MANAGEMENT AGREEMENT
THIS MANAGEMENT AGREEMENT is made and entered into as of March __, 2000,
among Jenkon International, Inc., a Delaware corporation ("Jenkon"), Jenkon
International, Inc., a Washington corporation ("Xxxxxx Xxxxxxxxxx"), Summit V,
Inc., a Washington corporation ("Summit V"), and JIA, Inc., a Washington
corporation ("JIA"), with respect to the following facts:
A. JIA, Summit V, Xxxxxx Xxxxxxxxxx, and Jenkon have entered into a
Stock Purchase Agreement, of even date herewith (the "Stock Purchase
Agreement"), pursuant to which JIA has agreed to acquire, among other things,
all of the outstanding stock of Summit V.
B. Summit V's business consists of the design, development, marketing
and sale of software solutions for the direct sales industry and related
operations (the "Business").
C. This Agreement is entered into by Summit V, JIA, Xxxxxx Xxxxxxxxxx,
and Jenkon pursuant to the terms of the Stock Purchase Agreement and provides
for management of the operations of the Business by JIA during the term of this
Agreement on the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual promises, covenants and
agreements herein, and intending to be legally bound hereby, the parties agree
as follows:
1. DEFINITIONS: The following terms have the meanings given to them
below:
(a) "COMMENCEMENT DATE" means the date of this Agreement.
(b) "INTERIM PERIOD" means the period commencing on the Commencement
Date and ending on the Termination Date.
(c) "CASH RECEIPTS" means all money received by JIA (directly or
through its role as manager of the Summit V) relating to the operation of the
Business during the Interim Period, including money received from collection of
accounts receivable arising prior to or during the Interim Period.
(d) "CASH DISBURSEMENTS" means all expenses incurred and money spent
by Summit V (whether financed through Cash Receipts or other capital resources
of Summit V or through advances from JIA) relating to the liabilities or
obligations of Summit V or the operation of the Business during the Interim
Period.
2. TERM OF AGREEMENT; TERMINATION.
(a) The term of this Agreement shall commence on the date of this
Agreement and shall continue until terminated (the "Termination Date") as set
forth below. This Agreement shall terminate on the earliest to occur of the
following:
(i) the closing of the sale of Summit V stock contemplated by
the Stock Purchase Agreement (the "Closing") or the termination of the Stock
Purchase Agreement prior to Closing, or
(ii) the mutual written consent of the parties hereto to
termination of this Agreement, or
(iii) by Jenkon or JIA, as the case may be, in the event that
the other party materially breaches the terms of this Agreement, or
(iv) by Jenkon in the event that the disinterested members of
the Board of Directors of Jenkon makes a good faith determination that JIA has
mismanaged the operation of Summit V's business in a manner that has or is
reasonably likely to have a material adverse effect on Jenkon and (1) Jenkon has
given notice of the nature of such mismanagement to JIA and (2) such
mismanagement, to the extent curable, has been cured by JIA within five (5)
business days of receipt of notice; provided, however, Jenkon may not terminate
this Agreement pursuant to this clause (iv) in the event that Jenkon, within
five (5) business days of the notice of mismanagement, receives reasonable
assurances from JIA that JIA is prepared and able to close. Such assurances from
JIA are to take the form of a written representations from JIA and its officers
as to JIA's willingness and ability to close within such time frame and which
assurances shall be supported by such objective proof of JIA's ability to close
as Jenkon may reasonably require.
(v) by Jenkon or Summit V if JIA shall commence any cause,
proceeding or other action (A) under any existing or future law of any
jurisdiction, domestic or foreign, relating to bankruptcy, insolvency,
reorganization or relief of debtors, seeking to have an order for relief entered
with respect to them, or seeking to adjudicate them a bankrupt or insolvent, or
seeking reorganization, arrangement, adjustment, winding-up, liquidation,
dissolution, composition or other relief with respect to their debts, or (B)
seeking appointment of a receiver, trustee, custodian or other similar official
for JIA or for all or any substantial part of the assets of JIA; if JIA shall
make a general assignment for the benefit of creditors; if there shall be
commenced against JIA any case, proceeding or other action of a nature referred
to in clause (i) above with (A) results in the entry of an order for relief or
any such adjudication or appointment or (B) remains undismissed, undischarged or
unbonded for a period of sixty (60) days; or if there shall be commenced against
JIA any case, proceeding or other action seeking issuance of a warrant of
attachment, execution, distraint or similar process against all or any
substantial part of its assets, which results in the entry of an order for any
such relief which shall not have been vacated, discharged, or stayed or bonded
pending appeal within thirty (30) days from the entry thereof.
