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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________
FORM 10-KA
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended July 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from to
Commission File Number:
AMERICAN TELESOURCE
INTERNATIONAL, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware 74-2849995
(State of Incorporation) (I.R.S. Employer
Identification No.)
12500 Network Blvd. Suite 407,
San Antonio, Texas
(Address of Principal 78249
Executive Office) (Zip Code)
(210) 558-6090
(Registrant's Telephone Number, Including Area Code)
Securities Registered Pursuant to Section 12(b) of the Act:
None
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, Par Value $0.001 Per Share
(Title of Class)
_______________________
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ___
---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained herein,
and will not be contained, to the best of Registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [_]
The aggregate market value of the Registrant's outstanding Common Stock
held by non-affiliates of the Registrant at October 25, 1999, was approximately
$41,558,696. There were 48,685,287 shares of Common Stock outstanding at
October 25, 1999, and the closing sales price on the NASDAQ/OTCB for the
Company's Common Stock was $0.92 on such date.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Registrant's Proxy Statement for the 1999 Annual Meeting of
Stockholders to be held in December 1999, are incorporated by reference in Part
III hereof.
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TABLE OF CONTENTS
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PART I
Item 1. Business.................................................................. 3
Overview and Recent Developments........................................ 3
Strategy and Competitive Conditions..................................... 5
Retail Distribution Network............................................... 7
Services and Products..................................................... 8
Network Management Services............................................. 8
Call Services......................................................... 9
Direct Dial Services.................................................. 10
Sales................................................................. 11
Electronic Commerce Via Internet...................................... 11
Network................................................................... 12
Year 2000 Issue......................................................... 13
Licenses/Regulatory..................................................... 13
Employees............................................................... 15
Additional Risk Factors................................................. 16
Item 2. Properties................................................................ 25
Item 3. Legal Proceedings......................................................... 26
Item 4. Submission of Matters to a Vote of Security Holders....................... 26
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters..... 27
Item 6. Selected Financial and Operating Data..................................... 28
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................... 28
General................................................................. 29
Results of Operations................................................... 30
Liquidity and Capital Resources......................................... 36
Inflation/Foreign Currency.............................................. 38
Seasonality............................................................. 38
Year 2000 Compliance.................................................... 38
Item 8. Financial Statements and Supplementary Data............................... 40
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures..................................................... 71
PART III
Item 10. Directors and Officers of the Registrant.................................. 71
Item 11. Executive Compensation.................................................... 71
Item 12. Security Ownership of Certain Beneficial Owners and Management............ 71
Item 13. Certain Relationships and Related Transactions............................ 71
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.......... 72
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This Annual Report on Form 10-K and the documents incorporated by reference
in this Annual Report contain "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended and Section 21E of the
Securities and Exchange Act of 1934, as amended. "Forward looking statements"
are those statements that describe management's beliefs and expectations about
the future. We have identified forward-looking statements by using words such as
"anticipate," "believe," "could," "estimate," "may," "expect," and "intend."
Although we believe these expectations are reasonable, our operations involve a
number of risks and uncertainties, including those described in the Additional
Risk Factors section of this Annual Report and other documents filed with the
Securities and Exchange Commission. Therefore, these types of statements may
prove to be incorrect.
PART I.
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ITEM I. BUSINESS
Overview and Recent Developments
The Company is a telecommunications provider, focusing on the market for
wholesale and retail services between the United States and Latin America, and
within Latin America. Most of the Company's current operations involve services
between the U.S. and Mexico or within Mexico. The Company owns various
transmission facilities and leases facilities of other providers as necessary to
complete its network. Specifically, the Company owns teleports, which are the
earth stations where satellite transmission and receiving equipment are located,
and switches, which are computers which route calls to their intended
destination by opening and closing appropriate circuits. The Company leases
fiber optic cable and satellite capacity to connect its teleports and switches
in the United States to its teleports and switches in Mexico, and relies on
other carriers to complete the long distance portion of its traffic within the
U.S. and Mexico.
The Company's subsidiary GlobalSCAPE, Inc. distributes Internet
productivity software.
The Company began operations in 1994 as a Canadian holding company, Latcomm
International, Inc. with a Texas operating subsidiary, Latin America Telecomm,
Inc. Both corporations were renamed "American TeleSource International, Inc." in
1994. In May 1998, the Canadian corporation completed a share exchange with a
newly formed Delaware corporation, also called American TeleSource
International, Inc., which resulted in the Canadian corporation becoming the
wholly owned subsidiary of the Delaware corporation.
The Company has had operating losses for almost every quarter since it began
operations in 1994. The auditor's opinion on the Company's financial statements
as of July 31, 1999 calls attention to substantial doubts about the Company's
ability to continue as a going concern. This means that they question whether
the Company can continue in business. The Company has experienced difficulty in
paying our vendors and lenders on time in the past, and may experience
difficulty in the future. If the Company is unable to pay its vendors and
lenders on time, they may stop providing critical services or repossess critical
equipment that the Company needs to stay in business.
The Company's principal operating subsidiaries are:
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. American TeleSource International de Mexico, S.A. de C.V. or ATSI
Mexico, which was formed in 1995 to support the Company's operations in
Mexico, and performs regulatory, sales, marketing, planning, and technical
maintenance services.
. Sistema de Telefonia Computarizada, S.A. de C.V. or Sistecom, which
the Company acquired in August, 1997; this subsidiary owns 126 casetas in
66 cities in Mexico;
. Servicios de Infraestructura, S.A. de C.V. or Sinfra, which the
Company acquired in June, 1997; this subsidiary owns certain transmission
equipment and valuable long term licenses in Mexico;
. TeleSpan, Inc. which was formed in February1998 to carry the Company's
wholesale and private network services traffic between the U.S. and Latin
America; and
. GlobalSCAPE, Inc. which was formed in April 1996 to implement Internet
strategies which are not currently consistent with the Company's core
business.
Recent Developments
During its fiscal year ending July 31, 1999, the Company:
. executed a Marketing Agreement with AT&T providing for the Company's pay
telephones in Mexico to be programmed with an AT&T "hot button." The
Company receives a commission each time a pay telephone customer uses
the hot button to access the AT&T network;
. signed a reciprocal services agreement with Bestel S.A. de C.V., further
diversifying the Company's route choices in Mexico for intra-Mexico long
distance;
. secured a three year lease of fiber optic cable from Bestel S.A. de C.V.
and began transporting increased wholesale volume over this route;
. commissioned its new Nortel(TM) International Gateway DMS 300/250 switch
located in Dallas;
. executed a reciprocal services agreement with Radiografica
Costarricense, S.A. or RACSA), a division of Instituto Costarricense de
Electricidad, the Costa Rican telephone company enabling the Company to
connect to the RACSA network in Costa Rica, and provide high quality,
low cost transmission services throughout Central America, Mexico and
the United States
. applied for a long distance license from the Mexican government which,
if granted, will permit the Company to carry its own intra-Mexico long
distance traffic and interconnect directly with the local Mexican
network, thereby substantially reducing costs
In fiscal year 1999 GlobalSCAPE acquired the ownership of its flagship
software product, CuteFTP(R)/1/ from its original author, and subsequently
executed an agreement with Tech Data Corporation for distribution of CuteFTP in
209 CompUSA stores nationwide. GlobalSCAPE also released two new Internet
productivity software products, CuteHTML(R) and CuteMAP(R). Subsequent to
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July 31, 1999, GloblaSCAPE signed an agreement with Lycos, Inc. to distribute
CuteFTP over the Lycos network.
Strategy and Competitive Conditions
The Company's strategy is to position itself to take advantage of the de-
monopolization of the Latin American telecommunications market, as well as the
increasing demand for services in this market. Historically, telecommunications
services in Latin America have been provided by state-run companies operating as
a legal or de facto monopoly. Although these companies failed to satisfy the
demand for services in their countries, the regulatory scheme effectively
precluded competition by foreign carriers. Currently, there is a trend toward
demonopolization of the telecommunications industry in Latin America, and many
of these countries are in various stages of migration toward a competitive,
multi-carrier market.
At the same time that Latin American markets have been opening up, the
demand for telecommunications services between the United States and Latin
America (particularly Mexico) has been strengthened by:
. rapid growth of the Latino segment of the United States population
. increase in trade and travel between Latin America and the United States
. the build out of local networks and corresponding increase in the number
of telephones in homes and businesses in Latin countries
. proliferation of communications devices such as faxes, mobile phones,
pagers, and personal computers
. declining rates for services as a result of increased competition.
In addition, technological advances have provided emerging carriers with
the means to provide high quality transmission on a cost-effective basis. Most
notably, the Company and other emerging carriers now use packet switching
technology, which is a method of transmitting telecommunications traffic by
breaking the information into packets. The packets can then be organized in a
way that permits the information to be transmitted over long distances more
quickly and with less capacity than traditional methods. The packets are
reassembled at the receiving end to re-create the message. The Company has also
incorporated asynchronous transfer mode or "ATM" technology into its network.
ATM is a high-speed, packet-switching technology that allows voice, facsimile,
video and data packets to be carried simultaneously on the same network.
The Company has focused most of its efforts on Mexico, but has some
operations in Costa Rica, El Salvador, and Guatemala and intends to expand its
services as regulatory and market conditions permit. Ultimately the Company
would like to provide services throughout Latin America.
Strategy and Competitive Conditions - Mexican Market. Telefonos de Mexico
(or Telmex) had a legal franchise to control the entire market for local and
long distance telecommunications in Mexico until June of 1995, when new laws
began to open the market to effective competition. This means that Telmex owned
or controlled all of the physical infrastructure needed to transport
telecommunications traffic, including the local network of telephone lines to
homes and business in a given area, and the long distance network of lines
between the local networks. In January 1997, the Mexican government began
granting licenses to provide long distance service to competing companies, and
has licensed at least 15 new long distance providers. Two l of these new
license holders are Mexican based affiliates of top tier U.S. carriers
MCI/Worldcom and AT&T. Although the Mexican government has also licensed nine
new local competitors, the build out of additional local infrastructure is just
beginning, and the local
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network in Mexico is still dominated by Telmex. The Company began assembling a
framework of licenses, reciprocal services agreements with other carriers, other
service agreements, network facilities, and distribution channels in Mexico in
1994 in anticipation of the demonoplization of this market. In 1994, the Company
began providing private network services between the U.S. and Mexico via
satellite. Since then, the Company has established a retail distribution network
in Mexico through the acquisition of public payphones and casetas, has entered
the U.S. wholesale market for termination services to Mexico, and has begun
implementation of a U.S. retail strategy through the introduction of its
presubscribed and dial around services targeted to the Latino market in the U.S.
The Company has also invested in its own transmission facilities, beginning in
1994 with satellite teleport equipment, and most recently with the acquisition
of a new Nortel International Gateway Switch and the deployment of packet
switching technology in its network. As true competition has emerged, the
Company has been able to negotiate increasingly more favorable rates for local
network access and long distance services with the newly licensed long distance
carriers. In fiscal year 1999 the Company applied for its own long distance
license, which, if granted, will permit the Company to interconnect directly
with the local network and build out its own long distance network, thereby
reducing costs further. The Company believes that its establishment of a solid
framework of licenses, proprietary network and favorable reciprocal services
agreements has positioned it to take advantage of the benefits to be reaped as
the Mexican telecommunications industry enters a truly competitive phase. The
Company believes that it has a clear competitive advantage over pure resellers,
and that it has overcome significant hurdles that are a barrier to entry in this
market even for large carriers. The Company intends to use its framework to
capture increased amounts of the communications traffic in the Mexican
market.
Retail. Although Telmex and the Mexican affiliates of several large U.S.
based carriers are active participants in the Mexican retail market, the
Company believes that these carriers will focus on the most lucrative sectors of
the market, leaving many opportunities to further develop the large portion of
the market that continues to be underserved, both in the U.S. and Mexico. The
Company will devote most of its new resources on deploying innovative new public
and prepaid services that will function in the same manner regardless of the
consumer's location north or south of the U.S./Mexico border, such as enhanced
prepaid calling services. Our marketing term for these types of services is
"borderless." The Company will use its existing retail distribution network,
and may pursue acquisitions of established distribution channels from others.
The Company believes that its focus on a retail strategy, combined with the cost
reductions that will follow the grant of a Mexican long distance license, will
permit it to improve overall corporate profit margins and secure a stable
customer base.
Wholesale. The U.S. wholesale market for termination to Mexico has become
increasingly dynamic as competition, call volumes and industry capacity along
U.S. -Mexico routes have all increased. Although the Company increased the
volume of wholesale minutes it transmitted to Mexico during fiscal year 1999,
downward pricing pressure in this market resulted in little additional revenue
for these minutes. The Company expects its wholesale volume of traffic
transported to increase during the upcoming year as a result of the inauguration
of its high quality ATM based fiber route to Mexico in July, 1999. In addition,
the Company plans to explore ways to exploit its wholesale operation without the
investment of significant new resources (see Network Management Services -
Carrier Services).
Although the Company has succeeded in obtaining reciprocal services
agreements with various Mexican-based providers that permit the Company to
terminate northbound traffic in the U.S., it has not realized substantial
revenue from these arrangements. The Company believes that the long distance
license, if obtained, will permit it to lower costs significantly, improving its
competitive position in the wholesale market for both north and southbound
services.
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Retail Distribution Network
The Company's Mexican retail distribution network consists of communication
centers, formerly referred to as casetas, and public pay telephones.
Casetas. Casetas are indoor calling centers strategically located to serve
travelers and the large population of the country who do not have personal
telephones. Casetas are a widely recognized and utilized medium in Mexico, but
do not currently have a real equivalent in the U.S. The Company's casetas offer
local, domestic Mexico and international long distance calling, as well as
facsimile service. The Company is the largest caseta operator in Mexico with
approximately 126 casetas in 66 cities operating under the trade name
"Computel(TM)". Each location employs at least one attendant, who processes
calls, monitors call duration, collects money and runs daily reports on call
activity. As compared to public pay telephones, casetas offer privacy and
comfort as well as the personalized attention needed by customers who are not
accustomed to using a telephone. Key factors favoring the Company over
competing caseta operators are the well-recognized Computel name, a reliable
platform and billing system, the provision of facsimile services (which are not
offered by many other operators) and a larger distribution network. The next
largest competitor in Mexico has only 70 locations.
Using these casetas as the cornerstone, the Company intends to further
increase its retail presence in Mexico and the U.S. The next generation caseta
will be a "Communication Center" and will offer additional services, such as
Internet access and prepaid services. The Company intends to bring the
Communication Center concept to strategic markets in the U.S., targeting Mexican
nationals and U.S. citizens of Mexican origin who are familiar with the caseta
concept and the Computel(TM)name. The Communication Centers will be used to
distribute "borderless" products that function in the same manner regardless of
the users location north or south of the U.S./Mexico border. ATSI will target
these products to established Latino households, and on a prepaid basis to
recent immigrants and transient Latinos who may have acculturation issues, or
identity, credit or economic challenges. ATSI believes it will capture customer
loyalty by serving these challenged consumers, and will keep their business as
they establish households in the U.S.
The main source of competition for Communication Centers on both sides of
the border will be prepaid card services, payphone and prepaid cellular, which
are essentially designed for the same target market. There is already a robust
market for prepaid calling cards in the U.S. Regulations in Mexico have only
recently permitted the use of dial around products from payphones, and the
Company expects many more prepaid card vendors to enter that market. The
Company is aware of only a limited number of caseta-style call centers in the
U.S. located on the East Coast, in Miami and Los Angeles.
Pay Telephones. The Company also owns and operates approximately 574 pay
telephones in various Mexican cities and resort areas, including Acapulco,
Cancun, Cozumel, Mazatlan, Puerto Vallarta, Tijuana, Huatulco, Puerto Escondido,
Cabo San Lucas, and Puerto Angel. The Company also has pay telephones in the
Mexico City airport and Mexico City's mass transit metro system transfer
stations. All of the Company's pay telephones are "intelligent" phones, meaning
that certain features are fully automated, reducing operating costs. The
Company's telephones accept pesos and U.S. quarters. Customers may also access a
Company operator for assistance in placing collect, third party, person-to
person calls or credit card calls.
The Company markets its pay telephone services in Mexico through direct
sales efforts as well as some independent marketing representatives working on a
commission basis. The Company has targeted a significant portion of its pay
telephone marketing efforts toward various resort areas in Mexico, specifically
on locations with high tourist-traffic such as airports, ship ports and marinas,
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restaurants and bars. Approximately 16 million U.S. tourists visit Mexico each
year, and the country's vacation destinations are major hubs for northern
visitors via major U.S. airline carriers, and cruise ships. Although the Company
targets the tourist market for payphones and operator-assisted calling, these
services are available for Mexican nationals as well.
As of October 1, 1999, there were 31 authorized payphone providers in
Mexico, of which Telmex is the largest. The Company believes it is the second
largest provider after Telmex in the tourist markets, where it has focused its
efforts. The Company's multi-pay payphones give it a significant advantage over
its largest competitor, Telmex, which accepts only pre-paid Telmex calling
cards. Vendors of the cards are often difficult to locate and denominations
tend to be higher than needed by consumers. Although other companies have plans
to install pay telephones, the Company believes that it will be one of the few
providers with its own network, allowing it to maintain flexibility with respect
to rates.
Services and Products
In the presentation of its financial results, the Company divides its
revenues into four categories: Network Management Services, Call Services,
Direct Dial Services and Electronic Commerce.
Network Management Services
The Company offers private network telecommunications services between the
United States and Latin America and within Latin America.
Carrier Services
The Company offers wholesale termination services to U.S. and Latin
American carriers who lack transmission facilities or require additional
capacity. Revenues from this service accounted for approximately 41% of overall
Company revenues in fiscal 1999. This market experienced tremendous downward
pricing pressure during fiscal year 1999 due to a combination of several
factors, most notably an increase in the activation of fiber optic cable along
U.S.-Mexico routes and regulatory changes which permitted the top tier carriers
to lower their international wholesale rates. Therefore, although the Company
experienced increased volumes in this line of business during the year, it
realized little additional revenue. The Company has seen a substantial increase
in volume since it activated its high-quality fiber route in July, 1999, and
believes this fiber network will continue to attract increased volumes from top
tier carriers. In addition, the Company believes it will generate opportunities
to transport traffic for Mexican carriers. The Company should be able to use
the increased volumes to negotiate more favorable termination costs in Mexico,
and if the Company receives a Mexican long distance license, it will be able to
substantially cut its costs for carrying this traffic.
The Company occupies a unique position in the market for wholesale
services. Its unique licenses from the Mexican government allow it to transport
traffic from the United States to Mexico outside of the International Settlement
Policy, which is the international accounting and settlements policy governing
the methods that U.S. and foreign carriers use to settle the cost of carrying
traffic over each other's network. The International Settlements Policy causes
MCI/Worldcom and AT&T to charge higher rates than they might otherwise charge.
However, the Company is at a disadvantage with respect to these large carriers
because it does not currently have a Mexican license to carry its own long
distance traffic within Mexico and must pay a licensed carrier, such as the
Mexican affiliate of MCI/Worldcom or AT&T, to carry its traffic from its Mexican
teleports to its final destination. At the other end of the spectrum, the
Company competes with numerous small companies who illegally carry traffic into
and
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within Mexico. These companies do not pay the fees charged by Mexican-licensed
carriers and are therefore able to offer very competitive prices. However, these
companies do not typically own their own transmission facilities, and are not
able to control costs effectively as the Company. They are also subject to
regulatory action shutting down their operations in Mexico.
The Company believes that it has less than 1% of the market for wholesale
termination services. See our Risk Factor captioned "The Company may not
successfully compete with others in the industry" for additional description of
the competition in this market.
Private Networks
The Company offers private communications links for multi-national and
Latin American customers who use a high volume of telecommunications services
and need greater dependability than is available through public networks. These
services include data, voice, and fax transmission as well as videoconferencing
and Internet. During fiscal 1999, the Company did not devote significant
resources toward the development of this business in Mexico. However, expansion
of this line of business is consistent with the Company's plans to build out its
network in Mexico, since many of the same facilities that would be used for
delivery of retail consumer products could be used for private network services
as well.
The Company has and will continue to use the provision of private network
services as an entry into new Latin markets that are in the process of migrating
from state-run systems to competitive systems.
The Company competes with MCI/Worldcom, Americatel, Pointe Communications
Corporation, and Telscape International Inc., as well as the former
telecommunication monopolies in the Latin American countries in providing
private network services. Factors contributing to the Company's competitiveness
include reliability, network quality, speed of installation, and in some cases,
geography, network size, and hauling capacity. The Company believes it has a
reputation as a responsive service provider capable of processing all types of
network traffic. The Company is at a competitive disadvantage with respect to
larger carriers who are able to provide networks for countries for corporations
that encompass more countries in Latin America, as well as Europe, Asia and
other parts of the globe. Prices in this market are also generally declining as
fiber optic cable is activated.
The Company believes that it has less than 1% of the market for private
network services.
Call Services
The Company's principal Call Service is operator-assistance for
international collect, person-to-person, third party, calling card and credit
card calls originating in Mexico. The primary sources of demand for operator
assistance are the Company's pay telephones and casetas in Mexico. The Company
also provides operator services for calls originating from payphones and casetas
owned by others, hotel and resort operators, and others who control the right to
direct operator-assisted calling from groups of telephones. The Company pays
these third parties a commission based on the revenue generated by the call
traffic they send.
During the year ended July 31, 1999the Company offered a service by which
pin numbers are issued to Latin American travelers that enable them to use their
credit cards to place calls through the Company's Call Services Center. (Latin
Americans frequently do not have travel calling cards.) The Company also
offered travel cards that enable Mexican travelers to use their cellular phones
to place
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international calls to Mexico while in the United States. The Company has ceased
providing these services in order to devote more resources to higher margin
products.
As part of its ongoing efforts to minimize costs, the Company began
outsourcing its live operator services in July 1999, and executed an agreement
with another operator service provider to handle the Company's call services
traffic on a transaction basis. The vendor will continue the Company's practice
of providing bilingual service 24 hours per day, 7 days per week.
As of July 16, 1998, the Company ceased providing operator services for
domestic U.S. calls and international calls originating in Jamaica and the
Dominican Republic in order to focus on the more profitable Mexican market.
