PROJECT FINANCING AND DEVELOPMENT AGREEMENT
This PROJECT FINANCING AND DEVELOPMENT AGREEMENT (the "Agreement"),
effective as of ___________ 1996 (the "Effective Date"), is made by and between
InternetU, Inc., a New Jersey corporation having its principal place of business
at 000 Xxxxxxxx Xxxx, Xxxxxxx, Xxx Xxxxxx 00000 ("InternetU"), and University
Online, Inc., a Delaware corporation having its principal place of business at
000 Xxxx Xxxxx Xxxxxx, Xxxxx 000, Xxxxx Xxxxxx, Xxxxxxxx 00000 ("UOL").
RECITALS
WHEREAS, UOL is in the business of developing, publishing, and
distributing multimedia educational software through local area networks and
wide area networks, such as the Internet and the World Wide Web;
WHEREAS, UOL has entered into an agreement with Autodesk, Inc.
("Autodesk") dated effective as of April 15, 1996 (the "Autodesk/UOL
Agreement"), pursuant to which Autodesk has licensed to UOL rights to use
certain Autodesk trademarks and UOL has undertaken to develop the Autodesk
Virtual Campus (as that term is defined below);
WHEREAS, the Autodesk/UOL Agreement acknowledges that UOL may contract
with a third party to provide some or all of the funding required by UOL to
accomplish the development, operation and marketing of the Autodesk Virtual
Campus;
WHEREAS, InternetU has been formed for the purpose of commercially
exploiting opportunities in connection with the Internet, including the Autodesk
Virtual Campus;
WHEREAS, InternetU and UOL desire to enter into a project financing
agreement related to the Autodesk Virtual Campus pursuant to which the specific
terms and conditions of such financing by InternetU may be set forth, including
the consideration to InternetU of such financing; and
WHEREAS, InternetU and UOL executed a letter agreement dated January
22, 1996 and now intend this agreement to replace and supersede that letter
agreement.
NOW, THEREFORE, the parties agree as follows:
1. DEFINITIONS
1.1 "Autodesk Virtual Campus" shall mean a campus-like graphical user
interface located on the Internet that a student or learning professional may
access to obtain information about Autodesk, Inc. products and other related
subject areas through the Internet as contemplated by the Autodesk/UOL
Agreement.
1.2 "Content Provider" shall mean those individuals, institutions and
organizations that provide Products and Services or Courseware.
1.3 "Courseware" shall mean interactive courseware that runs on the
Student Management System.
* [ ] CONFIDENTIAL TREATMENT REQUESTED; CERTAIN INFORMATION OMITTED AND
FILED SEPARATELY WITH THE SEC.
1.4 "Net Revenue" shall mean revenues derived from (a) Courseware
delivered through the Autodesk Virtual Campus; (b) Products and Services that
are downloaded from the Autodesk Virtual Campus, or ordered and shipped to
customers through the Autodesk Virtual Campus, less costs paid by UOL to (i)
Content Providers, resellers, distributors, individuals and consultants offering
Products and Services (which costs shall not include UOL general administrative
costs), and (ii) credit card issuers for transaction processing fees and (c)
advertising, promotion, promotional links from the Autodesk Virtual Campus to
other Internet addresses, or other revenue-generating activities related to the
Autodesk Virtual Campus.
1.5 "Products or Services" shall mean all items offered on the
Autodesk Virtual Campus, except Courseware delivered through the Student
Management System of the Autodesk Virtual Campus, including but not limited to
books, CD ROMs and images.
1.6 "Student Management System" shall mean the system established to
track and record student enrollment, testing, grading, record keeping,
maintenance, and registration for the Autodesk Virtual Campus and to report
relevant information to students, faculty and Content Providers on the Autodesk
Virtual Campus.
2. DEVELOPMENT PROGRAM FINANCING
2.1 Funding Obligations. Subject to the terms of this Agreement,
InternetU hereby agrees to provide to UOL certain cash payments to be used by
UOL for the development, operation and marketing of the Autodesk Virtual Campus,
all as more specifically set forth in this Section 2.
2.2 Schedule of Payments. Subject to the fulfillment by UOL of the
milestones set forth below, as such may be amended from time to time by the
mutual agreement of the parties hereto, InternetU hereby agrees to make cash
payments to UOL in the following amounts on or before the dates and upon the
fulfillment by UOL of the milestone(s) here indicated:
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Amount Payment Date Milestone
$ [ ] October 15, 1996 Final specification and white paper
for Virtual Campus delivered to
InternetU; procurement of dedicated
servers, software and
telecommunications equipment; 6-12
major partners signed up under Key
Partner Program
$ [ ] November 15, 1996 Beta merchandising system in place
$ [ ] January 31, 1997 Final development of fully
interactive online course delivery
product/tools; marketing of beta
tools to developers. First
interactive online courses
available; marketing campaign to
professional learners
$ [ ] May 31, 1997 Continued effectiveness of
Autodesk/UOL Agreement
$ [ ] September 30, 1997 Continued effectiveness of
---------- Autodesk/UOL Agreement
$1,550,000
The parties acknowledge that the first three milestones set forth in this
Section 2.2 are based on the milestones to be achieved by UOL which are set
forth in the Autodesk/UOL Agreement, as such may be amended from time to time.
UOL represents that it has fully satisfied all requirements specified in the
October 15, 1996 milestone.
2.3 Effect of Missed Milestone. In the event UOL fails to meet the
milestone applicable to a particular payment as set forth above, and such
failure is not excused hereunder, InternetU may withhold the relevant payment
until such time as UOL fulfills the applicable milestone. InternetU may, at its
discretion, make any payment otherwise required under this Agreement
notwithstanding a missed milestone by UOL. For the purposes of this Agreement
(and particularly this Section 2.3), acceptance by Autodesk of a milestone shall
be deemed to be completion of such milestone for this Agreement and extension of
a milestone deadline by Autodesk under the Autodesk/UOL Agreement shall operate
to extend the milestone date under this Agreement and, accordingly, the
corresponding date for satisfaction of the payment obligation hereunder shall be
extended. In the event UOL fails to meet a milestone for purposes of the
Autodesk/UOL Agreement and Autodesk declines to extend the deadline, InternetU
may withhold the relevant payment; UOL shall have [
* [ ] CONFIDENTIAL TREATMENT REQUESTED; CERTAIN INFORMATION OMITTED AND
FILED SEPARATELY WITH THE SEC.
