POST TERMINATION
Non Solicitation of Customers
9.01
For a period of One (1) year immediately following the termination of Employee’s employment
with Company, Employee shall not directly or indirectly make known to any person, firm,
corporation, etc., the names or addresses of any of the customers of Company and/or its
subsidiaries, of the information pertaining to them, or call on, solicit, or take away from any of
the customers of Company of whom Employee called or with whom Employee became
acquainted during Employee’s employment with Company, either for himself or for any other
person, firm, corporation, etc.
Non Solicitation of Employees of Company
9.02
For a period of One (1) year immediately following the termination of Employee’s employment
with Company, Employee shall not directly or indirectly solicit, recruit, or encourage any other
employee of Company or any of its related entities or subsidiaries, or any of its subsidiaries, to
leave the employment of Company or work for any person or entity that is in competition with
Company, or its subsidiaries.
Non Competition
9.03
To the extent allowed by law, for a period of One (1) year immediately following the termination
of Employee’s employment with Company, Employee agrees that Employee will not directly or
indirectly, in any capacity, compete or attempt to compete with the business of Company or any
of its subsidiaries, whether by taking employment with a competitor, consulting to a competitor,
as an owner of a business entity competing with Company, or otherwise.
ARTICLE 10. GENERAL PROVISIONS
Notices
10.01
Any notice to be given hereunder by either party to the other shall be in writing and may be
transmitted by personal delivery or by mail, registered or certified, postage prepaid with return
receipt requested. Mailed notices shall be addressed to the parties at the addresses appearing in
the introductory paragraph of this Agreement, accompanied by courtesy e-mails and faxes to the
e-mail addresses and fax numbers set forth in the introductory paragraph of this Agreement, but
each party may change that address and/or email address and/or fax number by written notice in
accordance with this section. Notices delivered personally shall be deemed communicated as of
the date of actual receipt; mailed notices shall be deemed communicated as of three (3) days after
the date of mailing.
Arbitration
10.02
(a) No dispute between Company (or any of its officers, directors, employees, subsidiaries or
affiliates) and Employee, which is in any way related to the employment of Employee
(including but not limited to claims of wrongful termination; racial, sexual or other
discrimination or harassment; defamation; and other employment-related claims or allegations)
shall be the subject of a lawsuit filed in state or federal court. Instead, any such dispute shall
be submitted to binding arbitration before a sole arbitrator of the American Arbitration
Association (AAA) or any other individual or organization on which the Parties agree or
which a court may appoint. It is understood that both sides are hereby waiving the right to a
jury trial.
(b) In order to commence an arbitration proceeding, the claimant shall file with the AAA (or
other agreed or appointed arbitrator) and serve on the other party a complaint in accordance
with the laws of the State of California; the other party shall file and serve a response in
accordance with the laws of that state. The arbitration shall be initiated in Orlando,
Florida. The arbitration must be filed within one (1) year of the act or omission which gives
rise to the claim. Each Party shall be entitled to take a minimum of one deposition, and to take
any other discovery as is permitted by the Arbitrator. In determining the extent of discovery,
the Arbitrator shall exercise discretion, but shall consider the expense of the desired discovery
and the importance of the discovery to a just adjudication. The Arbitrator shall hear motions
pertaining to the pleadings, discovery or summary judgment or adjudication, in accordance
with the law as it would be applied by a court of the State of Florida.
(c) The Arbitrator shall render a decision which conforms to the facts, supported by competent
evidence (except that the Arbitrator may accept written declarations under penalty of perjury,
in addition to live testimony), and the law as it would be applied by a court sitting in the state
in which the arbitration is brought. The Arbitrator shall not impose any requirement of “just
cause,” not otherwise imposed by law. At the conclusion of the arbitration, the Arbitrator
shall make written findings of fact, and state the evidentiary basis for each such finding. The
Arbitrator shall also issue a ruling and explain how the findings of fact justify his or her
ruling.
(d) Any party may apply to a court of competent jurisdiction for entry of judgment on the
arbitration award. The court shall review the arbitration award, including the ruling and
findings of fact, and shall determine whether they are supported by competent evidence and
by a proper application of law to the facts. If the court finds that the award is properly
supported by the facts and law, then it shall enter judgment on the award; if the court finds
that the award is not supported by the facts or the law, then the court may enter a different
judgment (if such is compelled by the uncontradicted evidence) or may direct the parties to
return to arbitration for further proceedings consistent with the order of the court.
(e) Notwithstanding the above, either Company or Employee may file with an appropriate state or
federal court a claim for injunctive relief in any case where the filing party seeks provisional
injunctive relief or where permanent injunctive relief is not available in arbitration. The filing
of a claim for injunctive relief in state or federal court shall not allow either party to raise any
other claim outside of arbitration.
Entire Agreement
10.03
This agreement supersedes any and all other agreements, either oral or in writing, between the
parties hereto with respect to the employment of Employee by Company and contains all of
the covenants and agreements between the parties with respect to that employment in any
manner whatsoever. Each Party to this agreement acknowledges that no representation,
inducements, promises, or agreements regarding Employee’s employment, orally or
otherwise, have been made by any party, or anyone acting on behalf of any party, with respect
to the employment of Employee, which are not embodied herein, and that no other
Agreement, statement, or promise not contained in this Agreement shall be valid or binding
on either party. Any modification of this Agreement will be effective only if it is in writing
signed by the party to be charged.
Partial Invalidity
10.04
If any provision in this agreement is held by a court of competent jurisdiction to be invalid,
void, or unenforceable, the remaining provisions shall nevertheless continue in full force
without being impaired or invalidated in any way.
Law Governing Agreement
10.05
This agreement shall be governed by and constructed in accordance with the laws of the State
of Florida.
Payment of Sums Due Deceased Employee
10.06
If Employee dies prior to the expiration of the term of his employment, any moneys that may
be due him from Company under this agreement as of the date of death shall be paid to
Employee’s executors, administrators, heirs, personal representatives, successors, and
assigns.