3. MANAGEMENT OF BUSINESS.
(a) APPOINTMENT OF JIA AS MANAGER. Summit V and Jenkon hereby
appoint and retain JIA to supervise, direct and control the day-to-day operation
and management of the Business during the Interim Period upon the terms and
conditions set forth herein. The services to be provided by JIA pursuant to this
Agreement shall include, but shall not be limited to, the management,
administrative and support services set forth on EXHIBIT A of this Agreement.
(b) STANDARD OF OPERATION. JIA shall manage and operate the Business
in a commercially reasonable manner and shall be subject to and agrees to
operate under the same standard of care, duties and legal obligations as are
applicable to officers and directors of corporations under Delaware law. JIA
agrees to comply with all applicable laws, rules and regulations in connection
with the operation of the business (except where non-compliance could not have a
material adverse effect on the Business or the financial condition of Summit V
or Jenkon. Subject to the foregoing standard and the limitations on the powers
of JIA described in this Agreement, JIA's powers and authority shall include,
but shall not be limited to:
(i) the collection of accounts receivable (including any
reasonable discounting of the same consistent with past practices);
(ii) the compromise or settlement of accounts payable
(consistent with past practices);
(iii) the hiring, supervising, directing the work of, promoting,
discharging and determining the compensation and other benefits of all personnel
working in the Business; and
(iv) the ability to enter into such service, supply, development
and other contracts or agreements as are in JIA's reasonable judgment necessary
for the operation of the Business; provided, however, that the terms of such
contracts and agreements (including the terms of any warranty or service
obligations by Summit V) shall be consistent with the terms of Summit V's
historical contracts and agreements of similar size and type and, in all cases
other than customer support and service agreements, shall be terminable by
Summit V, without liability, on not more than 30 days notice.
(c) COVENANTS OF JIA REGARDING OPERATIONS. JIA covenants and agrees
that during the Interim Period,
(i) it shall maintain the assets of the Business in good
condition and repair consistent with past practices, including, without
limitation, all necessary repairs and replacements of hardware and other
equipment used in connection with the Business;
(ii) its shall cause Summit V to keep in existence all policies
of insurance insuring the Business and the assets and the operation thereof
against liability and property damage, fire and other casualty during the
Interim Period, consistent with the policies currently maintained by Summit V
and/or Jenkon;
(iii) to the extent that JIA elects to terminate any employees
of Summit V, such termination(s) shall be made in accordance with applicable law
after consultation with the acting head of human resources of Summit V
(currently Xxx X'Xxxx) and only after Xxxxx Xxxxxxx or any other representative
of Jenkon designated by Xxxxx Xxxxxxx shall have approved such termination. Such
termination shall be made by JIA in accordance with applicable federal or state
employment law; and
(iv) JIA agrees that Jenkon or its designated representatives
shall be provided full and complete access, during normal business hours upon
reasonable notice (which shall, in no case, be required to be more than 24 hours
in advance), to all information, documentation and physical premises maintained
by JIA in connection with the Business or the management thereof;
(v) it shall assemble and maintain all financial accounting
records, controls and systems of Summit V in the manner currently assembled and
maintained and agrees to fully cooperate (without charge to Jenkon or Summit V)
with the preparation of any audit, review or other financial information or
statements reasonably required by Jenkon, it being understood that any failure
to do so would cause Jenkon irreparable harm. In this regard, JIA agrees to
maintain Summit V's financial records during the Interim Period in a manner
consistent with the requirements of a publicly-traded company that is required
to file periodic reports with the Securities and Exchange Commission under the
Securities Exchange Act of 1934, as amended (the "Exchange Act").
(vi) JIA understands that Jenkon is a reporting company under
the Exchange Act and, as such, has certain obligations under the Exchange Act
and under the rules and regulations of the Nasdaq Stock Market that are
applicable to the operation of the Business during the Interim Period. JIA
agrees to take all steps reasonably necessary in order to enable Jenkon to
comply with such obligations.