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] days to meet the unfulfilled milestone or to negotiate a comparable new
project plan milestone with Autodesk; the use of such revised plan for the
InternetU funding obligation milestones shall be subject to the prior approval
of InternetU. If InternetU declines to approve such project plan, it shall be
released from further funding obligations under this Agreement upon its
termination of this Agreement pursuant to Section 10.5 below, subject to the
survival provisions of Section 10.6 below. In the event that during the [
] day cure period provided by this Section 2.3, UOL is able
to fulfill its comparable milestone under the Autodesk/UOL Agreement to the
satisfaction of Autodesk, InternetU agrees that UOL will be deemed to have met
the milestone hereunder, UOL shall be entitled to the full milestone payment and
InternetU shall have no termination rights under Section 10.5 with respect to
that milestone. In the event that UOL is unable to meet any of the first three
milestones within the [ ]-day cure period, then (i) the ownership interest of
UOL in the source code for the Autodesk Virtual Campus (as otherwise would apply
under Section 5.3) shall be reduced and (ii) the royalties to which UOL would
otherwise be entitled from the Autodesk Campus shall be reduced to UOL (and thus
paid to InternetU), each in accordance with the schedule set forth on SCHEDULE
2.3 attached hereto.
2.4 Effect of Missed or Partial Payment. In the event InternetU fails
to make any portion of a payment when such payment is due as set forth above,
then (i) the ownership interest of InternetU in the source code for the Autodesk
Virtual Campus (as otherwise would apply under Section 5.3) and (ii) the
royalties otherwise payable to InternetU as set forth in Section 5.1 below each
shall be reduced in accordance with the schedule set forth on SCHEDULE 2.4. Any
such reductions taken will correspond with the proportion of the payment amount
InternetU failed to make as it related to the aggregate payments then due. In
the event InternetU fails to make at least a partial payment of $200,000 in
respect of any three milestone payments as required by Section 2.2 above, UOL
may, in its discretion, invoke the termination provisions of Section 10.5 below.
The parties hereto expressly acknowledge and agree that there shall be no cure
period in respect of a missed payment, but InternetU shall have thirty (30) days
after making a timely payment of at least $200,000 within which to pay the
difference between the full milestone payment and such $200,000 (or such greater
amount as actually paid) before a reduction in ownership rights of the source
code and in the royalties otherwise payable to InternetU. If, in respect of any
milestone, InternetU offers to UOL $200,000 or more (but less than the amount
stipulated for that particular milestone), UOL may not refuse the payment. Any
consequential reduction in warrants granted to InternetU, reduction in revenue
stream or reduction in interest in the source code shall be based solely on the
amount not paid by InternetU on or before the last day of the 30-day grace
period. InternetU shall be entitled to the proportionate amount of warrants,
revenue stream and source code interest relevant to the partial payment made by
InternetU.
2.5 UOL's Use of Funding Supplied by InternetU. UOL shall utilize all
funds provided by InternetU under this Agreement for the sole purpose of paying
for the development, marketing and operational expenses incurred and to be
incurred by UOL under the Autodesk/UOL Agreement. These expenses shall include,
but are not limited to those associated with writing the source code, purchasing
hardware and marketing the Autodesk Virtual Campus. UOL expressly agrees that it
will not, without the prior written consent of InternetU, use any of the funds
provided hereunder by InternetU to reimburse Autodesk for expenses related to
Autodesk's obligations under the Autodesk/UOL Agreement. InternetU acknowledges
and agrees that it shall have no direct ownership interest in any of the
hardware or other assets relating to the Autodesk Virtual Campus, except as set
forth in Section 5 below.
* [ ] CONFIDENTIAL TREATMENT REQUESTED; CERTAIN INFORMATION OMITTED AND
FILED SEPARATELY WITH THE SEC.
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2.6 Payment method. All payments required under this Section 2 shall
be made by wire transfer of immediately available funds to an account of UOL
pursuant to wire instructions delivered to InternetU by UOL at least three
business days in advance of a required payment. If such wire instructions are
not so given, InternetU may make that payment with a bank check mailed to the
offices of UOL.
3. INTERNETU FINANCING EFFORTS
3.1 Offers to Third Parties. UOL acknowledges that InternetU will
obtain some or all of the funding required by InternetU to make the payments to
UOL as set forth in this Agreement from third parties. InternetU agrees that it
will limit the persons from whom it will solicit funds for such purpose to
persons who are resellers of Autodesk products and services; provided, however,
that InternetU may make such solicitations to persons who qualify as "accredited
investors" (as that term is defined in Regulation D promulgated under the
Securities Act of 1933, as amended) and with whom principals or representatives
of InternetU have a prior relationship (or are affiliates of such persons), so
long as InternetU discloses the names and relationship of such persons to UOL
prior to any such solicitation and InternetU obtains from such persons written
representations with respect to the nature of the investment as more
particularly set forth in SCHEDULE 3.1 hereto.
3.2 Conduct of Financing Efforts. InternetU agrees that it will
conduct all of its financing efforts in compliance with all federal and
applicable state securities laws and that it will not hold itself out in any
way, directly or indirectly, as a broker, selling agent or finder for the sale
of UOL securities. InternetU agrees to provide to UOL in advance of their use,
copies of all soliciting material to be used by InternetU that includes
references to UOL, the Autodesk/UOL Agreement or this Agreement. UOL shall have
the right to approve all such materials prior to their use. InternetU
acknowledges and agrees that UOL must submit such materials to Autodesk for its
prior review and approval pursuant to the requirements of the Autodesk/UOL
Agreement and UOL agrees to use its best efforts to obtain such approvals.
3.3 Eligible Investors. To the extent the funding will be provided by
third party investors in InternetU, InternetU agrees that it will sell its
securities only to persons who are qualified "accredited investors" as that term
is defined in Regulation D promulgated by the Securities and Exchange Commission
under the Securities Act of 1933, as amended (the "1933 Act").
3.4 Benefits to Investors. UOL and InternetU agree to make available
to third party investors the following:
(a) Policy and Procedure Committee. The parties hereto
shall establish a Policy and Procedure Committee
which shall make recommendations as to desirable
policies and procedures for access to the Autodesk
Virtual Campus by vendors and resellers. The
Committee shall consist of six persons, three persons
appointed by UOL and three persons appointed by
InternetU, which persons may include investors.