IN WITNESS WHEREOF, the Parties so agree:
COMPANY:
Propell Corporation
By: /s/ Edward L. Bernstein
Edward L. Bernstein
EMPLOYEE:
By: /s/ Paul Scapatici
Paul Scapatici
President and CEO
EXHIBIT 10.23
EMPLOYMENT AGREEMENT
This Employment Agreement, Dated as of the Effective Date of Merger (as Merger is defined in Section
1.01 below), between Propell Corporation, a Delaware Corporation (“Company”) with its principal place of
business located at 7703 Kingspointe Parkway, Suite 300, Orlando, Florida 32819, and Lane Folliott
(“Employee”) with a residence at [____________], in consideration of the mutual promises made herein, recites
and provides as follows:
WHEREAS, Company desires to retain the services of Employee on the terms and conditions set forth
herein; and
herein;
WHEREAS, Employee desires to be employed by the Company on the terms and conditions set forth
NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants herein
contained, Company and Employee agree as follows:
ARTICLE 1. TERM OF EMPLOYMENT
Specified Period
1.01
Company employs Employee and Employee accepts employment with Company for a period
of three (3) years (36 months) beginning on the Effective Date of the Merger of Company
with Crystal Magic, Inc., and Mountain Capital d/b/a Arrow Media Solutions (currently
expected to occur in April 2008), and terminating on the same date in 2011. If the parties do
not execute a new written agreement upon expiration of this Agreement, the employment of
Employee shall continue on an at-will basis.
“Employment Term” Defined
1.02
“Employment Term” refers to the entire period of employment of Employee by Company,
whether for the periods provided above, or whether terminated earlier as hereinafter provided
or extended by mutual agreement between Company and Employee.
ARTICLE 2. DUTIES AND OBLIGATIONS OF EMPLOYEE
General Duties
2.01
Employee shall serve as the Vice President (VP) of Sales of Company’s Kiosk Solutions
division, and such other roles of similar responsibility as the Company may see fit from time
to time as the position evolves. In his capacity as VP of Sales of the Kiosk Solutions
division, Employee shall do and perform all services, acts, or things necessary or advisable as
VP of Sales of Kiosk Solutions. Employee shall be based in Company’s Brea, California
office. Any change or relocation of the Brea, California office, further than fifty (50) miles,
shall be considered “relocation” pursuant to Section 7.02 (c) below.
Outside Employment
2.02
Employee shall not engage in outside employment that interferes with any of the duties under
this Agreement.
Competitive Activities
2.03
During the term of this contract Employee shall not, directly or indirectly, either as an
employee, company consultant, agent, principal, partner, stockholder, corporate officer,
director, or in any other individual or representative capacity, engage or participate in any
business that is in competition in with the business of Company and/or its subsidiaries.
Adherence to Rules
2.04
Employee, at all times during the performance of this Agreement, shall strictly adhere to and
obey all the rules and regulations now in effect or as subsequently modified governing the
conduct of employees of Company and its wholly owned subsidiaries.
ARTICLE 3. COMPENSATION OF EMPLOYEE
Annual Salary
3.01
(a) As compensation for the services to be performed hereunder, Employee shall receive a
salary at the rate of One Hundred and Twenty Five Thousand Dollars ($125,000.00) per
annum, payable in equal installments on a bi-weekly basis.
(b) Employee shall receive such annual increases in salary, if any, as may be determined by
Company’s Board of Directors, in its sole discretion.
Discretionary Bonus
3.02
In addition to the Employee’s Annual Salary, the Board of Directors of Company may, in its
sole discretion, award to Employee bonus(es) in an amount, if any, in the Board’s sole
discretion.
Stock
3.03
Company hereby grants to Employee an option to purchase, One Hundred Twenty Five
Thousand (125,000) shares of common stock of the Company at the purchase/exercise price as
set forth below and pursuant to the terms of the Propell Corporation 2008 Stock Option Plan
(“SOP”), a copy of which shall be given to Employee. It is the intent that both the SOP and
the grant to Employee of Options shall be approved at the first Board of Directors meeting after
the Merger.
(a) This Option may be exercised only with respect to the portion of stock that is vested in
Employee. Except as set forth in Section 3.03(b) below, Employee’s right to exercise this
option shall be vested in annual increments beginning with the first anniversary date of
Employee’s employment according to the following vesting schedule:
(i) On the first anniversary date of Employee’s employment, 12/36ths of the Option shares
shall vest; and
(ii) On the second anniversary date of Employee’s employment, an additional 12/36 ths of
Option shares shall vest; and
(iii) On the third anniversary date of Employee’s employment, the remaining 12/36 ths of
the Option shares shall vest.
(b) Notwithstanding the above, after the first anniversary date of Employee’s employment, in the
event (i) Employee is terminated without Cause, or (ii) Employee terminates for Good
Reason, Employee shall be entitled to additional vesting in the amount of 1/36th for each
month of employment completed after the most recent anniversary date of employment. In
such event, Employee shall have ninety (90) days after the date of termination in which to
purchase/exercise any such Option(s).
(c) The purchase price shall be the fair market value of the Company’s common stock as
determined by the first Five Hundred Thousand Dollars ($500,000) in capital invested after
the Merger is effective.
(d) This Option is not assignable and may only be exercised by Employee during the term of
employment under this Agreement upon termination in Section 3.03(b), except as set forth
above.
Vacation
3.04
During the Employment Term, Employee shall be entitled to fifteen (15) days paid vacation per
year, which may be used in accordance with the policies, programs and practices of Company,
which are in effect generally from time to time with respect to other peer executives of Company.
Employee’s Sick Leave
3.05
During the Employment Term, Employee shall be entitled to paid sick leave in accordance with
the policies, programs and practices of Company, which are in effect with respect to other peer
executives of Company.
Savings and Retirement Plans
3.06
During the Employment Term, Employee shall be entitled to participate in all savings and
retirement plans to the extent applicable generally to other peer executives of Company, including
any 401(k) plan maintained by Company, if any.