The Company's owned retail distribution network will continue to generate
call services traffic. Competition for traffic from third parties in this
market revolves largely around the amount of commissions the operator services
provider is willing to pay. The Company is currently focusing more on improving
its profitability rather than simply generating additional revenues, and it has
therefore lost ground to competitors willing to accept lower profit margins by
paying higher commissions. However, the Company believes it has a reputation as
a reliable provider, and it is also able to offer the value-added service of
intelligent pay telephones in hotel lobbies.
Direct Dial Services
During fiscal 1999, the Company provided direct dial services (long
distance calls which do not require live or automated operator assistance) in
both Mexico and, to a lesser extent, the United States. Direct dial calls were
generated in Mexico from the Company's own Communications Centers and pay
telephones. Consumers visiting these locations can make calls on a "sent paid"
basis by making a cash payment at the time the call is placed. In the U.S., the
Company provided 1+ and MEXICOnnect (SM) service to residential and business
customers in the San Antonio metropolitan area. MEXICOnnect allows customer to
dial-around their presubscribed carrier by dialing 10-10-624 + the area code +
the telephone number. Under the 1+ program, customers presubscribe to the
Company's network for all long distance calls made from their telephone number,
eliminating the need to dial any extra digits to reach the Company's network.
In Mexico, the Company competes with other companies who have a
comercializadora license for sent paid traffic. The comercializadora allows
companies to interconnect with the local telecommunications infrastructure in
order to resell local and long distance services from public telephones. In the
U.S., the Company competes with large carriers such as AT&T, MCI/Worldcom, and
Sprint as well as numerous smaller companies for presubscribed long distance.
Price remains a primary concern for many consumers since the technology is not
distinguishable from one provider to another. The Company is focused on the
Latino market and offers an aggressive international rate to Mexico as well as
competitive domestic rates. Unlike many other long distance providers, the
Company's charges are included on the customer's bill from the local phone
company. The Company also offers the convenience of bilingual customer service.
The Company believes that it will be able to expand its presubscribed customer
base by using U.S. Communication Centers as magnets to attract underserved
Latino customers to the Company's products.
There are numerous dial-around products on the market, offered by small and
large companies, and by long distance resellers as well as facilities-based
carriers. MEXICOnnect's competitive advantage is its focus on the Latino
market, and the elimination of per call minimums, monthly access fees,
surcharges, and other types of restrictions and small print that make dial-
around discounts
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deceiving. In comparison to long distance resellers, the Company has greater
flexibility in adjusting rates, as it has greater control over its own network.
Sales
Direct dial sales are supervised by the Senior Vice President, Sales and
Marketing based in San Antonio. U.S. domestic carrier sales are supervised by
the Senior Vice President, Sales and Marketing in San Antonio. Mexican carrier
sales are also supervised by the Senior Vice President, Sales and Marketing in
San Antonio, who is assisted by the Director General (President) of ATSI-Mexico.
The Director of Central American operations, based in San Jose, Costa Rica,
manages the Central American carrier and private network accounts under the
supervision of the Senior Vice President, Sales and Marketing in San Antonio.
Payphone, hospitality and aggregator sales are managed from ATSI-Mexico with
supervision from the Senior Vice President, Sales and Marketing in San Antonio.
Communication center's sales efforts are managed from Computel's offices in
Guadalajara with oversight from ATSI-Mexico in Mexico City. The Company is in
the process of consolidating the operations of Computel and ATSI-Mexico.
Electronic Commerce via Internet
GlobalSCAPE was formed in April 1996 to implement Internet related
strategies that are not complementary to the Company's core business.
GlobalSCAPE's revenues are attributable to sales of Internet productivity
software, primarily its flagship product CuteFTP(TM)which it has historically
distributed via its web site. GlobalSCAPE operates autonomously, generating
substantially all funds for its development and expansion internally from its
own operations. In January 1999 GlobalSCAPE acquired ownership of CuteFTP from
its original author, and subsequently released an enhanced new version.
GlobalSCAPE also released two new products, CuteHTML(TM) and CuteMAP(TM). Also
in fiscal 1999, GlobalSCAPE began distributing CuteFTP in CompUSA stores, and
began realizing revenue from advertisements placed in its software. Subsequent
to July 31, 1999, GlobalSCAPE has executed an agreement with Lycos to distribute
a branded version of CuteFTP over the Lycos network.
The Company announced in February, 1999 that it was considering a spin off
or public offering of GlobalSCAPE's stock, and the Company has retained an
investment banking firm to assist it in evaluating these options and other
options to finance GlobalSCAPE's continued growth.
GlobalSCAPE's market includes all computer users on the Internet.
GlobalSCAPE's products are distributed as shareware, meaning that users may
download and use the products for free on a trial basis for a limited time.
After the expiration of the trial period, the user must register the product to
be in compliance with the license and to obtain product support. GlobalSCAPE's
primary source of revenue is generated through product registration, with
additional revenues generated by advertising in the form of ad banners and
sponsorships in its "live" software products and on its web site. On a monthly
basis, GlobalSCAPE receives approximately 1.2 million unique visitors to its web
site and displays more than 15 million in-product and web site ad banners. For
the year ended July 31, 1999, approximately 4,000,000 copies of software
products were downloaded from GlobalSCAPE's servers, of which approximately
92,000 copies were registered (including approximately 7,000 upgrades of
previously registered products).
The Company's flagship product, CuteFTP(R), is a Windows(R)-based file
transfer protocol (FTP) utility allowing users the ability to transfer and
manage files via the Internet, including MP3's, web pages, software, videos and
graphics. The Company believes that CuteFTP(R) has 30% of the U.S. market share
for FTP programs. The Company's portfolio of products also includes CuteHTML(R),
an
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advanced HTML editor for developing web sites, and CuteMAP(R), an image mapping
utility for graphic navigation through web sites, and others in various stages
of alpha and beta testing.
GlobalSCAPE intends to leverage its strong brand recognition into a full
suite of "Cute" products, and to use its products in order to attract
advertising revenue and to market products of other on-line retailers and
service providers on a revenue sharing basis.
GlobalSCAPE operates in a highly competitive environment with respect to
all its products. CuteFTP's primary competitors are WS_FTP, FTP Voyager and
Bulletproof FTP. While many FTP products have mimicked CuteFTP's features, they
are not commercially successful due to their late arrival to the marketplace and
lack of support infrastructure. CuteHTML and CuteMAP, although relatively new to
the market, have the advantage of being able to piggyback on the success of
CuteFTP through product integration and cross-marketing efforts.
Network
The Company has established a technologically advanced network which uses
both satellite and fiber optic cable to transmit telecommunications traffic
between the U.S. and Mexico. The Company's network incorporates ATM technology,
which is compatible with other transmission technologies such as frame relay and
Internet protocols, permitting the Company to explore even more cost-effective
transmission methods in the future. See page 5, "Strategy and Competitive
Conditions" for a description of ATM technology. Frame relay is a method of
allocating capacity on demand so that a customer's needs may be filled with less
capacity than the traditional system of dedicating a certain amount of capacity
to a particular purpose. Internet protocol refers to a method of organizing
information such that it may be carried on the Internet. The Company's network
also employs compression technology to carry greater volumes on the same
facilities.
Generally, the Company's strategy is to use the fiber optic arm to access
major metropolitan areas in Mexico and the satellite arm to access semi-rural
and smaller metropolitan areas. If there is a problem in either the satellite
portion of the network, the Company will be able to minimize service
interruptions by transferring traffic to the other portion until the problem is
resolved. The Company's fiber route runs from its facility at the Infomart in
Dallas, Texas to Mexico City, Mexico. The Company has satellite transmission
and receiving equipment in 1) San Antonio, Texas, 2) Mexico City, Monterrey, and
Cancun, Mexico, 3) Guatemala City, Guatemala, 4) San Salvador, El Salvador, and
5) San Jose, Costa Rica.
The Company leases fiber capacity from third parties, primarily Bestel USA,
Inc. with whom it has a 3-year lease for fiber optic cable from San Antonio,
Texas to Laredo, Texas until March 2002. The Company leases satellite capacity
on the Mexican satellites Solidaridad I and II, from Satelites Mexicanos, S.A.
de C.V. or "SATMEX, with whom it has an agreement for capacity through April
2001. ATSI has leased a fixed amount of capacity from each of these vendors for
a fixed monthly price. Each of these vendors has the right to terminate service
for non-payment. During 1999, ATSI was unable to make payments to SATMEX on
time. SATMEX agreed not to suspend service under the terms of a payment plan
calling for ATSI to bring its account current by December 15, 1999. ATSI has
met the terms of the payment plan, and is now current in its payments to both of
these vendors.
The Company owns switching and other equipment in the U.S. and Mexico. In
April 1999, the Company began using its new Nortel DMS 300/250 International
Gateway Switch in its Dallas location. This advanced switch will permit the
Company to deploy the new retail and wholesale products that are key to its
competitive strategy.
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All aspects of the Company's owned network facilities are designed to allow
for modular expansion, permitting the Company to increase capacity as
needed.
The Company must contract with others to complete the intra-Mexico and
domestic U.S. portions of its network. The Company has reciprocal services
agreements in place with four Mexican long distance license holders, Operadora
Protel, S.A. de C.V., Avantel, S.A. de C.V., Miditel, S.A. de C.V. and Bestel,
S.A. de C.V. The Company has applied for its own Mexican long distance license,
which will allow it to build out its network in Mexico and to interconnect
directly with Telmex and other local carriers, thereby lowering its transmission
costs. The Company has reciprocal services agreements with Radiografica
Costarricense, S.A., FT&T, S.A., and Corporacion Solares, S.A. de C.V. for
transmission services in Costa Rica, Guatemala and El Salvador, respectively.
In the U.S., the Company purchases long distance capacity from various
companies.
The Company purchases local line access in Mexico for its payphones and
casetas from Telmex, and various cellular companies including SOS
Telecomunicaciones, S.A. de C.V., Portatel del Sureste, S.A. de C.V., Movitel
del Noreste, S.A. de C.V, and Baja Celular Mexicana, S.A. de C.V.
Year 2000 Issue
The Company initiated a program to identify and address issues associated
with the ability of its date-sensitive information, telephony and business
systems to properly recognize the year 2000 in order to avoid interruption of
the operation of these systems at the turn of the century. This program is
being conducted by the Company's Management Information Systems group, which is
coordinating the efforts of internal resources as well as third party vendors in
making all of the necessary changes for all management systems and product
related infrastructure for the Company's divisions and subsidiaries. The Company
believes it is 96% complete in achieving Year 2000 readiness, and will be Year
2000 ready by November 30, 1999. The only significant remaining item is an
outstanding issue related to the payroll systems of the Company's Mexican
subsidiaries. The Company expects to avoid disruption of its owned information,
telephony and business systems as a result of these efforts. However, the
Company must rely on the representations and warranties of third parties,
including domestic U.S. and foreign carriers of its traffic, in testing for
readiness for year 2000 issues and cannot ensure compliance by these parties.
The Company has developed contingency plans in areas where it believes there is
any significant risk or where a third party has not adequately responded to the
Company's inquiries, which includes transitions to other providers.
The Company believes that a worst case scenario resulting from a Year 2000
related failure would be a temporary disruption of normal business operations.
Based upon the work completed to date, the Company believes that such an
occurrence is unlikely. However, as stated above, the Company is relying on
representations and warranties of third parties that are beyond the Company's
control. A disruption of business operations could have a material adverse
effect on the Company's financial performance.
The Company has expended approximately $100,000 in its Year 2000 program to
date, and does not expect to experience any material additional cost.
Licenses/Regulatory
The Company's operations are subject to federal, state and foreign laws and
regulations.
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Federal
Pursuant to Section 214 of the Communications Act of 1934, the Federal
Communications Commission ("FCC") has granted the Company global authority to
provide switched international telecommunications services between the U.S. and
certain other countries. The Company maintains informational tariffs on file
with the FCC for its international retail rates and charges.
In October 1996, the FCC issued an order that non-dominant interexchange
carriers will no longer be required to file tariffs for interstate domestic long
distance services. Under the terms of the FCC order, detariffing would be
mandatory after a nine-month transition period. Interexchange carriers would
still be required to retain and make available information as to the rates and
terms of the services they offer. The FCC's order was appealed by several
parties and, in February 1997, the D.C. Circuit issued a stay preventing the
rules from taking effect pending judicial review. The Company is currently
unable to predict what impact the FCC's order will have on the Company.
The Telecommunications Act of 1996 , which became law in February 1996, was
designed to dismantle the monopoly system and promote competition in all aspects
of telecommunications. The FCC has promulgated and continues to promulgate
major changes to their telecommunications regulations. One aspect of the
Telecom Act that is of particular importance to the Company is that it allows
Bell Operating Companies or BOCs to offer in-region long distance service once
they have taken certain steps to open their local service monopoly to
competition. Given their extensive resources and established customer bases,
the entry of the BOCs into the long distance market, specifically the
international market, will create increased competition for the Company.
Southwestern Bell's application to offer in region long distance is expected to
be approved in April 2000.
Although the Company does not know of any other specific new or proposed
regulations that will affect its business directly, the regulatory scheme for
competitive telecommunications market is still evolving and there could be
unanticipated changes in the competitive environment for communications in
general. For example, the FCC is currently considering rules that govern how
Internet providers share telephone lines with local telephone companies and
compensate local telephone companies. These rules could affect the role that
the Internet ultimately plays in the telecommunications market.
The International Settlements Policy governs settlements between top tier U.S.
carriers and foreign carriers of the cost of terminating traffic over each
other's networks. The FCC recently enacted certain changes in its rules
designed to allow U.S. carriers to propose methods to pay for international call
termination that deviate from traditional accounting rates and the International
Settlement Policy. The FCC has also established lower benchmarks for the rates
that U.S. carriers can pay foreign carriers for the termination of international
services and these benchmarks may continue to decline. These rule changes have
lowered the costs of the Company's top tier competitors and are contributing to
the substantial downward pricing pressure facing the Company in the wholesale
carrier market.
State
Many states require telecommunications providers operating within the state
to maintain certificates and tariffs with the state regulatory agencies, and to
meet various other requirements (e.g. reporting, consumer protection,
notification of corporate events). The Company believes it is in compliance
with all applicable State laws and regulations governing its services.
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Mexico
The Secretaria de Comunicaciones y Transportes or the SCT and COFETEL have
issued the Company's Mexican subsidiaries the following licenses:
Comercializadora License - a 20-year license issued in February
1997allowing for nationwide resale of local calling and long distance services
from public pay telephones and casetas.
Teleport and Satellite Network License - a 15-year license issued in May
1994 allowing for transport of voice, data, and video services domestically and
internationally. The license allows for the operation of a network utilizing
stand-alone VSAT terminals and/or teleport facilities, and connection to the
local network via carriers having a long distance license. A shared teleport
facility enables the Company to provide services to multiple customers through a
single teleport.
Packet Switching Network License - a 20-year license issued in October 1994
allowing for the installation and operation of a network interconnecting packet
switching nodes via the Company's proprietary network or circuits leased from
other licensed carriers. The license supports any type of packet switching
technology, and can be utilized in conjunction with the Teleport and Satellite
Network License to build a hybrid nationwide network with international access
to the U.S.
Value-Added Service License - an indefinite license allowing the Company to
provide a value added network service, such as delivering public access to the
Internet.
Like the United States, Mexico is in the process of revising its regulatory
scheme consistent with its new competitive market. Various technical and
pricing issues related to connections between carriers are the subject of
regulatory actions which will effect the competitive environment in ways the
Company is not able to determine at this time.
Other Foreign Countries
In addition to Mexico, the Company currently has operations in Costa Rica,
El Salvador, and Guatemala. The telecommunications markets in these countries
are in transition from monopolies to functioning, competitive markets. The
Company has established a presence in those countries by providing a limited
range of services, and intends to expand the services it offers as regulatory
conditions permit. The Company does not believe that any of its current
operations in those countries requires licensing, and it believes it is in
compliance with applicable laws and regulations governing its operations in
those countries.
Employees
At September 1, 1999, the Company (excluding ATSI-Mexico) had 85 full-time
employees, of whom 10 were operators, 11 were sales and marketing personnel, and
64 performed operational, technical and administrative functions, and 9 part-
time employees, 5 of whom were operators. Of the foregoing, 22 were employed by
GlobalSCAPE, and 5 were employed by Sinfra. The Company believes its future
success will depend to a large extent on its continued ability to attract and
retain highly skilled and qualified employees. The Company considers its
employee relations to be good. None of these aforementioned employees belong to
labor unions.
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At September 1, 1999, ATSI-Mexico had 465 full-time employees of whom 375
were operators and 90 performed sales, marketing, operational, technical and
administrative functions. A portion of ATSI-Mexico's employees, chiefly
operators, belong to a union.
ADDITIONAL RISK FACTORS
The purchase of our common stock is very risky. You should not invest any
money that you cannot afford to lose. Before you buy our stock, you should
carefully read this entire prospectus. We have highlighted for you below all of
the material risks to our business that we are aware of.
RISKS RELATED TO OPERATIONS
. Our auditors have questioned our viability
Our auditors' opinion on our financial statements as of July 31, 1999 calls
attention to substantial doubts as to our ability to continue as a going
concern. This means that they question whether we can continue in business.
If we cannot continue in business, our common stockholders would likely lose
their entire investment. Our financial statements are prepared on the
assumption that we will continue in business. They do not contain any
adjustments to reflect the uncertainty over our continuing in business.
. We expect to incur losses, so if we do not raise additional capital we may go
out of business
We have never been profitable and do not expect to become profitable in the
near future. We have invested and will continue to invest significant amounts
of money in our network and personnel in order to maintain and develop the
infrastructure we need to compete in the markets for our services and achieve
profitability. In the past we have financed our operations almost exclusively
through the private sales of securities. Since we are losing money, we must
raise the money we need to continue operations and expand our network either
by selling more securities or borrowing money. We are not able to sell
additional securities or borrow money on terms as desirable as those
available to profitable companies, and may not be able to raise money on any
acceptable terms. If we are not able to raise additional money, we will not
be able to implement our strategy for the future, and we will either have to
scale back our operations or stop operations.
In the near term we expect to sell additional common stock or securities
convertible into common stock, which will dilute our existing shareholders'
percentage ownership of ATSI and depress the price of our common stock. See
the risk factors below under the heading "Risks Related to Market for Common
Stock."
If we sell more common stock our existing shareholders will be diluted,
meaning that their percentage of ownership of ATSI will be reduced, and the
price of our common stock may go down.
. It is difficult for us to compete with much larger companies such as AT&T,
Sprint, MCI-Worldcom and Telmex
The large carriers such as AT&T, Sprint and MCI/Worldcom in the U.S., and
Telmex in Mexico, have more extensive owned networks than we do, which
enables them to control costs more easily than we can. They are also able to
take advantage of their large customer base to generate economies of scale,
substantially lowering their per-call costs. Therefore, they are better able
than we are to lower their prices as needed to retain customers. In addition,
these companies have
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stronger name recognition and brand loyalty, as well as a broader portfolio
of services, making it difficult for us to attract new customers. Our
competitive strategy in the U.S. revolves around targeting markets that are
largely underserved by the big carriers. However, some larger companies are
beginning efforts or have announced that they plan to begin efforts to
capture these markets.
Mergers, acquisitions and joint ventures in our industry have created and may
continue to create more large and well-positioned competitors.
. The market for wholesale services is extremely price sensitive and there is
downward pricing pressure in this market making it difficult for us to retain
customers and generate adequate profit from this service
Industry capacity along the routes serviced by ATSI is generally growing as
fiber optic cable is activated. There have also been changes in the
international regulatory scheme that have permitted large carriers such as
AT&T and MCI/WorldCom to reduce the amount they may charge for international
services. These factors, along with intense competition among carriers in
this market, have created severe downward pricing pressure. For example, from
October 1998 to October 1999, the prevailing price per minute to carry
traffic from the U.S. to Mexico declined by approximately 45%. Although we
carried almost twice as much wholesale traffic in fiscal year 1999 than in
fiscal year 1998, we recognized about the same amount of revenue. If these
pricing pressures continue, the Company must continue to lower its costs in
order to maintain sufficient profits to continue in this market.
. We may not be able to collect large receivables, which could create serious
cash flow problems
Our wholesale network customers generate large receivable balances, often
over $500,000 for a two week period. We incur substantial direct costs to
provide this service since we must pay our carriers in Mexico to terminate
these calls. If a customer fails to pay a large balance on time, we will have
difficulty paying our carriers in Mexico on time. If our carriers suspend
services to us, it may affect all our customers.
. We may not be able to pay our suppliers on time, causing them to discontinue
critical services
We have not always paid all of our suppliers on time due to temporary cash
shortfalls. Our critical suppliers are SATMEX for satellite transmission
capacity and Bestel for fiber optic cable. We also rely on various Mexican
and U.S. long distance companies to complete the intra-Mexico and intra-U.S.
long distance portion of our calls. For the first two quarters of fiscal
2000, the monthly average amount due to these suppliers as a group was
approximately $1,722,000. We currently have overdue outstanding balances with
long distance carriers for the first two quarters of fiscal 2000 of
approximately $2,135,800 on which we are making payments. During the third
quarter we began paying the current portion of our long distance needs on a
weekly basis, so do not expect to accrue a large overdue balance as we did in
the first and second quarters. Although these suppliers have given us payment
extensions in the past, critical suppliers may discontinue service if we are
not able to make payments on time in the future. In addition, equipment
vendors may refuse to provide critical technical support for their products
if they are not paid on time under the terms of support arrangements. Our
ability to make payments on time depends on our ability to raise additional
capital or improve our cash flow from operations.
. We may not be able to make our debt payments on time or meet financial
covenants in our loan agreements, causing our lenders to repossess critical
equipment
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We purchased some of our significant equipment with borrowed money, including
a substantial number of our payphones located in Mexico, our DMS 250/350
International gateway switch from Nortel, and packet-switching equipment from
Network Equipment Technologies. We pay these three lenders approximately
$171,165 on a monthly basis. Our amended 10-K, which is incorporated by
reference in this prospectus, includes more information about our equipment,
equipment debt and capital lease obligations - see footnote 6 to financial
statements. The lenders have a security interest in the equipment to secure
repayment of the debt. This means that the lenders may take possession of the
equipment and sell it to repay the debt if we do not make our payments on
time. We are currently up to date in our payments to our lenders, but we have
not always paid all of our equipment lenders on time due to temporary cash
shortfalls. These lenders have given us payment extensions in the past, but
they may exercise their right to take possession of certain critical
equipment if we are not able to make payments on time in the future. Our
ability to make our payments on time depends on our ability to raise
additional capital or improve our cash flow from operations. We are not
currently in compliance with the financial covenants in our Nortel switch
loan agreement. Footnote 3 of our financial statements in our amended 10-Q
for the period ended January 31, 2000 contains more detail on our non-
compliance with those financial covenants, and footnotes 4 and 5 of our
financial statements in our amended 10-K for the year ended July 31, 1999
contains more information on our secured loans and capital leases.