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(b) Advertising on the Autodesk Virtual Campus. Each
investor shall be offered preferred advertising space
at a discount from advertising rates offered to
unrelated third parties, as follows: an investment of
$23,000 shall entitle the investor to a 25% discount
for one year; an investment of $46,000 shall entitle
the investor to a 50% discount for one year; an
investment of $69,000 shall entitle the investor to a
discount of 50% for the first year and 25% for the
next year; and an investment of $92,000 shall entitle
the investor to a 50% discount for two years. After
these periods, the investors will be given the right
to continue in the preferred advertising space at a
10% discount from the then full rate.
4. COMMON STOCK PURCHASE WARRANTS
4.1 Common Stock Purchase Warrants. UOL hereby agrees to issue to
InternetU warrants to purchase the Common Stock of UOL, par value $.01 per
share, pursuant to the following schedule:
Number of Shares Date of Issuance
---------------- -----------------------------
166,666 October 15, 1996
166,666 November 15, 1996
166,666 January 31, 1997
166,666 May 31, 1997
194,444 September 30, 1997
-------
861,108
4.2 Terms of Warrants. The exercise price for the Common Stock
underlying the warrants shall be $1.80 per share. Each warrant shall expire
three years after the Effective Date of this Agreement. Other terms and
conditions of the warrants issued pursuant to this Section 4 shall be
substantially as set forth in the form of Warrant set forth hereto as Exhibit A.
4.3 Effect of Missed or Partial Payment by InternetU. If a scheduled
payment by InternetU as required by Section 2.2 is not made when due, UOL shall
be under no obligation to issue the warrant of the corresponding date as set
forth above. If InternetU fails to make the full required payment as set forth
in Section 2.2, but makes a partial payment, UOL may, in its discretion, reduce
the number of shares subject to the corresponding warrant by the proportionate
amount of the deficient payment to the full amount of the payment due. A partial
payment of at least $200,000 by InternetU will not afford UOL with a right of
termination under Section 10.5.
4.4 Investor Representations. InternetU understands and acknowledges
that neither the warrants to be issued under this Agreement nor the shares of
Common Stock for which they may be exercised have been registered under the 1933
Act or the securities laws of any
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state in reliance on exemptions therefrom. InternetU agrees to make such
investor representations as may be reasonably required to facilitate reliance on
such exemptions from registration at the time the warrants are issued and at the
time the shares of Common Stock are issued pursuant to exercise of such warrants
unless such shares are subject to a then effective registration statement.
5. SHARING OF ROYALTIES AND OWNERSHIP OF CAMPUS
5.1 Royalties. Subject to the provisions of Section 2.4, InternetU
shall be entitled to [ ] percent ([ ]%) of the Net Revenues generated by
the license or sale of Courseware through the Autodesk Virtual Campus; [ ]
percent ([ ]%) of the Net Revenues from the sale of Products or Services on the
Autodesk Virtual Campus; and [ ] percent ([ ]%) of the Net Revenues from
fees derived from all other activities related to the Autodesk Virtual Campus.
In the event of the termination or expiration of the Autodesk/UOL Agreement and
any successor agreement such that Autodesk is no longer participating in the
Autodesk Virtual Campus, or in the event the revenues to be shared by Autodesk
from the Autodesk Virtual Campus are reduced, revenues that otherwise would have
been paid to Autodesk shall be allocated as follows: [ ]% of such funds shall
be expended for actual marketing efforts related specifically to promotion of
the Virtual Campus; [ ]% of such funds shall be retained by UOL; and of the
remaining [ ]% of the funds, UOL shall pay to InternetU that portion of the
[ ]% which is equivalent to the proportionate amount of the payments made by
InternetU pursuant to Section 2.1 above (i.e., if InternetU has made 100% of the
payments theretofore required by Section 2.1, it shall be entitled to 100% of
the [ ]%; if InternetU has made only 50% of the payments required by Section
2.1, it shall be entitled to only 50% of the [ ]% and the remaining 50% shall
be retained by UOL).
5.2 InternetU Marketing Contribution and UOL Ongoing Obligations.
InternetU agrees that at least [ ] percent ([ ]%) of the revenues to which it
is entitled under this Agreement will be used for marketing expenses
attributable to promoting the Autodesk Virtual Campus. InternetU and UOL
acknowledge that the actual allocation of InternetU's revenue towards marketing
may be greater than [ ] percent ([ ]%). UOL agrees that after the completion
of the development of the Autodesk Virtual Campus, UOL will use its best efforts
to maintain the existence of a Virtual Campus to serve the Autodesk market on
the Internet, capable of performing transactions and, for the term of the
Autodesk/UOL Agreement, UOL will fulfill its marketing obligations as required
by the Autodesk/UOL Agreement.
5.3 Source Code for Autodesk Virtual Campus. UOL and InternetU will
jointly own the source code for the Autodesk Virtual Campus; unless such
ownership interest has been reduced as the result of one or more missed
milestones by UOL or missed or partial milestone payments by InternetU,
InternetU shall own an equal share of such source code. The source code shall be
placed in escrow pursuant to the terms of an escrow agreement in substantially
the form attached hereto as Exhibit B. InternetU agrees to pay all expenses to
initiate such escrow and all expenses to maintain such escrow, provided that UOL
will reimburse InternetU for half the expenses up to a maximum cost to UOL of
$1,550 the first year and $1,050 each year thereafter. Neither party shall be
entitled to license, transfer, sell or otherwise encumber the ownership rights
to the source code, or enter into negotiations concerning same, without the
prior written consent of the other party. InternetU expressly acknowledges and
agrees that its interest in the Autodesk Virtual Campus source code is limited
to the exploitation of such
* [ ] CONFIDENTIAL TREATMENT REQUESTED; CERTAIN INFORMATION OMITTED AND
FILED SEPARATELY WITH THE SEC.
