EXHIBIT 10.24
ORDER FULFILLMENT AGREEMENT
This Order Fulfillment Agreement (this "Agreement") is entered into
effective as of February 1, 1998, by and between N2K Inc. ("N2K"), and Sound
Delivery ("Sound Delivery"), a division of Valley Record Distributors, Inc.
("VRD").
BACKGROUND
A. VRD has created a database known as "Audiofile" which contains
information regarding pre-recorded music and music related products ("Music
Products").
B. Sound Delivery provides to various retailers direct-to-consumer order
fulfillment services, pursuant to which Sound Delivery provides, packs and ships
such products to the retailer's customers.
C. N2K maintains on the World Wide Web an "online music store" presently
known as "Music Boulevard" through which it sells Music Products to consumers.
AGREEMENT
Subject to the terms and conditions set forth below, the parties agree as
follows:
1. Audiofile. Upon execution and delivery of this Agreement, the parties will
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execute and deliver a license agreement substantially in the form attached
hereto as Exhibit A (the "Audiofile License"), pursuant to which Sound Delivery,
for the term of this Agreement, shall provide to N2K a full copy of the
Audiofile database, including updates thereto, as provided in and subject to the
Audiofile license.
2. Electronic Data Interchange ("EDI").
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(a) Sound Delivery Obligations. Sound Delivery shall:
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(1) make commercially reasonable efforts to provide a daily status
file reporting "Stock on Hand" in electronic format on the VRD bulletin board
system;
(2) provide and maintain reasonable access to its database, ordering
and other systems and provide technical support and assistance so as to maintain
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substantially uninterrupted, reasonable and efficient interfaces for support of
the services described herein;
(3) provide reasonable technical and operational support for N2K's
development and operation of N2K's EDI interface for fulfillment services under
this Agreement;
(4) notify N2K promptly in advance of any planned changes to the EDI
Reference Specifications (as defined in Section 2(b)(1) below);
(5) refrain from disclosing any transaction information regarding
N2K except as necessary to perform its obligations under this Agreement; and
(6) retain EDI order information for at least four (4) months after
receipt thereof.
(b) N2K Obligations. N2K shall:
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(1) use commercially reasonable efforts to comply in all respects
with the EDI specifications and guidelines previously provided by Sound Delivery
to N2K (the "EDI Reference Specifications"), as may be amended by Sound Delivery
from time to time pursuant to Section 2(a)(4) above; and
(2) use commercially reasonable efforts to maintain its modes of
electronic access and transmission as necessary for each party to perform its
obligations under this Agreement.
(c) Mutual Obligations. Each party shall use commercially reasonable
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efforts to maintain the security of EDI and other transaction related
information.
3. Exclusive Services.
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(a) Exclusivity. Except as set forth in Sections 3(b), 5(e)(4) and 8
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below, during the term of this Agreement, Sound Delivery shall be the exclusive
provider to N2K of Music Products and related order fulfillment services;
provided, however, that N2K may utilize third parties as sources for Music
Products not available through Audiofile or otherwise through Sound Delivery,
provided that N2K has given Sound Delivery 30 days notice of its intention to do
so and Sound Delivery fails to make the specified Music Product available by the
end of such period.
(b) Limitation on Exclusivity. Notwithstanding Section 2(a) above, N2K
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may purchase up to twenty percent (20%) of its music products (based on the
price paid for such purchases) during any quarter from third parties. Prior to
purchasing music products from a third party under this Section 3(b), N2K first
will inform
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Sound Delivery of its intent to purchase any particular SKUs from a third party
and the price to be paid for each SKU and related fulfillment services. In the
event that Sound Delivery offers to sell such products to N2K at the same or
lesser price than that offered by the third party, N2K shall purchase such
products from Sound Delivery pursuant to the terms and conditions (other than
price) of this Agreement.
4. Music Product Pricing.
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(a) Music Product Prices. Sound Delivery agrees to sell and N2K agrees
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to purchase Music Products at the rates set forth on Exhibit B attached hereto
(the "Base Price"). Music Product prices may be updated by VRD from time to
time, effective upon written notice to N2K of such changes; provided, however,
that the revised Base Prices shall reflect at least an eight percent (8%)
discount from VRD's then published base wholesale cost.