. A large portion of our revenue is concentrated among a few customers, making
us vulnerable to sudden revenue declines.
Our revenues from wholesale services currently comprise about 60% of our
total revenues. The volume of business sent by each customer fluctuates, but
this traffic is often heavily concentrated among three or four customers.
During some periods in the past, two of these customers have been responsible
for 50% of this traffic. Generally, our wholesale customers are able to re-
route their traffic to other carriers very quickly in response to price
changes. If we are not able to continue to offer competitive prices, these
customers will find some other supplier and we will lose a substantial
portion of our revenue very quickly. In addition, mergers and acquisitions in
our industry may reduce the already limited number of customers for our
wholesale services.
. The telecommunications industry has been characterized by steady
technological change. We may not be able to raise the money we need to
acquire the new technology necessary to keep our services competitive.
To compete successfully in the wholesale and retail markets, we must maintain
the highest quality of service. Therefore, we must continually upgrade our
network to keep pace with technological change. This is expensive, and we do
not have the substantial resources that our large competitors have.
. We may not be able to attract and retain qualified personnel
We compete for technical and managerial personnel with other
telecommunications companies. Many of these have greater resources than we do
and are able to offer more attractive compensation packages, as well as the
security of working for an established company.
. We may not be able to generate the sales volume we need to recover our
substantial capital investment in our infrastructure.
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We have made a substantial investment in our network and personnel to
position the company in our target markets and will continue to do so.
Therefore, we must achieve a high volume of sales to make this investment
worth while. We compete for wholesale and retail customers with larger, and
better known companies making it relatively more difficult for us to attract
new customers for our services.
. We may not be able to lease transmission facilities we need at cost-effective
rates
We do not own all of the transmission facilities we need to complete calls.
Therefore, we depend on contractual arrangements with other
telecommunications companies to complete our network. For example, although
we own the switching and transport equipment needed to receive and transmit
calls via satellite and fiber optic lines, we do not own a satellite or any
fiber optic lines and must therefore lease transmission capacity from other
companies. We may not be able to lease facilities at cost-effective rates in
the future or enter into contractual arrangements necessary to expand our
network or improve our network as necessary to keep up with technological
change.
In 1999 we experienced difficulty in obtaining fiber optic cable due to a
supplier's default under the terms of a lease agreement. This difficulty was
central to our failure to meet our revenue goals for 1999 since our goals
were based on implementing a new fiber optic route in January of 1999. We
were required to lease fiber optic lines from a different supplier at a
higher price, with the alternative fiber becoming operational in June 1999 -
delaying the new revenues by six months. This difficulty is described in more
detail in Legal Proceedings.
. The carriers on whom we rely for intra-Mexico long distance may not stay in
business leaving us fewer and more expensive options to complete calls
There are only 15 licensed Mexican long distance companies, and we currently
have agreements with four of them. One of these, Avantel, S.A. de C.V. has
said publicly that it may not continue in the business because of its
difficulty in achieving a desired profit margin. If the number of carriers
who provide intra-Mexico long distance is reduced, we will have fewer route
choices and may have to pay more for this service.
. We may have service interruptions and problems with the quality of
transmission, causing us to lose call volumes and customers
To retain and attract customers, we must keep our network operational 24
hours per day, 365 days per year. We have experienced service interruptions
and other problems that affect the quality of voice and data transmission. To
date, these problems have been temporary. We may experience more serious
problems. In addition to the normal risks that any telecommunications company
faces (such as fire, flood, power failure, equipment failure), we may have a
serious problem if a meteor or space debris strikes the satellite that
transmits our traffic, or a volcanic eruption or earthquake interferes with
our operations in Mexico City. We have the ability to transmit calls via
either the satellite or fiber optic portion of our network, and this
redundancy should protect us if there is a problem with one portion of our
network. However, a significant amount of time could pass before we could re-
route traffic from one portion of our network to the other, and there may not
be sufficient capacity on only one portion of the network to carry all of our
traffic at any given time.
To stay competitive, we will attempt to integrate the latest technologies
into our network. We are currently implementing "packet switching" transport
capabilities such as Asynchronous Transfer Mode and we will continue to
explore new technologies as they are developed. The risk of network
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problems increases during periods of expansion and transition to new
technologies.
. Changes in telecommunications regulations may harm our competitive position
Historically, telecommunications in the U.S. and Mexico have been closely
regulated under a monopoly system. As a result of the Telecommunications Act
of 1996 in the U.S. and new Mexican laws enacted in the 1990's, the
telecommunications industry in the U.S. and Mexico are in the process of a
revolutionary change to a fully competitive system. U.S. and Mexican
regulations governing competition are evolving as the market evolves. For
example, FCC regulations now permit the regional Bell operating companies
(former local telephone monopolies such as Southwestern Bell) to enter the
long distance market if certain conditions are met. The entry of these
formidable competitors into the long distance market will make it more
difficult for us to establish a retail customer base. There may be
significant regulatory changes that we cannot even predict at this time. We
cannot be sure that the governments of the U.S. and Mexico will even continue
to support a migration toward a competitive telecommunications market.
. Regulators may challenge our compliance with laws and regulations causing us
considerable expense and possibly leading to a temporary or permanent shut
down of some operations
We believe that we are in compliance with all domestic and foreign
telecommunications laws that govern our current business. However, government
enforcement and interpretation of the telecommunications laws and licenses is
unpredictable and is often based on informal views of government officials
and ministries. This is particularly true in Mexico and certain of our target
Latin American markets, where government officials and ministries may be
subject to influence by the former telecommunications monopoly, such as
Telmex. This means that our compliance with the laws may be challenged. It
could be very expensive to defend this type of challenge and we might not
win. If we were found to have violated the laws that govern our business, we
could be fined or denied the right to offer services. To our knowledge, we
are not currently subject to any regulatory inquiry or investigation.
. If we are not able to obtain a long distance license from the Mexican
government, we may not be able to achieve profitability
The ultimate fulfillment of our strategy for the future depends on obtaining
a long distance license from the Mexican government so that we no longer have
to pay other companies who have a Mexican long distance license to complete
our calls in Mexico. If we do not obtain this license, we may not be able to
reduce our costs sufficiently that we earn a profit. We have applied for a
long distance license and we are also in negotiations to acquire a Mexican
company, which holds a long distance license. We have obtained preliminary
regulatory approval from the Mexican government to acquire this company, but
we may not be able to acquire this company or obtain this license in some
other manner.
. Our operations may be affected by political changes in Mexico and other Latin
American countries
The majority of our foreign operations are in Mexico. The political and
economic climate in Mexico is more uncertain than in the United States and
unfavorable changes could have a direct impact on our operations in Mexico.
For example, a newly elected set of government officials could decide to
quickly reverse the deregulation of the Mexican telecommunications industry
economy and take steps such as seizing our property, revoking our licenses,
or modifying our contracts with Mexican
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suppliers. The next elections in Mexico are scheduled for August 2000. A
period of poor economic performance could reduce the demand for our services
in Mexico. There might be trade disputes between the United States and Mexico
which result in trade barriers such as additional taxes on our services. The
Mexican government might also decide to restrict the conversion of pesos into
dollars or restrict the transfer of dollars out of Mexico. These types of
changes, whether they occur or are only threatened, would also make it more
difficult for us to obtain financing in the United States.
. If the value of the Mexican Peso declines relative to the Dollar, we will
have decreased earnings as stated Dollars
Approximately 20% of ATSI's revenue is collected in Mexican Pesos. If the
value of the Peso relative to the Dollar declines, that is, if Pesos are
convertible into fewer Dollars, then our earnings, which are stated in
dollars, will decline. We do not engage in any type of hedging transactions
to minimize this risk and do not intend to do so.
RISKS RELATED TO FINANCING
. If we do not raise additional capital we may go out of business
In the past we have financed our operations almost exclusively through the
private sales of securities. In the near term we expect to sell additional
common stock or securities convertible into common stock, which will dilute
our existing shareholders' percentage ownership of ATSI and depress the price
of our common stock. See the risk factors in the section captioned "Risk
Related to Market for Common Stock," below. Since we are not a profitable
company, it is difficult for us to raise money on terms we find acceptable.
The terms we are able to arrange may be more costly than the terms that
profitable companies could obtain, and may place significant restrictions on
our operations.
. We owe $160,000 to the holder of our series D preferred stock for taking too
long to obtain an effective registration statement, and we will owe it even
more money if the registration statement is not declared effective soon.
Under the terms of registration rights agreements we signed with The Shaar
Fund at the time we issued our series C preferred stock on September 24, 1999
we are required to pay liquidated damages to The Shaar Fund of $25,000 for
failing to file a registration statement for the underlying common stock by
October 24, 2000 or failing to obtain effectiveness by December 23, 2000, and
an additional $25,000 for each subsequent 30 day period that we fail to meet
those targets. We initially filed our registration statement for the common
stock underlying the series C preferred stock on October 26, 2000, 2 days
late. The Shaar Fund has waived the penalty resulting from that late filing.
As of April 1, 2000, we have not obtained effectiveness of the registration
statement, resulting in liquidated damages owing to The Shaar Fund of
$100,000, with another $25,000 to accrue if the registration statement is not
effective by April 21, 2000.
Under the terms of registration rights agreements we signed with The Shaar
Fund at the time we issued our series D preferred stock on February 22, 2000
we are required to pay liquidated damages to The Shaar Fund of $60,000 for
failing to file a registration statement for the underlying common stock by
April 1, 2000 or failing to obtain effectiveness by June 1, 2000 and an
additional $60,000 for each subsequent 30 day period that we fail to meet
those targets. We filed the registration statement late, and if we fail to
obtain effectiveness, we may incur substantial additional liquidated
damages.
21
<PAGE>
. The terms of our preferred stock includes disincentives to a merger or other
change of control of the company, which could discourage a transaction that
would otherwise be in the interest of our stockholders.
In the event of a change of control of ATSI, the terms of the series D
preferred stock permit The Shaar Fund to choose either to receive whatever
cash or stock the common stockholders receive in the change of control as if
the series D stock had been converted, or to require us to redeem the series
D preferred stock at $1560 per share. If all 3,000 shares of the series D
preferred stock were outstanding at the time of a change of control, this
could result in a payment to The Shaar Fund of $4,680,000. The possibility
that we might have to pay this large amount of cash would make it more
difficult for us to agree to a merger or other opportunity that might arise
even though it would otherwise be in the best interest of the shareholders.
. We may have to redeem the series D preferred stock for a substantial amount
of cash, which would severely restrict the amount of cash available for our
operations.
The terms of the series D preferred stock require us to redeem the stock for
cash in two circumstances in addition to the change of control situation
described in the immediately preceding risk factor.
First, the terms of the series D preferred stock prohibits The Shaar Fund
from acquiring more than 11,509,944 shares of our common stock, which is 20%
of the amount of shares of common stock outstanding at the time we issued the
series D preferred stock. The terms of the series D preferred stock also
prohibit The Shaar Fund from holding more than 5% of our common stock at any
given time. Due to the floating conversion rate, the number of shares of
common stock that may be issued on the conversion of the series D stock
increases as the price of our common stock decreases, so we do not know the
actual number of shares of common stock that the series D preferred stock
will be convertible into. On the second anniversary of the issuance of the
series D preferred stock we are required to convert all remaining unconverted
series D preferred stock. If this conversion would cause The Shaar Fund to
exceed these limits, then we must redeem the excess shares of Series D
preferred stock for cash equal to $1270 per share, plus accrued but unpaid
dividends.
Second, if we refuse to honor a conversion notice or a third party challenges
our right to honor a conversion notice by filing a lawsuit, The Shaar fund
may require us to redeem any shares it then holds for $1270 per share. If all
3,000 shares were outstanding at the time of a redemption, this would result
in a cash payment of $3,810,000 plus accrued and unpaid dividends. If we were
required to make a cash payment of this size, it would severely restrict our
ability to fund our operations.
. We may redeem our preferred stock only under certain circumstances, and
redemption requires us to pay a significant amount of cash and issue
additional warrants; therefore we are limited as to what steps we may take to
prevent further dilution to the common stock if we find alternative forms of
financing
We may redeem the series A preferred stock only after the first anniversary
of the issue date, and only if the market price for our common stock is 200%
or more of conversion price for the series A preferred stock. The redemption
price for the series A stock is $100 per share plus accrued and unpaid
dividends. We may redeem the series D preferred stock only if the price of
our common stock falls below $9.00, the price on the date of closing the
series D preferred stock. The redemption
22
<PAGE>
price is $1270 per share, plus accrued but unpaid dividends, plus an
additional warrant for the purchase of 150,000 shares of common stock. In the
event that we are able to find replacement financing that does not require
dilution of the common stock, these restrictions would make it difficult for
us to "refinance" the preferred stock and prevent dilution to the common
stock.
. The partial spin-off and public offering of shares of our subsidiary
GlobalSCAPE will have a negative impact on our operating results and cash
flows
Because GlobalSCAPE currently contributes significantly to the Company's
consolidated EBITDA results, the Company expects its consolidated operating
and cash flow results to decline after the spin-off and offering.
RISKS RELATING TO MARKET FOR OUR COMMON STOCK
. We expect the holders of our preferred stock and warrants and our employees
who have stock options to convert their stock and exercise their warrants and
options, which will result in significant dilution to the common stock
The Potential Dilution Chart included as Exhibit 99.10 in this registration
statement shows all of the outstanding securities that are convertible into
or exercisable for ATSI's common stock. The table included as Exhibit 99.11
describes the features of the preferred stock in more detail. Given the
current market price of our stock, the holders of each of most of these
securities will realize a financial benefit by converting or exercising their
securities, so we expect that almost all of the common stock that may be
issued under the terms of each of these securities will be issued. Even if
the holders of the preferred stock do not elect to convert, the terms of the
preferred stock require conversion after a certain time. Since the conversion
price of our preferred stock floats at a discount to market price, we do not
know how many shares will ultimately be issued.
. The sale of the common stock issued upon conversion of preferred stock and
exercise of the warrants will put downward pricing pressure on ATSI's common
stock; any potential short sales by those converting will also put downward
pressure on ATSI's common stock
Most of the common stock that is included in the Potential Dilution Chart has
been or will be registered with the SEC, meaning that the common stock will
be freely tradeable in the near term. We expect many of the stockholders will
sell their holdings in the near term, and in particular we expect The Shaar
Fund to sell its shares of common stock resulting from the conversion of the
series C stock very shortly after the effectiveness of the registration
statement of which this prospectus is a part, and its shares of common stock
resulting from the conversion of the series D preferred stock very shortly
after it is issued to them. The addition of this substantial number of shares
of common stock to the market will put downward pricing pressure on out
stock.
. We will likely continue to issue common stock or securities convertible into
common stock to raise funds we need, which will further dilute your ownership
of ATSI and may put additional downward pricing pressure on the common stock
Since we continue to operate at a loss, we will continue to need additional
funds to stay in business. At this time, we are not likely to be able to
borrow enough money to continue operations on terms we find acceptable so we
expect to have to sell more shares of common stock or more securities
convertible in common stock. Convertible securities will likely have similar
features to our existing
23
<PAGE>
preferred stock, including conversion at a discount to market. The sale of
additional securities will further dilute your ownership of ATSI and put
additional downward pricing pressure on the stock.
. The potential dilution of your ownership of ATSI will increase as our stock
price goes down, since our preferred stock is convertible at a floating rate
that is a discount to the market price.
Our series A and D preferred stock is convertible into common stock based on
a conversion price that is a discount to the market price for ATSI's common
stock. The conversion price for the series A stock is reset each year on the
anniversary of the issuance of the stock, and the conversion price for the
series D preferred stock floats with the market on a day-to-day basis. For
each series, the number of shares of common stock that will be issued on
conversion increases as the price of our common stock decreases. Therefore,
as our stock price falls, the potential dilution to the common stock
increases, and the amount of pricing pressure on the stock resulting from the
entry of the new common stock into the market increases.
. Sales of common stock by the preferred holders may cause the stock price to
decrease, allowing the preferred stock holders to convert their preferred
stock into even greater amounts of common stock, the sales of which would
further depress the stock price.
The terms of the preferred stock may amplify a decline in the price of our
common stock since sales of the common stock by the preferred holders may
cause the stock price to fall, allowing them to convert into even more shares
of common stock, the sales of which would further depress the stock price.
. The potential dilution of your ownership of ATSI resulting from our series D
preferred stock will increase if we sell additional common stock for less
than the conversion price applicable to the series D preferred stock.
The terms of the series D preferred stock require us to adjust the conversion
price if we sell common stock or securities convertible into common stock at
a greater discount to market than provided for the series D preferred stock.
Therefore, if we sell common stock or securities convertible into common
stock in the future on more favorable terms than the discounted terms, we
will have to issue even more shares of common stock to The Shaar Fund than
initially agreed on.
. We expect to issue additional shares of common stock to pay dividends on the
preferred stock, further diluting your ownership of ATSI and putting
additional downward pricing pressure on the common stock.
The series A stock requires quarterly dividends of 10% per annum, and the
series D stock requires quarterly dividends of 6% per annum. We have the
option of paying these dividends in shares of common stock instead of cash
and we expect to use that option. The issuance of these additional shares of
common stock will further dilute your ownership of ATSI and put additional
downward pricing pressure on the common stock.
. We have agreed to register additional unregistered shares of common stock,
which will put further pressure on the price of the common stock.
We have agreed to register 3,003,532 shares of common stock in addition to
the shares covered by this prospectus, which includes 506,330 shares for the
conversion of the 10,000 shares of series A preferred stock issued on
February 4, 2000 as described in our potential dilution chart on page 3
of
24
<PAGE>
this prospectus, and 2,632,929 shares of common stock that were issued to
holders of convertible debt in exchange for their shares of convertible debt
in January 2000 as described in footnote 4 to our financial statements
appearing in our Quarterly Report on Form 10-Q for the quarter ended January
31, 2000. We expect that much of this stock will be sold upon registration,
which will put downward pressure on the price of our stock.
. You will almost certainly not receive any cash dividends on the common stock
in the foreseeable future.
Sometimes investors buy common stock of companies with the goal of generating
periodic income in the form of dividends. You may receive dividends from time
to time on stock you own in other companies. We have no plan to pay dividends
in the near future.
. Our common stock price is volatile.
Our stock price has historically been volatile. Volatility makes it more
difficult for you to sell shares when you choose, at prices you find
attractive. The risk factors described above relating to the probable
dilution of the common stock will tend to increase volatility in the price of
our common stock.
. The partial spin-off and public offering of shares of our subsidiary
GlobalSCAPE will tend to decrease the price of our stock.
On February 17, 2000 we announced that the Board of Directors had approved a
partial spin of GlobalSCAPE and a public offering of those shares to our
shareholders and GlobalSCAPE's customers. Completion of these transactions
separates the value of GlobalSCAPE that is currently inherent in our common
stock and tend to reduce the price of our stock.
ITEM 2. PROPERTIES
The Company's executive offices, principal teleport facility and control
center are located at its leased facility in San Antonio, Texas, consisting of
11,819 square feet. The lease expires August 2002, and has two five-year
renewal options. The Company pays annual rent of $98,452 (increasing to
$107,789 per year for the last year) under the lease and is responsible for
taxes and insurance. GlobalSCAPE, Inc.'s offices are located at its leased
facility in San Antonio, Texas, consisting of 5,401 square feet. The lease
expires January 31, 2001. GlobalSCAPE, Inc. pays annual rent of $87,496 per
year and is responsible for taxes and insurance.
Subsequent to year-end, the Company and GlobalSCAPE entered into agreements
for new office space beginning in December of 1999. Both agreements are for a
period of eight and a half-years with rent deferred for the first six months of
the agreement. The Company's facility will consist of 26,250 square feet with
annual rent of $311,850 per year while GlobalSCAPE's facility will consist of
14,553 square feet with annual rent of $174,636 per year. Management believes
its leased facilities are suitable and adequate for their intended use.
25
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
On January 29, 1999, one of the Company's customers, Twister
Communications, Inc. filed a Demand for Arbitration seeking damages for breach
of contract before the American Arbitration Association. The customer claims
that the Company wrongfully terminated an International Carrier Services
Agreement executed by the parties in June 1998 under which the Company provided
wholesale carrier services from June 1998 to January 1999. The customer's
claims for damages represent amounts that it claims it had to pay in order to
replace the service provided by the Company. The Company disputes that it
terminated the contract wrongfully and asserts that the customer breached the
agreement by failing to pay for services rendered and by intentionally making
false representation regarding its traffic patterns and on March 3, 1999 filed a
Demand for Arbitration seeking damages for breach of contract in an amount equal
to the amounts due to the Company for services rendered plus interest, plus
additional damages for fraud. An arbitration panel was selected and the parties
are now completing written discovery.
While the Company believes that it has a justifiable basis for its
arbitration demand and that it will be able to resolve the dispute without a
material adverse effect on the Company's financial condition; until the
arbitration proceedings take place, the Company can not reasonably estimate the
possible loss, if any, and there can be no assurance that the resolution of this
dispute would not have an adverse effect on the Company's results of operations.
On June 16, 1999, the Company's subsidiary, ATSI Texas initiated a lawsuit
in District Court, Bexar County, Texas against PrimeTEC International, Inc.,
Mike Moehle and Vartec Telecom, Inc. claiming misrepresentation and breach of
conduct. Under an agreement the Company signed in late 1998, PrimeTEC was to
provide quality fiber optic capacity in January 1999. Mike Moehle is PrimeTEC's
former president who negotiated the fiber lease and Vartec is PrimeTEC's parent.