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source code in the market served by Autodesk. Notwithstanding any other
provisions of this Agreement, InternetU shall have no rights whatsoever to
exploitation of the generic platforms and related software created, acquired or
otherwise utilized by UOL in connection with the Autodesk Virtual Campus, it
being expressly understood and agreed that, as between UOL and InternetU, such
platforms and related software are the sole and exclusive property of UOL. UOL
expressly agrees that InternetU shall be under no obligation to pay to UOL any
additional royalties or fees in connection with the platforms and related
software which are the sole and exclusive property of UOL but which are included
in the Autodesk Virtual Campus so long as the use by InternetU is limited to the
Autodesk Virtual Campus. Notwithstanding any other provision of this Agreement,
UOL acknowledges that InternetU shall have the right to develop independently
other campuses, and engage in other activities, including without limitation
activities similar to those contemplated by this Agreement, with other parties,
so long as InternetU is not using UOL confidential or proprietary information or
technology.
6. PAYMENTS, BOOKS, AND RECORDS
6.1 Payment Method. Payments to InternetU of royalties under Section 5
above shall be made on a monthly basis in arrears.
6.2 Records; Inspection. UOL shall keep complete, true, and accurate
books of account and records for the purpose of determining the royalty amounts
payable under this Agreement. Such books and records shall be kept at UOL's
principal place of business. InternetU may inspect such books and records to
confirm the royalty payments paid and payable to InternetU under this Agreement.
Such inspections may be done by InternetU's independent certified public
accountant at InternetU's sole cost and expense no more than twice each calendar
year, at reasonable times as mutually agreed. The certified public accountant
will be obliged to execute a reasonable confidentiality agreement on terms
consistent with Article 8 hereof prior to commencing any such inspection. In the
event an inspection reveals a variation or error producing an increase exceeding
ten percent (10%) of the amount stated as having been due by UOL for any period
covered by the inspection, all costs relating to the inspection for such period
and any unpaid amounts that are discovered shall be paid by UOL. InternetU's
independent certified public accountant will report to InternetU as to whether
or not there has been an underpayment and, if so, the amount thereof. No
additional information discerned by the certified public accountant during the
course of their inspection may be disclosed to InternetU.
7. REPRESENTATIONS AND WARRANTIES
7.1 InternetU.
(a) Organization; Good Standing; Corporate Power. InternetU is
a corporation duly organized, validly existing and in good standing under the
laws of the State of New Jersey, has all requisite corporate power and authority
to own, lease and operate its properties and to carry on its business as now
being conducted, to execute and deliver this Agreement, to perform its
obligations hereunder and to consummate the transactions contemplated hereby.
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(b) Authority. The execution, delivery and performance of this
Agreement has been duly and validly authorized by all necessary corporate action
on the part of InternetU, and this Agreement will be, upon such execution and
delivery, duly executed and will constitute legal, valid and binding obligations
of InternetU, enforceable against InternetU in accordance with their respective
terms.
(c) No Conflicts. The execution, delivery and performance by
InternetU of this Agreement does not and will not violate, conflict with or
result in the breach of any agreement, instrument, judgment, judicial decree or
order, or any provision of federal or state law to which InternetU is a party or
by which InternetU or any of its assets are bound.
(d) No Consent. No consent or approval by, or any notification
of or filing with, any person (governmental or private) is required in
connection with the execution, delivery and performance by InternetU of this
Agreement.
(e) Absence of Litigation. There are no judicial,
administrative or other legal proceedings or governmental investigations pending
against InternetU or its principals with respect to the execution or performance
of InternetU's obligations under this Agreement or involving its business or
assets and, to the best of InternetU's knowledge, there are no such proceedings
or investigations threatened.
(f) Compliance with Laws. InternetU has complied in all
material respects with all laws (statutory or otherwise), rules, regulations,
ordinances, orders, writs, injunctions, judgments, decrees and awards of all
governmental and regulatory authorities (collectively the "Laws") relating to
the operation of its business and assets. InternetU has not received any
notification of any asserted present or past failure of InternetU so to comply
with any Law and no such violation of any Law exists.
7.2 UOL.
(a) Organization; Good Standing; Corporate Power. UOL is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware, has all requisite corporate power and authority to
own, lease and operate its properties and to carry on its business as now being
conducted, to execute and deliver this Agreement, to perform its obligations
hereunder and to consummate the transactions contemplated hereby. UOL represents
and warrants that it has provided to InternetU a true and complete copy of UOL's
certificate of incorporation and bylaws, each in effect on the date hereof.
(b) Authority. The execution, delivery and performance of this
Agreement, including the issuance of warrants as contemplated by Article 4, has
been duly and validly authorized by all necessary corporate action on the part
of UOL, and this Agreement will be, upon such execution and delivery, duly
executed and will constitute legal, valid and binding obligations of UOL,
enforceable against UOL in accordance with their respective terms.
(c) No Conflicts. The execution, delivery and performance by
UOL is this Agreement does not and will not violate, conflict with or result in
the breach of any agreement, instrument, judgment, judicial decree or order, or
any provision of federal or state law to which UOL is a party or by which UOL or
any of its assets are bound.
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(d) No Consent. No consent or approval by, or any notification
of or filing with, any person (governmental or private) is required in
connection with the execution, delivery and performance by UOL of this
Agreement.
(e) Intangible Assets. To the best of UOL's knowledge, UOL
owns or possesses adequate rights to develop, manufacture, license, provide and
market its products and services using all patents, patent applications,
trademarks, service marks, copyrights, trade secrets, confidential information,
processes and formulations used or proposed to be used in the conduct of its
business related to this Agreement (collectively the "Intangibles"); to the best
of UOL's knowledge, UOL has not infringed and is not infringing upon the rights
of others with respect to Intangibles; and UOL has not received any notice of
conflict with the asserted rights of others with respect to Intangibles which
could, singly or in the aggregate, materially adversely affect its business as
presently conducted or the prospects, financial condition or results of
operations of UOL, and UOL knows of no basis therefor; and to the best of UOL's
knowledge, no others have infringed upon the Intangibles of UOL.
(f) Absence of Litigation. There are no judicial,
administrative or other legal proceedings or governmental investigations pending
against UOL with respect to the right of UOL to enter into or perform its
obligations under this Agreement or involving its business or assets, and, to
the best of UOL's knowledge, there are no such proceedings or investigations
threatened.
(g) Compliance with Laws. UOL has complied in all material
respects with all laws (statutory or otherwise), rules, regulations, ordinances,
orders, writs, injunctions, judgments, decrees and awards of all governmental
and regulatory authorities (collectively the "Laws") relating to the operation
of its business and assets and the development, marketing and operation of the
Autodesk Virtual Campus. UOL has not received any notification of any asserted
present or past failure of UOL so to comply with any Law and no such violation
of any Law exists.