Benefit Plans
3.07
During the Employment Term, the Employee and/or the Employee’s family and dependents, as
the case may be, shall be eligible for participation in and shall receive all benefits under all welfare
benefit plans provided by Company (including, without limitation, medical, prescription, dental,
disability, salary continuance, employee life, group life, and accidental death and travel accident
insurance plans) to the extent applicable generally to other peer executives of Company.
ARTICLE 4. BUSINESS EXPENSES
Travel, Entertainment, and Other Expenses
4.01
It is recognized and agreed by the Parties to this Agreement that in connection with the services to
be performed for Company, Employee will be obliged to expend money for travel, entertainment
of customers, gifts, and similar business expenses. Employee is authorized to incur reasonable
business expenses for promoting the business of Company, in accordance with the policies,
practices and procedures of Company.
Reimbursement of Business Expenses
4.02
(a) Company shall promptly reimburse Employee for all reasonable business expenses incurred
by Employee in connection with the business of Company.
(b) Each such expenditure shall be reimbursable only if it is of a nature qualifying it as a proper
deduction on the federal and state income tax return of Company.
(c) Each such expenditure shall be reimbursable only if Employee furnishes to Company
adequate records and other documentary evidence required by federal and state statutes and
regulations issued by the appropriate taxing authorities for the substantiation of each such
expenditure as an income tax deduction.
ARTICLE 5. PROPERTY RIGHTS OF THE PARTIES
TRADE SECRETS / CONFIDENTIAL INFORMATION
Confidential Information
5.01
As used in this Agreement “Confidential Information” includes, without limitation, [design
information, manufacturing information, business, financial, and technical information, sales and
processing information, product information, customers, customer lists, vendors, vendor lists,
pricing information, corporation and personal business contact and relationships, corporation and
personal business opportunities, software, computer disks or files, or any other electronic
information of any kind, Rolodex cards or other lists of names, addresses or telephone numbers,
financial information, projects, potential projects, current projects, projects in development and
future projects, forecasts, plans, contracts, releases, and other documents, materials or writings
that belong to Company, including those which are prepared or created by Employee or come into
the possession of Employee by any means or manner and which relate directly or indirectly to
Company, and each of its owners, predecessors, successors, subsidiaries, affiliates, and all of its
shareholders, directors and officers (all of the above collectively referred to as “Confidential
Information”). Confidential Information includes information developed by Employee in the
course of Employee’s services for Company for the benefit of Company, as well as other
Confidential Information to which Employee may have access in connection with Employee’s
services. Confidential Information also includes the confidential information of other individuals
or entities with which Company has a business relationship.
Duty of Confidentiality
5.02
Employee will maintain in confidence and will not, directly or indirectly, disclose or use (or allow
others working with Employee to disclose or use), either during the term of this Agreement, and
for a period of one (1) year after termination of Employee’s employment, any Confidential
Information belonging to Company, whether in oral, written, electronic or permanent form, except
solely to the extent necessary to perform services on behalf of Company prior to its termination,
Employee shall deliver forthwith possession or control belonging to Company and all tangible
items embodying or containing Confidential Information.
Documents, Records, Etc.
5.03
All documents, records, data, equipment and other physical property, whether or not pertaining to
Confidential Information, which are furnished to Employee by Company or produced by
Employee in connection with Employee’s services will be and remain the sole property of
Company. Employee will return to Company forthwith all such materials and property upon the
termination of this Agreement or sooner if requested by Company.
Assignment of Rights
5.04
Employee shall make full and prompt disclosure to Company of any and all designs, intellectual
property, software, inventions, discoveries, or improvements (individually and collectively,
“Inventions”) made by Employee as a result or product of his employment relationship with
Company. Employee hereby assigns to Company without additional compensation the entire
worldwide right, title and interest in and to such Inventions, and related intellectual property
rights and without limitation all copyrights, copyright renewals or reversions, trademarks, trade
names, trade dress rights, industrial design, industrial model, inventions, priority rights, patent
rights, patent applications, patents, design patents and any other rights or protections in
connection therewith or related thereto, for exploitation in any form or medium, of any kind or
nature whatsoever, whether now known or hereafter devised. To the extent that any work
created by Employee can be a work for hire pursuant to U.S. Copyright Law, the parties deem
such work a “work for hire” and Employee should be considered the author thereof. Employee
shall, at the request of Company, without additional compensation, from time to time execute,
acknowledge and deliver to Company such instruments and documents as Company may require
to perfect, transfer and vest in Company the entire rights, title and interest in and to such
inventions. In the event that Employee does not timely perform such obligations, Employee shall
cooperate with Company upon Company’s request and at Company’s cost but without additional
compensation in the preparation and prosecution of patent, trademark, industrial design and
model, and copyright applications worldwide for protection of rights to any Inventions.
Injunctive Relief
5.05
Employee acknowledges that a violation or attempted violation on Employee’s part of any
agreement in this Article 5 will cause irreparable damage to Company, and accordingly, Employee
agrees that Company shall be entitled as a manner of right to an injunction from any court of
competent jurisdiction restraining any violation or further violation of such agreement by
Employee; such right to an injunction, however, shall be cumulative and in addition to whatever
other remedies that Company may have. Terms and agreements set forth in this Section 5 shall
survive the expiration of the term of this Agreement.
Disclosure of Information to Others
5.06
Employee shall not divulge any Confidential Information to anyone outside Company without
obtaining both Company’s prior written consent and the disclosee’s signed written confidentiality
agreement as approved by Company.
ARTICLE 6. OBLIGATIONS OF COMPANY
Indemnification of Losses of Employee
6.01
Company shall indemnify and defend and hold harmless Employee for all necessary expenditures,
losses or claims incurred by Employee in direct consequence of the discharge of his duties.
ARTICLE 7. TERMINATION
By Company For Cause
7.01
(a) Company may terminate Employee’s employment during the Employment Term for
Cause. For purposes of this Agreement, “Cause” shall mean (i) the conviction of Employee
for committing an act of fraud, embezzlement, theft or other act constituting an economic
crime or the guilty or nolo contendere pleas of Employee to such a crime; or (ii) fraudulent
conduct or an act of dishonesty or breach of trust on the part of Employee in connection
with Company’s business, or (iii) breach of the confidentiality or non competition
provisions of this Agreement.