(b) One-Time Rebate. Upon execution of this Agreement, VRD will pay or
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credit to N2K the sum of $250,000; provided, however, that such rebate shall be
repaid to VRD in the event that N2K breaches its obligations regarding
exclusivity under Section 3 above. The parties acknowledge and agree that the
foregoing provision regarding repayment of the rebate is reasonable under the
circumstances in existence at the time of execution of this Agreement.
5. Order Placement and Fulfillment.
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(a) Transmission. N2K will transmit all orders for products under this
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Agreement in compliance with the EDI Reference Specifications. In addition, N2K
will use commercially reasonable efforts to aggregate and transmit its orders to
Sound Delivery in batches.
(b) Fulfillment.
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(1) "Priority Orders" are those orders being shipped domestically
via Federal Express or Airborne Express. Priority Orders received on any
business day by 8:00 am Pacific Time will be shipped on the same day. On any
business day that Sound Delivery receives Priority Orders from N2K at both 8:00
am Pacific Time (or earlier) and 11:00 am Pacific Time (or earlier), it will use
commercially reasonable efforts to ship both batches of orders that same
business day. In all other cases, Priority Orders received after 11:00 am
Pacific Time will shipped the following business day.
(2) "Standard Orders" are those orders being shipped domestically
via carriers other than Federal Express or Airborne Express and orders being
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shipped internationally. On any business day that Sound Delivery receives
Standard Orders from N2K by 1:00 p.m. Pacific Time (or earlier), it will use
commercially reasonable efforts to process the orders the same business day.
Standard Orders received after 1:00 p.m. Pacific time will be deemed received
the next day and Sound Delivery will use commercially reasonable efforts to ship
these orders the next business day.
(c) Reporting. Sound Delivery shall provide N2K with reports and
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information regarding order status as set forth in the EDI Reference
Specifications.
(d) Pre-Orders.
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(1) N2K shall collect pre-orders until four days prior to the date
that a Music Product is first to be made available to consumers (the "street
date"), at which point such pre-orders will be forwarded in a separate batch to
Sound Delivery on the date and time of day required by Sound Delivery.
(2) Sound Delivery shall ship all pre-orders no later than street
date minus one day, provided Sound Delivery has received the new release
title(s) from the label/distributor of such new release(s) in time for
processing.
(3) If a street date is delayed, N2K will be responsible for
holding the pre-orders until four (4) days before the new street date.
(e) Back-Orders.
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(1) Sound Delivery shall ship the in-stock items of an order as
set forth in this Agreement and, except as set forth in this Section 5(e), will
cancel the out of stock items.
(2) N2K may elect to have Sound Delivery hold an order that has
one or more items out of stock until it is completely fulfilled by typing a "Y"
in the ship "complete" field of the EDI inbound specifications. N2K may inform
Sound Delivery from time to time of the number of days, up to a maximum of 25
days (the "Hold Period"), that Sound Delivery is to hold such "ship complete"
orders before shipping the available products and canceling the out of stock
products.
(3) In the event that all products included in an order are out of
stock, Sound Delivery will hold the order for the Hold Period before canceling
the order (subject to prior cancellation of such order by N2K).
(4) In the event that any ordered product remains out of stock for
more than 25 consecutive days, N2K may have such order filled by a third party.
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6. Shipping.
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(a) Risk of Loss. All shipments under this Agreement shall be F.O.B.
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VRD's shipping facility. Title and risk of loss with respect to all orders and
products shipped by Sound Delivery or VRD under this Agreement shall pass to N2K
or its customers upon delivery of the products to the carrier at the point of
shipment.
(b) Choice of Carrier. Sound Delivery will use commercially reasonable
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efforts to ship the order with the requested carrier and will cancel any order
for which the delivery address is not serviced by the indicated carrier.
(c) Shipping Costs. Sound Delivery will invoice N2K customers at such
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rates as are requested by N2K. N2K will pay Sound Delivery shipping costs per
the shipping tables previously provided by Sound Delivery to N2K (as amended
from time to time by Sound Delivery). Sound Delivery will provide N2K written
notice of shipping rate changes and the effective date of such changes.