(h) Financial Statements. Attached hereto as Exhibit C are the
draft audited balance sheets of UOL as of December 31, 1995 and 1994, and the
accompanying draft Report of Independent Auditors, as well as the draft
quarterly financials for each of the first two quarters of fiscal 1996. Such
financial statements fairly present the financial condition of UOL at December
31, 1995 and 1994, respectively, and, in respect of the quarterly reports, at
March 31, 1996 and June 30, 1996, and were prepared in accordance with generally
accepted accounting principles.
(i) No Adverse Changes. Since December 31, 1995, there has not
been any material adverse change in the financial condition, assets,
liabilities, business or resulting operations of UOL.
(j) Taxes. UOL has filed all federal, state and local taxes
and other returns and reports which were required to be filed in respect of all
taxes, levies, license, registration and permit fees, charges or withholding of
any nature whatsoever, and has paid all applicable taxes, levies and assessments
which are due; and except for taxes which are not yet due and payable, there are
no taxes, levies or assessments which will be payable by UOL in respect of any
period prior to the date hereof; UOL is not in default in the payment of any
taxes due
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or payable or of any assessments received in respect thereof; and there are no
unpaid assessments or proposals for additional federal, state or local taxes for
which UOL does not have adequate reserves, nor does UOL know of any basis
therefor.
(k) Assets. The assets and properties of UOL include all
assets and properties which are or will be material to the conduct of UOL's
business as presently contemplated.
(l) Capitalization, etc. As of the date hereof, UOL's
authorized capitalization consists of (a) 36,000,000 shares of Common Stock, par
value $0.01 per share, of which 9,777,524 shares are issued and outstanding and
(b) 34,000,000 shares of Preferred Stock, par value $0.01 per share, of which
12,000,000 shares have been designated "Series A Preferred Stock" (and there are
now outstanding 4,742,406 of such Series A Preferred Stock), 6,000,000 shares
have been designated "Series B Preferred Stock" (and there are now none
outstanding) and 6,000,000 shares have been designated "Series B-1 Preferred
Stock" (and there are now outstanding 2,187,500 of such Series B-1 Preferred
Stock). The Common Stock issuable upon exercise of the Warrants to be acquired
pursuant to this agreement have been duly and validly reserved for issuance and,
upon issuance, will be duly and validly issued, fully paid and non-assessable
and will be free of restrictions on transfer, except pursuant to applicable
federal and state securities laws. All corporate action on the part of UOL and
stockholders thereof, if necessary, for the authorization, execution and
delivery of this agreement and the Warrants contemplated hereby, and the
authorization, issuance or reservation for issuance of such Warrants and the
Common Stock issuable upon exercise thereof has been taken. Except as set forth
on SCHEDULE 7.2 or as contemplated by the Warrants issuable hereunder, there are
no outstanding options, warrants, rights (including conversion or pre-emptive
rights) or agreements for the purchase or acquisition from UOL of any shares of
its capital stock or any rights which permit or allow a holder of securities of
UOL to cause UOL to file a registration statement or which permit or allow the
holder thereof to include securities of UOL in a registration statement filed by
UOL.
7.3 Disclaimer of Warranties. EXCEPT AS EXPRESSLY STATED HEREIN,
NEITHER PARTY HAS MADE ANY WARRANTIES OR REPRESENTATIONS, EXPRESS OR IMPLIED BY
OPERATION OF LAW OR OTHERWISE, CONCERNING THE PRODUCT TO BE DEVELOPED BY UOL,
THE SCOPE OR DURATION OF ANY MARKETING EFFORTS THAT THE PARTIES MAY UNDERTAKE,
OR THE SUCCESS OF SUCH MARKETING EFFORT. NEITHER PARTY HAS RELIED ON ANY EXPRESS
OR IMPLIED REPRESENTATION OF THE OTHER PARTY, WRITTEN OR ORAL, AS AN INDUCEMENT
TO ENTERING INTO THIS AGREEMENT EXCEPT AS SPECIFICALLY SET FORTH IN THIS
AGREEMENT.
8. CONFIDENTIALITY
8.1 ______ Confidential Information. Except as expressly provided
herein, the parties agree that, for the term of this Agreement and for two (2)
years thereafter, the receiving party shall keep completely confidential and
shall not publish or otherwise disclose and shall not use for any purpose except
for the purposes contemplated by this Agreement, any information that is marked
or noted as confidential and furnished to it by the disclosing party hereto
pursuant to this Agreement, except that to the extent that it can be established
by the receiving party by
11
competent proof that such confidential information (a) was already known to the
receiving party, other than under an obligation of confidentiality, at the time
of disclosure, as evidenced by its written records; (b) was generally available
to the public or otherwise part of the public domain at the time of its
disclosure to the receiving party; (c) became generally available to the public
or otherwise part of the public domain after its disclosure and other than
through any act or omission of the receiving party in breach of this Agreement;
(d) was independently developed by the receiving party as demonstrated by
documented evidence prepared contemporaneously with such independent
development; or (e) was subsequently lawfully disclosed to the receiving party
by a person other than a party hereto.
8.2 Permitted Use and Disclosures. Each party hereto may use or
disclose information disclosed to it by the other party to the extent such use
or disclosure is reasonably necessary in prosecuting or defending litigation,
complying with applicable governmental regulations or otherwise submitting
information to tax or other government authorities, or otherwise exercising its
rights hereunder; provided that if a party is required to make any such
disclosure of another party's confidential information, other than pursuant to a
confidentiality agreement, it will give reasonable advance notice to the latter
party of such disclosure and will use its best efforts to secure confidential
treatment of such information prior to its disclosure (whether through
protective orders or otherwise).
8.3 Public Disclosure. Except as otherwise required by law, neither
party shall issue a press release or make any other public oral or written
disclosure of the terms of this Agreement or the results of the development and
funding project contemplated hereby without prior approval of the other party,
it being expressly acknowledged that InternetU will be seeking UOL's prior
approval with respect to certain of such information in disclosure to be
provided to potential investors.