By Company Without Cause
(b) Company may terminate Employee’s employment at any time without cause.
By Company Upon Employee’s Death or Disability
(c) Employee’s employment shall terminate automatically upon Employee’s death or upon a
good faith determination by Company that Employee is disabled. Company will deem
Employee disabled if and when, in the good faith judgment of Company, Employee is
unable to perform the material functions of Employee’s job, even with reasonable
accommodation, for a total of ninety (90) days out of any six (6) month period.
Termination By Employee For Good Reason
7.02
Employee may terminate his employment with Company for Good Reason. For purposes of
this Agreement, “Good Reason” shall mean, in the absence of the consent of Employee, a
reasonable determination by Employee that any of the following has occurred:
(a) the assignment to Employee of any duties inconsistent in any material respect with
Employee’s position (including titles and reporting requirements, authority, duties or
responsibilities as contemplated by Section 2.01 of this Agreement), or any other action by
Company which results in a material diminution in such position, authority, duties or
responsibilities, excluding for this purpose an isolated and insubstantial action not taken in
bad faith and which is remedied by Company promptly after receipt of notice thereof given
by Employee; or
(b) any failure by Company to comply with any of the provisions of this Agreement applicable
to it, other than any isolated and insubstantial failure not occurring in bad faith and which is
remedied promptly after notice thereof from Employee.
(c) Relocation, unless such relocation is mutually agreed upon in writing.
ARTICLE 8. OBLIGATION OF COMPANY
UPON EARLY TERMINATION
Termination For Cause
8.01
If Employee’s employment shall be terminated for Cause, this Agreement shall terminate without
any further obligation to Employee whatsoever, other than any obligation that may be required by
law.
Termination By Company Without Cause;
Termination By Employee For Good Reason
8.02
In the event Company terminates Employee’s employment during the Employment Term without
cause, or Employee terminates his employment for Good Reason, then Company shall pay or
provide to Employee the following:
(a) Company shall pay to Employee, within thirty (30) days after the Date of Termination, any
accrued Annual Base Salary, bonuses that have been declared, vacation pay, expense
reimbursement and any other entitlements accrued by Employee under Article 3 above, to the
extent not theretofore paid (the sum of these amounts shall hereinafter by referred to as the
“Accrued Obligations”).
(b) Company shall continue to pay to Employee, in regular bi-weekly installments, Employee’s
Annual Salary under this Agreement for six (6) months. However, if the employment of
Employee becomes at-will, Company will continue to pay to Employee, in regular bi-weekly
installments, Employee’s Annual Salary under this Agreement for the duration of six (6)
months.
(c) Company shall continue to provide and pay for benefits to Employee and/or Employee’s
family and dependents at least equal to those which would have been provided to them in
accordance with the plans, programs, practices and policies which are generally applicable to
peer executives, for three months. If Employee commences employment with another
employer and is eligible to receive medical or other welfare benefits under another employerprovider plan, the medical and other welfare benefits to be provided by Company as described
herein shall terminate.
Upon Death of Employee
8.03
If Employee’s employment is terminated by reason of Employee’s death during the Employment
Term, this Agreement shall terminate without further obligation to Employee, other than payment
of any Accrued Obligations (which shall be paid to Employee’s estate or beneficiary, as
applicable, in a lump sum in cash within thirty (30) days of the Date of Termination, and the
timely payment or provision of all welfare benefit plans.
Upon Disability of Employee
8.04
If Employee’s employment shall be terminated by reason of Employee’s Disability during the
Employment Term, this Agreement shall terminate without further obligation to Employee, other
than for payment of any Accrued Obligations (which shall be paid to Employee in a lump sum in
cash within 30 days of the Date of Termination, and the timely payment or provision of all
welfare benefit plans.
ARTICLE 9. POST TERMINATION
Non Solicitation of Customers
9.01
For a period of One (1) year immediately following the termination of Employee’s employment
with Company, Employee shall not directly or indirectly make known to any person, firm,
corporation, etc., the names or addresses of any of the customers of Company and/or its
subsidiaries, of the information pertaining to them, or call on, solicit, or take away from any of the
customers of Company of whom Employee called or with whom Employee became acquainted
during Employee’s employment with Company, either for himself or for any other person, firm,
corporation, etc.
Non Solicitation of Employees of Company
9.02
For a period of One (1) year immediately following the termination of Employee’s employment
with Company, Employee shall not directly or indirectly solicit, recruit, or encourage any other
employee of Company or any of its related entities or subsidiaries, or any of its subsidiaries, to
leave the employment of Company or work for any person or entity that is in competition with
Company, or its subsidiaries.
Non Competition
9.03
To the extent allowed by law, for a period of One (1) year immediately following the termination
of Employee’s employment with Company, Employee agrees that Employee will not directly or
indirectly, in any capacity, compete or attempt to compete with the business of Company or any of
its subsidiaries, whether by taking employment with a competitor, consulting to a competitor, as an
owner of a business entity competing with Company, or otherwise.
ARTICLE 10. GENERAL PROVISIONS
Notices
10.01
Any notice to be given hereunder by either party to the other shall be in writing and may be
transmitted by personal delivery or by mail, registered or certified, postage prepaid with return
receipt requested. Mailed notices shall be addressed to the parties at the addresses appearing in
the introductory paragraph of this Agreement, accompanied by courtesy e-mails and faxes to the
e-mail addresses and fax numbers set forth in the introductory paragraph of this Agreement, but
each party may change that address and/or email address and/or fax number by written notice in
accordance with this section. Notices delivered personally shall be deemed communicated as of
the date of actual receipt; mailed notices shall be deemed communicated as of three (3) days after
the date of mailing.