(d) Damaged and Lost Shipments. In the event of shipping damage or
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orders lost in shipment, Sound Delivery will assist in filing a claim on behalf
of N2K for those orders shipped with an insured carrier, and will credit N2K
with any amounts actually received by or credited to Sound Delivery in
connection with such claim.
7. Fulfillment Fees.
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(a) Packing and Handling Fees. N2K will pay Sound Delivery the following
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fees for each order fulfilled hereunder:
All Products: $.65 per order including the first unit, plus
$.25 per unit after the first unit.
International Surcharge: $0.45 per order shipped to an international
destination (any order shipped to any non-
U.S. or U.S. territory destination).
(b) Paper Inserts. N2K will pay a fee of $.03 per paper insert packed by
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Sound Delivery in products shipped under this Agreement. N2K shall supply
required paper inserts at no cost to Sound Delivery. For purposes of this
paragraph, paper inserts must be lightweight, paper-based, promotional items the
same size or smaller than a standard single CD, or pre-folded to such size.
(c) Merchandise Inserts. If N2K desires to include promotional inserts
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other than the paper inserts described in the preceding paragraph ("Merchandise
Inserts") in its orders, N2K shall supply, at no cost to Sound Delivery, such
Merchandise Inserts to be included in N2K orders. Sound Delivery will receive,
warehouse, inventory and pack merchandise inserts for a mutually agreed upon fee
after a sample of the Merchandise Insert is received and reviewed for packing
and shipping requirements.
(d) Bar Codes on Inserts. A unique UPC bar-code is required for each
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paper or merchandise insert. N2K should purchase and apply a proprietary
barcode on all inserts. At N2K's request, Sound Delivery will create and apply
a barcode for a fee of $.08 per applied bar-code.
(e) Custom Box Stickers. At N2K's request, Sound Delivery will attach
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custom stickers to the outside of the shipping box at a cost of $.05 per sticker
per order. N2K shall supply required stickers at no cost to Sound Delivery.
(f) Promotional CDs. Any CDs packaged in paper sleeves that are shipped
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free of charge to customers at N2K's direction will be inserted into N2K
shipments for a fee of $.03 per unit. The fees for any such CD packaged in a
jewel box shall be as otherwise set forth in this Agreement for non-promotional
merchandise.
8. Segregated Inventory. Products held in inventory on N2K's behalf and at
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its request pursuant to this Section 8 are referred to in this Agreement as
"Segregated Inventory." Risk of loss and ownership of Segregated Inventory shall
remain with N2K or its customers at all times. N2K will pay a product management
fee of $.50 per Segregated Inventory unit received by Sound Delivery in addition
to any applicable fulfillment and other fees under this Agreement with respect
to such products and Sound Delivery's services in connection therewith. At no
time may Segregated Inventory exceed 50 SKUs or a two month supply of any
particular SKU.
(a) N2K Encoded Music. N2K will provide Sound Delivery with Segregated
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Inventory of product owned or distributed by N2K's "Encoded Music" label for
Sound Delivery to fulfill orders for such product under this Agreement. VRD
will continue to purchase any Encoded Music product required for its one-stop
and distribution business from N2K's designated Encoded Music distributor. N2K
may audit Encoded Music Segregated Inventory up to two times per calendar year,
such audit to be performed at N2K's expense, on reasonable notice and without
undue disruption to Sound Delivery's or VRD's business. N2K will be credited
for any inventory discrepancy found in such audit to the extent such discrepancy
exceeds one percent (1%) of the aggregate Encoded Music Segregated Inventory
held by VRD during the twelve (12) month period preceding
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such audit, such credit to be at a price not to exceed VRD's cost for such
product from the designated distributor of Encoded Music products.
(b) Standard Product. At N2K's request, Sound Delivery will inventory a
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reasonable amount of "standard product" (i.e., single or full length CDs or
cassettes, or single VHS) for N2K as Segregated Inventory.