9. INDEMNIFICATION
9.1 Indemnification of InternetU. UOL shall indemnify, defend and hold
harmless InternetU and the directors, officers, employees, agents and counsel of
InternetU and the successors and assigns of any of the foregoing (the "InternetU
Indemnitees"), from and against any and all liabilities, damages, losses, costs
or expenses (including reasonable attorneys' and professional fees and expenses
and other expenses of litigation and arbitration) resulting from a claim, suit
or proceeding brought by a third party against an InternetU Indemnitee, arising
from or occurring (i) as a result of a breach of any of UOL's representations
and warranties as set forth herein, or (ii) as a result of a breach by UOL of
any of its obligations hereunder.
9.2 Indemnification of UOL. InternetU shall indemnify, defend and hold
harmless UOL and the directors, officers, employees, agents and counsel of UOL
and the successors and assigns of any of the foregoing (the "UOL Indemnitees"),
from and against any and all liabilities, damages, losses, costs or expenses
(including reasonable attorneys' and professional fees and expenses and other
expenses of litigation and arbitration) resulting from a claim, suit or
proceeding brought by a third party against a UOL Indemnitee, arising from or
occurring (i) as a result of a breach of any of InternetU's representations and
warranties of InternetU set forth herein, or (ii) as a result of a breach of any
of InternetU's obligations hereunder, or (iii) as a result of InternetU's
financing efforts contemplated by Section 3 above, provided, however, that
InternetU shall have no obligation to indemnify the UOL Indemnitees for claims
12
based on information provided by UOL or Autodesk and included in information
provided by InternetU to potential investors.
9.3 Procedure. A party (the "Indemnitee") that intends to claim
indemnification under this Section 9 shall promptly notify the other party (the
"Indemnitor") in writing of any loss, claim, damage, liability, or action in
respect of which the Indemnitee or any of its directors, officers, employees, or
agents intend to claim such indemnification, and the Indemnitor shall have the
right to participate in, and, to the extent the Indemnitor so desires, to assume
the defense thereof. The indemnity agreement in this Section 9 shall not apply
to amounts paid in the settlement of any loss, claim, damage, liability or
action if such settlement is effected without the consent of the Indemnitor,
which consent shall not be withheld or delayed unreasonably. The failure to
deliver written notice to the Indemnitor within a reasonable time after the
commencement of any such action, if prejudicial to its ability to defend such
action, shall relieve such Indemnitor of any liability to the Indemnitee under
Section 9. At the Indemnitor's request, the Indemnitee under this Section 9, its
employees and agents, shall cooperate fully with the Indemnitor and its legal
representatives in the investigation of any action, claim, or liability covered
by this indemnification and provide full information with respect thereto.
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10. TERMINATION
10.1 Term. This Agreement shall commence as of the Effective Date and
shall continue until terminated pursuant to this Section 10.
10.2 Termination of Autodesk/UOL Agreement.
(a) Termination for Convenience. In the event of the
termination (or nonrenewal) of the Autodesk/UOL Agreement, either party may give
the other party written notice of its intention to terminate this Agreement for
any reason or no reason (hereafter referred to as a "Termination for
Convenience"), which termination shall take effect ten days after the date of
such written notice.
(b) Effect of Termination for Convenience. Upon a Termination
for Convenience, the non-terminating party shall have the right to exploit the
source code in respect of the Autodesk market without the further involvement of
the terminating party and revenues otherwise payable to the terminating party
from merchants offering Products and Services on the Autodesk Virtual Campus at
the time of the Termination for Convenience, shall be reduced by one-half.
Revenues thereafter generated in respect of additional merchants offering
Products or Services on the Virtual Campus shall be the sole property of the
non-terminating party. The source code shall then be released to the
non-terminating party subject to the terms of the escrow agreement. The
terminating party in a Termination for Convenience agrees not to seek to
restrict the use of the source code on and after the effective date of the
Termination for Convenience.
10.3 Breach.
(a) Termination for Breach. Either party to this Agreement may
terminate this Agreement in the event the other party shall have materially
breached or defaulted in the performance of any of its material obligations
hereunder, and such default shall have continued for thirty (30) days after
written notice thereof was provided to the breaching party by the non-breaching
party. Any termination shall become effective at the end of such thirty (30)
days unless the breaching party (or any other party acting on its behalf), has
cured any such breach or default prior to the expiration of the thirty (30) day
period; provided, however, if either party receives notification from the other
of a material breach and the party alleged to be in breach notifies the other
that it disputes the asserted material breach, then the matter shall be
submitted to arbitration pursuant to Section 12.2 of this Agreement. In such
event, no termination shall become effective unless the arbitrators have
determined that a material breach occurred and the breaching party fails to cure
such breach within thirty (30) days as applicable after the conclusion of such
an arbitration proceeding. The parties hereto expressly acknowledge and agree
that this Section 10.3 shall not apply to Section 2.2; breach of Section 2.2 by
UOL shall be governed by Section 2.3 and breach of Section 2.2 by InternetU
shall be governed by Section 2.4 (see Section 10.5 below). The parties hereto
expressly agree that breach by either party of its obligations under Section 5.2
shall be deemed material and may give rise to termination by the non-breaching
party if not cured as herein provided.
(b) Effect of Termination for Breach. The parties expressly
agree that the provisions of Section 10.2(b) above ("Effect of Termination for
Convenience") shall apply
14
in the event of a termination for breach pursuant to this Section 10.3 and the
non-breaching party shall have the rights of the non-terminating party as set
forth in Section 10.2(b).
10.4 Termination for Insolvency. If a voluntary or involuntary
proceeding by or against a party are instituted in bankruptcy under any
insolvency law, or a receiver or custodian is appointed for such party, or
proceedings are instituted by or against such party for corporate reorganization
or the dissolution of such party, which proceedings, if involuntary, shall not
have been dismissed within sixty (60) days after the date of filing, or if such
party makes an assignment for the benefit of creditors, or substantially all of
the assets of such party are seized or attached and not released within sixty
(60) days thereafter, the other party may immediately terminate this Agreement
effective upon notice of such termination.
10.5 Permissive Termination.
(a) In the event UOL fails to meet a milestone as set forth in
Section 2.3 and InternetU is entitled to terminate this Agreement as provided
therein, InternetU may terminate this Agreement upon the giving of written
notice thereof. The source code may then be released to InternetU subject to the
terms of the escrow agreement.
(b) In the event InternetU fails to make all or at least
$200,000 of any three required payments as set forth in Section 2.2, UOL may
terminate this Agreement as provided in Section 2.4. Such termination shall be
effective immediately upon the giving of written notice thereof and there shall
be no cure period. The source code will then be released to UOL subject to the
terms of the escrow agreement.