Arbitration
10.02
(a) No dispute between Company (or any of its officers, directors, employees, subsidiaries or
affiliates) and Employee, which is in any way related to the employment of Employee
(including but not limited to claims of wrongful termination; racial, sexual or other
discrimination or harassment; defamation; and other employment-related claims or allegations)
shall be the subject of a lawsuit filed in state or federal court. Instead, any such dispute shall
be submitted to binding arbitration before a sole arbitrator of the American Arbitration
Association (AAA) or any other individual or organization on which the Parties agree or
which a court may appoint. It is understood that both sides are hereby waiving the right to a
jury trial.
(b) In order to commence an arbitration proceeding, the claimant shall file with the AAA (or other
agreed or appointed arbitrator) and serve on the other party a complaint in accordance with the
laws of the State of California; the other party shall file and serve a response in accordance
with the laws of that state. The arbitration shall be initiated in Orlando, Florida. The
arbitration must be filed within one (1) year of the act or omission which gives rise to the
claim. Each Party shall be entitled to take a minimum of one deposition, and to take any other
discovery as is permitted by the Arbitrator. In determining the extent of discovery, the
Arbitrator shall exercise discretion, but shall consider the expense of the desired discovery and
the importance of the discovery to a just adjudication. The Arbitrator shall hear motions
pertaining to the pleadings, discovery or summary judgment or adjudication, in accordance
with the law as it would be applied by a court of the State of Florida.
(c) The Arbitrator shall render a decision which conforms to the facts, supported by competent
evidence (except that the Arbitrator may accept written declarations under penalty of perjury,
in addition to live testimony), and the law as it would be applied by a court sitting in the state
in which the arbitration is brought. The Arbitrator shall not impose any requirement of “just
cause,” not otherwise imposed by law. At the conclusion of the arbitration, the Arbitrator
shall make written findings of fact, and state the evidentiary basis for each such finding. The
Arbitrator shall also issue a ruling and explain how the findings of fact justify his or her
ruling.
(d) Any party may apply to a court of competent jurisdiction for entry of judgment on the
arbitration award. The court shall review the arbitration award, including the ruling and
findings of fact, and shall determine whether they are supported by competent evidence and by
a proper application of law to the facts. If the court finds that the award is properly supported
by the facts and law, then it shall enter judgment on the award; if the court finds that the award
is not supported by the facts or the law, then the court may enter a different judgment (if such
is compelled by the uncontradicted evidence) or may direct the parties to return to arbitration
for further proceedings consistent with the order of the court.
(e) Notwithstanding the above, either Company or Employee may file with an appropriate state or
federal court a claim for injunctive relief in any case where the filing party seeks provisional
injunctive relief or where permanent injunctive relief is not available in arbitration. The filing
of a claim for injunctive relief in state or federal court shall not allow either party to raise any
other claim outside of arbitration.
Entire Agreement
10.03
This agreement supersedes any and all other agreements, either oral or in writing, between the
parties hereto with respect to the employment of Employee by Company and contains all of the
covenants and agreements between the parties with respect to that employment in any manner
whatsoever. Each Party to this agreement acknowledges that no representation, inducements,
promises, or agreements regarding Employee’s employment, orally or otherwise, have been made
by any party, or anyone acting on behalf of any party, with respect to the employment of
Employee, which are not embodied herein, and that no other Agreement, statement, or promise
not contained in this Agreement shall be valid or binding on either party. Any modification of
this Agreement will be effective only if it is in writing signed by the party to be charged.
Partial Invalidity
10.04
If any provision in this agreement is held by a court of competent jurisdiction to be invalid, void,
or unenforceable, the remaining provisions shall nevertheless continue in full force without being
impaired or invalidated in any way.
Law Governing Agreement
10.05
This agreement shall be governed by and constructed in accordance with the laws of the State of
Florida.
Payment of Sums Due Deceased Employee
10.06
If Employee dies prior to the expiration of the term of his employment, any moneys that may be
due him from Company under this agreement as of the date of death shall be paid to Employee’s
executors, administrators, heirs, personal representatives, successors, and assigns.
IN WITNESS WHEREOF, the Parties so agree:
COMPANY:
Propell Corporation
EMPLOYEE:
By: /s/ Edward L. Bernstein
Edward L. Bernstein
By: /s/ Lane Folliott
Lane Folliott
President and CEO
EXHIBIT 10.24
EMPLOYMENT AGREEMENT
This Employment Agreement, Dated as of the Effective Date of Merger (as Merger is defined in Section
1.01 below), between Propell Corporation, a Delaware Corporation (“Company”) with its principal place of
business located at 7703 Kingspointe Parkway, Suite 300, Orlando, Florida 32819, and Edward L. Bernstein
(“Employee”) with a residence of business at [__________], in consideration of the mutual promises made
herein, recites and provides as follows:
WHEREAS, Company desires to retain the services of Employee on the terms and conditions set forth
herein; and
herein;
WHEREAS, Employee desires to be employed by the Company on the terms and conditions set forth
NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants herein
contained, Company and Employee agree as follows:
ARTICLE 1. TERM OF EMPLOYMENT
Specified Period
1.01
Company employs Employee and Employee accepts employment with Company for a period of
three (3) years (36 months) beginning on the Effective Date of the Merger of Company with
Crystal Magic, Inc., (currently expected to occur in April 2008), and terminating on the same date
in 2011. If the parties do not execute a new written agreement upon expiration of this Agreement,
the employment of Employee shall continue on an at-will basis.
“Employment Term” Defined
1.02
“Employment Term” refers to the entire period of employment of Employee by Company,
whether for the periods provided above, or whether terminated earlier as hereinafter provided or
extended by mutual agreement between Company and Employee.
ARTICLE 2. DUTIES AND OBLIGATIONS OF EMPLOYEE
General Duties
2.01
Employee shall serve as the Chief Executive Officer (CEO) and President of Propell
Corporation. In his capacity as CEO and President of Propell Corporation, Employee shall do
and perform all services, acts, or things necessary or advisable as CEO and President of Propell
Corporation. Employee shall be based in Company’s Greenbrae, California office. Any change
or relocation of the Greenbrae, California office, further than fifty (50) miles, shall be considered
“relocation” pursuant to Section 7.02 (c) below.