The delivery of the route in early 1999 was a significant component of the
Company's operational and sales goal for the year and the failure of its vendor
to provide the capacity led to the Company negotiating an alternative agreement
with Bestel, S.A. de C.V. at a higher cost. While the total economic impact is
still being assessed, the Company believes lost revenues and incremental costs
are in excess of $15 million. While the Company's contract contains certain
limitations regarding the type and amounts of damages that can be pursued, the
Company has authorized its attorneys to pursue all relief to which it is
entitled under law. As such, the Company can not reasonably estimate the
ultimate outcome of neither this lawsuit nor the additional costs that may be
incurred in the pursuit of its case.
The Company is also a party to additional claims and legal proceedings
arising in the ordinary course of business. The Company believes it is unlikely
that the final outcome of any of the claims or proceedings to which the Company
is a party would have a material adverse effect on the Company's financial
statements; however, due to the inherent uncertainty of litigation, the range of
possible loss, if any, cannot be estimated with a reasonable degree of precision
and there can be no assurance that the resolution of any particular claim or
proceeding would not have an adverse effect on the Company's results of
operations in the period in which it occurred.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no submissions of matters to a vote of security holders during
the fourth quarter of the Company's fiscal year.
26
<PAGE>
PART II.
--------
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is quoted on the AMEX under the symbol "AI".
From December 1997 to February 14, 2000 the Company's Common Stock was traded on
the NASD: OTCBB under the symbol "AMTI". Prior to December 1997, the Company's
Common Stock was traded on the Canadian Dealing Network under the symbol
ATIL.CDN. The table below sets forth the high and low bid prices for the Common
Stock from August 1, 1997 through December 21, 1997 as reported by the Canadian
Dealing Network, from December 22, 1997 through February 14, 2000 as reported by
NASD: OTCBB and from February 15, 2000 through April 10, 2000. These price
quotations reflect inter-dealer prices, without retail mark-up, markdown or
commission, and may not necessarily represent actual transactions.
Fiscal 1998 High Low
---------------------------------------------------
First - ......................... $ 3 1/4 $ 1 3/8
Second - ........................ $ 3 7/16 $ 2
Third - ......................... $ 3 1/2 $ 1 5/7
Fourth - ........................ $ 2 1/4 $ 3/4
Fiscal 1999 High Low
---------------------------------------------------
First - ......................... $ 1 1/8 $ 15/32
Second - ........................ $ 1 9/32 $ 3/4
Third - ......................... $ 1 13/64 $ 5/8
Fourth - ........................ $ 1 53/64 $ 1 1/32
Fiscal 2000 High Low
---------------------------------------------------
First - ......................... $ 1 11/32 $ 45/64
Second - ........................ $ 2 29/32 $ 45/64
Third - (through April 10, 2000). $ 9 7/16 $ 2 1/2
At April 10, 2000 the closing price of the Company's Common Stock as
reported by AMEX was $6.0625 per share. As of April 10, 2000, the Company had
approximately 5,000 stockholders, including both beneficial and registered
owners. The terms of the Company's Series A, Series B, Series C and Series D
Preferred Stock restrict the Company from paying dividends on its Common Stock
until such time as all outstanding dividends have been fulfilled related to the
Preferred Stock. ATSI has not paid dividends on its common stock the past three
years and does not expect to do so in the foreseeable future.
27
<PAGE>
ITEM 6. SELECTED FINANCIAL AND OPERATING DATA.
The following selected financial and operating data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Company's Consolidated Financial Statements
and the Notes thereto included elsewhere herein.
<TABLE>
<CAPTION>
Years ended July 31,
--------------------
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
(In thousands of $, except per share data)
<S> <C> <C> <C> <C> <C>
Consolidated Statement of Operations
Data:
Operating revenues:
Call services $ 4,470 $10,807 $12,545 $13,547 $ 6,602
Direct dial services - - 1,421 6,085 6,024
Network management services 318 2,614 1,698 13,362 19,250
Internet e-commerce - 54 564 1,526 2,642
Total operating revenues 4,788 13,475 16,228 34,520 34,518
Operating expenses:
Cost of services 4,061 10,833 12,792 22,287 21,312
Selling, general and administrative 2,196 3,876 6,312 12,853 12,652
Bad debt 340 554 735 1,024 2,346
Depreciation and amortization 141 281 591 1,822 3,248
Total operating expenses 6,738 15,544 20,430 37,986 39,558
Loss from operations (1,950) (2,069) (4,202) (3,466) (5,040)
Net loss $(2,004) $(2,205) $(4,695) $(5,094) $(7,591)
Per share information:
Net loss $ (0.14) $ (0.11) $ (0.18) $ (0.12) $ (0.16)
Weighted average common shares 13,922 19,928 26,807 41,093 47,467
outstanding
Consolidated Balance Sheet Data:
Working capital (deficit) $ (446) $ (592) $ 195 $(5,687) $(6,910)
Current assets 1,088 1,789 5,989 5,683 5,059
Total assets 2,766 4,348 15,821 24,251 24,154
Long-term obligations, including 133 604 3,912 8,303 10,168
current portion
Total stockholders' equity 1,231 1,629 6,936 7,087 6,137
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
SPECIAL NOTE: Certain Statements set forth below under this caption constitute
"forward-looking statements" within the meaning of the Securities Act. See page
2 for additional factors relating to such statements.
The following is a discussion of the consolidated financial condition and
results of operations of the Company for the three fiscal years ended July 31,
1997, 1998, and 1999. It should be read in conjunction with the Consolidated
Financial Statements of the Company, the Notes thereto and the other financial
information included elsewhere in this annual report on Form 10-K. For purposes
of the following discussion, references to year periods refer to the Company's
fiscal year ended July 31.
28
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General
The Company's mission is to employ leading-edge technologies for delivery
of exceptional telecommunication services to underserved Latino markets in the
U.S. and Latin America emphasizing convenience, accessibility, quality,
reliability, and affordability, while continually seeking to add value through
new and innovative products and services. Utilizing a framework of licenses,
interconnection and service agreements, network facilities and retail
distribution channels (hereinafter collectively referred to as the "framework"),
the Company is primarily focused on capturing market share in the international
telecommunications corridor between the United States and Mexico. Even with
poor phone-line penetration, the Company's research indicates that Mexico may
exchange more international traffic with the U.S. than any other country in the
world within the next two years. As the regulatory environments allow, the
Company also plans to establish framework in other Latin American countries as
well. In addition to the U.S. and Mexico, the Company currently owns or has
rights to use facilities in and has strategic relationships with carriers in
Costa Rica, El Salvador, and Guatemala.
Utilizing the framework described above, the Company provides local,
domestic long distance and international calls from its own public telephones
and casetas within Mexico, and provides similar services to some third party-
owned casetas, public telephones and hotels in Mexico. Consumers visiting a
Company-owned communication center or public telephone may dial directly to the
desired party in exchange for cash payment, or can charge the call to a U.S.
address (collect, person-to-person, etc.) or calling card, or to a U.S. dollar-
denominated credit card with the assistance of an operator. In July 1998, the
Company began providing domestic U.S. and international call services to Mexico
to residential customers on a limited basis in the U.S. Callers may either pre-
subscribe to the Company's one-plus residential service, or dial around their
pre-subscribed carrier by dialing 10-10-624, plus the area code and desired
number. Where possible, these retail calls are transported over the Company's
own network infrastructure.
Utilizing the same framework described above, the Company also serves as a
retail and wholesale facilities-based provider of network services for corporate
clients and U.S. and Latin American telecommunications carriers. These
customers typically lack transmission facilities into certain markets, or
require additional capacity into certain markets. The Company currently provides
these services to and from the United States, Mexico, Costa Rica, El Salvador
and Guatemala.
The Company is also the sole owner of GlobalSCAPE, Inc., which is rapidly
becoming a leader in electronic commerce of top Internet-based software,
utilizing the Web as an integral component of its development, marketing,
distribution and customer relationship strategies. Utilizing CuteFTP as its
flagship product, GlobalSCAPE has a user base of approximately 7.5 million users
as of July 31, 1999.
The Company's consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. The Company has incurred
losses since inception and has a working capital deficit as of July 31, 1999.
Additionally, the Company has had recurring negative cash flows from operations
with the exception of a three month period ended January 31, 1998. For the
reasons stated in Liquidity and Capital Resources and subject to the risks
referred to in Liquidity and Capital Resources, the Company expects improved
results of operations and liquidity in fiscal 2000. However, no assurance may
be given that this will be the case.
29
<PAGE>
Results of Operations
The following table sets forth certain items included in the Company's
results of operations in thousands of dollar amounts and as a percentage of
total revenues for the years ended July 31, 1997, 1998 and 1999.
<TABLE>
<CAPTION>
Year Ended July 31,
----------------------------------------------------------------
1997 1998 1999
------------------- ----------------- --------------------
$ % $ % $ %
- - - - - -
<S> <C> <C> <C> <C> <C> <C>
Operating revenues
- ------------------
Network management services $ 1,698 11% $13,362 39% $19,250 56%
Call services $12,545 77% $13,547 39% $ 6,602 19%
Direct dial services $ 1,421 9% $ 6,085 18% $ 6,024 17%
Internet e-commerce $ 564 3% $ 1,526 4% $ 2,642 8%
------- ------- -------
Total operating revenues $16,228 100% $34,520 100% $34,518 100%
Cost of services $12,792 79% $22,287 65% $21,312 62%
------- ------- -------
Gross margin $ 3,436 21% $12,233 35% $13,206 38%
Selling, general and
Administrative expenses $ 6,312 39% $12,853 37% $12,652 37%
Bad debt expenses $ 735 4% $ 1,024 3% $ 2,346 6%
Depreciation and amortization $ 591 4% $ 1,822 5% $ 3,248 10%
------- ------- -------
Operating loss $(4,202) -26% $(3,466) -10% $(5,040) -15%
Other, net $ (493) -3% $(1,628) -5% $(1,696) -5%
------- ------- -------
Net loss $(4,695) -29% $(5,094) -15% $(6,736) -20%
Less: preferred stock dividends $ - 0% $ - 0% $ (855) -2%
------- ------- -------
Net loss to common shareholders $(4,695) -29% $(5,094) -15% $(7,591) -22%
======= ======= =======
</TABLE>
Year ended July 31, 1999 Compared to Year Ended July 31, 1998
Operating Revenues. Operating revenues were flat between years, due
primarily to declines in the Company's call services revenues offset by the
growth in the Company's network management and Internet e-commerce services.
Network management services, which includes both retail and wholesale
transport services increased 44%, or $5.9 million from 1998 to 1999. Revenues
from the wholesale transport of traffic for U.S.-based carriers increased as the
Company processed approximately 78.6 million minutes in 1999 as compared to 46.1
million minutes in 1998. The 70% increase in minutes did not result in a
corresponding increase in revenues as competitive and other market factors
caused the Company's revenue per minute to decline from period to period. The
Company's agreement with Satelites
30
<PAGE>
Mexicanos, S.A. de C.V. ("SATMEX"), secured in the fourth quarter of fiscal 1998
allowed the Company to secure and resell additional bandwidth capacity. This
increased capacity and flexibility allowed the Company to increase billings to
existing corporate clients who previously dealt with SATMEX directly and to add
additional retail, corporate clients more quickly.
Call services revenue decreased approximately $6.9 million, or 51%, between
years. This decline is principally attributable to the Company's strategy to
focus on providing international call services from its own payphones and
communication centers (casetas). In July 1998, the Company ceased providing call
services for third-party owned payphones and hotels in the U.S., Jamaica and the
Dominican Republic and decreased the level of services provided to third-party
owned telephones and hotels in Mexico, as these services did not utilize the
Company's core business and the costs associated with further provision of
services did not justify keeping the business. For the year ended July 31, 1999,
the Company processed approximately 160,000 calls from Mexico as compared to
approximately 314,000 for the same period in 1998 and no calls for third-party
owned telephones and hotels in the U.S., Jamaica and the Dominican Republic as
compared to approximately 350,000 calls in 1998.
Direct dial service revenues, which are generated by calls processed by the
Company without live or automated operator assistance, declined slightly between
years. A majority of these revenues, stated in U.S. dollars in the accompanying
consolidated financial statements are generated by calls processed by the
Company's public telephones and casetas in Mexico in exchange for immediate cash
payment in pesos, the local Mexican currency. While the number of these calls
and consequently the pesos collected increased between years, those pesos
converted into fewer U.S. dollars as the average exchange rate between years
went from 8.33 pesos to the dollar for fiscal 1998 to 9.77 pesos to the dollar
for fiscal 1999.
Revenues from GlobalSCAPE, Inc., the Company's e-commerce subsidiary
increased approximately $1.1 million or 73% between years. GlobalSCAPE's
purchase of the rights to the source code of CuteFTP, its flagship product in
January 1999, resulted in an enhanced version of CuteFTP which increased the
number of downloads and subsequent purchases. Additionally, GlobalSCAPE began
using its Internet presence to produce ad revenues in the fourth quarter of
1999.
Cost of Services. Cost of services decreased approximately $975,000, or 4%
between years, and decreased as a percentage of revenues from 65% to 62%. The
decline in cost of services between years was primarily a result of the
contributions of GlobalSCAPE. Prior to GlobalSCAPE's purchase of CuteFTP, it was
obligated to pay royalties to CuteFTP's original author for the right to sell
and distribute CuteFTP. The purchase of the source code eliminated such royalty
fees and improved GlobalSCAPE's and the Company's gross margins. Gross margins
for the Company's telco operations remained flat at 34% between years, in spite
of intense market pressures in the Company's wholesale network transport
services. By eliminating and reducing certain call services, such as those
offered to third-party owned payphones and hotels in the U.S., Jamaica, the
Dominican Republic and Mexico, which did not fully utilize the Company's own
network infrastructure, the Company was able to move toward vertical integration
of its services and operations and maximize its gross margins using its own
network where possible.
Selling, General and Administrative (SG&A) Expenses. SG&A expenses
decreased 2%, or approximately $200,000 between year, as the Company did not
incur expenses incurred in the prior year associated with its Plan of
Arrangement. As a percentage of revenue, these expenses remained flat at 37%.
The Company had anticipated that these expenses would decline as a percentage of
revenues, but they did not do so in light of the circumstances surrounding the
delay of fiber capacity available to the Company. In the fourth quarter of 1999,
the Company began to further integrate its two primary
31
<PAGE>
operating subsidiaries in Mexico, Computel and ATSI-Mexico as the Company
continues to seek ways to lower its SG&A expense levels. Net of non-cash
expenses, related to the Company's option plans, SG&A expenses decreased
approximately $300,000.
Bad Debt Expense. Bad Debt Expense increased $1.3 million from fiscal 1998
to fiscal 1999. During the fourth quarter of 1999, the Company established
specific bad debt reserves of approximately $1.5 million related to retail and
wholesale transport of network management services. While the Company has
reserved for these customers, it is actively pursuing collection of amounts owed
including legal proceedings specifically related to approximately $1.2 million
of the accounts reserved. Excluding these specific reserves, bad debt expense
declined both as a % of revenues and in actual dollars between years.
Depreciation and Amortization. Depreciation and amortization rose
approximately $1.4 million, or 78%, and rose as a percentage of revenues from 5%
to 10% between years. The increased depreciation and amortization is
attributable to an approximate $2.4 million increase in fixed assets between
years as well as increased amortization related to acquisition costs, trademarks
and goodwill. The majority of the assets purchased consisted of equipment which
added capacity to the Company's existing international network infrastructure
including the Network Technologies (N.E.T.) equipment purchased in December 1998
and the Company's new Nortel DMS 250/300 International Gateway switch purchased
in January 1999.
Operating Loss. The Company's operating loss increased $1.6 million from
1998 primarily due to increased depreciation and amortization and increased bad
debt expense which more than offset the improvements in gross margin dollars
produced from 1998 to 1999.
Other Income(expense). Other income (expense) decreased approximately
$70,000 between years. This decrease was principally attributable to the
increase in interest expense from approximately $1.6 million for 1998 to
approximately $1.7 million for 1999.
Preferred Stock Dividends. During fiscal 1999, the Company recorded
approximately $855,000 of expense related to cumulative convertible preferred
stock. In addition to cumulative dividends on its Series A and Series B
Preferred Stock, which are accrued at 10% and 6%, respectively per month, the
Company has recorded a discount or "beneficial conversion feature" associated
with the issuance of its preferred stock of approximately $1.6 million related
to Series A Preferred Stock, which is being amortized over a twelve-month period
and $1.1 million related to Series B Preferred Stock, which is being amortized
over a three-month period.
Net income (loss.) Net loss increased from approximately $5.1 million to
$7.6 million between years. The increase in net loss was due primarily to
increased bad debt expense, depreciation and amortization and preferred stock
dividends between the year ended July 31, 1998 and the year ended July 31,
1999.
Year ended July 31, 1998 Compared to Year Ended July 31, 1997
Operating Revenues. Operating revenues increased approximately $18.3
million, or 113%, as the Company experienced growth in each service category.
Network management services increased 687% from $1.7 million in 1997 to
$13.4 million in 1998. The majority of this growth was due to the amount of
wholesale network services provided to other carriers seeking transmission
facilities or additional capacity for their services. The Company
32
<PAGE>
began providing these services in October 1997, and produced approximately $10
million in revenues from this service during 1998.
Call services revenue increased approximately $1.0 million, or 8%,
primarily due to growth in the Company's customer base in Mexico that produces
calls to the United States from hotels, public telephones and casetas. As a
result of the installation of public telephones, the implementation of a direct
sales strategy, and the purchase of Computel in August 1997, the Company
processed approximately 314,000 international calls originating in Mexico during
fiscal 1998. This compares to approximately 200,000 calls processed the year
before. This increase in international calls from Mexico was offset to a large
extent by a decrease in domestic and international operator-assisted calls
originating in the United States and Jamaica. During 1998, the Company de-
emphasized these services due to relatively lower profit margins on this
business. On July 16, 1998, the Company ceased providing these services
altogether. Revenues from these services decreased from approximately $3.9
million in 1997 to approximately $2.9 million in 1998. The Company does not
anticipate producing significant revenues from such services, if any, during
fiscal 1999.
Direct dial services, calls processed in exchange for cash without
utilizing the company's operator center in San Antonio, Texas, increased 328%
from approximately $1.4 million in fiscal 1997 to approximately $6.1 million in
fiscal 1998. This increase was primarily due to the acquisition in May and
August 1997 of Computel, the largest private caseta operator in Mexico. The
Company also began processing local and domestic long distance calls within
Mexico during the latter half of 1997 from its own intelligent payphones
installed in resort areas of Mexico. These calls are made by depositing coins
(pesos or quarters) in the Company's phones to initiate service.
Cost of Services. Cost of services increased approximately $9.5 million,
or 74% between years, but decreased as a percentage of revenues from 79% to 65%.
The increase in cost of services is attributable to the increased volume of
business handled by the Company during 1998, as discussed above. The
improvement in the Company's gross profit margin resulted from the change in the
mix of services it provided during 1998 as described above, and its continuing
efforts to decrease costs subsequent to the demonopolization of Telmex, which
took place January 1, 1997. Subsequent to Telmex's demonopolization, the
Company was able to negotiate with newly concessioned carriers in Mexico to
transport its calls originating and terminating in Mexico, which has lowered the
associated per minute rate to carry those calls. Additionally, the Company was
one of the first four companies to receive a public payphone comercializadora
license from the SCT in February 1997, which has allowed the Company to provide
local, domestic and international calls from public telephones in Mexico. In
November 1997, the Company purchased the customer base of Comunicaciones del
Caribe, S.A. de C.V., an independent marketing representative in the
Cancun/Cozumel area of Mexico which did not have a comercializadora license, and
which had been utilizing the Company's operator center for processing
international calls. By purchasing the customer base, the Company was able to
eliminate a layer of expense associated with the traffic and effectively lower
its overall commission rate paid to public telephone location owners in Mexico.
The Company has also improved its gross margin by utilizing its own existing
satellite network infrastructure and licenses to provide network services to
other carriers seeking transmission facilities or extra capacity for their own
services.
Selling, General and Administrative (SG&A) Expenses. SG&A expenses rose
104%, or approximately $6.5 million, from 1997 to 1998. As a percentage of
revenue, these expenses decreased from 39% to 37% between years. The growth in
dollars between years was caused by the acquisition of Computel, the continued
growth of the Company's ATSI-Mexico operations, the expensing of costs related
to the Company's planned acquisition of additional concessions from the Mexican
regulatory authorities, and the expensing of costs related to the Company's
reincorporation from Canada to
33
<PAGE>
Delaware. Approximately $890,000 of the increase was due to the acquisition of
Computel, which operates approximately 134 retail-based casetas in approximately
sixty cities throughout Mexico, and employs in excess of 400 people. In August
1997, ATSI-Mexico expanded its operations and began procuring, installing,
operating and maintaining coin-operated, intelligent payphones. During 1998, the
Company expensed $631,000 in costs incurred relative to the Company's
reincorporation. Approximately $268,000 in expenses were incurred during 1997
relative to the reincorporation.
Bad Debt Expense. Bad Debt expense increased approximately $300,000 between
years but decreased as a % of revenues from 4% to 3%. The principal reason for
the improved bad debt expense as a percentage of revenues was the increase in
network management services revenues between years.
Depreciation and Amortization. Depreciation and amortization rose
approximately $1.2 million, or 208%, and rose as a percentage of revenues from
4% to 5% between years. From July 31, 1997 through July 31, 1998, the Company
acquired approximately $7.9 million in equipment. Approximately $4.6 million of
these assets were acquired through capital lease arrangements. The majority of
the assets consisted of equipment that added capacity to the Company's existing
international network infrastructure, and intelligent coin telephones that were
installed in Mexico. Approximately $1.4 million in fixed assets were acquired
subsequent to July 31, 1997 with the acquisition of Computel. The Company also
recorded $2.8 million of goodwill during 1998 associated with the purchase of
Computel, which is being amortized over a forty-year period.
Operating Loss. The Company's operating loss improved $736,000 to
approximately $3.5 million for 1998. Increased revenue levels and improved
gross margins more than offset increases in selling, general and administrative
expenses and depreciation and amortization, allowing for the improvement.
Other Income (expense). Other income (expense) rose approximately 230%, or
$1.1 million, between years. This increase was due almost exclusively to
increased interest expense levels. During 1998, the Company incurred capital
lease obligations of approximately $4.6 million related to the purchase of
equipment mentioned above, and issued notes payable in the amount of
approximately $3.1 million.