10.6 Other Effects of Termination.
(a) In the event of termination of this Agreement by the
mutual agreement of the parties, the parties will continue to jointly own the
source code (in such ownership amounts as provided in this Agreement) and may
pursue exploitation of such source code pursuant to such other agreements
between the parties as they may determine, consistent with the provisions of
Section 5. Only Sections 8, 9, 12.2 and 12.3 of this Agreement shall survive
such termination.
(b) In the event of termination of this Agreement pursuant to
Section 10.2 or Section 10.3 above, Sections 6, 8, 9, 12.2 and 12.3 of this
Agreement shall survive such termination.
(c) In the event of termination pursuant to Section 10.4, the
provisions of Sections 5.1 and 5.3 (as modified by Sections 2.3 and 2.4) and
Sections 6, 8, 9, 12.2 and 12.3 of this Agreement shall survive such termination
and the terminating party shall have the right, subject to applicable law, to
use the source code in a manner consistent with this Agreement and subject to
the Autodesk/UOL Agreement. If InternetU is the terminating party, the source
code may then be released from the escrow to InternetU, subject to the terms of
the escrow agreement.
(d) In the event of termination pursuant to Section 10.5, only
the provisions of Sections 5.1 and 5.3 (as modified by Sections 2.3 and 2.4) and
Sections 6, 8, 9, 12.2 and 12.3 of this Agreement shall survive.
15
10.7 Accrued Obligations. Termination of this Agreement for any reason
shall not release any party hereto from any liability which, at the time of such
termination, has already accrued to the other party or which is attributable to
such termination, nor shall it preclude either party from pursuing all rights
and remedies it may have hereunder or at law or in equity with respect to any
breach of this Agreement.
10.8 Return of Confidential Information. Upon any termination of this
agreement, InternetU and UOL shall promptly return to the other party all
confidential information received from the other party (except one copy which
may be retained for archival purposes), and shall no longer be entitled to use
any such confidential information for any purpose.
10.9 "Release Conditions". Termination of this Agreement pursuant to
Section 10.2, Section 10.3, 10.4 or 10.5 shall give rise to the release from
escrow of the source code as provided in such Sections. Each such termination
shall be a "Release Condition" as contemplated under the escrow agreement.
11. UOL INITIAL PUBLIC OFFERING
11.1 Impact of UOL Initial Public Offering. In the event UOL files with
the Securities and Exchange Commission a Registration Statement for the initial
public offering of its Common Stock (an "IPO") in 1996, payments under Section 2
shall be accelerated pursuant to the following terms:
(a) Half of the remaining payments required under Section 2
shall be due and payable to UOL upon the consummation of the IPO; and
(b) The remaining half of the payment amounts will be due and
payable four months after the consummation of the IPO.
11.2 Acceleration of Warrant Issuances. If and when payments are
accelerated, the same acceleration shall apply to the issuance of the
corresponding warrants contemplated by Section 3.
12. MISCELLANEOUS
12.1 Governing Law. This Agreement and any dispute arising from the
performance or breach hereof shall be governed by and construed and enforced in
accordance with the laws of the state of Virginia, without reference to
conflicts of laws principles.
12.2 Arbitration. Any dispute under this Agreement which is not settled
by mutual consent shall be finally settled by binding arbitration, conducted in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association by three (3) arbitrators appointed in accordance with said rules.
The arbitration shall be held in the location most convenient to the parties and
the subject matter of the dispute. The costs of the arbitration, including
administrative and arbitrator's fees, and attorneys' and witness' fees shall be
borne by the losing party. The decision of the panel shall be rendered in
writing. A disputed
16
performance or suspended performance pending the resolution of arbitration must
be completed within thirty (30) days following the final decision of the
arbitrators or within such other reasonable period as the arbitrators determine
in their written decision. Any arbitration subject to this Section shall be
completed within six (6) months from the filing of notice of a request for such
arbitration.
12.3 Financial Reports. UOL covenants and agrees that for as long as
InternetU holds securities of UOL, commencing on the date hereof:
(a) it shall furnish to InternetU as soon as practicable, and
in any event within 90 days after the end of each fiscal year of UOL, an annual
report of UOL, including an audited consolidated balance sheet as at the end of
such fiscal year and audited consolidated statements of income, stockholders'
equity and changes in financial position, together with notes thereto, for such
fiscal year, setting forth in comparative form corresponding figures for the
preceding fiscal year, all of which shall be correct and complete and shall
fairly present the financial position of UOL and any subsidiaries at the date
thereof and the results of their operations for the period then ended. The
financial statements shall be accompanied by a report thereon of nationally
recognized independent certified public accountants to the effect that such
financial statements have been prepared in accordance with generally accepted
accounting principles.
(b) it shall furnish to InternetU as soon as practicable and
in any event within 45 days after the end of each fiscal quarter, the quarterly
report of UOL and any subsidiaries, consisting of an unaudited consolidated
balance sheet as at the end of such fiscal quarter and unaudited consolidated
statements of income, stockholders' equity and changes in financial position,
together with notes thereto, for such fiscal quarter and for the fiscal year to
date, setting forth in each case in comparative form the corresponding figures
for the preceding year. All such reports shall be certified to by the chief
financial officer of UOL to be correct and complete, to fairly present the
financial condition of UOL and any subsidiaries as of the date thereof and the
results of their operations for the period then ended and to have been prepared
in accordance with generally accepted accounting principles consistently
applied, except for normal year-end adjustments.
12.4 Waiver. Neither party may waive or release any of its rights or
interests in this Agreement except in writing. The failure of either party to
assert a right hereunder or to insist upon compliance with any term or condition
of this Agreement shall not constitute a waiver of the right or excuse a similar
subsequent failure to perform any such term or condition.
12.5 Assignment. The rights, obligations, and options granted pursuant
to this Agreement shall not be assignable by either party to any third party
without prior written consent of the non-assigning party; provided, however,
that either party may assign its rights and delegate its duties hereunder to its
successor in interest by way of a reincorporation pursuant to the laws of the
state of its reincorporation. In addition, InternetU shall be permitted to make
distributions in kind of UOL securities to the stockholders of InternetU pro
rata in accordance with their ownership interests therein, provided that all
transfer restrictions applicable to InternetU shall apply to the transferees of
such securities.