(d) ADDITIONAL COVENANTS OF JIA REGARDING BUSINESS. During the
Interim Period, unless Jenkon shall otherwise agree in writing (as evidenced by
the written consent of Xxxxx Xxxxxxx or any independent member of the Board of
Directors of Jenkon), which shall not be unreasonably withheld, JIA shall:
(i) conduct the Business in the ordinary and usual course of
business and consistent with past practice;
(ii) not purport to issue, sell, pledge or dispose of, or agree
to issue,
sell, pledge or dispose of, any shares of, or any options, warrants or rights of
any kind to acquire any shares of the capital stock of Summit V or any class or
any debt or equity securities convertible into or exchangeable for such capital
stock, it being expressly agreed that JIA shall have no power to authorize the
issuance of any securities on behalf of Summit V;
(iii) not cause Summit V to (1) incur or become contingently
liable with respect to any indebtedness for borrowed money other than trade
payables incurred in the ordinary course of business, (2) redeem, purchase,
acquire or offer to purchase or acquire any shares of capital stock of Summit V,
Jenkon or any other company, or any options, warrants or rights to acquire any
such shares, (3) make any acquisition of any assets or businesses other than
expenditures for current assets in the ordinary course of business and
expenditures for fixed or capital assets in the ordinary course of business, (4)
sell, pledge, dispose of or encumber any material assets or businesses other
than sales of businesses or assets in the ordinary course of business, or (5)
renew, extend, modify or enter into any real property (or office) lease on
behalf of Summit V (it being understood that JIA intends to negotiate and enter
into its own lease with the current landlord for the corporate headquarters of
Summit V);
(iv) confer with Xxxxx Xxxxxxx or any person designated by Xxxxx
Xxxxxxx to report operational matters of materiality and the general status of
ongoing operations;
(v) not (1) cause Summit V to acquire (including, without
limitation, by merger, consolidation, or acquisition of stock or assets) or form
any corporation, partnership, other business organization or division thereof,
or acquire directly or indirectly any material amount of assets; (2) except as
specifically contemplated by this Agreement, cause Summit V to incur any
indebtedness for borrowed money or issue any debt securities or assume,
guarantee or endorse, or otherwise as an accommodation become responsible for,
the obligations of any person or entity, or make any loans or advances, except
in the ordinary course of business and consistent with past practice which loans
shall be on terms and conditions satisfactory to Jenkon; (3) cause Summit V to
enter into any contract or agreement other than in the ordinary course of
business, consistent with past practice; (4) except for the capital expenditures
and purchase orders specifically described (by type and maximum expenditure) on
Schedule 1 to this Agreement, authorize any single capital expenditure by or on
behalf of Summit V that is in excess of $10,000 or capital expenditures that
are, in the aggregate, in excess of $50,000; or (5) enter into or amend or cause
Summit V to enter into or amend any contract, agreement, commitment or
arrangement with respect to any matter set forth in this subsection;
(vi) not (1) cause Summit V to enter into any employment,
consulting or agency agreement (whether written or oral), or increase the
compensation payable or to become payable to its officers, employees or
consultants, except for increases in accordance with existing agreements or past
practices for employees of Summit V who are not officers, directors or
shareholders of Summit V or JIA, (2) cause Summit V to grant any severance or
termination pay to, or enter into any employment or severance agreement with,
any director, officer employee of Summit V or JIA, (3) cause Summit V to
establish, adopt, enter into or amend any collective bargaining, bonus, profit
sharing, thrift, compensation, stock option, restricted stock, pension,
retirement, deferred compensation, employment, termination, severance or other
plan, agreement, trust, fund, policy or arrangement for the benefit of any
director, officer or employee of Summit V or JIA, or (4) cause Summit V to make
any distribution of cash or other assets to JIA or any shareholder, director,
officer or affiliate thereto other than pursuant to the terms of employment or
consulting arrangements in effect on the date of this Agreement (which shall in
all cases, be consistent with past practice);
(vii) not make, change or revoke any material tax election on
behalf of Summit V or make any material agreement or settlement regarding taxes
owed by Summit V with any taxing authority;
(viii) not take any action, other than reasonable and usual
actions in the ordinary course of Business and consistent with Summit V's past
practice, with respect to accounting policies or procedures (including, without
limitation, procedures with respect to the payment of accounts payable and
collection of accounts receivable), other than as required by GAAP or as
reasonably required by Jenkon;
(ix) not make or issue any press release on behalf of Summit V
or JIA relating to the Business or the terms of this Agreement;
(x) cause Summit V to pay and make any required deposits of
payroll and employment taxes on a timely basis and in accordance with applicable
law; and
(xi) cause Summit V's obligations and accounts payable to be
paid when due, consistent with past practices.
