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 |
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7384 |
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26-1856569 |
(State or other jurisdiction of incorporation or organization) |
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(primary standard industrial classification code number) |
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(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. ÿ
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. ÿ
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. ÿ
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 |
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Accelerated filer |
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Non-accelerated filer |
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Smaller Reporting Company |
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If the delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. ÿ
Title of each class of securities to be registered |
Amount to be registered(1) |
Proposed maximum offering price
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Proposed maximum aggregate offering price |
Amount of registration fee (3) |
Common stock, par value $0.001 per share |
5,070,310 (4) |
$ .50 |
$ 2,535,155 |
$ 99.63 |
Total |
5,070,310 (4) |
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$ 2,535,155 |
$ 99.63 |
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(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. |
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(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. |
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(3) |
The registration fee is calculated based on $39.30 per $1,000,000 |
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(4) |
Represents shares of the registrants 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.
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
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Security Ownership of Certain Beneficial Owners and Management |
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F-1 |
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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 Magics 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 companys founders have long-standing relationships with Disney, Universal Studios and other entertainment locations.
Today, the Crystal Magic divisions 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 e-commerce 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 Propells 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 Solutions kiosks help retailers fulfill a key strategy driving store visits and customer loyalty.
Arrow Media Solutions 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 companys 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 $3.8 million and gross margin percentages for 2007 of 65%.
Our principal offices are located at 336 Bon Air Center, No. 352, Greenbrae, CA 94904. Our telephone number is (415) 747-8775.
Selected Financial Data
The following information is derived from and should be read in conjunction with our consolidated audited financial statements, including the notes thereto, appearing elsewhere in this prospectus. The information set forth below should also be read in conjunction with Our Managements Discussion and Analysis. Results of operations for the periods presented are not necessarily indicative of results of operations for future periods.
STATEMENT OF OPERATIONS DATA: |
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2007 |
2006 |
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Revenues |
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$ 5,831,184 |
$ 6,730,670 |
Cost of Goods Sold |
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2,013,548 |
2,475,908 |
Operating Expenses |
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4,490,720 |
5,158,002 |
Other income (expenses) |
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2,960 |
76,290 |
Net Loss |
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$ (670,124) |
$ (826,950) |
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BALANCE SHEET DATA: |
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As of December 31, 2007 |
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Cash |
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$ 360,053 |
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Total Current Assets |
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1,231,902 |
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Total Assets |
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1,484,591 |
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Total Current Liabilities |
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949,259 |
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Long Term Debt |
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912,845 |
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Total Stockholders Equity (Deficit) |
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$ (377,513) |
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The Offering
Common stock outstanding |
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13,428,952 shares as of May 8, 2008 |
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Common stock that may be offered by selling stockholders |
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Up to 5,070,310 shares |
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Total proceeds raised by offering |
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We will not receive any proceeds from the resale or other disposition of the shares covered by this prospectus by any selling stockholder. |
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Risk factors |
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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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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:
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Seasonality of consumer photographic activity,
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Seasonality of the theme parks in which we sell products,
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Changes in attendance or consumer spending at these theme parks,
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The mix of products we sell,
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Promotional activities we conduct,
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Price increases by our suppliers,
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Our introduction of new products,
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Our research and development activities,
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Our competitors’ actions,
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Fluctuations in the direct-to-consumer market,
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Changes in usage of digital services and online commerce,
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Changes in the photofinishing industry,
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Changes in the promotional products industry,
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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 Sarbanes-Oxley 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:
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maintain and increase our number of customers; |
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maintain and enhance our brand; |
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maintain and grow our website and customer operations; |
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continue to enhance and innovate in our kiosk offerings to remain competitive; |
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expand our penetration in the promotional products industry; |
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Market and expand our theme park offerings; |
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successfully execute our business and marketing strategy; |
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continue to develop and upgrade our technology and information processing systems; |
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continue to enhance our service to meet the needs of a changing market; |
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provide superior customer service; |
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respond to competitive developments; and |
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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 managements 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, managements 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:
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price and volume fluctuations in the overall stock market; |
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changes in operating performance and stock market valuations of other technology companies generally, or those in our industry in particular; |
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the financial projections we may provide to the public, any changes in these projections or our failure to meet these projections; |
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ratings downgrades by any securities analysts who follow our company; |
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the publics response to our press releases or other public announcements, including our filings with the SEC; |
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announcements by us or our competitors of significant technical innovations, acquisitions, strategic partnerships, joint ventures or capital commitments; |
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introduction of technologies or product enhancements that reduce the need for our products; |
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market conditions or trends in our industry or the economy as a whole; |
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the loss of key personnel; |
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lawsuits threatened or filed against us; |
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future sales of our common stock by our executive officers, directors and significant stockholders; and |
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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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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:
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our ability to launch new e-commerce initiatives
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results of our initial roll-outs with partners, such as AmerisourceBergen
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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 SECs 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.
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 corporations outstanding voting securities) for a period of three years after the date of the transaction in which the person became an interested stockholder, unless:
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the transaction is approved by the corporations board of directors prior to the date the stockholder became an interested stockholder;
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upon consummation of the transaction which resulted in the stockholders 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
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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.
MANAGEMENTS 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 managements 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 companys financial condition and results and requires managements 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 Companys 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 Assetsan 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 Companys 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 enterprises 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.
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, managements 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 forward-looking 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, Propells management has a long track record of delivering a variety of consumer and photo products, services and logistics to major partners, including the nations 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 Magics 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 companys founders have long-standing relationships with Disney, Universal Studios and other entertainment locations.
Today, the Crystal Magic divisions 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 Magics 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 Magics 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 Solutions 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 AmerisourceBergens 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 partners brand in offline locations brick & mortar retail as opposed to online -- under the placement model.
Sales of Arrow Media Solutions 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 Companys 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 kiosks 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:
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Brings together one of the digital imaging industrys most experienced, and seasoned management teams.
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Leverages additional capital resources to expand each of our existing businesses, and enter new markets, especially web stores on demand.
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Provides a complete, integrated solution for retail customers, offering a single stop partner providing any or all of the following:
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a hardware kiosk that offers a wide variety of image-based prints and gifts that customers can order in-store
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a web store that integrates with the same account and permits the customer to order from home
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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 companys risk that variations in any given channel will jeopardize the companys overall business.
Further, management intends to identify further combinations that will enhance the companys revenues through expanded channels and offerings and reduce the companys 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 companys 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 companys 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 companys 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 companys 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
Propells 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 companys 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 companys kiosk division provides custom offerings for this Fortune 100 pharmaceutical company and its Good Neighbor Pharmacy and Family Pharmacy member stores.
·
Online partner. The companys 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 companys 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 Magics 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, Disneys 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 Resorts 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 sites 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 companys 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 PhotoTLCs 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 retailers 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 industrys biggest challenges, which is handling seasonality and the volume spikes that accompany it. The companys 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 partners 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 workers 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 Disneys 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 Universitys 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 industrys 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. Folliotts 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 $2 million in equity financing.
From time to time, we may be involved in various claims, lawsuits, and disputes with third parties, actions incidental to the normal operations of the business. As of the date of this offering, we are not aware of any material claims, lawsuits, disputes with third parties or the like that would have any material adverse affect on our business.
The following table discloses the compensation that was paid to our executive officers in the year ended December 31, 2007 before we completed the merger of Crystal Magic, Inc., Mountain Capital, LLC and Auleron 2005, LLC in April and May 2008.
SUMMARY COMPENSATION TABLE |
||||||
Name and Principal Position |
Year |
Annual Compensation |
Securities Underlying Options/
|
All Other Compensation($) |
||
Salary($) |
Bonus($) |
Other Annual Compensation |
||||
Edward L. Bernstein, CEO |
2007 |
0 |
0 |
0 |
0 |
0 |
Steven M. Rhodes, CFO |
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 |
2007 |
74,100 |
0 |
$13,125 (1) |
0 |
0 |
James Wallace, VP |
2007 |
80,000 |
$6,500 |
0 |
0 |
0 |
___________
(1) Represents sales commissions.
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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 Companys 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 Companys 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 optionees termination of employment with the Company (one year in the event of a termination on account of disability). However, an optionees 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.
33
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.