(c) Direct Purchases. N2K may purchase product direct from manufacturers
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which is available direct through Audiofile or otherwise through Sound Delivery
and treat such product as Segregated Inventory; provided such product is
"standard product" as defined above; and provided further that Direct Purchases
must be purchased by N2K in minimum lots of 3,500 units per SKU and the price
paid by N2K for any Direct Purchase must be at least $1.00 per disc (i.e., $2.00
for a CD containing two discs) less than the price then paid by Sound Delivery
for the same product. VRD shall be entitled to purchase from N2K any Direct
Purchase product that N2K would otherwise return to the applicable supplier, at
the price N2K would have received from such supplier for the returns. If, from
time to time, N2K desires to make a Direct Purchase of any SKU in a quantity of
less than 3,500, the parties will attempt in good faith to negotiate a mutually
acceptable business arrangement in connection with such purchase.
(d) Bar Codes on Segregated Inventory. A UPC bar-code is required for
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each item of Segregated Inventory. N2K should purchase and apply a proprietary
bar-code on all Segregated Inventory. At N2K's request, Sound Delivery will
create and apply a bar-code for a fee of $.08 per applied bar-code.
9. Co-op Advertising. In the event that N2K secures co-op advertising
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commitments from manufacturers for products purchased or to be purchased by
Sound Delivery or VRD under this Agreement, N2K will remit thirty percent (30%)
of such advertising funds to Sound Delivery. Neither Sound Deliver nor VRD will
be entitled to share in any co-op advertising commitments N2K secures from
manufacturers if Sound Delivery (or VRD) does not (1) participate in the
securing of such advertising, or (2) make a special purchase of product in
conjunction with the securing of such co-op advertising commitment.
10. Imperfect Shipments and Product Returns.
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(a) Sound Delivery Obligations. Under the following circumstances, Sound
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Delivery will reship orders at no additional cost or credit N2K the appropriate
invoice cost less earned discount, as applicable:
(1) except as otherwise herein provided, upon the return of
defective CDs and cassettes;
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(2) in the event that items are listed on the applicable invoice and
reported by customers as not received; and
(3) in the event of returns due to items shipped that do not
correspond to the applicable N2K order (i.e., product received by customer but
not ordered for such customer.
Provided, however, that with respect to orders to reship under this
Section 10(a), N2K must properly include in such order the replacement order
"source" code specified by Sound Delivery from time to time.
(b) N2K Obligations: Under the following circumstances, N2K may elect to
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reorder at its own expense or return the order for a credit equal to the Base
Price paid, excluding fulfillment and other fees.
(1) "buyers remorse" (i.e., customer does not want item or ordered
wrong item);
(2) returns due to an address supplied incorrectly to Sound
Delivery; and
(3) returns due to refused delivery.
(c) Restocking and Refurbishment Fees. Except as set forth in Section
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10(a) above, Music Retailer will pay a fifteen percent (15%) re-stocking fee for
all returned items. In addition, Music Retailer will pay a $0.35 per unit
refurbishment fee for all returned items that have been opened.
(d) Restricted Returns. Sound Delivery will not accept for return:
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accessories, blank tape, any vinyl Products (including, without limitation, LPs
and 12" singles), Imports, Limited Editions, Products identified in Audiofile as
nonreturnable, Record Club, Promotional (free product give-a-ways), Counterfeit
Product and product without the original artwork or liner notes or Product with
a Last Customer Return Date (as defined in the Audiofile documentation) prior to
the date the returned Product is received by Sound Delivery from N2K. In
addition, Sound Delivery does not accept returns of defective Sony, UNI, WEA or
PGD Cds, or defective PGD cassettes, or any PGD cassettes that do not have their
original wrapper intact. For purposes hereof, "defective" means Product
returned with the top spine label or original manufacturer's "dog-bone"
holographic sticker removed or cut in any way.
(e) Rejected Returns. Non-returnable merchandise (i.e., items described
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in Section 10(d) above) received by Sound Delivery will be shipped to N2K at
N2K's
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expense as rejected returns. N2K will be charged a processing fee of $1.00 per
rejected return.
(f) Returns Policy. Sound Delivery reserves the right, from to time, to
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modify its return policies, which modifications shall be effective upon receipt
by N2K of written notice thereof; provided, however, that any such modification
shall be applicable to Sound Delivery's similarly situated customers generally
and imposed in response to modifications to the return policies of Sound
Delivery's suppliers.
