Project Financing & Development Agreement

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 648 Winth orp Road, Teaneck, New Jersey 07866 ("InternetU"), and University Online, Inc., a Delaware corporation having its principal place of business at 105 West Broad Street, Suite 301, Falls Church, Virginia 22046 ("UOL").





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 wi th 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 A utodesk 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, Intern etU 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 suc h 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.



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1.4 "Net Reven ue" 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 Virt u al 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 transac tion 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 paymen ts 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 mileston e(s) here indicated:

























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 represen ts 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 su ch 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 notwithst a nding 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 b y 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 fail s 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 [





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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 obl igation 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 p ursuant 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 1 0.5 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 woul d 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 a ttached 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 Autode sk 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 redu c tions 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 m ilestone 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 payme n t, 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 refu s e 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 b y 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.



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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 day s 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. UO L 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 f u nds 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 promulgate d 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 o r 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 sh a ll 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 Agre ement 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 pers ons 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.



















(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 fo r which they may be exercised have been registered under the 1933 Act or the securities laws of any











state in reliance on exemptions therefrom. InternetU agrees to make such investor representations as may be reasonably required to facilitat e 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 relat e d 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 b e 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 prom o tion 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 Inte r netU 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 Marke ...