34
Name |
|
Number of Shares Beneficially Owned |
|
Percent of Class |
Edward L. Bernstein |
|
650,000 (1) |
|
4.84% |
Steven M. Rhodes |
|
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% |
James Graham |
|
1,325,125 (8) |
|
9.87% |
All officers and directors as a group
|
|
6,552,476 |
|
48.79% |
_____________________________
(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.
35
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 stockholders percentage of ownership in the following table is based on 13,428,952 shares of common stock outstanding as of May 9, 2008.
Selling Stockholder (1) |
Shares beneficially owned prior to the offering |
Number of
|
Shares beneficially owned after the offering |
||
Number |
Percent |
Number |
Percent |
||
Bao Phung |
5,000 |
* |
5,000 |
0 |
0% |
Bobby Aldridge |
3,000 |
* |
3,000 |
0 |
0% |
Desmond Chan |
4,000 |
* |
4,000 |
0 |
0% |
Don Prestage |
12,500 |
* |
12,500 |
0 |
0% |
Doug Froese |
10,000 |
* |
10,000 |
0 |
0% |
Chester Peter Aldridge |
20,000 |
* |
20,000 |
0 |
0% |
Ken Delahousssaye |
1,000 |
* |
1,000 |
0 |
0% |
Larry Wiebe |
25,000 |
* |
25,000 |
0 |
0% |
Marv Thielmann |
750 |
* |
750 |
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 |
2,500 |
* |
2,500 |
0 |
0% |
Robert R. Darcy |
25,000 |
* |
25,000 |
0 |
0% |
Diana K. Darcy |
5,000 |
* |
5,000 |
0 |
0% |
Avztim LLC |
30,000 |
* |
30,000 |
0 |
0% |
Cascade Capital Corporation |
3,500 |
* |
3,500 |
0 |
0% |
Mark Kalow |
52,500 |
* |
52,500 |
0 |
0% |
Montoya Family Trust |
115,000 |
* |
115,000 |
0 |
0% |
Lorraine Lusted Trust |
3,500 |
* |
3,500 |
0 |
0% |
36
Selling Stockholder (1) |
Shares beneficially owned prior to the offering |
Number of
|
Shares beneficially owned after the offering |
||
Number |
Percent |
Number |
Percent |
||
Mark S. Litwin Trust |
10,500 |
* |
10,500 |
0 |
0% |
Mike Hart |
10,000 |
* |
10,000 |
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 |
2,500 |
* |
2,500 |
0 |
0% |
Werner Keidel |
2,500 |
* |
2,500 |
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% |
Eight Family Trust u/t/a/ 11/8/99 |
55,000 |
* |
55,000 |
0 |
0% |
Chester Aldridge |
15,000 |
* |
15,000 |
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% |
C. James Jensen |
50,000 |
* |
50,000 |
0 |
0% |
David E. Gold |
105,000 |
* |
105,000 |
0 |
0% |
Harry Fox |
10,000 |
* |
10,000 |
0 |
0% |
Matthew Abrams |
50,000 |
* |
50,000 |
0 |
0% |
Sarah Abrams |
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% |
Mara Gateway Associates LP |
1,000,000 |
7.45% |
1,000,000 |
0 |
0% |
Core Fund, L.P. |
400,000 |
3.00% |
400,000 |
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% |
Pensco Trust Company FBO Mark S. Litwin Roth IRA |
100,000 |
|
100,000 |
0 |
0% |
Jensen Childrens Trust |
150,000 |
1.12% |
150,000 |
0 |
0% |
Brian J. Jensen Trust B |
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% |
Keith M. Metzger and Loring Casartelli Trust |
40,000 |
|
40,000 |
0 |
0% |
*
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.
37
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.
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 broker-dealer 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
38
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.
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.
39
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
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.
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 directors or officers 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
PROPELL CORPORATION FINANCIAL STATEMENTS
TABLE OF CONTENTS
JANUARY 31, 2008
F-1
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 Companys 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 Companys 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 Companys ability to continue as a going concern. Managements 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
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
As of January 31, 2008
ASSETS |
|
|
|
|
|
Current Assets |
|
|
Cash and equivalents |
$ |
100 |
|
|
|
TOTAL ASSETS |
$ |
100 |
|
|
|
LIABILITIES AND STOCKHOLDERS DEFICIT |
|
|
|
|
|
Current Liabilities |
|
|
Accrued Expenses |
$ |
2,500 |
Loan Payable Related Party |
|
100 |
|
|
|
TOTAL LIABILITIES |
|
2,600 |
|
|
|
Stockholders Deficit |
|
|
Preferred Stock $.001 par value, 10,000,000 shares |
|
0 |
authorized, -0- shares issued and outstanding |
|
|
Common Stock $.001 par value, 90,000,000 shares |
|
0 |
authorized, -0- shares issued and outstanding |
|
|
Deficit accumulated during the development stage |
|
(2,500) |
Total stockholders deficit |
|
(2,500) |
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS DEFICIT |
$ |
100 |
See accompanying notes to financial statements.
F-3
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
Period from January 29, 2008 (Inception) to January 31, 2008
See accompanying notes to financial statements.
F-4
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS DEFICIT
Period from January 29, 2008(Inception) to January 31, 2008
|
Common stock |
|
Additional
|
|
Deficit
|
|
Total |
||
|
Shares |
|
Amount |
||||||
|
|
|
|
|
|
|
|
|
|
Issuance of Common Shares |
|
$ |
- |
|
- |
$ |
- |
$ |
- |
|
|
|
|
|
|
|
|
|
|
Net loss for the period |
- |
$ |
- |
|
- |
|
(2,500) |
|
(2,500) |
|
|
|
|
|
|
|
|
|
|
Balance, January 31, 2008 |
- |
$ |
- |
$ |
- |
$ |
$ (2,500) |
$ |
(2,500) |
See accompanying notes to financial statements.
F-5
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
Period from January 29, 2008 (Inception) to January 31, 2008
See accompanying notes to financial statements.
F-6
(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 development-stage 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
Propells 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 Companys results of operations, financial position or cash flow.
F-7
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 |
$ |
850 |
Valuation allowance |
|
(850) |
Net deferred tax asset |
$ |
- |
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 Companys 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. Managements 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
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
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 Companys 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 Companys 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 Companys ability to continue as a going concern. Managements 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
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 |
|
2006 |
ASSETS |
|
|
|
|
Current Assets |
|
|
|
|
Cash and Cash Equivalents |
$ |
360,053 |
$ |
543,919 |
Accounts Receivable: |
|
|
|
|
Trade, Net |
|
425,584 |
|
514,090 |
Officers |
|
5,583 |
|
5,583 |
Related Party |
|
0 |
|
0 |
Inventories |
|
421,080 |
|
694,741 |
Prepaid Expenses and Taxes |
|
10,615 |
|
15,682 |
Deposits-Current |
|
8,987 |
|
14,758 |
Investments |
|
0 |
|
119,823 |
Total Current Assets |
|
1,231,902 |
|
1,908,596 |
Property and Equipment, Net |
|
209,972 |
|
122,053 |
Other Assets |
|
|
|
|
Security Deposit |
|
17,120 |
|
2,000 |
Deposits-Long Term |
|
25,597 |
|
8,601 |
TOTAL ASSETS |
$ |
1,484,591 |
$ |
2,041,250 |
LIABILITIES AND OWNERS' DEFICIT |
|
|
|
|
Current Liabilities |
|
|
|
|
Accounts Payable: |
|
|
|
|
Trade |
$ |
687,455 |
$ |
599,272 |
Related Party |
|
0 |
|
5,000 |
Accrued Expenses and Taxes |
|
63,748 |
|
64,944 |
Deferred Revenue |
|
0 |
|
72,000 |
Notes Payable-Current |
|
182,056 |
|
69,841 |
Note Payable-Related Party |
|
0 |
|
1,999,288 |
Lanai Investments Bridge Loan |
|
16,000 |
|
0 |
Total Current Liabilities |
|
949,259 |
|
2,810,345 |
Long Term Liabilities |
|
|
|
|
Notes Payable |
|
912,845 |
|
895,082 |
Total Liabilities |
|
1,862,104 |
|
3,705,427 |
OWNERS' DEFICIT |
|
|
|
|
Capital Stock |
|
10,000 |
|
10,000 |
Paid in Capital |
|
132,576 |
|
132,576 |
Accumulated Deficit |
|
(1,192,679) |
|
(889,883) |
Members' Equity (Deficit) |
|
672,590 |
|
(916,870) |
Total Owners' Deficit |
|
(377,513) |
|
(1,664,177) |
TOTAL LIABILITIES AND OWNERS' DEFICIT |
$ |
1,484,591 |
$ |
2,041,250 |
The accompanying notes are an integral part of the financial statements.