Net income (loss). Net loss increased from approximately $4.7 million to
approximately $5.1 million due primarily to increased depreciation and
amortization and increased interest expenses, offset to some extent by increased
revenues, increased gross margin dollars and improved SG&A as a % of
revenues.
Year Ended July 31, 1997 Compared to Year Ended July 31, 1996
Operating Revenues. Operating revenues increased approximately $2.8 million
or 20%, due mainly to increased revenues from call services. Approximately $1.4
million of revenues in fiscal 1996 were attributable to the sale and
installation of a large network in Mexico to one of Mexico's largest milk
producers. Subsequent to completing the sale and installation of the network,
the Company began recognizing monthly revenues from the management of the
network. The sale and installation of such a large network is not considered to
be of a recurring nature by the Company; however, management of this and other
networks is considered to be a recurring source of revenues for the Company.
GlobalSCAPE had revenue of $500,000 in fiscal 1997, representing less than 4% of
the Company's consolidated revenue.
34
<PAGE>
Operating revenues from call services increased 29%, or approximately $3.2
million, due almost entirely to increased call volumes from international call
services provided from hotels and resorts in Jamaica, increased call volumes
attributable to the Company's Brazilian calling card product, and the inclusion
of Computel's revenues attributable to call services provided by Computel during
the last quarter of fiscal 1997 (which represented approximately $1.4 million of
consolidated revenues in fiscal 1997). Revenues from international calls
originating in Mexico increased 5%, while call volumes and related revenues from
calls originating in Mexico and from calls originating and terminating
domestically within the U.S. remained relatively constant between periods.
Although the Company continued to install Charge-a-Call telephones in Mexico
throughout fiscal 1997, the number of calls per phone decreased slightly. The
Company believes this was due to increasing costs to the consumer. The Company
began to lower the price per call to the consumer from certain telephones in the
first quarter of fiscal 1998 based on the decrease in the Company's cost of
providing these calls through its agreement with Investcom. The increased volume
of calls relating to Jamaica and Brazil increased the number of international
calls processed by the Company as compared to domestic calls processed entirely
within the United States. Because international calls typically generate higher
revenues on a per call basis than domestic calls, the average revenue per
completed call processed by the Company increased from $14.93 for fiscal 1996 to
$17.88 for fiscal 1997.
Excluding the $1.4 million of revenues recognized in fiscal 1996
attributable to the sale and installation of the network to the Mexican milk
producer, revenues from network management services increased approximately
$596,000, or 67%. This increase was largely due to recurring revenues from the
Mexican milk producer and Investcom commencing in the early and latter part,
respectively, of fiscal 1997.
Cost of Services. Cost of services increased approximately $2.0 million, or
18%, resulting in an increase in the Company's overall gross margin from 20% in
fiscal 1996 to 21% in fiscal 1997. If the approximately $1.4 million in revenues
and the $960,000 in costs related to the sale and installation of the network to
the Mexican milk producer were excluded from the Company's results for fiscal
1996, the Company's gross profit percentage would have been 18% for fiscal 1996.
The increase in cost of services was primarily attributable to the increased
volume of calls handled by the Company from Jamaica to the U.S. and from the
U.S. to Brazil, the inclusion of Computel's cost of services for the last
quarter of fiscal 1997, and rising costs associated with transporting calls from
Mexico to the Company's Switching/Operator Facility in San Antonio, Texas.
Although Telmex officially lost its status as a monopoly on August 10, 1996,
Investcom was not allowed connectivity to Telmex's local network in Mexico until
January 1997 and did not have the switch capacity in Mexico to process the
Company's traffic until May 1997. As a result, the Company was unable to
commence processing any of its traffic at lower per-minute costs until May 1997.
Subsequent to May 1997, the public phones serviced by the Company in Mexico were
frequently only able to access the Company's operator center utilizing a
cellular connection, since local connectivity had not yet been provided by
Telmex. This added a per-minute air time charge to the Company's cost of
transmitting calls from Mexico, resulting in a decline in the gross profit
margin on international calls transmitted from the Company's public phones in
Mexico.
Selling, General and Administrative Expenses. SG&A expenses rose 63%, or
approximately $2.4 million between years. If the revenues related to the sale
and installation of the network to the Mexican milk producer in fiscal 1996 were
excluded, SG&A expenses would have increased as a percentage of overall revenues
from 29% to 32%. The increase in SG&A expense is almost entirely due to expanded
operations within Mexico and the inclusion of Computel's SG&A expense for the
last quarter of fiscal 1997. ATSI-Mexico had less than five employees at the
beginning of fiscal 1996 as compared to 36 employees at the end of fiscal 1997.
Computel operates 134 casetas in approximately 72 cities throughout Mexico, and
has approximately 430 employees.
35
<PAGE>
Bad Debt Expense. Bad debt expense increased approximately $180,000 between
years and remained flat as a percentage of revenues at 4%. The Company incurred
greater bad debt expense due to the higher revenue levels between years.
Depreciation and Amortization. Depreciation and amortization increased
approximately $310,000, or 110%, due primarily to approximately $2.1 million in
fixed asset additions principally for the development of the Company's teleport
facilities in San Antonio, Texas, Cancun and Mexico City, Mexico, and San Jose,
Costa Rica; the acquisition of intelligent payphones; and the inclusion of
Computel's depreciation attributable to the acquisition of Computel.
Other income (expense). Other income (expense) increased to a net expense
of approximately $445,000 primarily as a result of interest expense incurred on
capital lease obligations and convertible notes issued in 1997.
Net income (loss). The net loss increased from approximately $2.2 million
for the year ended July 31, 1996 to approximately $4.7 million for the year
ended July 31, 1997 primarily as a result of increased SG&A expense and
increased interest expense between years.
Liquidity and Capital Resources
Because the Company did not produce sufficient gross margin dollars to
cover its selling, general and administrative costs, the Company generated
negative cash flows from operations during the year ended July 31, 1999 of
approximately $3.6 million. This shortfall includes the $1.5 million provision
for specific accounts receivable generated during the year for which the Company
may not receive any funds.
The Company's payable and accrued liability position increased from July
31, 1998 to July 31, 1999 as the Company often utilized cash flows produced from
financing activities to pay down debt and capital lease obligations before
paying vendors or suppliers of services to the Company.
When possible, the Company arranged capital lease obligations in order to
obtain equipment necessary to expand or maintain its operations. During fiscal
1999, the Company was able to secure long-term capital lease arrangements of
$2.0 million from NTFC Capital Corporation to cover the acquisition of its
Nortel DMS 250/300 switch and $900,000 from Bank Boston Leasing to cover the
cost of ATM equipment needed to upgrade its network to a packet-switching
environment. As of July 31, 1999 the Company has only utilized approximately
$500,000 of the Bank Boston Leasing facility. During the year ended July 31,
1999 the Company acquired approximately $1.0 million in equipment which was not
financed. The majority of this equipment was used to maintain or upgrade its
network between the U.S. and Mexico.
In January 1999, GlobalSCAPE purchased the rights to the source code for
CuteFTP, its flagship product. Terms of the purchase called for a cash payment
of approximately $171,000, which the Company financed through a bank note of
$180,000 at an interest rate of prime plus 1%, and twelve monthly payments of
principal and interest of $63,000 beginning February 1999. The terms of the note
called for principal and interest payments over a two-year period, comprised
initially of twelve monthly principal payments of $5,000 plus interest to be
followed by twelve monthly principal payments of $10,000 plus interest.
GlobalSCAPE paid the monthly amounts owed for these obligations out of recurring
cash flows produced from its operations during fiscal 1999, and management
anticipates that it will continue to be able to do so during the next fiscal
year.
36
<PAGE>
In addition to the financing by GlobalSCAPE, the Company borrowed $250,000
from officers and directors of the Company that was used for working capital
purposes. As of July 31, 1999, a total of $100,000 remained outstanding to two
officers of the Company.
During 1999, the Company stopped factoring a portion of its receivables.
At that point, the Company had accumulated an approximate $319,000 balance due
to the factoring company. As of July 31, 1999 approximately $137,000 remains
outstanding on this balance, which is being paid monthly from cash generated by
the Company's call services business.
The Company paid approximately $941,000 toward its capital lease
obligations during fiscal 1999. In an effort to reduce its cash outflows, in
May 1999 the Company restructured its capital lease obligation with IBM de
Mexico, extending payment of the total obligation over a forty-eight (48) month
period. Monthly payments due under the facility with NTFC Capital Corporation
are deferred until January 2000.
In an effort to improve its working capital position, the Company raised
approximately $4.2 million from March 1999 through July 1999, net of issuance
costs, in private placements of preferred stock, and another $302,000 in a
private placement of common stock. Exercises of warrants and options during
fiscal 1999 generated an additional approximate $1.3 million in cash proceeds
during the year. The majority of the proceeds from these private placements and
warrant and option exercises were used to pay vendors and suppliers of services
to the Company.
The net result of the Company's operating, investing and financing
activities during the year was a working capital deficit at July 31, 1999 of
approximately $6.9 million and cash on hand of approximately $379,000. Included
in the Company's current obligations, net of the associated debt discount, are
notes payable of $2.2 million which will be due and payable, along with accrued
interest of approximately $760,000 in March 2000.
Although the Company generated cash flows from financings in excess of $6.2
million during fiscal 1999, these proceeds were not sufficient to cover the net
cash used in operations, capital expenditures and debt service requirements of
approximately $6.9 million incurred during the year. As planned, the Company
shifted its focus during the year away from traffic generated outside of its
core market of Mexico, and focused on generating and transporting traffic over
its own international network infrastructure in order to produce better cash
flow results. The result was an increase in wholesale network transport traffic
flowing over the Company's network. Overall, network services contributed
approximately 56% of overall corporate revenues during the year, as opposed to
approximately 39% in fiscal 1998. However, market pressures caused the price at
which wholesale network transport services could be sold to decline
approximately 40% during fiscal 1999. Although the Company was able to reduce
its costs associated with transporting the traffic, the Company produced less
dollars of gross margin on a per minute basis than it had in fiscal 1998.
GlobalSCAPE's gross margins increased during the year with the purchase of the
source code to CuteFTP, but on a consolidated basis the Company was unable to
generate the gross margin dollars necessary to cover SG&A costs and all of its
debt service requirements.
As of October 1999, the Company is continuing to experience market
pressures on its wholesale network transport services business. In order to
produce better cash flows, the Company must focus on keeping its international
network between Mexico and the U.S. optimally utilized with a blend of retail
and wholesale traffic. Because the Company upgraded its network during fiscal
1999 to an ATM packet-switching environment, the Company feels that it can
transport traffic as efficiently as possible in
37
<PAGE>
an effort to minimize costs. However, the Company anticipates that pricing
pressures will continue in its wholesale transport market, so it will focus its
efforts on implementing a retail strategy which targets the growing and
underserved Latino markets in both the U.S. and Mexico. Although management does
not expect improved results from this effort until the latter stages of fiscal
2000, it believes that its retail strategy combined with the deployment of
leading edge technology for communications transport will ultimately bring about
improved profitability and sustainable growth in the future.
In the near term, the Company must continue to manage its costs of
providing services and overhead costs as it begins focusing on optimizing use of
its network. The Company has applied for a long distance concession in Mexico
which, if obtained, the Company believes will eventually allow it to
significantly reduce its cost of transporting services. In order for it to
significantly reduce costs with the concession, the Company would need to
purchase a significant amount of hardware and software, allowing it to expand
and operate its own network in Mexico.
Until the Company is able to produce positive cash flows from operations in
an amount sufficient to meet its debt service and capital expenditure
requirements, it must be able to access debt and/or equity capital to assist it
in doing so, although no assurance may be given that it will be able to do so.
In September 1999, the Company issued approximately $500,000 of 6% Series C
Preferred Stock on terms substantially similar to those of the Series B
Preferred Stock. In an effort to meet its financial needs going forward, the
Company has engaged the investment banking firm of Gerard, Klauer Mattison & Co.
("GKM"). GKM will assist the Company in finding and securing financial and
strategic relationships. The Company has also engaged the investment banking
firm of SunTrust Equitable Securities to assist it in, among other things,
raising private or public funds for GlobalSCAPE. However, there can be no
assurance that such funds will be raised.
Inflation/Foreign Currency
Inflation has not had a significant impact on the Company's operations.
With the exception of direct dial services from the Company's casetas and coin
operated public telephones, almost all of the Company's revenues are generated
and collected in U.S. dollars. Direct dial services from the Company's casetas
and public telephones are generally provided on a "sent-paid" basis at the time
of the call in exchange for cash payment, so the Company does not maintain
receivables on its books that are denominated in pesos. In an effort to reduce
foreign currency risk, the Company attempts to convert pesos collected to U.S.
dollars quickly and attempts to maintain minimal cash balances denominated in
pesos. Some expenses related to certain services provided by the Company are
incurred in foreign currencies, primarily Mexican pesos. The devaluation of the
Mexican peso over the past several years has not had a material adverse effect
on the Company's financial condition or operating results.
Seasonality
The Company's call service revenues are typically higher on a per phone
basis during January through July, the peak tourism months in Mexico.
Year 2000 Compliance
The Company initiated a program to identify and address issues associated
with the ability of its date-sensitive information, telephony and business
systems to properly recognize the year 2000 in order to avoid interruption of
the operation of these systems at the turn of the century. This program is
being conducted by the Company's Management Information Systems group, which is
coordinating the efforts of internal resources as well as third party vendors in
making all of the necessary changes for all
38
<PAGE>
management systems and product related infrastructure for the Company's
divisions and subsidiaries. The Company believes it is 96% complete in achieving
Year 2000 readiness, and will be Year 2000 ready by November 30, 1999. The only
significant remaining item is an outstanding issue related to the payroll
systems of the Company's Mexican subsidiaries. The Company expects to avoid
disruption of its owned information, telephony and business systems as a result
of these efforts. However, the Company must rely on the representations and
warranties of third parties, including domestic U.S. and foreign carriers of its
traffic, in testing for readiness for year 2000 issues and cannot ensure
compliance by these parties. The Company has developed contingency plans in
areas where it believes there is any significant risk or where a third party has
not adequately responded to the Company's inquiries, which includes transitions
to other providers.
The Company believes that a worst case scenario resulting from a Year 2000
related failure would be a temporary disruption of normal business operations.
Based upon the work completed to date, the Company believes that such an
occurrence is unlikely. However, as stated above, the Company is relying on
representations and warranties of third parties that are beyond the Company's
control. A disruption of business operations could have a material adverse
effect on the Company's financial performance.
The Company has expended approximately $100,000 in its Year 2000 program to
date, and does not expect to experience any material additional cost.
39
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Consolidated Financial Statements of American TeleSource International, Inc. and Subsidiaries
Report of Independent Public Accountants............................................................. 41
Consolidated Balance Sheets as of July 31, 1998 and 1999............................................. 42
Consolidated Statements of Operations for the Years Ended July 31, 1997, 1998 and 1999............... 43
Consolidated Statements of Comprehensive Income (Loss) for the Years Ended July 31, 1997,
1998 and 1999........................................................................................ 44
Consolidated Statements of Stockholders' Equity for the Years Ended July 31, 1997, 1998 and 1999..... 45
Consolidated Statements of Cash Flows for the Years Ended July 31, 1997, 1998 and 1999............... 46
Notes to Consolidated Financial Statements........................................................... 47
</TABLE>
40
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of American TeleSource International, Inc.:
We have audited the accompanying consolidated balance sheets of American
TeleSource International, Inc. (a Delaware corporation) and subsidiaries (the
Company) as of July 31, 1998 and 1999, and the related consolidated statements
of operations, comprehensive income (loss), stockholders' equity and cash flows
for the years ended July 31, 1997, 1998 and 1999. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of American TeleSource
International, Inc. and subsidiaries as of July 31, 1998 and 1999, and the
results of their operations and their cash flows for the years ended July 31,
1997, 1998 and 1999, in conformity with generally accepted accounting
principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2 to
the consolidated financial statements, the Company has a working capital
deficit, has suffered recurring losses from operations since inception, has
negative cash flows from operations and has limited capital resources available
to support further development of its operations. These matters raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 2. The
consolidated financial statements do not include any adjustments relating to the
recoverability and classification of asset carrying amounts including goodwill
and other intangibles or the amount and classification of liabilities that might
result should the Company be unable to continue as a going concern.
/s/ ARTHUR ANDERSEN LLP
San Antonio, Texas
October 5, 1999
41
<PAGE>
AMERICAN TELESOURCE INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share information)
<TABLE>
<CAPTION>
July 31,
-------------------------------------
1998 1999
----------- ------------
<S> <C> <C>
ASSETS
- ------
CURRENT ASSETS:
Cash and cash equivalents $ 1,091 $ 379
Accounts receivable, net of allowance of $209 and $1,600, respectively 3,748 3,693
Prepaid expenses and other 844 987
----------- ------------
Total current assets 5,683 5,059
----------- ------------
PROPERTY AND EQUIPMENT (At cost): 14,233 16,669
Less - Accumulated depreciation and amortization (2,418) (4,713)
----------- ------------
Net property and equipment 11,815 11,956
----------- ------------
OTHER ASSETS, net
Goodwill, net 5,091 5,032
Contracts, net 1,173 703
Trademarks, net - 789
Other assets 489 615
----------- ------------
Total assets $ 24,251 $ 24,154
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 5,683 $ 4,164
Accrued liabilities 2,113 3,239
Current portion of notes payable 688 961
Current portion of convertible long-term debt - 1,942
Current portion of obligations under capital leases 2,351 1,430
Deferred revenue 535 233
----------- ------------
Total current liabilities 11,370 11,969
----------- ------------
LONG-TERM LIABILITIES:
Notes payable, less current portion 719 312
Convertible long-term debt, less current portion 1,604 -
Obligations under capital leases, less current portion 2,941 5,523
Other 530 213
----------- ------------
Total long-term liabilities 5,794 6,048
----------- ------------
COMMITMENTS AND CONTINGENCIES: (See Note 13)
STOCKHOLDERS' EQUITY:
Preferred stock, $0.001 par value, 10,000,000 shares
authorized,
Series A Cumulative Convertible Preferred Stock, 50,000
authorized, no shares issued and outstanding at July 31,
24,145 shares issued and outstanding at July 31, 1999 - -
Series B Cumulative Convertible Preferred Stock, 2,000
authorized, no shares issued and outstanding at July 31,
2,000 shares issued and outstanding at July 31, 1999 - -
Common stock, $0.001 par value, 100,000,000 shares authorized,
45,603,566 issued and outstanding at July 31, 1998
48,685,287 issued and outstanding at July 31, 1999 46 49
Additional paid in capital 22,248 29,399
Accumulated deficit (14,396) (21,987)
Deferred compensation (667) (466)
Other comprehensive income (144) (858)
----------- ------------
Total stockholders' equity 7,087 6,137
----------- ------------
Total liabilities and stockholders' equity $ 24,251 $ 24,154
=========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
42
<PAGE>
AMERICAN TELESOURCE INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
For the Years Ended July 31,
1997 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
OPERATING REVENUES:
Network management services $ 1,698 $ 13,362 $ 19,250
Call services 12,545 13,547 6,602
Direct dial services 1,421 6,085 6,024
Internet e-commerce 564 1,526 2,642
------------ ------------ ------------
Total operating revenues 16,228 34,520 34,518
------------ ------------ ------------
OPERATING EXPENSES:
Cost of services 12,792 22,287 21,312
Selling, general and administrative 6,312 12,853 12,652
Bad debt expense 735 1,024 2,346
Depreciation and amortization 591 1,822 3,248
------------ ------------ ------------
Total operating expenses 20,430 37,986 39,558
------------ ------------ ------------
OPERATING LOSS (4,202) (3,466) (5,040)
OTHER INCOME (EXPENSE):
Interest income 27 76 59
Other income 68 32
Other expense (27) (24) (10)
Interest expense (513) (1,573) (1,745)
------------ ------------ ------------
Total other income (expense) (445) (1,489) (1,696)
------------ ------------ ------------
LOSS BEFORE INCOME TAX EXPENSE
AND MINORITY INTEREST (4,647) (4,955) (6,736)
FOREIGN INCOME TAX EXPENSE - (139) -
MINORITY INTEREST (48) - -
------------ ------------ ------------
NET LOSS ($4,695) ($5,094) ($6,736)
LESS: PREFERRED STOCK DIVIDENDS - - (855)
------------ ------------ ------------
NET LOSS TO COMMON SHAREHOLDERS ($4,695) ($5,094) ($7,591)
============ ============ ============
BASIC AND DILUTED LOSS PER SHARE ($0.18) ($0.12) ($0.16)
============ ============ ============
WEIGHTED AVERAGE
COMMON SHARES OUTSTANDING 26,807 41,093 47,467
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
43
<PAGE>
AMERICAN TELESOURCE INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
<TABLE>
<CAPTION>
For the Years Ended July 31,
----------------------------------------
1997 1998 1999
----------- ------------ -----------
<S> <C> <C> <C>
Net loss ($4,695) ($5,094) ($7,591)
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments $ 12 ($160) ($714)
----------- ----------- -----------
Comprehensive loss to common stockholders ($4,683) ($5,254) ($8,305)
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
44
<PAGE>
AMERICAN TELESOURCE INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands)
<TABLE>
<CAPTION>
Preferred Shares Common Stock Cumulative
---------------- -------------------- Additional Accumulated Translation Deferred
Shares Amount Shares Amount Paid In Capital Deficit Adjustment Compensation
------- ------ ------ -------- --------------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, July 31, 1996 23,775 $ 6,288 $ ($ 4,607) $ 4 ($ 55)
Issuances of common shares
for cash - - 5,760 4,736
Conversion of convertible
dept to common shares - - 3,612 1,967
Issuance of common shares for
acquisition - - 2,716 1,847
Issuances of common shares
for services - - 925 154
Deferred compensation - - - 1,394 (1,394)
Compensation expense - - - 295
Warrants issued with
restoration long term debt - - - 990
Cumulative effect of
translation adjustment - - - 12
Net loss - - - (4,695)
------- ------ ------ -------- -------- -------- ----- -------
BALANCE, July 31, 1997 - - 36,788 $ 17,376 ($ 9,302) $ 16 ($1,154)
Issuances of common shares
for cash - - 5,500 3,496
Issuances of common shares
for reduction in indebtedness - - 2,871 1,076
Conversion of convertible
debt to common shares - - 200 100
Issuances of common shares
for services - - 245 246
Compensation expense - - - 487
Cumulative effect of
transition adjustments - - - (160)
Exchange of common shares for
common stock - - - (22,248) 22,248
Net loss - - - (5,094)
------- ------ ------ -------- -------- -------- ----- -------
BALANCE, July 31, 1998 - - 45,604 $ 46 $ 22,248 ($14,396) ($144) ($ 667)
Issuances of common shares
for cash - - 2,706 3 1,037
Issuances of common shares
for services - - 96 40
Issuances of common shares
for acquisition - - 279 179
Issuances of preferred stock 26 - - 1,176
Deferred compensation - - - 344 (344)
Dividend expense - - - (80)
Amortization of equity amount - - - 775 (775)
Compensation expense - - - 545
Cumulative effect of
transition adjustment - - - (714)
Net loss - - - (6,736) (6,736)
------- ------ ------ -------- -------- -------- ----- -------
BALANCE, July 31, 1999 26 - 48,685 $ 49 $ 29,399 ($21,987) ($858) ($ 466)
======= ====== ====== ======== ======== ======== ===== =======
<CAPTION>
Total
Stockholders'
Equity
-------------
<S> <C>
BALANCE, July 31, 1996 $1,630
Issuances of common shares
for cash 4,736
Conversion of convertible
dept to common shares 1,967
Issuance of common shares for
acquisition 1,847
Issuances of common shares
for services 154
Deferred compensation 0
Compensation expense 295
Warrants issued with
restoration long term debt 990
Cumulative effect of
translation adjustment 12
Net loss (4,695)
------
BALANCE, July 31, 1997 $6,936
Issuances of common shares
for cash 3,496
Issuances of common shares
for reduction in indebtedness 1,076
Conversion of convertible
debt to common shares 100
Issuances of common shares
for services 246
Compensation expense 487
Cumulative effect of
transition adjustments (160)
Exchange of common shares for
common stock 0
Net loss (5,094)
------
BALANCE, July 31, 1998 $7,087
Issuances of common shares
for cash 1,640
Issuances of common shares
for services 40
Issuances of common shares
for acquisition 179
Issuances of preferred stock 4,176
Deferred compensation 0
Dividend expense (80)
Amortization of equity amount 0
Compensation expense 545
Cumulative effect of
transition adjustment (714)
Net loss (6,736)
------
BALANCE, July 31, 1999 $6,137
======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
45
<PAGE>
AMERICAN TELESOURCE INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
For the Years Ended July 31,
1997 1998 1999
--------------------- ------------------ -----------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($4,695) ($5,094) ($6,736)
Adjustments to reconcile net loss to net cash used in
operating activities-
Depreciation and amortization 591 1,822 3,248
Amortization of debt discount 87 307 346
Deferred compensation 295 487 545
Provision for losses on accounts receivable 735 1,024 2,346
Minority interest 48 - -
Changes in operating assets and liabilities-
Increase in accounts receivable (1,983) (2,723) (2,207)
(Increase) decrease in prepaid expenses and other (849) 197 (1,632)
Increase (decrease) in accounts payable (1,025) 3,479 (1,139)
Increase (decrease) in accrued liabilities 884 (192) 1,857
Increase (decrease) in deferred revenue 378 71 (191)
Other 4 - -
---------------------- ------------------- -----------------
Net cash used in operating activities (5,530) (622) (3,563)
---------------------- -------------------- -----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (590) (3,297) (956)
Acquisition of business, net of cash acquired 73 (2,112) (171)
Payments received on notes receivable 101 - -
---------------------- -------------------- -----------------
Net cash used in investing activities (416) (5,409) (1,127)
---------------------- -------------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of debt 3,632 2,547 437
Net increase (decrease) in short-term borrowings 281 353 (488)
Payments on debt - (1,141) (679)
Capital lease payments (401) (1,044) (941)
Payments on long-term liabilities - (67) (123)
Proceeds from issuance of preferred stock,
net of issuance costs - - 4,176
Proceeds from issuance of common stock,
net of issuance costs 3,699 4,553 1,596
---------------------- -------------------- -----------------
Net cash provided by financing activities 7,211 5,201 3,978
---------------------- -------------------- -----------------
NET INCREASE (DECREASE) IN CASH 1,265 (830) (712)
CASH AND CASH EQUIVALENTS, beginning of period 656 1,921 1,091
---------------------- -------------------- -----------------
CASH AND CASH EQUIVALENTS, end of period $1,921 $1,091 $ 379
====================== ==================== =================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
46
<PAGE>
AMERICAN TELESOURCE INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
The accompanying consolidated financial statements are those of American
TeleSource International, Inc. and its subsidiaries ("ATSI" or the "Company").