4. CASH RECEIPTS AND CASH DISBURSEMENTS.
(a) BANK ACCOUNT. Promptly following the execution of this
Agreement, JIA and Summit V shall jointly establish and maintain one or more
bank accounts (collectively, the "Interim Account") and shall cause all receipts
from accounts receivable of Summit V to be deposited into the Interim Account,
and shall cause all payments with respect to liabilities of Summit V to be paid
from the Interim Account. JIA shall make deposits to the Interim Account
("Funding Deposits") as required to fund Summit V's operation as provided in
Section 4(b) below. The Interim Account shall be registered in the name of
Summit V and shall provide for signatories designated by JIA (who shall, in all
cases, be officers of JIA); provided, however, that Jenkon shall have the power
(and the Interim Account shall specifically provide Jenkon the power) to change
or modify the signatories upon any breach of this Agreement by JIA, the
termination of this Agreement, or to the extent the Board of Directors makes a
reasonable good faith determination that such changes are necessary in
accordance with the fiduciary duties of the Board of Directors to the
stockholders of Jenkon. Neither Jenkon nor Summit V shall make withdrawals from
the Interim Account other than in the ordinary course of Summit V's Business.
JIA shall not make withdrawals from the Interim Account except (i) to pay Summit
V liabilities and fund Summit V operating expenses during the Interim Period, or
(ii) upon termination of this Agreement or Closing, to receive any unused
Funding Deposits. Jenkon shall be entitled to receive and review all account
statements and, upon request, JIA shall provide Jenkon with account balance
information relating to the Interim Account. If this Agreement is terminated
prior to Closing (other than as a result of a breach of or failure to perform
its obligations under this Agreement or the Stock Purchase Agreement by JIA),
JIA shall have the right to withdraw from the Interim Account the aggregate
amount of all Funding Deposits.
(b) ADVANCES AND RETURN OF PROPERTY BY JIA. During the Interim
Period, JIA agrees to advance to Summit V (through Funding Deposits as described
in (a) above), such amounts as are necessary to fund the continuing operations
of Summit V's business (including, without limitation, the prompt payment of
employee salaries, employment and other taxes, lease payments and other
operating expenses of Summit V). In the event that a Closing does not occur
(other than by reason of a breach of this Agreement or the Stock Purchase
Agreement by JIA, Jenkon shall reimburse JIA for all Funding Deposits used in
connection with the operation of the Business. In the event that the Closing
does not occur (for any reason), JIA shall return all of the business and assets
to Summit V in good order and repair, normal wear excepted.
(c) CASH RECEIPTS. JIA shall have full authority to collect all Cash
Receipts and deposit them in the Interim Account.
(d) CASH DISBURSEMENTS. Subject to any limitations set forth
elsewhere in this Agreement, JIA shall have full authority to make Cash
Disbursements out of Cash Receipts and Funding Deposits in connection with the
operation of the Business.
(e) NO COMPENSATION TO JIA. JIA shall not be entitled to
compensation for its services in managing the operations of the Business
hereunder.
5. [Reserved]
6. INDEMNIFICATION.
(a) INDEMNIFICATION OF JIA. Jenkon and Summit V hereby jointly and
severally agree to indemnify, defend and hold JIA and each of its officers,
directors and agents harmless from and against any and all liabilities, claims,
demands, rights and causes of action of whatever kind or nature arising out of
or resulting from (i) the a breach of this Agreement by Jenkon, and (ii) if the
Closing does not occur for reasons other than a breach or failure to perform by
JIA, the operation of the Business prior to the date of this Agreement.
(b) INDEMNIFICATION OF JENKON AND SUMMIT V. JIA (and, if a Closing
occurs, Summit V) hereby jointly and severally agree to indemnify, defend and
hold Jenkon (and, if a Closing does not occur, Summit V) and each of their
respective officers, directors and agents harmless from and against any and all
liabilities, claims, demands, rights and causes of action of whatever kind or
nature arising out of or resulting from (i) the a breach of this Agreement by
JIA, (ii) if the Closing occurs, the operation of the Business or any other
business by Summit V or JIA subsequent to the date of this Agreement, and (iii)
any offering or sale of securities by JIA.