F-11
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 |
|
2006 |
|
|
|
|
|
Gross Revenues |
$ |
5,831,184 |
$ |
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) |
|
|
|
|
|
Other Income and (Expense) |
|
2,960 |
|
76,290 |
|
|
|
|
|
Net (Loss) |
$ |
(670,124) |
$ |
(826,950) |
The accompanying notes are an integral part of the financial statements.
F-12
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 |
|
Additional Paid in Capital |
|
Accumulated Deficit |
|
Members'
|
|
Total |
||
Shares |
|
Amount |
|||||||||
Beginning Balance |
|
|
|
|
|
|
|
|
|
|
|
January 1, 2006 |
45,713 |
|
$ 10,000 |
|
$ 132,576 |
|
$ (669,988) |
|
$ (421,532) |
|
$ (948,944) |
|
|
|
|
|
|
|
|
|
|
|
|
Net (Loss) for the Year Ended |
|
|
|
|
|
|
|
|
|
|
|
December 31, 2006 |
|
|
|
|
|
|
(219,895) |
|
(607,055) |
|
(826,950) |
|
|
|
|
|
|
|
|
|
|
|
|
Plus: Member Contributions |
|
|
|
|
|
|
|
|
116,217 |
|
116,217 |
|
|
|
|
|
|
|
|
|
|
|
|
Less: Member Distributions |
|
|
|
|
|
|
|
|
(4,500) |
|
(4,500) |
|
|
|
|
|
|
|
|
|
|
|
|
Balance |
|
|
|
|
|
|
|
|
|
|
|
December 31, 2006 |
45,713 |
|
10,000 |
|
132,576 |
|
(889,883) |
|
(916,870) |
|
(1,664,177) |
|
|
|
|
|
|
|
|
|
|
|
|
Net (Loss) for the Year Ended |
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007 |
|
|
|
|
|
|
(302,796) |
|
(367,328) |
|
(670,124) |
|
|
|
|
|
|
|
|
|
|
|
|
Plus: Member Contributions |
|
|
|
|
|
|
|
|
1,956,788 |
|
1,956,788 |
|
|
|
|
|
|
|
|
|
|
|
|
Balance |
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007 |
45,713 |
|
$ 10,000 |
|
$ 132,576 |
|
$ (1,192,679) |
|
$ 672,590 |
|
$ (377,513) |
The accompanying notes are an integral part of the financial statements.
F-13
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 |
|
44,500 |
|
25,771 |
Amortization |
|
0 |
|
96,621 |
Changes in Assets and Liabilities |
|
|
|
|
(Increase) Decrease in Accounts Receivable |
|
|
|
|
Trade |
|
88,505 |
|
(45,017) |
Related Party |
|
(8,887) |
|
18,500 |
(Increase) Decrease in Prepaid Expenses and Taxes |
|
5,067 |
|
(15,682) |
(Increase) Decrease in Deposits |
|
(26,345) |
|
177,077 |
Decrease in Inventory |
|
273,662 |
|
565,375 |
Increase in Accounts Payable |
|
|
|
|
Trade |
|
88,183 |
|
100,250 |
Related Party |
|
3,886 |
|
5,000 |
Increase (Decrease) in Deferred Revenue |
|
(72,000) |
|
36,000 |
(Decrease) in Accrued Expenses and Taxes |
|
(1,196) |
|
(54,398) |
Net Cash Provided By (Used In) Operating Activities |
|
(274,749) |
|
82,547 |
Cash Flows from Investing Activities |
|
|
|
|
Purchases of Property and Equipment |
|
(132,418) |
|
(69,716) |
(Increase) Decrease in Investments |
|
119,823 |
|
(92,323) |
Net Cash Used In Investing Activities |
|
(12,595) |
|
(162,039) |
Cash Flows from Financing Activities |
|
|
|
|
Notes Payable-Borrowing |
|
0 |
|
116,788 |
Notes Payable-Repayments |
|
(42,500) |
|
0 |
Liberty National and 9/11 Disaster Loans |
|
(20,022) |
|
(108,096) |
Increase in Bridge Loan |
|
16,000 |
|
0 |
USF Deferred Rent |
|
0 |
|
(25,869) |
Loan Proceeds-Village of Lake Placid |
|
150,000 |
|
0 |
Member Contributions |
|
0 |
|
116,217 |
Member Distributions |
|
0 |
|
(4,500) |
Net Cash Provided by Financing Activities |
|
103,478 |
|
94,540 |
Net Increase (Decrease) in Cash and Cash Equivalents |
|
(183,866) |
|
15,048 |
Cash and Cash Equivalent-Beginning Balance |
|
543,919 |
|
528,871 |
Cash and Cash Equivalents-Ending Balance |
$ |
360,053 |
$ |
543,919 |
The accompanying notes are an integral part of the financial statements.
F-14
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, CDs etc. Arrows, 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 companys 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
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
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 Assetsan 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 Companys financial statements.
F-17
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 enterprises 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, anti-dilution 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
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 Statementsan 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 |
$ |
167,844 |
Laser Equipment |
|
709,693 |
3D Scanning Equipment |
|
42,820 |
Furniture, Fixtures and Equipment |
|
79,157 |
Retail Fixtures |
|
22,147 |
Less: Accumulated Depreciation |
|
(811,689) |
Property & Equipment, Net |
$ |
209,972 |
F-19
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
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: |
Amount: |
December 31, 2008 |
$ 79,000 |
December 31, 2009 |
$ 71,376 |
December 31, 2010 |
$ 83,546 |
December 31, 2011 |
$ 48,954 |
December 31, 2012 |
$ 50,422 |
NOTE 6 ACCRUED EXPENSES AND TAXES
Accrued expenses and taxes consisted of the following at December 31:
|
2007 |
|
2006 |
Accrued expenses |
$ 56,554 |
|
$ 62,774 |
Accrued payroll taxes |
552 |
|
347 |
Accrued sales tax |
6,642 |
|
1,823 |
Total |
$ 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
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 |
Amount |
December 31, 2008 |
$ 182,056 |
2009 |
206,988 |
2010 |
171,913 |
2011 |
117,302 |
2012 |
87,286 |
Thereafter |
329,356 |
Total |
$ 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 Arrows assets. On December 31, 2007, the entire $1,956,788 unpaid balance of the note was converted into members 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 |
|
2006 |
|
|
|
|
Interest Income |
$ 9,173 |
|
$ 4,262 |
Miscellaneous Income |
21 |
|
72,028 |
Miscellaneous Expense |
(6,234) |
|
0 |
Total Other Income |
$ 2,960 |
|
$ 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
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 managements 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
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
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
|
Crystal Magic, Inc. |
|
Mountain Capital, LLC |
|
Auleron
|
|
Eliminations |
|
Combined |
ASSETS |
|
|
|
|
|
|
|
|
|
Current Assets |
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents |
$ 10,850 |
|
$ 151,716 |
|
$ 197,487 |
|
|
|
$ 360,053 |
Accounts Receivable: |
|
|
|
|
|
|
|
|
0 |
Trade, Net |
97,844 |
|
272,311 |
|
55,429 |
|
|
|
425,584 |
Officers |
0 |
|
575 |
|
5,008 |
|
|
|
5,583 |
Related Party |
0 |
|
0 |
|
8,887 |
|
(8,887) |
|
0 |
Inventories |
183,418 |
|
237,662 |
|
0 |
|
|
|
421,080 |
Prepaid Expenses and Taxes |
8,542 |
|
2,073 |
|
0 |
|
|
|