11. Billing and Payment.
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(a) Invoices and Account Reconciliation. Sound Delivery will provide N2K
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with a monthly invoice and account reconciliation by the 15th of the fiscal
month following the fiscal month in which the transaction occurred and are due
and payable on the 25th of the such fiscal month.
(b) Timely Payment Discounts. Amounts invoiced as owed by N2K to Sound
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Delivery include a two percent (2%) discount for timely payment. This discount
will be revoked and charged back to N2K for invoices not paid by the due date.
(c) Past-due Amounts. N2K agrees to pay interest on amounts more than 30
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days past due at the lesser of 1.5% per month or the highest rate allowed by
law, such interest to accrue from the invoice date. Sound Delivery in its sole
discretion may refer to an agency or an attorney for collection any past due
amount, and N2K will be liable for the payment thereof and all costs and
expenses incident thereto, including reasonable attorneys' fees.
12. Proprietary Rights.
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(a) Confidential Information. Each party acknowledges that, in the course
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of dealings between the parties, each party may acquire information, identified
as confidential, about the other party or the other party's customers, their
business activities and operations, and their technical information and trade
secrets, of a highly confidential and proprietary nature. The party that
acquires such information will hold it in strict confidence and will not use
such information except as reasonably necessary to perform its obligations under
this Agreement or disclose the same to third parties except for any information
generally available to or known to the public, independently developed outside
the scope of this Agreement, lawfully disclosed by a third party, or required to
be disclosed to a tribunal, provided that in the case of required disclosures to
tribunals, the party will use commercially reasonable efforts to obtain
protective orders maintaining the confidentiality of such information.
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(b) Audiofile Database. The rights to intellectual property related to
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the Audiofile database are governed by the Audiofile License.
(c) No Rights to Marks. Each party is hereby granted no right in or to
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the other party's Marks. "Marks" means the trademarks, service marks, trade
names or other marks, registered or otherwise, used by either Sound Delivery or
N2K, as applicable.
13. Termination.
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(a) Term. Except as set forth in Section 15(a) below, the term of this
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Agreement begins on the date this Agreement is executed and delivered by both
parties and expires two years after such date; provided, however, that this
Agreement shall automatically be renewed for subsequent one year terms unless
one party notifies the other at least 90 days prior to the expiration of the
initial term or any subsequent one year term of its intent not to renew this
Agreement upon the expiration of such term.
(b) Early Termination. This Agreement may be terminated upon thirty (30)
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days' written notice under the following conditions:
(1) by Sound Delivery, if it discontinues fulfillment services to
on-line services;
(2) by N2K, if it discontinues the sale of pre-recorded music; or
undergoes a change of control;
(3) by N2K, if VRD, or any wholly-owned subsidiary of VRD, enters
into the business of marketing music product directly to consumers through the
Internet, or makes an equity investment in any direct competitor of N2K.
Notwithstanding the foregoing, VRD may own 5% or less of any class of
outstanding securities of an entity whose securities are listed on a national
securities exchange or traded on NASDAQ.
(4) by either Sound Delivery or N2K, if such party delivers to the
other party a 30-day written notice of termination for a material breach of this
Agreement, provided such breach was previously identified in a written notice
and the other party did not cure such breach within 30 days.
(5) For purposes of this Section 13(b), a "change of control" shall
mean: (i) the acquisition by any person, or two or more persons acting in
concert, of beneficial ownership (within the meaning of Rule 13d-3 of the
Securities and Exchange Commission under the Securities Exchange Act of 1934, as
amended) of 25% or more of the outstanding voting shares of N2K; or (ii) the
failure of Xxxxx
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Xxxxx, Xxxx Xxxxxx and Xxx Xxxxxxx collectively to beneficially own, free and
clear of liens or other encumbrances, at least 20% of the outstanding voting
shares of N2K on a fully diluted basis; or (iii) a consolidation or merger or
N2K with or into another corporation or corporations (in any transaction in
which (A) the stockholders of N2K are to receive cash., securities or other
consideration in exchange for the shares of capital stock of N2K then held by
them and (B) the stockholders of N2K do not maintain control of the corporation
or corporations which, survive such consolidation or merger) or the sale of all
or substantially all of the assets of N2K to a third party or parties.