7. FORCE MAJEURE. Neither JIA, Summit V nor Jenkon shall be liable for
any delay in the performance of their respective obligations hereunder due to
any cause beyond its reasonable control, including, but not limited to, fires,
floods, strikes, or other labor disputes, accidents to machinery, delay in
performing the Services because of the installation or removal of data
processing equipment, production shutdowns, shortages of fuel, acts of sabotage,
riots, precedence or priorities granted at the request or for the benefit,
directly or indirectly, of the federal or any state government or any
subdivision or agency thereof, delay in transportation or lack of transportation
facilities, or restrictions imposed by federal, state or other governmental
legislation or rules or regulations thereof.
8. NATURE OF RELATIONSHIP. JIA, Summit V and Jenkon acknowledge and
agree that JIA is acting as an independent contractor, and, except as otherwise
provided in this Agreement or the Stock Purchase Agreement, this Agreement is
not intended to create any other relationship between the parties, including,
without limitation, a partnership or joint venture. Jenkon, Summit V and Xxxxxx
Xxxxxxxxxx hereby acknowlegde and agree that during the Interim Period, Xxxxxx
Xxxxxx shall remain as an officer of Summit V but, subject to the duties,
standards of conduct and restrictions imposed by the terms of this Agreement
with respect to JIA's management of the Business, each of Jenkon, Summit V and
Xxxxxx Xxxxxxxxxx hereby waive any conflict of interest arising out of Xxxxxx
Xxxxxx'x role as an officer of Summit V and an officer and director of JIA.
9. AUTHORITY; AUTHORIZATIONS. Jenkon and Summit V represent and warrant
to JIA that they have the power and authority to enter into this Agreement and
to perform their obligations hereunder, and that they have taken all necessary
corporate action required to be taken to authorize the execution, delivery and
performance of this Agreement. JIA represents and warrants that it has the power
and authority to enter into this Agreement and to perform its obligations
hereunder and that it has taken all necessary corporate action required to be
taken in order to authorize the execution, delivery and performance of this
Agreement.
10. ASSIGNMENT. No party shall assign its rights under this Agreement or
its interest herein without the other parties' prior written consent.
11. NON-WAIVER. Failure of any party hereto to enforce any of the terms
and provisions herein or to exercise any right accruing through the default of
the other parties shall
not constitute a waiver of other or future defaults of the defaulting party.
12. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Washington, without regard to
principles of conflicts of law thereof.
13. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties relative to the subject matter of this Agreement. This
Agreement expressly supersedes all prior negotiations, representations, offers,
letters, contracts, writings or other agreements or understandings with respect
hereto. No change, amendment or modification hereof shall be valid unless it is
made in writing and signed by all parties.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
Attest: JIA, Inc., a Washington corporation
___________________________ By:________________________________
Title: ____________________________
Attest: Summit V, Inc., a Washington
corporation
___________________________ By:________________________________
Title: ____________________________
Attest: Jenkon International, Inc., a Delaware
corporation
__________________________ By:________________________________
Title: ____________________________
Attest: Jenkon International, Inc., a Washington
corporation
__________________________ By:________________________________
Title: ____________________________
MANAGEMENT SERVICES AGREEMENT
EXHIBIT A
I. ACCOUNTING SERVICES
-------------------
Cash Management
Financial Statement Preparation
Tax Return Preparation Supervision
Credit & Collections Supervision
Accounts Payable, Cash Disbursements Supervision
Bank Account Reconciliations Supervision
Cost Accounting Assistance
II. MANAGEMENT INFORMATION SERVICES
-------------------------------
Data Processing Services Supervision for
Order Entry and Billing
Sales and Accounts Receivable
Accounts Payable and Cash Disbursement
Payroll
General Software Support
Productivity Planning
III. EMPLOYEE BENEFITS
-----------------
Administration of Employee Benefit Plans
IV. PERSONNEL MANAGEMENT
--------------------
V. COMPANY MANAGEMENT AND PLANNING
-------------------------------
VI. SALES ACTIVITY SUPERVISION
--------------------------
VII. PURCHASING SUPERVISION
----------------------
SCHEDULE 1
APPROVED CAPITAL EXPENDITURES