10,615 |
Deposits-Current |
8,987 |
|
0 |
|
0 |
|
|
|
8,987 |
Total Current Assets |
309,641 |
|
664,337 |
|
266,811 |
|
|
|
1,231,902 |
Property and Equipment, Net |
157,614 |
|
35,836 |
|
16,522 |
|
|
|
209,972 |
Other Assets |
|
|
|
|
|
|
|
|
|
Security Deposit |
0 |
|
15,120 |
|
2,000 |
|
|
|
17,120 |
Deposits-Long Term |
25,597 |
|
0 |
|
0 |
|
|
|
25,597 |
TOTAL ASSETS |
$ 492,852 |
|
$ 715,293 |
|
$ 285,333 |
|
|
|
$ 1,484,591 |
LIABILITIES AND EQUITY (DEFICIT) |
|
|
|
|
|
|
|
|
|
Current Liabilities |
|
|
|
|
|
|
|
|
|
Accounts Payable: |
|
|
|
|
|
|
|
|
|
Trade |
$ 525,263 |
|
$ 86,227 |
|
$ 75,965 |
|
|
|
$ 687,455 |
Related Party |
0 |
|
8,887 |
|
0 |
|
(8,887) |
|
0 |
Accrued Expenses and Taxes |
56,791 |
|
6,009 |
|
948 |
|
|
|
63,748 |
Notes Payable-Current |
162,104 |
|
0 |
|
0 |
|
|
|
162,104 |
Lanai Investments Bridge Loan |
16,000 |
|
0 |
|
0 |
|
|
|
16,000 |
Total Current Liabilities |
760,158 |
|
101,123 |
|
76,913 |
|
|
|
929,307 |
Long Term Liabilities |
|
|
|
|
|
|
|
|
|
Notes Payable |
782,797 |
|
0 |
|
150,000 |
|
|
|
932,797 |
Total Liabilities |
|
|
|
|
|
|
|
|
|
EQUITY (DEFICIT) |
|
|
|
|
|
|
|
|
|
Capital Stock |
10,000 |
|
0 |
|
0 |
|
|
|
10,000 |
Paid in Capital |
132,576 |
|
0 |
|
0 |
|
|
|
132,576 |
Accumulated Deficit |
(1,192,679) |
|
0 |
|
0 |
|
|
|
(1,192,679) |
Members' Equity |
0 |
|
614,170 |
|
58,420 |
|
|
|
672,590 |
TOTAL LIABILITIES AND EQUITY (DEFICIT) |
$ 492,852 |
|
$ 715,293 |
|
$ 285,333 |
|
|
|
$ 1,484,591 |
F-25
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. |
|
Mountain Capital, LLC |
|
Auleron
|
|
Eliminations |
|
Combined |
ASSETS |
|
|
|
|
|
|
|
|
|
Current Assets |
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents |
$ 118,824 |
|
$ 322,442 |
|
$ 102,653 |
|
|
|
$ 543,919 |
Accounts Receivable: |
|
|
|
|
|
|
|
|
0 |
Trade, Net |
181,198 |
|
216,455 |
|
116,437 |
|
|
|
514,090 |
Officers |
0 |
|
575 |
|
5,008 |
|
|
|
5,583 |
Inventories |
171,720 |
|
523,021 |
|
0 |
|
|
|
694,741 |
Prepaid Expenses and Taxes |
15,014 |
|
0 |
|
668 |
|
|
|
15,682 |
Deposits-Current |
14,758 |
|
0 |
|
0 |
|
|
|
14,758 |
Investments |
119,823 |
|
0 |
|
0 |
|
|
|
119,823 |
Total Current Assets |
621,337 |
|
1,062,493 |
|
224,766 |
|
|
|
1,908,596 |
Property and Equipment, Net |
71,435 |
|
30,262 |
|
20,356 |
|
|
|
122,053 |
Other Assets |
|
|
|
|
|
|
|
|
|
Security Deposit |
0 |
|
0 |
|
2,000 |
|
|
|
2,000 |
Deposits-Long Term |
8,601 |
|
0 |
|
0 |
|
|
|
8,601 |
TOTAL ASSETS |
$ 701,373 |
|
$ 1,092,755 |
|
$ 247,122 |
|
|
|
$ 2,041,250 |
LIABILITIES AND EQUITY (DEFICIT) |
|
|
|
|
|
|
|
|
|
Current Liabilities |
|
|
|
|
|
|
|
|
|
Accounts Payable: |
|
|
|
|
|
|
|
|
|
Trade |
$ 420,646 |
|
$ 83,832 |
|
$ 94,794 |
|
|
|
$ 599,272 |
Related Party |
0 |
|
5,000 |
|
0 |
|
|
|
5,000 |
Accrued Expenses and Taxes |
63,111 |
|
0 |
|
1,833 |
|
|
|
64,944 |
Deferred Revenue |
0 |
|
0 |
|
72,000 |
|
|
|
72,000 |
Notes Payable-Current |
69,841 |
|
0 |
|
0 |
|
|
|
69,841 |
Note Payable-Related Party |
0 |
|
1,999,288 |
|
0 |
|
|
|
1,999,288 |
Total Current Liabilities |
553,598 |
|
2,088,120 |
|
168,627 |
|
|
|
2,810,345 |
Long Term Liabilities |
|
|
|
|
|
|
|
|
|
Notes Payable |
895,082 |
|
0 |
|
0 |
|
|
|
895,082 |
Total Liabilities |
|
|
|
|
|
|
|
|
|
EQUITY (DEFICIT) |
|
|
|
|
|
|
|
|
|
Capital Stock |
10,000 |
|
0 |
|
0 |
|
|
|
10,000 |
Paid in Capital |
132,576 |
|
0 |
|
0 |
|
|
|
132,576 |
Accumulated (Deficit) |
(889,883) |
|
0 |
|
0 |
|
|
|
(889,883) |
Members' Equity (Deficit) |
0 |
|
(995,365) |
|
78,495 |
|
|
|
(916,870) |
TOTAL LIABILITIES AND EQUITY (DEFICIT) |
$ 701,373 |
|
$ 1,092,755 |
|
$ 247,122 |
|
|
|
$ 2,041,250 |
F-26
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. |
|
Mountain Capital, LLC |
|
Auleron 2005, LLC |
|
Eliminations |
|
Combined |
|
|
|
|
|
|
|
|
|
|
Gross Revenues |
$ 4,129,130 |
|
$ 1,403,305 |
|
$ 502,596 |
|
$ (203,847) |
|
$ 5,831,184 |
|
|
|
|
|
|
|
|
|
|
Cost of Goods Sold |
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 |
|
(203,847) |
|
4,490,720 |
|
|
|
|
|
|
|
|
|
|
Operating Income (Loss) |
(308,640) |
|
(341,034) |
|
(23,410) |
|
|
|
(673,084) |
|
|
|
|
|
|
|
|
|
|
Other Income (Expense) |
5,844 |
|
(6,219) |
|
3,335 |
|
|
|
2,960 |
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) |
$ (302,796) |
|
$ (347,253) |
|
$ (20,075) |
|
|
|
$ (670,124) |
F-27
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. |
|
Mountain Capital, LLC |
|
Auleron 2005, LLC |
|
Eliminations |
|
Combined |
|
|
|
|
|
|
|
|
|
|
Gross Revenues |
$ 4,517,411 |
|
$ 1,539,178 |
|
$ 815,489 |
|
$ (141,408) |
|
$ 6,730,670 |
|
|
|
|
|
|
|
|
|
|
Cost of Goods Sold |
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 |
|
(141,408) |
|
5,158,002 |
|
|
|
|
|
|
|
|
|
|
Operating Income (Loss) |
(224,157) |
|
(560,015) |
|
(119,068) |
|
|
|
(903,240) |
|
|
|
|
|
|
|
|
|
|
Other Income (Expense) |
4,262 |
|
57,611 |
|
14,417 |
|
|
|
76,290 |
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) |
$ (219,895) |
|
$ (502,404) |
|
$ (104,651) |
|
|
|
$ (826,950) |
F-28
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 directors or officers 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.
II-1
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
II-2
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
II-3
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.
II-4
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)
II-5
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
II-6
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 29 th 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:
FIRST: That the Certificate of Incorporation is herby amended by replacing ARTICLE FIRST in its entirety with:
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. |
By: /s/ Edward L. Bernstein |
|
||
|
Name: Edward L. Bernstein |
||
|
Title: President |
|
|
ATTEST:
By: /s/ Steven M. Rhodes
Name: Steven M. Rhodes |
|
Title: Secretary |
|
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.
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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 Companys 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 Optionees employment for cause, the term Cause as used herein shall have the meaning as set forth in the Optionees 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) |
Code shall mean the Internal Revenue Code of 1986, as amended. |
(e) Committee shall mean the stock option committee appointed by the Board or, if not appointed, the Board.