14. Limitation of Remedies and Exclusion of Warranties. IN NO EVENT SHALL
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EITHER PARTY BE LIABLE TO THE OTHER PARTY FOR LOST PROFITS, OR FOR
CONSEQUENTIAL, SPECIAL, EXEMPLARY, PUNITIVE, INCIDENTAL, OR INDIRECT DAMAGES,
WHETHER OR NOT SUCH PARTY HAS BEEN ADVISED OF THEIR POSSIBILITY AND REGARDLESS
OF THE FORM OF ACTION. NEITHER SOUND DELIVERY NOR VRD MAKES ANY EXPRESS OR
IMPLIED WARRANTIES WITH RESPECT TO PRODUCTS SOLD UNDER THIS AGREEMENT AND
DISCLAIMS ANY SUCH WARRANTIES, INCLUDING ANY REAPPLIED WARRANTY OF
MERCHANTABILITY AND FITNESS FOR PURPOSE.
15. GENERAL
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(a) Annual Review. Commencing February 1999 and each January
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thereafter during the term of this Agreement, VRD shall review in good faith the
fees set forth in this Agreement to assess whether such fees are competitive
with those charged by Sound Delivery to similarly situated customers for
services similar to those provided under this Agreement. In the event that VRD
determines that during the preceding year it entered into any agreement for such
services on terms more favorable to a customer than those provided to N2K
hereunder, VRD will adjust the applicable fees charged hereunder retroactive to
the date it commenced rendering services at the more favorable rate to the other
customer; provided, however that as a condition to availing itself of the more
favorable terms, N2K must agree to assume any additional obligations imposed
upon such third party customer, including, without limitation, volume
commitments, exclusivity, etc.
(b) Survival. Sections 12 and 14 hereof will survive any expiration or
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termination of this Agreement.
(c) Notice. All notices, other than those related to product pricing,
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ordering and fulfillment, shall be in writing and delivered by certified mail,
postage prepaid and return receipt requested, or transmitted either by facsimile
or electronic mail if confirmed by such mailing, to the addresses provided in
writing from time to time by the parties.
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(d) Entire Agreement; Amendments. This Agreement constitutes the entire
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agreement of the parties concerning the subject matter hereof, superseding all
prior proposals, negotiations and agreements concerning the subject matter of
this Agreement. No representation or promise relating to and no amendment of
this Agreement will be binding unless it is in writing and signed by authorized
representatives of both parties.
(e) Assignment. This Agreement may not be assigned or otherwise
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transferred by N2K to a third party without the prior written consent of Sound
Delivery. Subject to the foregoing, this Agreement will bind and inure to the
benefit of the successors and permitted assigns of Sound Delivery and N2K.
(f) Relationship of the Parties. Sound Delivery and N2K are independent
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parties, and nothing in this Agreement shall be construed as constituting Sound
Delivery and N2K as partners, joint venturers, or as creating the relationships
of employer and employee, franchiser and franchisee, master and servant,
principal and agent, or any other form of legal association that would impose
liability on one party for the act or failure to act of the other party.
(g) Governing Law; Captions; Waiver; Etc. This Agreement will be
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governed by and construed in accordance with the laws (excluding the laws of
choice or conflicts of laws) of the State of California. The captions appearing
in this Agreement are inserted only as a matter of convenience and in no way
define, limit, construe or describe the scope or interpretation of this
Agreement. No waiver by a party of any breach of any provision of this Agreement
will constitute a waiver of any other breach of that or any other provision of
this Agreement. In the event that any of the provisions contained in this
Agreement are held to be unenforceable, such provisions will be narrowed (or
deleted if necessary) to the minimum extent necessary to make them enforceable.
(h) Attorneys' Fees. In the event of any dispute or controversy arising
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out of this Agreement, the prevailing party shall be entitled to reimbursement
of its costs, including court and arbitration costs and reasonable attorneys'
fees and expert witnesses' fees and costs.
The parties hereto have executed this Agreement on January 23,1998.
SOUND DELIVERY, a division of N2K INC.
VALLEY RECORD DISTRIBUTORS, INC.
By: [SIGNATURE ILLEGIBLE] By: [SIGNATURE ILLEGIBLE]
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Its: C.E.O. Its: Pres.
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