The Company was formed on June 6, 1996 under the laws of the state of Delaware
for the express purpose of effecting a "Plan of Arrangement" with American
TeleSource International, Inc., which was incorporated under the laws of the
province of Ontario, Canada (hereinafter referred to as "ATSI-Canada"). The
Plan of Arrangement called for the stockholders of ATSI-Canada to exchange their
shares on a one-for-one basis for shares of the Company. On April 30, 1998,
shareholders of ATSI-Canada approved the Plan of Arrangement, and on May 11,
1998, ATSI-Canada became a wholly owned subsidiary of the Company. The Company
is publicly traded on the OTC Bulletin Board under the symbol "AMTI".
The accompanying consolidated balance sheet dated July 31, 1998 includes
the assets, liabilities and shareholders' equity of ATSI-Canada which were
transferred to the Company on May 11, 1998, and the accompanying statements of
operations for the years ended July 31, 1997 and 1998 include the consolidated
operations of ATSI-Canada through May 11, 1998.
In May 1997, ATSI-Canada entered into an agreement to purchase up to 100%
of the outstanding shares of Sistema de Telefonia Computarizada, S.A. de C.V.
("Computel"), the largest privately owned operator of casetas (public calling
stations) in Mexico. Under the terms of the agreement, ATSI-Canada acquired 55%
of the shares of Computel effective May 1, 1997 and the remaining 45% effective
August 28, 1997. As ATSI-Canada acquired majority ownership effective May 1,
1997, the Company has recorded 100% of the net assets and liabilities of
Computel as of that date. The Company's consolidated financial statements for
the period May 1, 1997 to July 31, 1997 include the impact of the 45% minority
ownership interest. For the years ended July 31, 1998 and July 31, 1999, the
Company's consolidated financial statements include 100% of the activities of
Computel.
In July 1997, American TeleSource International de Mexico, S.A. de C.V.
("ATSI-Mexico") acquired 100% of the outstanding stock of Servicios de
Infraestructura, S.A. de C.V. ("Sinfra"). In April 1998, TeleSpan, Inc.
("Telespan") purchased 100% of the outstanding stock of Sinfra from ATSI-Mexico.
In March 1998, ATSI-Delaware acquired 100% of the outstanding stock of
Soluciones Internactionales de Mercadeo, S.A. and subsequently changed the name
to ATSI de CentroAmerica, S.A.
Through its subsidiaries, the Company provides retail and wholesale
communications services within and between the United States and select markets
within Latin America. Utilizing a framework of licenses, interconnection and
service agreements, network facilities and distribution channels, the Company
aims to provide U.S standards of reliability to Mexico and other markets within
Latin America which have historically been underserved by telecommunications
monopolies. As of July 31, 1999, the Company's operating subsidiaries are as
follows:
American TeleSource International, Inc. ("ATSI-Texas" a Texas corporation)
--------------------------------------------------------------------------
ATSI-Texas owns and operates a switching facility and multilingual call
center in San Antonio, Texas. This facility provides U.S. based call services
to public telephones owned by ATSI-Mexico and
47
<PAGE>
casetas owned by Computel in Mexico, as well as to third party-owned public
telephones, casetas and hotels in Mexico. Although these calls originate in
Mexico, they are terminated and billed in the United States and Mexico by ATSI-
Texas. In July 1998, ATSI-Texas also began providing domestic U.S. and
international call services to residential customers in the U.S.
American TeleSource International de Mexico, S.A. de C.V.
---------------------------------------------------------
("ATSI-Mexico" a Mexican corporation)
-------------------------------------
ATSI-Mexico owns and operates coin-operated public telephones in Mexico.
Utilizing its 20-year comercializadora license, ATSI purchases telephone lines
and resells local, long distance and international calls from public telephones
connected to the lines. Direct dial calls may be made from the telephones using
pesos or quarters, and users may use the services of ATSI-Texas to place calls
to the U.S. by billing calls to valid third parties, credit cards or calling
cards.
Computel (a Mexican corporation)
--------------------------------
Computel is the largest private operator of casetas in Mexico, operating
approximately 126 casetas in 66 cities. Direct dial calls may be made from the
casetas using cash or credit cards, and users may use the services of ATSI-Texas
to place calls to the U.S. by billing calls to valid third parties, credit cards
or calling cards. Computel utilizes telephone lines owned by ATSI-Mexico.
Sinfra (a Mexican corporation)
-------------------------------
Utilizing its 20-year Teleport and Satellite Network license, Sinfra owns
and operates the Company's teleport facilities in Cancun, Monterrey and Mexico
City, Mexico. These facilities are used for the provision of international
private network services. Sinfra also owns a 15-year Packet Switching Network
license.
TeleSpan, Inc. ("TeleSpan" a Texas corporation)
-----------------------------------------------
TeleSpan owns and operates the Company's teleport facilities in the United
States and Costa Rica. TeleSpan contracts with U.S. based entities and carriers
seeking facilities or increased capacity into Mexico, Costa Rica, El Salvador
and Guatemala. For network services into Mexico, TeleSpan utilizes facilities
owned by Sinfra.
GlobalScape, Inc. ("GlobalSCAPE" a Texas corporation)
-----------------------------------------------------
GlobalSCAPE markets CuteFTP and other digitally downloadable software
products and distributes them over the Internet utilizing electronic software
distribution ("ESD").
ATSI de CentroAmerica (a Costa Rican corporation)
-------------------------------------------------
ATSI de CentroAmerica markets international private network services in
Costa Rica and other Latin American countries and looks to develop corporate
development opportunities in Latin American countries through joint ventures and
interconnection agreements with existing telecommunication monopolies.
48
<PAGE>
2. FUTURE OPERATIONS, LIQUIDITY, CAPITAL RESOURCES AND VULNERABILITY DUE
TO CERTAIN CONDITIONS
The accompanying consolidated financial statements of the Company have been
prepared on the basis of accounting principles applicable to a going concern.
For the period from December 17, 1993 to July 31, 1999, the Company has incurred
cumulative net losses of $21.9 million. Further, the Company had a working
capital deficit of $5.7 million at July 31, 1998 and $6.7 million at July 31,
1999. Further, the Company had negative cash flows from operations of $5.5
million, $.6 million and $3.6 million for the years ended July 31, 1997, 1998
and 1999, respectively. The Company has limited capital resources available to
it, and these resources may not be available to support its ongoing operations
until such time as the Company is able to generate positive cash flow from
operations. There is no assurance the Company will be able to achieve future
revenue levels sufficient to support operations or recover its investment in
property and equipment, goodwill and other intangible assets. These matters
raise substantial doubt about the Company's ability to continue as a going
concern. The ability of the Company to continue as a going concern is dependent
upon the ongoing support of its stockholders and customers, its ability to
obtain capital resources to support operations and its ability to successfully
market its services.
The Company is likely to require additional financial resources in the near
term and could require additional financial resources in the long-term to
support its ongoing operations. The Company has retained various financial
advisers to assist it in refining its strategic growth plan, defining its
capital needs and obtaining the funds required to meet those needs. The plan
includes securing funds through equity offerings and entering into lease or
long-term debt financing agreements to raise capital. There can be no
assurances, however, that such equity offerings or other financing arrangements
will actually be consummated or that such funds, if received, will be sufficient
to support existing operations until revenue levels are achieved sufficient to
generate positive cash flow from operations. If the Company is not successful
in completing additional equity offerings or entering into other financial
arrangements, or if the funds raised in such stock offerings or other financial
arrangements are not adequate to support the Company until a successful level of
operations is attained, the Company has limited additional sources of debt or
equity capital and would likely be unable to continue operating as a going
concern.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements have been prepared on the accrual
basis of accounting under generally accepted accounting principles of the U.S.
All significant intercompany balances and transactions have been eliminated in
consolidation. Certain prior period amounts have been reclassified for
comparative purposes.
Estimates in Financial Statements
---------------------------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results may differ from those estimates.
Revenue Recognition Policies
----------------------------
The Company recognizes revenue from its call services and direct dial
services as such services are performed, net of unbillable calls. Revenue from
network management service contracts is recognized when service commences for
service commencement fees and monthly thereafter as services
49
<PAGE>
are provided. The Company recognizes revenue from equipment sales when the title
for the equipment transfers to the customer and from equipment installation
projects when they are completed. Revenues related to the Company's Internet
product are recognized at the point of delivery, as the Company bears no
additional obligation beyond the provision of its software product other than
post-contract customer service.
Foreign Currency Translation
----------------------------
Until January 1, 1999, Mexico's economy was designated as highly
inflationary. Generally Accepted Accounting Principles, "GAAP" require the
functional currency of highly inflationary economies to be the same as the
reporting currency. Accordingly, the consolidated financial statements of ATSI-
Mexico and Computel, whose functional currency is the peso, were remeasured from
the peso into the U.S. dollar for consolidation. Monetary and nonmonetary
assets and liabilities were remeasured into U.S. dollars using current and
historical exchange rates, respectively. The operating activities of ATSI-Mexico
and Computel were remeasured into U.S. dollars using a weighted-average exchange
rate. The resulting translation gains and losses were charged directly to
operations. As of January 1, 1999, Mexico's economy was deemed to be no longer
highly inflationary. According to GAAP requirements the change from highly
inflationary to non-highly inflationary requires that the nonmonetary assets be
remeasured using not the historical exchange rates, but the exchange rate in
place as of the date the economy changes from highly inflationary to non-highly
inflationary. As such, the Company's non-monetary assets in ATSI-Mexico and
Computel have been remeasured using the exchange rate as of January 1, 1999.
Subsequent to January 1, 1999, monetary assets and non-monetary assets are
translated using current exchange rates and operating activity of ATSI-Mexico
and Computel are remeasured in to U.S. dollars using a weighted average exchange
rate. The effect of these translation adjustments are reflected in the
cumulative translation account shown in equity.
Accounts Receivable
-------------------
The Company utilizes the services of credit card processing companies for
the billing of commercial credit card calls. The Company receives cash from
these calls, net of transaction and billing fees, generally within 20 days from
the dates the calls are delivered. All other calls (calling card, collect,
person-to-person and third party billed) are billed under an agreement between
the Company and a billing clearinghouse. This agreement allows ATSI to submit
call detail records to the clearinghouse, which in turn forwards these records
to the local telephone company to be billed. The clearinghouse collects the
funds from the local telephone company and then remits the funds, net of
charges, to ATSI. Because this collection process can take up to 90 days to
complete, ATSI participates in an advance funding program offered by the
clearinghouse whereby 100% of the call records are purchased for 75% of their
value within five days of presentment. The remaining 25% value of the call
records are remitted to ATSI, net of interest and billing charges and an
estimate for uncollectible calls, as the clearinghouse collects the funds from
the local telephone companies. Under the advanced funding agreement, the
collection clearinghouse has a security interest in the unfunded portion of the
receivables as well as future receivables generated by the Company's long
distance business. The allowance for doubtful accounts reflects the Company's
estimate of uncollectible calls at July 31, 1998 and 1999 and includes $1.5
million of specific accounts identified by the Company as potentially
uncollectible. ATSI currently pays a funding charge of prime plus 4% per annum
on the amounts that are advanced to ATSI. Receivables sold with recourse during
fiscal years 1997, 1998, and 1999 were $8,530,665, $11,127,221 and $6,138,549
respectively. At July 31, 1997, 1998 and 1999, $577,256, $484,381 and $444,398
of such receivables were uncollected, respectively. See Note 5 for additional
disclosure regarding advanced funding.
50
<PAGE>
In fiscal 1998, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 125 "Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities". This statement provides accounting
and reporting standards for, among other things, the transfer and servicing of
financial assets, such as factoring receivables with recourse. The adoption of
these statements has not had a material impact on the financial position or
results of operations of the Company.
Impuesto al Valor Agregado (Value-Added Tax) ("IVA")
----------------------------------------------------
The Company's Mexican subsidiaries are required to report a value-added tax
related to both purchases and sales of services and assets, for local tax
reporting. Accordingly, each subsidiary maintains both an IVA receivable and IVA
payable account on their subsidiary ledgers. For consolidated reporting
purposes, the Company nets its Mexican subsidiaries IVA receivable and IVA
payable accounts as allowed by regulatory requirements in Mexico. For the years
ended July 31, 1998 and 1999, this netting of IVA accounts resulted in the
elimination of IVA payable and a corresponding reduction in IVA receivable of
approximately $197,000 and $1.2 million, respectively.
Basic and Diluted Loss Per Share
--------------------------------
Loss per share was calculated using the weighted average number of common
shares outstanding for the years ended July 31, 1997, 1998 and 1999. Common
stock equivalents, which consist of the stock purchase warrants and options
described in Note 9, were excluded from the computation of the weighted average
number of common shares outstanding because their effect was antidilutive.
Additionally, the Company has excluded the convertible preferred stock described
in Note 8, from the computation of the weighted average number of common shares
outstanding, as their effect will also be antidilutive.
Property and Equipment
----------------------
Property and equipment are stated at cost. Depreciation and amortization
are computed on a straight-line basis over the estimated useful lives of the
related assets, which range from five to fifteen years. Expenditures for
maintenance and repairs are charged to expense as incurred. Direct installation
costs and major improvements are capitalized.
Effective for the fiscal years beginning after July 31, 1996, the Company
follows rules as prescribed under Statement of Financial Accounting Standards
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of" ("SFAS 121"). SFAS 121 requires an assessment of the
recoverability of the Company's investment in long-lived assets to be held and
used in operations whenever events or circumstances indicate that their carrying
amounts may not be recoverable. Such assessment requires that the future cash
flows associated with the long-lived assets be estimated over their remaining
useful lives and an impairment loss be recognized when the undiscounted future
cash flows are less than the carrying value of such assets. As of July 31,
1999, the Company has determined that the estimated undiscounted future cash
flows associated with its long-lived assets are greater than the carrying value
of such assets and that no impairment loss needs to be recognized.
Goodwill, Trademarks, Contracts and Other Assets
------------------------------------------------
As of the years ended July 31, 1998 and 1999, other assets include
goodwill, primarily related to the purchase of Computel, of $5,216,646 and
$5,296,646, respectively, net of accumulated amortization of $126,668 and
$265,089, respectively. Goodwill is amortized over
51
<PAGE>
40 years. As of July 31, 1998 and 1999 other assets include acquisition costs of
$1,417,870, and $1,596,620, respectively, related to the Company's acquisitions
of several of its independent marketing representatives, net of accumulated
amortization of $244,652, and $893,212, respectively. These acquisition costs
are being amortized over the life of the contracts, which approximates three
years. As of July 31, 1999, other assets include $898,943 related to the
purchase of the rights to CuteFTP, net of accumulated amortization of $110,352.
This trademark is being amortized over an estimated five-year life.
Additionally, as of July 31, 1998 and 1999, other assets include approximately
$489,000 and $615,000 of other assets, not specifically identified as goodwill,
acquisition costs or trademarks. As it relates to SFAS 121, as of July 31, 1999,
the Company has determined that the estimated future cash flows associated with
its goodwill and other intangible assets are greater than the carrying value of
such assets and that no impairment loss needs to be recognized. For the years
ended July 31, 1997, 1998 and 1999, the Company recorded amortization expense of
$55,491, $369,219 and $925,440, respectively related to its other assets.
Income Taxes
------------
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes". Under the provisions of SFAS 109, the Company
recognizes deferred tax liabilities and assets based on enacted income tax rates
that are expected to be in effect in the period in which the deferred tax
liability or asset is expected to be settled or realized. A change in the tax
laws or rates results in adjustments in the period in which the tax laws or
rates are changed.
Statements of Cash Flows
------------------------
Cash payments and non-cash investing and financing activities during the
periods indicated were as follows:
<TABLE>
<CAPTION>
For the Years Ended July 31,
--------------------------------------------
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Cash payments for interest $ 416,756 $1,349,679 $1,101,771
Cash payments for taxes $ - $ 148,097 $ -
Common shares issued for services $ 153,885 $ 246,591 $ 40,000
Common shares issued for acquisition of Computel and other $1,846,569 $ - $ 178,750
Assets acquired in acquisition of Computel $3,418,753 $ - $ -
Liabilities assumed in acquisition of Computel $4,205,404 $ - $ -
Conversion of convertible debt to common shares $1,966,531 $ 100,000 $ -
</TABLE>
52
<PAGE>
Capital lease obligations incurred $1,521,875 $4,635,693 $ -
Common share subscriptions sold $1,113,170 $ - $ 42,500
For purposes of determining cash flows, the Company considers all temporary
cash investments with an original maturity of three months or less to be cash
and cash equivalents.
New Accounting Pronouncements
-----------------------------
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 130, "Reporting Comprehensive Income," which establishes standards for
reporting and disclosure of comprehensive income and its components in a full
set of financial statements. SFAS No. 130 is effective for fiscal years
beginning after December 15, 1997, and requires reclassification of comparative
financial statements for earlier periods. The adoption of SFAS No. 130 has
resulted in the presentation of comprehensive income (loss) that differs from
net income (loss) as presented in the accompanying financial statements to the
extent of foreign currency translation adjustments as shown in the accompanying
consolidated statements of comprehensive income (loss). The Company
presentation of its comprehensive income component, foreign currency translation
adjustments, is presented net of tax, which is $0 for all periods presented, in
light of the Company's current net operating loss carryforward position.
Disclosures about Fair Value of Financial Instruments
-----------------------------------------------------
The following methods and assumptions were used to estimate the fair value
of each class of financial instrument held by the Company:
Current assets and liabilities: The carrying value approximates fair value
due to the short maturity of these items.
Long-term debt and convertible debt: Since the Company's debt is not
quoted, estimates are based on each obligations' characteristics, including
remaining maturity, interest rate, credit rating, collateral, amortization
schedule and liquidity (without consideration for the convertibility of the
notes). The Company believes that the carrying amount does not differ
materially from the fair value.