(f) Common Stock shall mean the Companys Common Stock, no par value per share.
(g) |
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 Companys 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.
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(k) Incentive Stock Option shall mean an incentive stock option as defined in Section 422 of the Code.
(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 Companys 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 Companys 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 Companys 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.
4
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 Optionees 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 Optionees 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 Optionees 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;
(ii) immediately upon the termination by the Company of the Optionees employment for Cause;
(iii) one year after the date on which the Optionees 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 Optionees 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 Optionees 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 Companys 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 Companys 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 Companys 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 Committees 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 Companys 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 Optionees 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 Shares 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 Committees 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 Companys 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
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 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. |
|
b.
|
Keeping
the Concession clean, sanitary and free from trash and
debris,
|
|
1.
|
Laser
safety provisions:
|
|
2.
|
Laser
Subsystem
|
|
3.
|
Positioner
Subsystem
|
|
4.
|
System
Controller
|
|
5.
|
Video
Display System
|
·
|
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.
|
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.
|
|
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.
|
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
|
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.
|
|
Compliance
|
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 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.
|
|
15
|
|
b.
|
Keeping
the Concession clean, sanitary and free from trash and
debris.
|
|
1.
|
Laser
safety provisions:
|
|
2.
|
Laser
Subsystem
|
|
3.
|
Positioner
Subsystem
|
|
4.
|
System
Controller
|
|
5.
|
Video
Display System
|
·
|
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.
|
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
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
|
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
Compliance
|
|
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 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.
|
(i)
|
the
Concession Fee as calculated in Step
3;
|
|
(i)
|
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).
|
|
(ii)
|
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.
|
|
(iii)
|
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.
|
|
(iv)
|
An
“all risk” property damage floater policy covering Licensee’s personal
property and Licensee’s equipment, whether owned, leased or rented by
Licensee.
|
|
(v)
|
Licensee
will be required to maintain insurance covering loss or damage to its
personal property, whether owned, leased or rented by
Licensee.
|
|
To
UCDP:
|
Ronald
W. Sikes. V.P., Legal and Business
Affairs
|
|
3.1.1
|
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;
|
|
2.
|
Relationship of
Parties
.
|
|
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.
|
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.
|
|
B.
|
AMS
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);
|
|
C.
|
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.
|
The
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.
|
Any
other responsibilities as mutually agreed upon by the
Parties
|
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.
|
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.
|
|
II.
|
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.
|
|
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.
|
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
|
|
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.
|
|
B.
|
If
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.
|
|
C
|
The
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
|
|
D.
|
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.
|
|
E
|
Number of Copies of
Software:
One copy per kiosk
|
|
F.
|
Designation Location
for the Kiosk
:
|
To
be determined under the Development Schedule provided
herein.
|
|
G.
|
Designation Number of
Kiosk XXXX with the
Software:4
|
Project
XXXX
|
Shutterfly
Klosk Deployment (Pilot)
|
|||||
XXXX
|
XXXX
|
XXXX
|
XXXX
|
XXXX
|
XXXX
|
XXXX
|
Sign
contract, issue PO and deposit
|
11/12/2007
|
11/12/2007
|
On
Track
|
|||
1
|
Secure
(4) placement agreement
|
11/5/2007
|
1/11/2008
|
On
Track
|
||
1.1
|
Develop
placement contract
|
11/5/2007
|
11/23/2007
|
On
Track
|
AMS
|
|
1.2
|
Develop
list of top 10 target locations
|
11/5/2007
|
11/18/2007
|
On
Track
|
AMS/XXXX
|
|
1.3
|
Contact
location and secure contracts
|
11/19/2007
|
1/11/2008
|
On
Track
|
||
2
|
Develop
customized photo kiosk
|
10/28/2007
|
2/8/2008
|
On
Track
|
||
2.1
|
Software
integration
|
11/5/2007
|
2/8/2008
|
On
Track
|
||
2.1.1
|
Determine
scope of integration
|
11/5/2007
|
11/7/2007
|
On
Track
|
AMS/XXXX
|
Which
Products are going to be offered?
|
2.1.3
|
Integrate
image 2 Print with API’s
|
12/10/2007
|
1/25/2008
|
On
Track
|
AMS
|
Can
start prior to API’s being complete
|
2.1.4
|
Test
and certify changes
|
1/28/2007
|
2/8/2008
|
On
Track
|
AMS/XXXX
|
|
2.2
|
Software
look and feel
|
10/29/2007
|
2/8/2008
|
On
Track
|
||
2.2.1
|
Provide
Screen Shot document
|
10/29/2007
|
11/2/2007
|
On
Track
|
AMS
|
|
2.2.2
|
Provide
demo of Software
|
11/5/2007
|
11/5/2007
|
On
Track
|
AMS
|
Scheduled
for 1:00Pm EST on XXXX
|
2.2.3
|
Determine
scope of changes
|
11/5/2007
|
11/30/2007
|
On
Track
|
AMS/XXXX
|
|
2.2.4
|
Provide
necessary graphics
|
12/3/2007
|
12/21/2007
|
On
Track
|
XXXX
|
|
2.2.5
|
Implement
changes
|
12/24/2007
|
1/26/2008
|
On
Track
|
AMS/XXXX
|
|
2.2.6
|
Test
and certify changes
|
1/28/2007
|
2/8/2008
|
On
Track
|
AMS/XXXX
|
|
2.3
|
Hardware
look and feel
|
11/5/2007
|
2/1/2008
|
On
Track
|
||
2.3.1
|
Determine
scope of hardware customization
|
11/5/2007
|
11/16/2007
|
On
Track
|
AMS/XXXX
|
Leaning
towards solid color with decals tailored towards specific retailer. Nead
XXXX creative brief
|
2.3.2
|
Design/print
kiosk decals and ship to AMS
|
11/19/2007
|
2/1/2007
|
On
Track
|
XXXX
|
|
3.
|
Deploy
customized kiosks
|
12/31/2007
|
2/22/2008
|
On
Track
|
||
3.1
|
Determine
payment collection method
|
12/31/2007
|
1/11/2008
|
On
Track
|
AMS/XXXX
|
Credit
card, Bill store ect
|
3.2
|
Determine
product pricing
|
1/14/2007
|
1/26/2008
|
On
Track
|
AMS/XXXX
|
|
3.3
|
Determine
product pricing
|
1/28/2008
|
2/8/2008
|
On
Track
|
AMS/XXXX
|
List
Prices for gifting items
|
3.4
|
Integrate
kiosks
|
2/11/2008
|
2/13/2008
|
On
Track
|
AMS
|
|
3.5
|
Ship
kiosks
|
2/11/2008
|
2/13/2008
|
On
Track
|
AMS
|
|
3.6
|
Initial
Kiosks
|
2/18/2008
|
2/22/2008
|
On
Track
|
AMS
|
XXXX
|
XXXX
|
XXXX
|
XXXX
|
XXXX
|
XXXX
|
XXXX
|
3.7
|
Train
local Personnel
|
2/18/2008
|
22/22/2008
|
On
Track
|
AMS
|
|
4.
|
Finalize
XXXX plan
|
12/10/2007
|
3/1/2008
|
On
Track
|
||
4.1
|
Determine
types of marketing / advertising
|
12/10/2007
|
12/21/2007
|
On
Track
|
AMS
XXXX
|
|
4.1.1
|
Determine
best use of 2
nd
screen
|
12/10/2007
|
12/21/2007
|
On
Track
|
AMS
XXXX
|
|
4.2
|
Develop
marketing
|
12/24/2007
|
1/11/2008
|
On
Track
|
XXXX
|
|
4.2.1
|
Develop
slideshow for 2
nd
screen
|
12/24/2007
|
1/11/2008
|
On
Track
|
AMS
XXXX
|
|
4.3
|
Implement
print marking
|
1/14/2008
|
2/8/2008
|
On
Track
|
XXXX
|
|
4.4
|
Ship/send
to locations
|
2/11/2008
|
2/16/2008
|
On
Track
|
XXXX
|
|
4.5
|
Follow
up with locations
|
2/18/2008
|
3/1/2008
|
On
Track
|
XXXX
|
|
5
|
Finalize
success measurements/reporting
|
11/5/2007
|
1/26/2008
|
On
Track
|
||
5.1
|
Determine
success criteria
|
11/5/2007
|
11/30/2007
|
On
Track
|
AMS
XXXX
|
|
5.2
|
Determine
next steps following successful pilot
|
12/3/2007
|
12/28/207
|
On
Track
|
AMS
XXXX
|
|
5.3
|
Determine
tracking method(s)
|
12/31/2007
|
1/11/2008
|
On
Track
|
AMS
XXXX
|
|
5.3
|
Determine
reporting method and frequency
|
1/14/2008
|
1/25/2008
|
On
Track
|
AMS
XXXX
|
|
|
A.
|
Interest
will accrue at the rate of
4.000%
per
annum; installment payments, including principal and interest, of O
ne 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.
|
|
A.
|
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.
|
|
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)
|
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 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.
|
|
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.
|
|
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
disaster-affected 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.
|
8.
|
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.
|
|
A.
|
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.
|
|
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.
|
|
A.
|
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.
|
|
A.
|
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.
|
|
A.
|
If
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).
|
|
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.
|
No
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,
|
|
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.
|
|
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).
|
|
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.
|
|
A.
|
This
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.
|
|
A.
|
This
Loan Authorization and Agreement is approved and issued on
December 19.