Outside Employment
2.02
Employee shall not engage in outside employment that interferes with any of the duties under this
Agreement.
Competitive Activities
2.03
During the term of this contract Employee shall not, directly or indirectly, either as an employee,
company consultant, agent, principal, partner, stockholder, corporate officer, director, or in any
other individual or representative capacity, engage or participate in any business that is in
competition with the business of Company and/or its subsidiaries. Employee shall not be
precluded from engaging in investment activities of a personal nature. Employee shall not be
precluded from accepting Board of Directors positions with other for profit business entities not
in competition with the Company, so long as Employee obtains the written permission from the
Board of Directors, which written permission shall not be unreasonably withheld.
Adherence to Rules
2.04
Employee, at all times during the performance of this Agreement, shall strictly adhere to and obey
all the rules and regulations now in effect or as subsequently modified governing the conduct of
employees of Company and its subsidiaries.
ARTICLE 3. COMPENSATION OF EMPLOYEE
Annual Salary
3.01
(a) As compensation for the services to be performed hereunder, Employee shall receive a salary
at the rate of One Hundred and Sixty Thousand Dollars ($160,000.00) per annum, payable in
equal installments on a bi-weekly basis.
(b)
Employee shall receive such annual increases in salary, if any, as may be determined by
Company’s Board of Directors, in its sole discretion.
Discretionary Bonus
3.02
In addition to the Employee’s Annual Salary, the Board of Directors of Company may, in its sole
discretion, award to Employee bonus(es) in an amount, if any, in the Board’s sole discretion.
Stock
3.03
Company hereby grants to Employee an option to purchase, Five Hundred Thousand (500,000)
shares of common stock of the Company at the purchase/exercise price as set forth below and
pursuant to the terms of the Propell Corporation 2008 Stock Option Plan (“SOP”), a copy of
which shall be given to Employee. It is the intent that both the SOP and the grant to Employee of
Options shall be approved at the first Board of Directors meeting after the Merger.
(a) This Option may be exercised only with respect to the portion of stock that is vested in
Employee. Except as set forth in Section 3.03(b) below, Employee’s right to exercise this
option shall be vested in annual increments beginning with the first anniversary date of
Employee’s employment according to the following vesting schedule:
(i) On the first anniversary date of Employee’s employment, 12/36ths of the Option shares
shall vest; and
(ii) On the second anniversary date of Employee’s employment, an additional 12/36 ths of
Option shares shall vest; and
(iii) On the third anniversary date of Employee’s employment, the remaining 12/36 ths of the
Option shares shall vest.
(b) Notwithstanding the above, after the first anniversary date of Employee’s employment, in the
event (i) Employee is terminated without Cause, or (ii) Employee terminates for Good Reason,
Employee shall be entitled to additional vesting in the amount of 1/36th for each month of
employment completed after the most recent anniversary date of employment. In such event,
Employee shall have ninety (90) days after the date of termination in which to
purchase/exercise any such Option(s).
(c) The purchase price shall be the fair market value of the Company’s common stock as
determined by the first Five Hundred Thousand Dollars ($500,000) in capital invested after
the Merger is effective.
(d) This Option is not assignable and may only be exercised by Employee during the term of
employment under this Agreement upon termination in Section 3.03(b), except as set forth
above.
Vacation
3.04
During the Employment Term, Employee shall be entitled to fifteen (15) days paid vacation per
year, which may be used in accordance with the policies, programs and practices of Company,
which are in effect generally from time to time with respect to other peer executives of Company.
Employee’s Sick Leave
3.05
During the Employment Term, Employee shall be entitled to paid sick leave in accordance with
the policies, programs and practices of Company, which are in effect with respect to other peer
executives of Company.
Savings and Retirement Plans
3.06
During the Employment Term, Employee shall be entitled to participate in all savings and
retirement plans to the extent applicable generally to other peer executives of Company, including
any 401(k) plan maintained by Company, if any.
Benefit Plans
3.07
During the Employment Term, the Employee and/or the Employee’s family and dependents, as
the case may be, shall be eligible for participation in and shall receive all benefits under all welfare
benefit plans provided by Company (including, without limitation, medical, prescription, dental,
disability, salary continuance, employee life, group life, and accidental death and travel accident
insurance plans) to the extent applicable generally to other peer executives of Company.
ARTICLE 4. BUSINESS EXPENSES
Travel, Entertainment, and Other Expenses
4.01
It is recognized and agreed by the Parties to this Agreement that in connection with the services to
be performed for Company, Employee will be obliged to expend money for travel, entertainment
of customers, gifts, and similar business expenses, including committing on behalf of the
Company for local office space in the Greenbrae, California area, such commitment to be subject
to review and approval of the CFO or Board of Directors. Employee is authorized to incur
reasonable business expenses for promoting the business of Company, in accordance with the
policies, practices and procedures of Company.
Reimbursement of Business Expenses
4.02
(a) Company shall promptly reimburse Employee for all reasonable business expenses incurred
by Employee in connection with the business of Company.
(b) Each such expenditure shall be reimbursable only if it is of a nature qualifying it as a proper
deduction on the federal and state income tax return of Company.
(c) Each such expenditure shall be reimbursable only if Employee furnishes to Company
adequate records and other documentary evidence required by federal and state statutes and
regulations issued by the appropriate taxing authorities for the substantiation of each such
expenditure as an income tax deduction.
ARTICLE 5. PROPERTY RIGHTS OF THE PARTIES
TRADE SECRETS / CONFIDENTIAL INFORMATION
Confidential Information
5.01
As used in this Agreement “Confidential Information” includes, without limitation, [design
information, manufacturing information, business, financial, and technical information, sales and
processing information, product information, customers, customer lists, vendors, vendor lists,
pricing information, corporation and personal business contact and relationships, corporation and
personal business opportunities, software, computer disks or files, or any other electronic
information of any kind, Rolodex cards or other lists of names, addresses or telephone numbers,
financial information, projects, potential projects, current projects, projects in development and
future projects, forecasts, plans, contracts, releases, and other documents, materials or writings
that belong to Company, including those which are prepared or created by Employee or come into
the possession of Employee by any means or manner and which relate directly or indirectly to
Company, and each of its owners, predecessors, successors, subsidiaries, affiliates, and all of its
shareholders, directors and officers (all of the above collectively referred to as “Confidential
Information”). Confidential Information includes information developed by Employee in the
course of Employee’s services for Company for the benefit of Company, as well as other
Confidential Information to which Employee may have access in connection with Employee’s
services. Confidential Information also includes the confidential information of other individuals
or entities with which Company has a business relationship.