4. PROPERTY AND EQUIPMENT, NET (at cost)
Following is a summary of the Company's property and equipment at July 31,
1998 and 1999:
July 31, July 31,
------- -------
1998 1999
---- ----
Telecommunications equipment $ 6,084,771 $ 6,476,395
Land and buildings 892,507 447,748
Furniture and fixtures 882,449 902,873
53
<PAGE>
Equipment under capital leases 5,585,291 7,758,739
Leasehold improvements 281,014 474,748
Other 517,192 608,914
----------- -----------
14,233,224 16,669,417
Less: accumulated depreciation and
amortization (2,418,514) (4,712,671)
----------- -----------
Total - property and equipment, net $11,814,710 $11,956,746
=========== ===========
Depreciation expense as reported in the Company's Consolidated Statements
of Operations includes depreciation expense related to the Company's capital
leases. For the years ended July 31, 1997, 1998 and 1999, the Company recorded
approximately $536,000, $1,453,000 and $2,323,0000, respectively of depreciation
expense related to its fixed assets.
5. NOTES PAYABLE AND CONVERTIBLE DEBT
Notes Payable
- -------------
<TABLE>
<CAPTION>
Notes payable are comprised of the following: July 31,
-------------------------------
1998 1999
--------------- --------------
<S> <C> <C>
Note payable to a company, see terms below. $ 25,320 $ 137,071
Note payable to an individual, see terms below. - 150,000
Note payable to a bank, see terms below. - 150,000
Notes payable to related parties, see terms - 100,000
below.
Note payable to an individual, see terms below. - 368,768
Notes payable to various banks, see terms below 416,846 56,878
Notes payable to a company, net of discount, see
terms below. 364,803 309,588
---------- ----------
$1,406,969 $1,272,305
Less: current portion $ 688,005 $ 960,523
---------- ----------
Total non-current notes payable
$ 718,964 $ 311,782
========== ==========
</TABLE>
During November 1996, the Company entered into an agreement with a
financing company under which the Company is advanced an additional 13.75% of
its receivables sold to a billing clearinghouse, as discussed in Note 3. These
advances are typically outstanding for periods of less than 90 days, and are
repaid, including accrued interest, by the clearinghouse on behalf of the
Company as its receivables from long distance call services are collected. The
Company was charged 4% per month for these fundings. When the agreement with the
54
<PAGE>
financing company expired in November 1998, it was renewed on a month-to-month
basis, and the Company ceased using the factoring arrangement altogether in
April 1999 as part of its ongoing effort to minimize costs. The approximate
$137,000 outstanding represents advances to be repaid by the clearinghouse to
the financing company upon its subsequent collection of its receivables from
long distance call services.
During February 1999, the Company entered into a note payable with an
individual, for working capital purposes, in the amount of $150,000. Interest
accrues at an interest rate of 12% per year, principal and interest due at
maturity. The note originally matured in May 1999, but the Company has extended
the note with the individual for an additional six months.
During January 1999, one of the Company's subsidiaries entered into a note
payable with a bank in the amount of $180,000 related to its acquisition of a
computer software program known as "CuteFTP". (See Note 10). The note calls
for principal payments of $5,000 per month for twelve months and $10,000 per
month for twelve months. Interest accrues monthly at an interest rate of the
Lender's "Prime Rate" plus 1%. At July 31, 1999, the Lender's "Prime Rate" was
8.00%.
In February 1999, the Company entered into notes payable with related
parties, all of whom were officers or directors of the Company in the amount of
$250,000. The notes accrue interest at a rate of 12% per year until paid in
full. As of July 31, 1999, $100,000 of the notes remain outstanding.
In January 1999, one of the Company's subsidiaries entered into an
agreement with an individual related to its acquisition of a computer software
program known as "CuteFTP". (See Note 10). The agreement calls for twelve
principal and interest payments of $63,000 per month beginning February 28,
1999. The Company has imputed interest using an interest rate of 12% per annum.
As of July 31, 1998 and July 31, 1999, the Company through its acquisition
of Computel had approximately $416,846 and $56,878, respectively, of bank notes
payable to various banks in Mexico. The notes have interest rates ranging from
8% to 15%, with monthly principal and interest payments of approximately $7,500.
The notes mature between October 1999 and December 2015 and are collaterized by
the assets of Computel. In the year ended July 31, 1999, the Company through
Computel exchanged certain assets collaterized by the notes for a reduction in
its indebtedness. The notes remaining mature during the year ended July 2000.
During October 1997, the Company entered into a note payable with a company
in the amount of $1,000,000. The note calls for quarterly payments of principal
and interest beginning in January 1998 and continuing until October 2004.
Interest accrues on the unpaid principal at the rate of 13% per year. The
Company also issued 250,000 warrants to the note holder which carry an exercise
price of $3.56 per warrant. These warrants expire in October 2000. The amount
of debt discount recorded by the Company related to the issuance of these
warrants was $103,333. The fair value of the warrants was calculated on the date
of issuance using an option pricing model with the following assumptions:
Dividend yield of 0.0%, expected volatility of 30%, risk-free interest rate of
6.00%, and an expected life of three years. The warrants expire three years
from their date of issuance, and are not exercisable for a period of one year
after their initial issuance. In January 1998, the noteholder exercised 700,000
warrants at an exercise price
55
<PAGE>
of $0.70, unrelated to the warrants noted above, in consideration of a $490,000
reduction of the principal balance outstanding on the note.
Convertible Debt
- ----------------
In March and May 1997, the Company issued $2.2 million in convertible
notes, interest at 10%. The principal and interest, which accrues quarterly, is
due and payable three years from the date of issuance. The convertible notes
convert into fully redeemable preferred stock at the Company's option. In
addition, for each $50,000 unit of convertible debt, each holder was issued
108,549 warrants to purchase an equal number of shares of common stock at $0.27
per share. The fair value of the warrants was determined to be $0.37 per share
and the Company assigned $990,000 to the value of the warrants in stockholders'
equity. The fair value of the warrants was calculated on the date of issuance
using an option pricing model with the following assumptions: Dividend yield of
0.0%, expected volatility of 62%, risk-free interest rate of 6.35%, and an
expected life of three years. The warrants expire three years from their date
of issuance, and were not exercisable for a period of one year after their
initial issuance. The Company has recorded the $990,000 as debt discount and is
amortizing the discount over the term of the debt based on the effective
interest method. Principal outstanding as of July 31, 1998 and July 31, 1999,
net of debt discount, was $1,603,802 and $1,942,614, respectively. All of the
outstanding principal at July 31, 1999 is reflected in the current portion of
convertible long-term debt.
Maturities of notes payable and convertible debt as of July 31, 1999 were as
follows:
Year Ending July 31, 2000 $2,903,137
2001 107,983
2002 56,949
2003 67,138
2004 78,718
Thereafter 994
----------
Total $3,214,919
==========
6. LEASES
Operating Leases
----------------
The Company leases office space, furniture, equipment and network capacity
under noncancelable operating leases and certain month-to-month leases. During
fiscal 1997, 1998 and 1999, the Company also leased certain equipment under
capital leasing arrangements. Rental expense under operating leases for the
years ended July 31, 1997, 1998 and 1999, was $176,700, $942,750 and $2,952,710,
respectively. Future minimum lease payments under the noncancelable operating
leases at July 31, 1999 are as follows:
56
<PAGE>
2000 $ 2,929,328
2001 3,284,740
2002 2,598,753
2003 583,524
2004 574,542
Thereafter 1,864,863
-----------
Total minimum lease payments $11,835,750
===========
Capital Leases
--------------
Future minimum lease payments under the capital leases together with the
present value of the net minimum lease payment at July 31, 1999 are as follows:
2000 $ 2,295,036
2001 2,246,127
2002 2,022,825
2003 1,758,391
2004 562,335
Thereafter 277,435
-----------
Total minimum lease payments 9,162,149
Less: Amount representing taxes (45,302)
-----------
Net minimum lease payments 9,116,847
Less: Amount representing interest (2,164,572)
-----------
Present value of minimum lease payments $ 6,952,275
===========
In April 1997, the Company, through ATSI-Mexico secured a capital lease
facility with IBM de Mexico to purchase intelligent pay telephones for
installation in Mexico. The capital lease facility of approximately $1.725
million has allowed the Company to install U.S. standard intelligent pay
telephones in various Mexican markets. In April 1998, the Company through ATSI-
Mexico secured an additional capital lease facility with IBM de Mexico for
approximately $2.9 million to increase network capacity and to fund the purchase
and installation of public telephones in Mexico. In May 1999, the Company
restructured its capital lease obligation with IBM de Mexico by extending the
payment of its total obligation. The restructured lease facility calls for
monthly payments of principal and interest of approximately $108,000 beginning
in July 1999 and extending through June 2003. Interest accrues on the facility
at an interest rate of approximately 13% per year. The obligation outstanding
under said facility at July 31, 1998 and July 31, 1999 was approximately
$4,272,000 and $3,826,000, respectively.
In December 1998, the Company ordered a DMS 250/300 International gateway
switch from Northern Telecom, Inc. at a cost of approximately $1.8 million. As
of July 31, 1999, the Company entered into a capital lease transaction with NTFC
Capital Corporation, ("NTFC") to finance the switch and an additional
approximate $200,000 of equipment over a five and a half-year period with
payments delayed for six months. Quarterly payments approximate $139,000 and the
capital lease has an interest rate of approximately 11%. The lease facility
requires that the Company meet certain financial covenants on a quarterly basis
beginning October 31, 1999, including minimum revenue levels, gross margin
levels, EBITDA results and debt to equity ratios. Due primarily to pricing
pressures in the Company's network transport services business,
57
<PAGE>
the Company may not be able to meet some of the financial covenants in the
facility, which, if not cured, would allow NTFC to demand payment in full of the
amount outstanding. However, because management does not believe that non-
compliance is a certainty, the majority of the amount outstanding under the
facility has been classified as non-current in the accompanying balance sheet.
The Company also has certain affirmative covenants under the facility, including
a covenant on Year 2000 compliance, under which the Company gives assurance that
the Company's systems will be able to process transactions effectively before,
on and after January 1, 2000.
The Company secured a capital lease for approximately $500,000 in December
1998 for the purchase of ATM equipment from Network Equipment Technologies
("N.E.T"). The capital lease is for thirty-six months with monthly payments of
approximately $16,000 a month. The Company's capital leases have interest rates
ranging from 11% to 14%.
7. DEFERRED REVENUE
The Company records deferred revenue related to the private network
services it provides. Customers may be required to advance cash to the Company
prior to service commencement to partially cover the cost of equipment and
related installation costs. Any cash received prior to the actual commencement
of services is recorded as deferred revenue until services are provided by the
Company, at which time the Company recognizes service commencement revenue.
8. SHARE CAPITAL
As discussed in Note 1, in May 1998, the Company completed its Plan of
Arrangement whereby the shareholders of ATSI-Canada exchanged their shares on a
one-for-one basis for shares of ATSI-Delaware stock. The exchange of shares
resulted in the recording on the Company's books of $0.001 par value stock and
additional paid-in capital.
During the year ended July 31, 1997, the Company issued 13,012,448 common
shares. Of this total, 5,760,355 shares were issued for approximately
$4,737,000 of net cash proceeds, 924,761 shares were issued for services
rendered to the Company, 3,611,786 shares were issued for the conversion of
convertible debt to common shares, and 2,715,546 shares were issued related to
the Company's acquisition of Computel. (See Note 10).
During the year ended July 31, 1998, the Company issued 8,816,461
common shares. Of this total, 7,765,174 shares were issued for approximately
$3.2 million of net cash proceeds and reductions in indebtedness of
approximately $1.1 million through the exercise of 7,765,174 warrants and
options, 245,016 shares were issued for services rendered to the Company,
200,000 were issued resulting from the conversion of a $100,000 convertible note
and 606,271 shares were issued for approximately $333,000 in net cash proceeds.
During the year ended July 31, 1999, the Company issued 3,081,721
common shares. Of this total, 2,203,160 shares were issued for approximately
$1.3 million of net cash through the
58
<PAGE>
exercise of 2,203,160 warrants and options, 36,643 shares were issued for
consulting services rendered to the Company, 59,101 shares were issued to a
shareholder in exchange for a guarantee of up to $500,000 of Company debt,
503,387 shares and an equal number of warrants to purchase the Company's common
stock for $0.70 per share were issued in exchange for approximately $300,000 in
net cash proceeds and 279,430 shares were issued related to the Company's
acquisition of certain customer contracts in previous years. The shares issued
for services rendered, the guarantee of Company debt, and the shares issued for
the $300,000 in cash proceeds (including the shares underlying the warrants
issued) have not been registered by the Company, nor does the Company have any
obligation to register such shares.
At July 31, 1999, stock subscription receivables of $42,500, were
outstanding related to sales of common stock. Such amounts were collected by
the Company subsequent to said date. No dividends were paid on the Company's
stock during the years ended July 31, 1997, 1998 and 1999.
The shareholders of ATSI-Canada approved the creation of a class of
preferred stock at the Company's annual shareholders meeting on May 21, 1997.
Effective June 25, 1997, the class of preferred stock was authorized under the
Ontario Business Corporations Act. According to the Company's amended Articles
of Incorporation, the Company's Board of Directors may issue, in series, an
unlimited number of preferred shares, without par value. No preferred shares
have been issued as of July 31, 1999.
Pursuant to ATSI-Delaware's Certificate of Incorporation, the
Company's Board of Directors may issue, in series, an unlimited number of
preferred shares, with a par value of $0.001. In March and April 1999, the
Company issued a total of 24,146 shares of Series A Preferred Stock for cash
proceeds of approximately $2.4 million and in July 1999 the Company issued 2,000
shares of Series B Preferred Stock for cash proceeds of approximately $2.0
million. The Series A Preferred Stock accrues cumulative dividends at the rate
of 10% per annum payable quarterly, while the Series B Preferred Stock accrues
cumulative dividends at the rate of 6% per annum.
In September 1999, the Company issued 500 shares of Series C Preferred
Stock for cash proceeds of approximately $500,000. The Series C Preferred Stock
accrues cumulative dividends at the rate of 6% per annum.
The Series A Preferred Stock and any accumulated, unpaid dividends may
be converted into Common Stock for up to one year at the average closing price
of the Common Stock for twenty (20) trading days preceding the Date of Closing
(the "Initial Conversion Price"). On each Anniversary Date up to and including
the fifth Anniversary Date, the Conversion price on any unconverted Preferred
Stock, will be reset to be equal to 75% of the average closing price of the
stock for the then twenty (20) preceding days provided that the Conversion price
can not be reset any lower than 75% of the Initial Conversion Price. The Series
B Preferred Stock and any accumulated, unpaid dividends may be converted into
Common Stock for up to two years at the lesser of a) the market price on the day
prior to closing or b) 78% of the five lowest closing bid prices on the ten days
preceding conversion. As these conversion features are considered a "beneficial
conversion feature" to the holder, the Company allocated approximately $1.6
million and $1.1 million, respectively of the approximate $2.4 million and $2.0
million, respectively, in proceeds to additional paid-in capital as a discount
to be amortized over a twelve month and
59
<PAGE>
three month period, respectively. The Series A Preferred Stock is callable and
redeemable by the Company at 100% of its face value, plus any accumulated,
unpaid dividends at the Company's option any time after the Common Stock of the
Company has traded at 200% or more of the conversion price in effect for at
least twenty (20) consecutive trading days, so long as the Company does not call
the Preferred Stock prior to the first anniversary date of the Date of Closing.
The Series B Preferred Stock is callable and redeemable by the Company at 127%
of its face value, plus any accumulated, unpaid dividends at the Company's
option any time prior to the second anniversary date of the Date of Closing.
The Series C Preferred Stock and any accumulated, unpaid dividends may
be converted into Common Stock for up to two years at the lesser of a) the
market price on the day prior to closing or b) 78% of the five lowest closing
bid prices on the ten days preceding conversion. Consistent with the accounting
for the Company's Series A and Series B Preferred Stock, this is considered a
"beneficial conversion feature" to the holder. The Company will allocate
approximately $139,000 of the proceeds to additional paid-in capital as a
discount to be amortized over a three-month period.
The terms of the Company's Series A, Series B and Series C Preferred
Stock restrict the Company from declaring and paying on its common stock until
such time as all outstanding dividends have been fulfilled related to the
Preferred Stock.
9. STOCK PURCHASE WARRANTS AND STOCK OPTIONS
During the year ended July 31, 1999, certain shareholders and holders
of convertible debt of the Company were issued warrants to purchase shares of
common stock at exercise prices ranging from $0.70 to $1.06 per share.
Following is a summary of warrant activity from August 1, 1996 through July 31,
1999:
<TABLE>
<CAPTION>
Year Ending July 31,
-------------------------------------------
1997 1998 1999
-------------------------------------------
<S> <C> <C> <C>
Warrants outstanding, beginning 8,097,463 14,489,942 7,562,168
Warrants issued 9,931,854 667,400 933,387
Warrants expired (777,200) - (2,386,470)
Warrants exercised (2,762,175) (7,595,174) (1,905,160)
---------- ---------- ----------
14,489,942 7,562,168 4,203,925
Warrants outstanding, ending ========== ========== ==========
</TABLE>
60
<PAGE>
Warrants outstanding at July 31, 1999 expire as follows:
<TABLE>
<CAPTION>
Number of Warrants Exercise Price Expiration Date
----------------------- -------------- ---------------
<S> <C> <C>
80,000 $1.06 November 6, 1999
30,000 $0.50 December 31, 1999
367,400 $0.85 January 1, 2000
550,824 $0.85 February 7, 2000
1,030,060 $0.27 February 17, 2000
1,000,000 $0.70 February 28, 2000
192,254 $0.75 April 7, 2000
503,387 $0.70 April 13, 2000
50,000 $2.00 June 20, 2000
250,000 $3.56 October 14, 2000
50,000 $3.09 March 9, 2002
100,000 $1.25 July 2, 2004
</TABLE>
The Company had two fixed stock plans during 1997. The Company had a stock
option plan that was in existence since May 1994 (the Canadian Plan). No
options were ever issued as part of the Canadian Plan, even though the Company
had the ability to issue options to acquire approximately 2,800,000 shares of
the Company's common stock. In February 1997, the Company's Board of Directors
adopted the 1997 Stock Option Plan, which replaced the Canadian Plan. Under the
1997 Stock Option Plan, options to purchase up to 5,000,000 shares of common
stock may be granted to employees, directors, consultants and advisers. The
1997 Stock Option Plan is intended to permit the Company to retain and attract
qualified individuals who will contribute to the Company's overall success. The
exercise price of all of the options is equal to the market price of the shares
of common stock as of the date of grant. The options vest pursuant to the
individual stock option agreements, usually 33 percent per year beginning one
year from the grant date with unexercised options expiring ten years after the
date of the grant. On February 10, 1997, the Board of Directors granted a total
of 4,488,000 options to purchase Common Shares to directors and employees of the
Company. Certain grants were considered vested based on past service as of
February 10, 1997. The 1997 Stock Option Plan was approved by a vote of the
stockholders at the Company's Annual Meeting of Shareholders on May 21, 1997.
In September 1998, the Company's Board of Directors adopted the 1998 Stock
Option Plan. Under the 1998 Stock Option Plan, options to purchase up to
2,000,000 shares of common stock may be granted to employees, directors and
certain other persons. The 1997 and 1998 Stock Option Plans are intended to
permit the Company to retain and attract qualified individuals who will
contribute to the Company's overall success. The exercise price of all of the
options is equal to the market price of the shares of common stock as of the
date of grant. The options vest pursuant to the individual stock option
agreements, usually 33 percent per year beginning one year from the grant date
with unexercised options expiring ten years after the date of the grant. On
September 9, 1998, the Board of Directors granted a total of 1,541,000 options
to purchase
61
<PAGE>
common stock to directors and employees of the Company. On December 16, 1998,
the Board approved the granting of an additional 302,300 in options to employees
of the Company. The 1998 Stock Option Plan was approved by a vote of the
stockholders at the Company's Annual Meeting of Shareholders on December 17,
1998.
A summary of the status of the Company's 1997 and 1998 Stock Option Plans
for the years ended July 31, 1997, 1998 and 1999 and changes during the periods
are presented below:
<TABLE>
<CAPTION>
Years Ended July 31,
----------------------------------------------------------
1997 Stock Option Plan 1997 1998
----------------------------------------------------------
Weighted Weighed
Average Average
Shares Exercise Shares Exercise
Price Price
<S> <C> <C> <C> <C>
Outstanding, beginning of year - - 4,483,000 $0.58
Granted 4,488,000 $0.58 429,000 $2.33
Exercised - - (245,000) $0.58
Forfeited (5,000) $0.58 (11,667) $1.28
Outstanding, end of year 4,483,000 $0.58 4,655,333 $0.74
========= ===== ========= =====
Options exercisable at end of
year 1,786,332 $0.58 2,571,332 $0.58
========= ===== ========= =====
Weighted average fair value of
options granted during the year $0.45 $1.50
===== =====
</TABLE>
<TABLE>
<CAPTION>
Year Ended July 31,
-------------------------------
1997 Stock Option Plan 1999
-------------------------------
Weighted
Average
Exercise
Shares Price
<S> <C> <C>
Outstanding, beginning of year 4,655,333 $0.74
Granted - -
Exercised (298,000) $0.58
Forfeited (134,666) $0.71
Outstanding, end of year 4,222,667 $0.75
========= =====
Options exercisable at end of
year 3,271,333 $0.60
========= =====
Weighted average fair value of
options granted during the year $0.00
=====
</TABLE>
62
<PAGE>
<TABLE>
<CAPTION>
Year Ended July 31,
------------------------------
1999
------------------------------
1998 Stock Option Plan
Weighted
Average
Exercise
Shares Price
<S> <C> <C>
Outstanding, beginning of year - -
Granted 1,843,300 $0.60
Exercised - -
Forfeited (57,500) $0.78
Outstanding, end of year 1,785,800 $0.60
========= =====
Options exercisable at end of
year - -
Weighted average fair value of
options granted during the year $0.64
=====
</TABLE>
The weighted average remaining contractual life of the stock options
outstanding at July 31, 1999 is approximately 7.5 years for options granted
under the 1997 Stock Option Plan and approximately 9 years for options granted
under the 1998 Stock Option Plan.