2001.
|
SBA
Loan #
|
PLP
399-356-4007
|
SBA
Loan Name
|
Crystal
Magic, Inc.
|
Approval
Date
|
10/05/00
|
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.
|
|
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.
|
|
1.
|
Lender
may use its own forms except as otherwise instructed in this
Authorization. Lender must use the following SBA forms for the
Loan:
|
|
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.
|
|
2.
|
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:
|
1.
|
$210,000.00
to purchase equipment.
|
2.
|
$45,000.00
to purchase inventory.
|
3.
|
$45,
000.00 for working capital
|
|
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.
|
|
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.
|
|
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.
|
|
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.
|
|
2.
|
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 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.
|
|
(6)
|
Trustee Certification
-
A Certificate from the trustee warranting
that:
|
|
(a)
|
The
trust will not be revoked or substantially amended for the term of the
Loan without the consent of SBA;
|
|
(b)
|
The
trustee has authority to act;
|
|
(c)
|
The
trust has the authority to borrow funds, guarantee loans, and pledge trust
assets;
|
|
(d)
|
If
the trust is an Eligible Passive Company, the trustee has authority to
lease the property to the Operating
Company;
|
|
(e)
|
There
is nothing in the trust agreement that would prevent Lender from realizing
on any security interest in trust
assets;
|
|
(f)
|
The
trust agreement has specific language confirming the above;
and
|
|
(g)
|
The
trustee has provided and will continue to provide SBA with a true and
complete list of all trustors and
donors.
|
|
(7)
|
Trade Name
–
Documentation that Borrower has complied with state requirements for
registration of Borrower’s trade name (or fictitious name), if one is
used.
|
|
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
|
|
(1)
|
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:
|
|
(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]
|
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.
|
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.
|
SBA
Loan #
|
PLP
399-236-4004
|
SBA
Loan Name
|
Crystal
Magic, Inc.
|
Approval
Date
|
10/04/00
|
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.
|
|
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.
|
|
1.
|
Lender
may use its own forms except as otherwise instructed in this
Authorization. Lender must use the following SBA forms for the
Loan:
|
|
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.
|
|
2.
|
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:
|
1.
|
$200,000.00
to purchase equipment.
|
2.
|
$30,000.00
to purchase inventory.
|
3.
|
$20,
000.00 for working capital
|
|
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.
|
|
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.
|
|
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
|
|
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.
|
|
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.
|
|
(6)
|
Trustee Certification
-
A Certificate from the trustee warranting
that:
|
|
(a)
|
The
trust will not be revoked or substantially amended for the term of the
Loan without the consent of SBA;
|
|
(b)
|
The
trustee has authority to act;
|
|
(c)
|
The
trust has the authority to borrow funds, guarantee loans, and pledge trust
assets;
|
|
(d)
|
If
the trust is an Eligible Passive Company, the trustee has authority to
lease the property to the Operating
Company;
|
|
(e)
|
There
is nothing in the trust agreement that would prevent Lender from realizing
on any security interest in trust
assets;
|
|
(f)
|
The
trust agreement has specific language confirming the above;
and
|
|
(g)
|
The
trustee has provided and will continue to provide SBA with a true and
complete list of all trustors and
donors.
|
|
(7)
|
Trade Name
–
Documentation that Borrower has complied with state requirements for
registration of Borrower’s trade name (or fictitious name), if one is
used.
|
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
|
|
(1)
|
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:
|
|
(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]
|
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.
|
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.
|
SBA
Loan #
|
PLP
3 09-109-4009
|
SBA
Loan Name
|
Crystal
Magic, Inc.
|
Approval
Date
|
7/29/99
|
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.
|
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.
|
|
1.
|
Lender
may use its own forms except as otherwise instructed in this
Authorization. Lender must use the following SBA forms for the
Loan:
|
|
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.
|
|
2.
|
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:
|
|
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; 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.
|
|
a.
|
Second Mortgage on land and
improvements located at 2120 Hidden Pine La., Apopka,
Fl. 32712.
This property is residential.
|
|
(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.
|
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..
|
4.
|
Limited Guarantee on SBA Form
148
(use 14SL if available), by Vicki L. Rhodes, resident in
Florida.
|
|
a.
|
Second Mortgage on laud and
improvements
located at 2120 Hidden Pine La., Apopka, FL. 32712.
This property is residential.
|
(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)
|
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.
|
|
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
|
|
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.
|
|
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.
|
|
(6)
|
Trustee Certification
-
A Certificate from the trustee warranting
that:
|
|
(a)
|
The
trust will not be revoked or substantially amended for the term of the
Loan without the consent of SBA;
|
|
(b)
|
The
trustee has authority to act;
|
|
(c)
|
The
trust has the authority to borrow funds, guarantee loans, and pledge trust
assets;
|
|
(d)
|
If
the trust is an Eligible Passive Company, the trustee has authority to
lease the property to the Operating
Company;
|
|
(e)
|
There
is nothing in the trust agreement that would prevent Lender from realizing
on any security interest in trust
assets;
|
|
(f)
|
The
trust agreement has specific language confirming the above;
and
|
|
(g)
|
The
trustee has provided and will continue to provide SBA with a true and
complete list of all trustors and
donors.
|
|
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).
|
|
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]
|
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.
|
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.
|
|
1
|
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.
|
Do
everything necessary for Lender to comply with the terms and conditions of
the Authorization.
|
|
2.
|
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.
|
|
[
|
]
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:
|
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 or 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.
|
a.
|
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;
|
b.
|
Borrower
(and Operating Company) has, and will continue to comply with these laws
and regulations;
|
c.
|
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);
|
d.
|
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);
|
e.
|
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.
|
|
1)
Reimbursable Expenses
-
Reimburse Lender for expenses incurred in the making and administration of
the Loan.
|
|
2)
Books, Records, and Reports-
|
|
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.
|
|
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.
|
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.
|
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.
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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.
|
I
MPROVEMENTS
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 Know-How 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.
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|
Initials:
|
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.
|
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.
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|
Initials:
|
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.
|
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|
Initials:
|
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.
|
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|
Initials:
|
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
(15
th
)
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 (15
th
)
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.
|
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,
|
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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|
Initials:
|
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.
|
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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|
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|
22.
|
WARRANTY DISCLAIMER
.