Duty of Confidentiality
5.02
Employee will maintain in confidence and will not, directly or indirectly, disclose or use (or allow
others working with Employee to disclose or use), either during the term of this Agreement, and
for a period of one (1) year after termination of Employee’s employment, any Confidential
Information belonging to Company, whether in oral, written, electronic or permanent form, except
solely to the extent necessary to perform services on behalf of Company prior to its termination,
Employee shall deliver forthwith possession or control belonging to Company and all tangible
items embodying or containing Confidential Information.
Documents, Records, Etc.
5.03
All documents, records, data, equipment and other physical property, whether or not pertaining to
Confidential Information, which are furnished to Employee by Company or produced by
Employee in connection with Employee’s services will be and remain the sole property of
Company. Employee will return to Company forthwith all such materials and property upon the
termination of this Agreement or sooner if requested by Company.
Assignment of Rights
5.04
Employee shall make full and prompt disclosure to Company of any and all designs, intellectual
property, software, inventions, discoveries, or improvements (individually and collectively,
“Inventions”) made by Employee as a result or product of his employment relationship with
Company. Employee hereby assigns to Company without additional compensation the entire
worldwide right, title and interest in and to such Inventions, and related intellectual property rights
and without limitation all copyrights, copyright renewals or reversions, trademarks, trade names,
trade dress rights, industrial design, industrial model, inventions, priority rights, patent rights,
patent applications, patents, design patents and any other rights or protections in connection
therewith or related thereto, for exploitation in any form or medium, of any kind or nature
whatsoever, whether now known or hereafter devised. To the extent that any work created by
Employee can be a work for hire pursuant to U.S. Copyright Law, the parties deem such work a
“work for hire” and Employee should be considered the author thereof. Employee shall, at the
request of Company, without additional compensation, from time to time execute, acknowledge
and deliver to Company such instruments and documents as Company may require to perfect,
transfer and vest in Company the entire rights, title and interest in and to such inventions. In the
event that Employee does not timely perform such obligations, Employee shall cooperate with
Company upon Company’s request and at Company’s cost but without additional compensation in
the preparation and prosecution of patent, trademark, industrial design and model, and copyright
applications worldwide for protection of rights to any Inventions.
Injunctive Relief
5.05
Employee acknowledges that a violation or attempted violation on Employee’s part of any
agreement in this Article 5 will cause irreparable damage to Company, and accordingly, Employee
agrees that Company shall be entitled as a manner of right to an injunction from any court of
competent jurisdiction restraining any violation or further violation of such agreement by
Employee; such right to an injunction, however, shall be cumulative and in addition to whatever
other remedies that Company may have. Terms and agreements set forth in this Section 5 shall
survive the expiration of the term of this Agreement.
Disclosure of Information to Others
5.06
Employee shall not divulge any Confidential Information to anyone outside Company without
obtaining both Company’s prior written consent and the disclosee’s signed written confidentiality
agreement as approved by Company.
ARTICLE 6. OBLIGATIONS OF COMPANY
Indemnification of Losses of Employee
6.01
(a) Company shall indemnify and defend and hold harmless Employee for all necessary
expenditures, losses or claims incurred by Employee in direct consequence of the discharge of
his duties.
ARTICLE 7. TERMINATION
By Company For Cause
7.01
(a) Company may terminate Employee’s employment during the Employment Term for
Cause. For purposes of this Agreement, “Cause” shall mean (i) the conviction of Employee
for committing an act of fraud, embezzlement, theft or other act constituting an economic
crime or the guilty or nolo contendere pleas of Employee to such a crime; or (ii) fraudulent
conduct or an act of dishonesty or breach of trust on the part of Employee in connection with
Company’s business, or (iii) breach of the confidentiality or non competition provisions of
this Agreement.
By Company Without Cause
(b) Company may terminate Employee’s employment at any time without cause.
By Company Upon Employee’s Death or Disability
(c) Employee’s employment shall terminate automatically upon Employee’s death or upon a good
faith determination by Company that Employee is disabled. Company will deem Employee
disabled if and when, in the good faith judgment of Company, Employee is unable to perform
the material functions of Employee’s job, even with reasonable accommodation, for a total of
ninety (90) days out of any six (6) month period.
Termination By Employee For Good Reason
7.02
Employee may terminate his employment with Company for Good Reason. For purposes of this
Agreement, “Good Reason” shall mean, in the absence of the consent of Employee, a reasonable
determination by Employee that any of the following has occurred:
(a) the assignment to Employee of any duties inconsistent in any material respect with
Employee’s position (including titles and reporting requirements, authority, duties or
responsibilities as contemplated by Section 2.01 of this Agreement), or any other action by
Company which results in a material diminution in such position, authority, duties or
responsibilities, excluding for this purpose an isolated and insubstantial action not taken in
bad faith and which is remedied by Company promptly after receipt of notice thereof given by
Employee; or
(b) any failure by Company to comply with any of the provisions of this Agreement applicable to
it, other than any isolated and insubstantial failure not occurring in bad faith and which is
remedied promptly after notice thereof from Employee.
(c) Relocation, unless such relocation is mutually agreed upon in writing.
ARTICLE 8. OBLIGATION OF COMPANY
UPON EARLY TERMINATION
Termination For Cause
8.01
If Employee’s employment shall be terminated for Cause, this Agreement shall terminate without
any further obligation to Employee whatsoever, other than any obligation that may be required by
law.