12.6 Independent Contractors. The relationship of the parties hereto is
that of independent contractors. The parties are not deemed to be agents,
partners, or joint venturers
17
of the others for any purpose as a result of this Agreement or the transactions
contemplated thereby.
12.7 Notices. All notices, requests and other communications hereunder
shall be in writing and shall be personally delivered or sent by telecopy or
other electronic facsimile transmission or by registered or certified mail,
return receipt requested, postage prepaid, in each case to the respective
address specified below, or such other address as may be specified in writing to
the other parties hereto:
InternetU: InternetU, Inc.
000 Xxxxxxxx Xxxx
Xxxxxxx, Xxx Xxxxxx 00000
UOL: University Online, Inc.
000 Xxxx Xxxxx Xxxxxx, Xxxxx 000
Xxxxx Xxxxxx, Xxxxxxxx 00000
12.8 Severability. In the event that any provision of this Agreement
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall otherwise continue in full force and
effect without said provision.
12.9 Force Majeure. Non-performance of any party shall be excused to
the extent that performance is rendered impossible by strike, fire, earthquake,
flood, governmental acts or orders or restrictions, failure of suppliers, or any
other reason where failure to perform is beyond the reasonable control and not
caused by the negligence, intentional conduct or misconduct of the
non-performing party.
12.10 Complete Agreement. This Agreement, together with all Exhibits
hereto, constitutes the entire agreement, both written and oral, between the
parties with respect to the subject matter hereof, and that all prior agreements
respecting the subject matter hereof, either written or oral, expressed or
implied, are merged and canceled, and are null and void and of no effect. No
amendment or changes hereof or addition hereto shall be effective or binding on
either of the parties hereto unless reduced to writing and executed by the
respective duly authorized representatives of InternetU and UOL.
12.11 Headings. The captions to the Sections and paragraphs hereof are
not a part of this Agreement, but are included merely for convenience of
reference only and shall not affect its meaning or interpretation.
12.12 Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed to be an original and both together shall be
deemed to be one and the same agreements.
IN WITNESS WHEREOF each of the parties hereto has caused this Agreement
to be duly executed by their authorized representatives and delivered in
duplicate as of the date first written above.
InternetU, Inc. University Online, Inc.
18
By: ______________________________ By: __________________________________
Name: ____________________________ Name: ________________________________
Title: ___________________________ Title: _______________________________
19
This is to confirm our mutual understanding that, as a result of the filing of
the registration statement by UOL with the SEC, the schedule of payments under
Section 2.2 of the Project Financing and Development Agreement with InternetU is
modified in accordance with Section 11.1 of the Agreement (the "Agreement").
Accordingly, assuming that UOL meets all the milestones and other conditions
under the Agreement such that the total payments which may be made under the
Agreement are $1,550,000, and assuming that the IPO is consummated prior to the
third milestone date, then, subject to the terms set forth below, the total
amount which may be paid by InternetU as of the consummation of the IPO
(including any payments made prior thereto in accordance with the Agreement)
shall be $775,000, with the balance due four months following the IPO closing.
The foregoing shall not affect the other terms of the Agreement, including the
obligations of UOL to satisfy its milestones. In event UOL fails to satisfy any
of the milestones required to be satisfied by it prior to the consummation of
the IPO, the amount which may be paid by InternetU upon such consummation of the
IPO will be appropriately reduced to reflect the missed milestone. At such time
as the milestone is satisfied, in accordance with the Agreement, the related
payment terms of the Agreement will apply. In addition, UOL must satisfy any
milestones remaining prior to the date on which the final payment after the IPO
shall be due. The final payment shall not be due until all of the milestones
have been completed. If UOL has not satisfied any of its milestones scheduled
for completion subsequent to the consummation of the IPO, the four month period
shall be extended for the same amount of time that the successful completion of
the milestone is delayed.
In addition, nothing set forth herein shall affect the rights of InternetU under
the Agreement, including its right to approve milestone changes and its ability
to make a partial payment of $200,000 in connection with any specific funding
obligation. UOL must accept such payment and grant InternetU the relevant
warrants and other proportionate rights to the revenue stream and source code.
The ability of InternetU to make a partial payment shall apply to all required
payments including those due in connection with the IPO.
Except as set forth above, there are no other changes or modifications to the
Agreement.
If the foregoing is in accordance with your understanding, kindly so indicate by
signing the acknowledgment below and returning a copy.
Sincerely,
/s/ Xxxx Xxxxxx
Xxxx Xxxxxx
Acknowledged & Agreed
UOL Publishing, Inc.
By:
------------------------------------
Name:
------------------------------------
Title:
------------------------------------
Date:
------------------------------------
000 Xxxxxxxx Xxxx Tel: (000) 000-0000
Xxxxxxx, XX 00000 Fax: (000) 000-0000
INTERNETU, INC.
October 29, 1996
Xxx Xxxxxx
UOL Publishing, Inc.
000 Xxxx Xxxxx Xxxxxx
Xxxxx Xxxxxx, XX 00000
Dear Nat:
At this time we would like to take the opportunity to confirm our discussion
regarding the extension of the certain payments due under the Project Financing
Agreement, as amended. As discussed, any payments otherwise due prior to
December 15, 1996, shall not be due, (subject to the terms of the Project
Financing Agreement, as amended) until December 15, 1996 and shall be deemed
timely made if made on such date. Accordingly, if the UOL IPO becomes effective
prior to December 15, 1996, the amount to be paid by InternetU to UOL shall be
$775,000 subject to completion by UOL of the milestones and other terms as
stated in the Project Financing Agreement, as amended. If the UOL IPO is not
effective by December 15, 1996 the amount due shall be $600,000 subject to
completion by UOL of the milestones and other terms as stated in the Project
Financing Agreement, as amended.
In either case, a partial payment of at least $200,000 by InternetU on December
15, 1996 will not afford UOL with a right of termination under section 10.5 of
the Project Financing Agreement, as amended. All provisions of the Project
Financing Agreement, as amended, shall apply to the December 15, 1996 payment as
if it were one milestone payment.
InternetU, Inc.
/s/ Xxxx Xxxxxx
----------------------
Xxxx Xxxxxx, Treasurer
ACKNOWLEDGED AND AGREED
UOL Publishing, Inc.
------------------------
(Name)
By: Xxxxxxx X. Xxxxxxxx
-------------------
Title: CFO
------------------