Nothing in this Agreement is or shall be construed
as;
|
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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|
Initials:
|
25.2.
|
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.
|
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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|
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|
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.
|
27.
|
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.
|
28.1.
|
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.
|
Page
10 of 16
|
Initials:
|
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.
|
29.
|
NO
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.
|
Page
11 of 16
|
Initials:
|
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;
|
Page
12 of 16
|
Initials:
|
Page
13 of 16
|
Initials:
|
Page
14 of 16
|
Initials:
|
Page
15 of 16
|
Initials:
|
Page
16 of 16
|
Initials:
|
|
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.
|
|
a)
|
The
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.
|
|
a)
|
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.
|
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.
|
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.
|
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.
|
|
ii.
|
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.
|
2.
|
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.
|
|
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:
|
|
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.
|
|
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.
|
·
|
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
|
|
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.
|
|
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.
|
|
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
|
|
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.
|
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 5
th
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:
|
1.
|
STATEMENTS AND
PAYMENTS
|
2.
|
NON-RESTRICTIVE GRANT; RIGHTS
RESERVED
|
3.
|
OWNERSHIP OF MARKS AND
GOODWILL
|
4.
|
PROTECTION
OF RIGHTS
|
|
(a)
|
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.
|
(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:
|
|
(a)
|
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.
|
(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.
|
|
(a)
|
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.
|
|
(b)
|
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.
|
|
(c)
|
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.
|
7.
|
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.
|
|
(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
|
9.
|
EARLY
TERMINATION
|
12.
|
NOTICES
|
|
(a)
|
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.
|
|
(b)
|
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.
|
|
(c)
|
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.
|
|
(d)
|
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.
|
|
(e)
|
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 # #
#
|
·
|
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.
|
·
|
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.
|
|
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.
|
|
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
1
st
day of June, 2004 and continuing on the 1
st
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:
|
|
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.
|
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
WHEREAS , Employee desires to be employed by the Company on the terms and conditions set forth herein;
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 Companys Online Division. In his capacity as EVP of Propell Corporation and GM of Companys Online Division, Employee shall do and perform all services, acts, or things necessary or advisable as EVP of Propell Corporation and GM of Companys Online Division. Employee shall be based in Companys Orlando, Florida office and shall also work out of Employees 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 Companys Board of Directors, in its sole discretion. |
Discretionary Bonus
3.02 |
In addition to the Employees 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 Boards 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, Employees right to exercise this option shall be vested in annual increments beginning with the first anniversary date of Employees employment according to the following vesting schedule: |
(i) |
On the first anniversary date of Employees employment, 12/36 ths of the Option shares shall vest; and |
(ii) |
On the second anniversary date of Employees employment, an additional 12/36 ths of Option shares shall vest; and |
(iii) |
On the third anniversary date of Employees employment, the remaining 12/36 ths of the Option shares shall vest. |
(b) |
Notwithstanding the above, after the first anniversary date of Employees 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 1/36 th 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 Companys 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. |
Employees 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 Employees 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 Employees services for Company for the benefit of Company, as well as other Confidential Information to which Employee may have access in connection with Employees 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 Employees 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 Employees 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 Companys request and at Companys 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 Employees 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 Companys prior written consent and the disclosees 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 Employees 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 Companys business, or (iii) breach of the confidentiality or non competition provisions of this Agreement. |
By Company Without Cause
(b) |
Company may terminate Employees employment at any time without cause. |
By Company Upon Employees Death or Disability
(c) |
Employees employment shall terminate automatically upon Employees 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 Employees 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 Employees 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 Employees 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 Employees 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, Employees 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, Employees 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 Employees 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 Employees employment is terminated by reason of Employees 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 Employees 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 Employees employment shall be terminated by reason of Employees 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 Employees 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 Employees 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 Employees 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 Employees 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 Employees 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 Employees executors, administrators, heirs, personal representatives, successors, and assigns. |
IN WITNESS WHEREOF , the Parties so agree:
COMPANY: |
EMPLOYEE: |
Propell Corporation |
|
By: /s/ Edward L. Bernstein |
By: /s/ John Wolf |
Edward L. Bernstein |
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
WHEREAS , Employee desires to be employed by the Company on the terms and conditions set forth herein;
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 Companys 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 Companys 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 Companys 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. |
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(b) Employee shall receive such annual increases in salary, if any, as may be determined by Companys Board of Directors, in its sole discretion. |
Discretionary Bonus
3.02 |
In addition to the Employees 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 Boards 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, Employees right to exercise this option shall be vested in annual increments beginning with the first anniversary date of Employees employment according to the following vesting schedule: |
(i) |
On the first anniversary date of Employees employment, 12/36 ths of the Option shares shall vest; and |
(ii) |
On the second anniversary date of Employees employment, an additional 12/36 ths of Option shares shall vest; and |
(iii) |
On the third anniversary date of Employees employment, the remaining 12/36 ths of the Option shares shall vest. |
(b) |
Notwithstanding the above, after the first anniversary date of Employees 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 1/36 th 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 Companys 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. |
Employees 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 Employees 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 Employees services for Company for the benefit of Company, as well as other Confidential Information to which Employee may have access in connection with Employees 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 Employees 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 Employees 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 Companys request and at Companys 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 Employees 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 Companys prior written consent and the disclosees 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 Employees 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 Companys business, or (iii) breach of the confidentiality or non competition provisions of this Agreement. |
By Company Without Cause
(b) |
Company may terminate Employees employment at any time without cause. |
By Company Upon Employees Death or Disability
(c) |
Employees employment shall terminate automatically upon Employees 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 Employees 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 Employees 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 Employees 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 Employees 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, Employees 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, Employees 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 Employees 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 Employees employment is terminated by reason of Employees death during the Employment Term, this Agreement shall terminate without further obligation to Employee, other than payment Accrued Obligations (which shall be paid to Employees 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 Employees employment shall be terminated by reason of Employees 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. |
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ARTICLE 9. POST TERMINATION |
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Non Solicitation of Customers |
9.01 |
For a period of One (1) year immediately following the termination of Employees 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 Employees employment with Company, either for himself or for any other person, firm, corporation, etc. |
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Non Solicitation of Employees of Company |
9.02 |
For a period of One (1) year immediately following the termination of Employees 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 Employees 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 Employees 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 Employees executors, administrators, heirs, personal representatives, successors, and assigns. |
IN WITNESS WHEREOF , the Parties so agree:
COMPANY: |
EMPLOYEE: |
Propell Corporation |
|
By: /s/ Edward L. Bernstein |
By: /s/ Jim Wallace |
Edward L. Bernstein |
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
WHEREAS , Employee desires to be employed by the Company on the terms and conditions set forth herein;
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 Companys Kiosk Solutions division. In his capacity as EVP of Company and GM of Companys 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 Companys needs evolve. Employee shall be based in Companys 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 Companys Board of Directors, in its sole discretion. |
Discretionary Bonus
3.02 |
In addition to the Employees 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 Boards 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, Employees right to exercise this option shall be vested in annual increments beginning with the first anniversary date of Employees employment according to the following vesting schedule: |
(i) |
On the first anniversary date of Employees employment, 12/36 ths of the Option shares shall vest; and |
(ii) |
On the second anniversary date of Employees employment, an additional 12/36 ths of Option shares shall vest; and |
(iii) |
On the third anniversary date of Employees employment, the remaining 12/36 ths of the Option shares shall vest. |
(b) |
Notwithstanding the above, after the first anniversary date of Employees 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 1/36 th 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 Companys 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. |
Employees 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 Employees 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 Employees services for Company for the benefit of Company, as well as other Confidential Information to which Employee may have access in connection with Employees 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 Employees 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 Employees 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 Companys request and at Companys 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 Employees 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 Companys prior written consent and the disclosees 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 Employees 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 Companys business, or (iii) breach of the confidentiality or non competition provisions of this Agreement. |
By Company Without Cause
(b) |
Company may terminate Employees employment at any time without cause. |
By Company Upon Employees Death or Disability
(c) |
Employees employment shall terminate automatically upon Employees 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 Employees 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 Employees 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 Employees 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 Employees 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, Employees 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, Employees 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 Employees 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 Employees employment is terminated by reason of Employees 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 Employees 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 Employees employment shall be terminated by reason of Employees 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 Employees 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 Employees 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 Employees 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 Employees 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 Employees 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 Employees executors, administrators, heirs, personal representatives, successors, and assigns. |