Termination By Company Without Cause;
Termination By Employee For Good Reason
8.02
In the event Company terminates Employee’s employment during the Employment Term without
cause, or Employee terminates his employment for Good Reason, then Company shall pay or
provide to Employee the following:
(a) Company shall pay to Employee, within thirty (30) days after the Date of Termination, any
accrued Annual Base Salary, bonuses that have been declared, vacation pay, expense
reimbursement and any other entitlements accrued by Employee under Article 3 above, to the
extent not theretofore paid (the sum of these amounts shall hereinafter by referred to as the
“Accrued Obligations”).
(b) Company shall continue to pay to Employee, in regular bi-weekly installments, Employee’s
Annual Salary under this Agreement for six (6) months. However, if the employment of
Employee becomes at-will, Company will continue to pay to Employee, in regular bi-weekly
installments, Employee’s Annual Salary under this Agreement for the duration of six (6)
months.
(c) Company shall continue to provide and pay for benefits to Employee and/or Employee’s
family and dependents at least equal to those which would have been provided to them in
accordance with the plans, programs, practices and policies which are generally applicable to
peer executives, for three months. If Employee commences employment with another
employer and is eligible to receive medical or other welfare benefits under another employerprovider plan, the medical and other welfare benefits to be provided by Company as
described herein shall terminate.
Upon Death of Employee
8.03
If Employee’s employment is terminated by reason of Employee’s death during the Employment
Term, this Agreement shall terminate without further obligation to Employee, other than payment
of any Accrued Obligations (which shall be paid to Employee’s estate or beneficiary, as
applicable, in a lump sum in cash within thirty (30) days of the Date of Termination, and the
timely payment or provision of all welfare benefit plans.
Upon Disability of Employee
8.04
If Employee’s employment shall be terminated by reason of Employee’s Disability during the
Employment Term, this Agreement shall terminate without further obligation to Employee, other
than for payment of any Accrued Obligations (which shall be paid to Employee in a lump sum in
cash within 30 days of the Date of Termination, and the timely payment or provision of all
welfare benefit plans.
ARTICLE 9. POST TERMINATION
Non Solicitation of Customers
9.01
For a period of One (1) year immediately following the termination of Employee’s employment
with Company, Employee shall not directly or indirectly make known to any person, firm,
corporation, etc., the names or addresses of any of the customers of Company and/or its
subsidiaries, of the information pertaining to them, or call on, solicit, or take away from any of
the customers of Company of 0whom Employee called or with whom Employee became
acquainted during Employee’s employment with Company, either for himself or for any other
person, firm, corporation, etc.
Non Solicitation of Employees of Company
9.02
For a period of One (1) year immediately following the termination of Employee’s employment
with Company, Employee shall not directly or indirectly solicit, recruit, or encourage any other
employee of Company or any of its related entities or subsidiaries, or any of its subsidiaries, to
leave the employment of Company or work for any person or entity that is in competition with
Company, or its subsidiaries.
Non Competition
9.03
To the extent allowed by law, for a period of One (1) year immediately following the termination
of Employee’s employment with Company, Employee agrees that Employee will not directly or
indirectly, in any capacity, compete or attempt to compete with the business of Company or any
of its subsidiaries, whether by taking employment with a competitor, consulting to a competitor,
as an owner of a business entity competing with Company, or otherwise.
ARTICLE 10. GENERAL PROVISIONS
Notices
10.01
Any notice to be given hereunder by either party to the other shall be in writing and may be
transmitted by personal delivery or by mail, registered or certified, postage prepaid with return
receipt requested. Mailed notices shall be addressed to the parties at the addresses appearing in
the introductory paragraph of this Agreement, accompanied by courtesy e-mails and faxes to the
e-mail addresses and fax numbers set forth in the introductory paragraph of this Agreement, but
each party may change that address and/or email address and/or fax number by written notice in
accordance with this section. Notices delivered personally shall be deemed communicated as of
the date of actual receipt; mailed notices shall be deemed communicated as of three (3) days after
the date of mailing.
Arbitration
10.02
(a) No dispute between Company (or any of its officers, directors, employees, subsidiaries or
affiliates) and Employee, which is in any way related to the employment of Employee
(including but not limited to claims of wrongful termination; racial, sexual or other
discrimination or harassment; defamation; and other employment-related claims or
allegations) shall be the subject of a lawsuit filed in state or federal court. Instead, any such
dispute shall be submitted to binding arbitration before a sole arbitrator of the American
Arbitration Association (AAA) or any other individual or organization on which the Parties
agree or which a court may appoint. It is understood that both sides are hereby waiving the
right to a jury trial.
(b) In order to commence an arbitration proceeding, the claimant shall file with the AAA (or
other agreed or appointed arbitrator) and serve on the other party a complaint in accordance
with the laws of the State of California; the other party shall file and serve a response in
accordance with the laws of that state. The arbitration shall be initiated in San Francisco,
California. The arbitration must be filed within one (1) year of the act or omission which
gives rise to the claim. Each Party shall be entitled to take a minimum of one deposition, and
to take any other discovery as is permitted by the Arbitrator. In determining the extent of
discovery, the Arbitrator shall exercise discretion, but shall consider the expense of the
desired discovery and the importance of the discovery to a just adjudication. The Arbitrator
shall hear motions pertaining to the pleadings, discovery or summary judgment or
adjudication, in accordance with the law as it would be applied by a court of the State of
California.
(c) The Arbitrator shall render a decision which conforms to the facts, supported by
competent evidence (except that the Arbitrator may accept written declarations under
penalty of perjury, in addition to live testimony), and the law as it would be applied by a
court sitting in the state in which the arbitration is brought. The Arbitrator shall not
impose any requirement of “just cause,” not otherwise imposed by law. At the conclusion
of the arbitration, the Arbitrator shall make written findings of fact, and state the
evidentiary basis for each such finding. The Arbitrator shall also issue a ruling and
explain how the findings of fact justify his or her ruling.
(d) Any party may apply to a court of competent jurisdiction for entry of judgment on the
arbitration award. The court shall review the a