IN WITNESS WHEREOF , the Parties so agree:
COMPANY: |
EMPLOYEE: |
Propell Corporation |
|
By: /s/ Edward L. Bernstein |
By: /s/ Paul Scapatici |
Edward L. Bernstein |
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
WHEREAS , Employee desires to be employed by the Company on the terms and conditions set forth herein;
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 Companys 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 Companys 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 Companys Board of Directors, in its sole discretion. |
Discretionary Bonus
3.02 |
In addition to the Employees 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 Boards 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, Employees right to exercise this option shall be vested in annual increments beginning with the first anniversary date of Employees employment according to the following vesting schedule: |
(i) |
On the first anniversary date of Employees employment, 12/36 ths of the Option shares shall vest; and |
(ii) |
On the second anniversary date of Employees employment, an additional 12/36 ths of Option shares shall vest; and |
(iii) |
On the third anniversary date of Employees employment, the remaining 12/36 ths of the Option shares shall vest. |
(b) |
Notwithstanding the above, after the first anniversary date of Employees 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 1/36 th 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 Companys 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. |
|
Employees 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 Employees 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 Employees services for Company for the benefit of Company, as well as other Confidential Information to which Employee may have access in connection with Employees 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 Employees 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 Employees 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 Companys request and at Companys 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 Employees 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 Companys prior written consent and the disclosees 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 Employees 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 Companys business, or (iii) breach of the confidentiality or non competition provisions of this Agreement. |
By Company Without Cause
(b) |
Company may terminate Employees employment at any time without cause. |
By Company Upon Employees Death or Disability
(c) |
Employees employment shall terminate automatically upon Employees 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 Employees 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 Employees 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 Employees 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 Employees 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, Employees 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, Employees 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 Employees 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 Employees employment is terminated by reason of Employees 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 Employees 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 Employees employment shall be terminated by reason of Employees 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. |
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ARTICLE 9. POST TERMINATION |
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Non Solicitation of Customers |
9.01 |
For a period of One (1) year immediately following the termination of Employees 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 Employees employment with Company, either for himself or for any other person, firm, corporation, etc. |
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Non Solicitation of Employees of Company |
9.02 |
For a period of One (1) year immediately following the termination of Employees 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 Employees 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 Employees 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 Employees executors, administrators, heirs, personal representatives, successors, and assigns. |
IN WITNESS WHEREOF , the Parties so agree:
COMPANY: |
EMPLOYEE: |
Propell Corporation |
|
By: /s/ Edward L. Bernstein |
By: /s/ Lane Folliott |
Edward L. Bernstein |
Lane Folliott |
|
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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
WHEREAS , Employee desires to be employed by the Company on the terms and conditions set forth herein;
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 Companys 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 Companys Board of Directors, in its sole discretion. |
Discretionary Bonus
3.02 |
In addition to the Employees 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 Boards 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, Employees right to exercise this option shall be vested in annual increments beginning with the first anniversary date of Employees employment according to the following vesting schedule: |
(i) |
On the first anniversary date of Employees employment, 12/36 ths of the Option shares shall vest; and |
(ii) |
On the second anniversary date of Employees employment, an additional 12/36 ths of Option shares shall vest; and |
(iii) |
On the third anniversary date of Employees employment, the remaining 12/36 ths of the Option shares shall vest. |
(b) |
Notwithstanding the above, after the first anniversary date of Employees 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 1/36 th 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 Companys 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. |
Employees 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 Employees 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 Employees services for Company for the benefit of Company, as well as other Confidential Information to which Employee may have access in connection with Employees 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 Employees 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 Employees 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 Companys request and at Companys 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 Employees 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 Companys prior written consent and the disclosees 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 Employees 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 Companys business, or (iii) breach of the confidentiality or non competition provisions of this Agreement. |
By Company Without Cause
(b) |
Company may terminate Employees employment at any time without cause. |
By Company Upon Employees Death or Disability
(c) |
Employees employment shall terminate automatically upon Employees 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 Employees 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 Employees 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 Employees 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 Employees 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, Employees 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, Employees 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 Employees 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 Employees employment is terminated by reason of Employees 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 Employees 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 Employees employment shall be terminated by reason of Employees 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. |
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ARTICLE 9. POST TERMINATION |
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Non Solicitation of Customers |
9.01 |
For a period of One (1) year immediately following the termination of Employees 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 Employees 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 Employees 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. |
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Non Competition |
9.03 |
To the extent allowed by law, for a period of One (1) year immediately following the termination of Employees 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 Employees 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 Employees executors, administrators, heirs, personal representatives, successors, and assigns. |
IN WITNESS WHEREOF , the Parties so agree:
COMPANY: |
EMPLOYEE: |
Propell Corporation |
|
By: /s/ Steve Rhodes |
By: /s/ Edward L. Bernstein |
|
Steve Rhodes |
Edward L. Bernstein |
|
CFO and Director |
EXHIBIT 10.25
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 Steven Rhodes (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
WHEREAS , Employee desires to be employed by the Company on the terms and conditions set forth herein;
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 Financial Officer (CFO) of Propell Corporation as well as President of its Crystal Magic subsidiary. In his capacity as CFO of Propell Corporation, Employee shall do and perform all services, acts, or things necessary or advisable as CFO of Propell Corporation, and such other roles of similar responsibility as the Company may see fit; provided however that the roles and responsibilities assigned shall be executive in nature and scope. Employee shall be based in Companys Orlando, Florida 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. |
Board of Directors
2.02 |
Employee shall also serve on the Board of Directors of Company. Any involuntary removal of Employee from the Board of Directors shall allow Employee to terminate this Agreement For Good Reason pursuant to Section 7.02 below. |
Outside Employment
2.03 |
Employee shall not engage in outside employment that interferes with any of his duties under this Agreement. |
Competitive Activities
2.04 |
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 |
2.05 |
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, to the extent that those rules and regulations are approved by the Board of Directors and are not inconsistent with Employees rights and obligations under this Agreement. In the event that any rule or regulation conflicts with this Agreement, this Agreement shall control. |
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 Companys Board of Directors, in its sole discretion. |
Discretionary Bonus
3.02 |
In addition to the Employees 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 Boards 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, Employees right to exercise this option shall be vested in annual increments beginning with the first anniversary date of Employees employment according to the following vesting schedule: |
(i) |
On the first anniversary date of Employees employment, 12/36 ths of the Option shares shall vest; and |
(ii) |
On the second anniversary date of Employees employment, an additional 12/36 ths of Option shares shall vest; and |
(iii) |
On the third anniversary date of Employees employment, the remaining 12/36 ths of the Option shares shall vest. |
(b) |
Notwithstanding the above, after the first anniversary date of Employees employment, in the event (i) Employee is terminated without Cause, (ii) Employee terminates for Good Reason or (iii) the Employment Term ends without renewal or extension, Employee shall be entitled to additional vesting in the amount of 1/36 th 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 or non-renewal or extension in which to purchase/exercise any such Option(s). |
(c) |
The purchase price shall be the fair market value of the Companys 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 except as set forth above in Section 3.03(b). |
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. |
Employees 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 Employees 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 Employees services for Company for the benefit of Company, as well as other Confidential Information to which Employee may have access in connection with Employees 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 Employees 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 Employees 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 Companys request and at Companys 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 Employees 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 Companys prior written consent and the disclosees 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 Employees 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 Companys business, or (iii) breach of the confidentiality or non competition provisions of this Agreement. |
By Company Without Cause
(b) |
Company may terminate Employees employment at any time without cause. |
By Company Upon Employees Death or Disability
(c) |
Employees employment shall terminate automatically upon Employees 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 Employees 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 Employees 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 Employees 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 Employees 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, Employees 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, Employees 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 Employees 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 Employees employment is terminated by reason of Employees 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 Employees 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 Employees employment shall be terminated by reason of Employees 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 Employees 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 Employees 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 Employees 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 Employees 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 Employees 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 Employees executors, administrators, heirs, personal representatives, successors, and assigns. |
IN WITNESS WHEREOF , the Parties so agree:
COMPANY: |
EMPLOYEE: |
Propell Corporation |
|
By: /s/ Edward L. Bernstein |
By: /s/ Steve Rhodes |
Edward L. Bernstein |
Steve Rhodes |
|
President and CEO |
EXHIBIT 23.1
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
May 7, 2008
To the Board of Directors of
Propell Corporation
Greenbrae, California
To Whom It May Concern:
Consent of Accountant
Maddox Ungar Silberstein, PLLC, hereby consents to the use in the Form S-1, Registration Statement under the Securities Act of 1933 of our report dated March 10, 2008, relating to the financial statements of Propell Corporation, a Delaware Corporation, for the period ending January 31, 2008 and of our report dated February 29, 2008 relating to the combined financial statements of Crystal Magic, Inc., a Florida corporation, Mountain Capital, LLC dba Arrow Media Solutions, and Auleron 2005, LLC, New York Limited Liability Companies, for the years ending December 31, 2007 and 2006.
Sincerely,
/s/ Maddox Ungar Silberstein, PLLC
Maddox Ungar Silberstein, PLLC