In October 1995, SFAS No. 123, "Accounting for Stock-Based Compensation"
was issued. SFAS 123 defines a fair value based method of accounting for
employee stock options or similar equity instruments and encourages all entities
to adopt that method of accounting for all of their employee stock compensation
plans. Under the fair value based method, compensation cost is measured at the
grant date based on the value of the award and is recognized over the service
period of the award, which is usually the vesting period. However, SFAS 123
also allows entities to continue to measure compensation costs for employee
stock compensation plans using the intrinsic value method of accounting
prescribed by APB Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB 25"). The Company has adopted SFAS 123 effective August 1, 1996, and has
elected to remain with the accounting prescribed by APB 25. The Company has
made the required disclosures prescribed by SFAS 123.
In accordance with APB 25, the Company recorded approximately $1.4 million
in deferred compensation related to approximately 1.5 million of the options
granted based on the increase in the Company's stock price from February 10,
1997 when the options were granted, to May 21, 1997, when the underlying 1997
Stock Option Plan was approved by the Company's shareholders. Additionally, the
Company recorded approximately $340,000 in deferred compensation related to
approximately 1.5 million of the options granted based on the increase in the
Company's stock price from September 9, 1998 to December 17, 1998, when the
underlying 1998 Stock Option Plan was approved by the Company's shareholders.
As of July 31, 1998 and July 31, 1999, the Company had $666,899 and
$465,487, respectively, of deferred compensation related to options granted.
Because the Company has elected to remain with the accounting prescribed by
APB 25, no compensation cost has been recognized for its fixed stock option plan
based on SFAS 123. Had compensation cost for the Company's stock-based
compensation plans been determined on
63
<PAGE>
the fair value of the grant dates for awards under the fixed stock option plans
consistent with the method of SFAS 123, the Company's net loss (in thousands)
and loss per share would have been increased to the pro forma amounts indicated
below:
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
July 31, 1997 July 31, 1998 July 31, 1999
----------------- ----------------- ------------------
<S> <C> <C> <C>
Net Loss to common stockholders
-------------------------------
As reported $(4,695) $(5,094) $(7,591)
Pro forma $(5,235) $(5,936) $(7,312)
Basic and Diluted Loss per share
--------------------------------
As reported $ (0.18) $ (0.12) $ (0.16)
Pro forma $ (0.20) $ (0.14) $ (0.15)
</TABLE>
The fair value of the option grant is estimated based on the date of grant
using an option pricing model with the following assumptions used for the grants
in 1997, 1998 and 1999: Dividend yield of 0.0%, expected volatility of 60%, 46%
and 62%, respectively, risk-free interest rate of 6.41%, 5.10% and 6.50%,
respectively, and an expected life of ten years.
10. ACQUISITIONS
As discussed in Note 1, the Company acquired 55% of Computel in May 1997
and acquired the remaining shares in August 1997. The total purchase price for
the acquisition of Computel was approximately $3.6 million, of which $1.1
million was paid in cash, $700,000 in a note receivable forgiven by the Company
and approximately $1.8 million in common stock, representing 2,715,546 shares.
The Company recorded the assets and liabilities of Computel as of May 1, 1997.
As Computel had net liabilities at May 1, 1997, the Company recorded goodwill of
$2,279,231 related to the acquisition. The remaining 45% ownership interest is
reflected as minority interest at July 31, 1997. Per the terms of the
agreement, the remaining shares of Computel were acquired in August 1997 for the
previously mentioned cash payment of approximately $1.1 million and forgiveness
of the aforementioned note receivable. The Company recorded additional goodwill
of approximately $2,857,000.
The following unaudited pro forma results of operations for the year ended
July 31, 1997, assumes the acquisition of Computel occurred as of the beginning
of the period. Such pro forma information is not necessarily indicative of the
results of future operations.
64
<PAGE>
<TABLE>
<CAPTION>
Year Ended July 31,
-------------------
1997
----
(Unaudited)
<S> <C>
Operating revenues $ 20,312,000
Net loss ($5,408,000)
Basic and Diluted net loss per share
($0.19)
</TABLE>
These unaudited pro forma results have been prepared for comparative
purposes only and include certain adjustments such as additional amortization of
goodwill as a result of the acquisition, and the elimination of intercompany
transactions. The unaudited pro forma information is not necessarily indicative
of the results that would have occurred had such transactions actually taken
place at the beginning of the period specified nor does such information purport
to project the results of operations for any future date or period.
Pro forma results of operations for the year ended July 31, 1998 have been
omitted, as pro forma results would not materially differ from actual results of
operations for the period.
In January 1999, the Company acquired the rights to the source code of a
computer software program known as "CuteFTP". Prior to January 1999, the Company
had been the distributor of this software under an exclusive distribution
agreement executed in June 1996 with the software's author. The Company
acquired the rights to CuteFTP in exchange for cash payments totaling
approximately $190,000 in January and February 1999 and an additional $756,000
to be paid in twelve monthly installments.
11. SEGMENT REPORTING
In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of
an Enterprise and Related Information," which establishes standards for
reporting information about operating segments in annual and interim financial
statements. It also establishes standards for related disclosures about
products and services, geographic areas and major customers. SFAS No. 131
supersedes SFAS No. 14, "Financial Reporting for Segments of a Business
Enterprise." Generally, financial information is required to be reported on the
basis that it is used internally for evaluating segment performance and deciding
how to allocate resources to segments. SFAS No. 131 is effective for financial
statements for periods beginning after December 15, 1997. SFAS No. 131 need not
be applied to interim financial statements in the initial year of its
application, but comparative information for interim periods in the initial year
of application is to be reported in financial statements for interim periods in
the second year of application. In an attempt to identify its reportable
operating segments, the Company considered a number of factors or criteria.
These criteria included segmenting based upon geographic boundaries only,
segmenting based on the products and services provided, segmenting based on
legal entity and segmenting by business focus. Based on these criteria or
factors the Company has determined that it has three reportable operating
segments: (1) U.S. Telco; (2) Mexico Telco; and (3) Internet e-commerce.
Clearly, the Company's Internet e-commerce subsidiary, GlobalSCAPE, Inc. and its
operations can be differentiated from the telecommunication focus of the rest of
the Company. Additionally, the Company believes that its U.S. and Mexican
subsidiaries should be
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separate segments in spite of the fact that many of the products are borderless.
Both, the U.S. Telco and Mexican Telco segments include revenues generated from
Integrated Prepaid, Postpaid, and Private Network Services. The Company's
Carrier Services revenues, generated as a part of its U.S. Telco segment, are
the only revenues not currently generated by both the U.S. Telco and Mexico
Telco segments. The Company has included the operations of ATSI-Canada, ATSI-
Delaware and all businesses falling below the reporting threshold in the "Other"
segment. The "Other" segment also includes intercompany eliminations.
<TABLE>
<CAPTION>
As of and for the years ending
------------------------------------------------------
July 31, July 31, July 31,
1997 1998 1999
U.S. Telco
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
External revenues $ 13,714,251 $ 26,695,690 $ 25,516,665
Intercompany revenues $ 330,362 $ 1,300,000 $ 800,012
------------ ------------ ------------
Total revenues $ 14,044,613 $ 27,995,690 $ 26,316,677
============ ============ ============
Earnings before interest, taxes,
depreciation and amortization (EBITDA)
($3,131,841) ($16,807) ($1,485,045)
Operating loss ($3,603,447) ($1,294,037) ($3,342,035)
Net loss ($3,806,889) ($1,819,986) ($3,866,051)
Total assets $ 6,450,033 $ 10,049,021 $ 9,606,263
Mexico Telco
- --------------------------------------------------------------------------------------------
External revenues $ 1,949,755 $ 6,298,620 $ 6,359,238
Intercompany revenues $ 1,359,891 $ 5,136,541 $ 5,052,890
------------ ------------ ------------
Total revenues $ 3,309,646 $ 11,435,161 $ 11,412,128
============ ============ ============
EBITDA ($183,002) ($1,434,261) ($1,071,502)
Operating loss ($273,740) ($1,927,928) ($2,253,037)
Net loss ($364,402) ($2,564,103) ($2,691,450)
Total assets $ 9,097,780 $ 17,228,025 $ 13,236,868
Internet e-commerce
- --------------------------------------------------------------------------------------------
External revenues $ 564,381 $ 1,525,517 $ 2,642,376
Intercompany revenues - 25,000 -
------------ ------------ ------------
Total revenues $ 564,381 $ 1,550,517 $ 2,642,376
============ ============ ============
EBITDA $ 39,197 $ 215,051 $ 1,052,015
Operating income $ 36,483 $ 188,658 $ 873,832
</TABLE>
66
<PAGE>
<TABLE>
<S> <C> <C> <C>
Net income $ 38,282 $ 197,698 $ 854,068
Total assets $ 266,955 $ 537,289 $ 1,222,238
Other
- ---------------------------------------------------------------------------------------------
External revenues - - -
Intercompany revenues ($1,690,253) ($6,461,541) ($5,852,902)
------------ ------------ ------------
Total revenues ($1,690,253) ($6,461,541) ($5,852,902)
============ ============ ============
EBITDA ($ 335,325) ($408,783) ($287,110)
Operating loss ($361,013) ($433,683) ($318,274)
Net loss ($562,119) ($907,570) ($1,887,651)
Total assets $ 5,940 ($3,563,743) $ 88,924
Total
- ---------------------------------------------------------------------------------------------
External revenues $ 16,228,387 $ 34,519,827 $ 34,518,279
Intercompany revenues - - -
------------ ------------ ------------
Total revenues $ 16,228,387 $ 34,519,827 $ 34,518,279
============ ============ ============
EBITDA ($3,610,971) ($1,644,800) ($1,791,642)
Depreciation, Depletion and ($590,746) ($1,822,190) ($3,247,872)
Amortization
Operating loss ($4,201,717) ($3,466,990) ($5,039,514)
Net loss ($4,695,128) ($5,093,961) ($7,591,084)
Total assets $15,820,708 $24,250,592 $24,154,293
</TABLE>
12. INCOME TAXES
As of July 31,1999, the Company had net operating loss carryforwards of
approximately $9,335,000 for U.S. federal income tax purposes which are
available to reduce future taxable income of which $534,000 will expire in 2009,
$2,385,000 will expire in 2010, $2,083,000 will expire in 2011, $2,894,000 will
expire in 2012 and $1,439,000 will expire in 2019. The availability of the net
operating loss (NOL) carryforwards to reduce U.S. federal taxable income is
subject to various limitations in the event of an ownership change as defined in
Section 382 of the Internal Revenue Code of 1986 (the "Code"). The Company
experienced a change in ownership in excess of 50 percent, as defined in the
Code, during the year ended July 31, 1998. This change in ownership limits the
annual utilization of NOL under the Code to $1,284,000 per year, but does not
impact its ability to utilize its NOL's because the annual limitation under the
Code would allow full utilization within the statutory carryforward period.
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<PAGE>
The tax effects of significant temporary differences representing deferred
income tax assets and liabilities are as follows as of July 31, 1998 and 1999:
July 31, 1998 July 31,1999
Net operating loss carryforward $ 2,919,000 $ 3,174,000
Other tax differences, net 628,000 839,000
Valuation allowance (3,547,000) (4,013,000)
----------- -----------
Total deferred income tax assets $ - $ -
=========== ===========
A valuation reserve of $3,547,000 and $4,013,000, as of July 31, 1998 and
1999, respectively, representing the total of net deferred tax assets has been
recognized by the Company as it cannot determine that it is more likely than not
that all of the deferred tax assets will be realized.
Additionally, the Company's effective tax rate differs from the statutory
rate as the tax benefits have not been recorded on the losses incurred for the
years ended July 31, 1997, 1998 and 1999.
13. COMMITMENTS AND CONTINGENCIES
During the years ended July 31, 1998 and 1999, nine officers of the Company
entered into employment agreements with ATSI-Texas or ATSI-Delaware, generally
for periods of up to three years (with automatic one-year extensions) unless
terminated earlier in accordance with the terms of the respective agreements.
The annual base salary under such agreements for each of these nine officers
range from $75,000 to $100,000 per annum, and is subject to increase within the
discretion of the Board. In addition, each of these officers is eligible to
receive a bonus in such amount as may be determined by the Board of Directors
from time to time. Bonuses may not exceed 50% of the executive's base salary in
any fiscal year. No bonuses were paid during fiscal 1999.
Effective August 1998, two of the aforementioned officers entered into
employment agreements with ATSI-Delaware, which superceded their previous
agreements, each for a period of three years (with automatic one-year
extensions) unless terminated earlier in accordance with the terms of the
respective agreements. The annual base salary under such agreements for each of
these two officers may not be less than $127,000 and $130,000, respectively, per
annum, and is subject to increase within the discretion of the Board. In
addition, each of these officers is eligible to receive a bonus in such amount
as may be determined by the Board of Directors from time to time. Bonuses may
not exceed 50% of the executive's base salary in any fiscal year. No such
bonuses were awarded for fiscal 1999.
Subsequent to July 31, 1999, three officers whose employment agreements
were to expire January 1, 2000 were informed that their agreements would not be
renewed under the current terms and conditions. Two of the three officers have
since entered into new employment agreements with ATSI-Delaware, each for a
period of one year unless earlier terminated in
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<PAGE>
accordance with the terms of the respective agreements. The annual base salaries
under such agreements may not be less than approximately $101,000 and $105,000,
respectively, per annum, and is subject to increase within the discretion of the
Board. In addition, each of these officers is eligible to receive a bonus in
such amount as may be determined by the Board of Directors from time to time.
Bonuses may not exceed 50% of the executive's base salary in any fiscal year.
14. RISKS AND UNCERTAINTIES AND CONCENTRATIONS
The Company's business is dependent upon key pieces of equipment, switching
and transmission facilities, fiber capacity and the Solaridad satellites.
Should the Company experience service interruptions from its underlying
carriers, equipment failures or should there be damage or destruction to the
Solaridad satellites or leased fiber lines there would likely be a temporary
interruption of the Company's services which could adversely or materially
affect the Company's operations. The Company believes that suitable arrangements
could be obtained with other satellite or fiber optic network operators to
provide transmission capacity. Additionally, the Company's network control
center is protected by an uninterruptible power supply system which, upon
commercial power failure, utilizes battery back-up until an on-site generator is
automatically triggered to supply power.
During the year ended July 31, 1999, the Company's wholesale transport
business had two customers, whose aggregated revenues approximated 10% of the
Company's total revenues for the year. No other customer generated revenues
individually greater than 5% during the year.
15. RELATED PARTY TRANSACTIONS
In January 1997, ATSI-Canada entered into an agreement with an
international consulting firm, of which ATSI-Delaware director Carlos K. Kauachi
is president, for international business development support. Under the terms
of the agreement, the Company paid the consulting firm $8,000 per month for a
period of twelve months. In January 1998, the agreement was renewed at $10,000
per month for a period of twelve months. In March 1999, the agreement was
renewed at $6,000 per month for a period of twelve months.
In April 1998, the Company engaged two companies for billing and
administrative services related to network management services it provides. The
companies, which are owned by Tomas Revesz, an ATSI-Delaware director, were paid
approximately $140,000 for their services during fiscal 1998. Subsequent to
year-end, the Company entered into an agreement with the two companies capping
their combined monthly fees at $18,500 per month. For fiscal 1999, the
companies were paid approximately $180,000 for their services. Additionally,
the Company has a payable to Mr. Revesz of $90,000.
In February 1999, the Company entered into notes payable with related
parties, all of whom were officers or directors of the Company in the amount of
$250,000. The notes accrue interest at a rate of 12% per year until paid in
full. As of July 31, 1999, $100,000 of the notes remain outstanding.
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<PAGE>
The Company has entered into a month-to-month agreement with Technology
Impact Partners, a consulting firm of which Company director Richard C.
Benkendorf, is principal and owner. Under the agreement, Technology Impact
Partners provides the Company with various services that include strategic
planning, business development and financial advisory services. Under the terms
of the agreement, the Company pays the consulting firm $3,750 per month plus
expenses. At July 31, 1999, the Company has a payable to Technology Impact
Partners of approximately $74,000.
16. LEGAL PROCEEDINGS
On January 29, 1999, one of the Company's customers, Twister
Communications, Inc. filed a Demand for Arbitration seeking damages for breach
of contract before the American Arbitration Association. The customer claims
that the Company wrongfully terminated an International Carrier Services
Agreement executed by the parties in June 1998 under which the Company provided
wholesale carrier services from June 1998 to January 1999. The customer's
claims for damages represent amounts that it claims it had to pay in order to
replace the service provided by the Company. The Company disputes that it
terminated the contract wrongfully and asserts that the customer breached the
agreement by failing to pay for services rendered and by intentionally making
false representation regarding its traffic patterns and on March 3, 1999 filed a
Demand for Arbitration seeking damages for breach of contract in an amount equal
to the amounts due to the Company for services rendered plus interest, plus
additional damages for fraud. An arbitration panel was selected and the parties
are now completing written discovery.
While the Company believes that it has a justifiable basis for its
arbitration demand and that it will be able to resolve the dispute without a
material adverse effect on the Company's financial condition; until the
arbitration proceedings take place, the Company can not reasonably estimate the
possible loss, if any, and there can be no assurance that the resolution of this
dispute would not have an adverse effect on the Company's results of operations.
On June 16, 1999, the Company's subsidiary, ATSI Texas initiated a lawsuit
in District Court, Bexar County, Texas against PrimeTEC International, Inc.,
Mike Moehle and Vartec Telecom, Inc. claiming misrepresentation and breach of
conduct. Under an agreement the Company signed in late 1998, PrimeTEC was to
provide quality fiber optic capacity in January 1999. Mike Moehle is PrimeTEC's
former president who negotiated the fiber lease and Vartec is PrimeTEC's parent.
The delivery of the route in early 1999 was a significant component of the
Company's operational and sales goal for the year and the failure of its vendor
to provide the capacity led to the Company negotiating an alternative agreement
with Bestel, S.A. de C.V. at a higher cost. While the total economic impact is
still being assessed, the Company believes lost revenues and incremental costs
are in excess of $15 million. While the Company's contract contains certain
limitations regarding the type and amounts of damages that can be pursued, the
Company has authorized its attorneys to pursue all relief to which it is
entitled under law. As such, the Company can not reasonably estimate the
ultimate outcome of neither this lawsuit nor the additional costs that may be
incurred in the pursuit of its case.
The Company is also a party to additional claims and legal proceedings
arising in the ordinary course of business. The Company believes it is unlikely
that the final outcome of any
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<PAGE>
of the claims or proceedings to which the Company is a party would have a
material adverse effect on the Company's financial statements; however, due to
the inherent uncertainty of litigation, the range of possible loss, if any,
cannot be estimated with a reasonable degree of precision and there can be no
assurance that the resolution of any particular claim or proceeding would not
have an adverse effect on the Company's results of operations in the period in
which it occurred.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information called for by item 10 of Form 10-K is incorporated herein by
reference to such information included in the Company' Proxy Statement of the
1999 Annual Meeting of Stockholders.
ITEM 11. EXECUTIVE COMPENSATION
The information called for by item 11 of Form 10-K is incorporated herein by
reference to such information included in the Company's Proxy Statement for the
1999 Annual Meeting of Stockholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information called for by item 12 of Form 10-K is incorporated herein by
reference to such information included in the Company's Proxy Statement for the
1999 Annual Meeting of Stockholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information called for by item 13 of Form 10-K is incorporated herein by
reference to such information included in the Company's Proxy Statement for the
1999 Annual Meeting of Stockholders.
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<PAGE>
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Financial Statements
Index to Financial Statements appears on Page 40.
(b) Reports on Form 8-K
None.
(c) Exhibits
3.1 Amended and Restated Certificate of Incorporation of American TeleSource
International, Inc., a Delaware corporation (Exhibit 3.3 to Amendment No. 2
to Registration Statement on Form 10 (No. 333-05557) of ATSI filed on
September 11, 1997)
3.2 Amended and Restated Bylaws of American TeleSource International, Inc.
(Exhibit to Amended Annual Report on Form 10-K for year ended July 31, 1999
filed April 13, 2000)
4.1 Certificate of Designation, Preferences and Rights of 10% Series A
Cumulative Convertible Preferred Stock (Exhibit 10.43 to Annual Report on
Form 10-K for year ending July 31, 1999 filed on October 26, 1999)
4.2 Certificate of Designation, Preferences and Rights of 6% Series B
Cumulative Convertible Preferred Stock (Exhibit 10.34 to Registration
Statement on Form S-3 (No. 333-84115) filed August 18, 1999)
4.3 Certificate of Designation, Preferences and Rights of 6% Series C
Cumulative Convertible Preferred Stock (Exhibit 10.40 to Registration
Statement on Form S-3 (No. 333-84115) filed October 26, 1999)
4.4 Securities Purchase Agreement between The Shaar Fund Ltd. and ATSI dated
July 2, 1999 (Exhibit 10.33 to Registration Statement on Form S-3 (No. 333-
84115) filed August 18, 1999)
4.5 Common Stock Purchase Warrant issued to The Shaar Fund Ltd. by ATSI dated
July 2, 1999 (Exhibit 10.35 to Registration Statement on Form S-3 (No. 333-
84115) filed August 18, 1999)
4.6 Registration Rights Agreement between The Shaar Fund Ltd. and ATSI dated
July 2, 1999 (Exhibit 10.36 to Registration Statement on Form S-3 (No. 333-
84115) filed August 18, 1999)
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<PAGE>
4.7 Securities Purchase Agreement between The Shaar Fund Ltd. and ATSI dated
September 24, 1999 (Exhibit 10.39 to Registration Statement on Form S-3
(No. 333-84115) filed October 26, 1999)
4.8 Common Stock Purchase Warrant issued to The Shaar Fund Ltd. by ATSI dated
September 24, 1999 (Exhibit 10.41 to Registration Statement on Form S-3
(No. 333-84115) filed October 26, 1999)
4.9 Registration Rights Agreement between The Shaar Fund Ltd. and ATSI dated
September 24, 1999 (Exhibit 10.42 to Registration Statement on Form S-3
(No. 333-84115) filed October 26, 1999)
4.10 Amended and Restated 1997 Option Plan (Exhibit 10.30 to Registration
Statement on Form S-4 (No. 333-47511) filed March 6, 1998)
4.11 Form of 1997 Option Plan Agreement (Exhibit 10.7 to Registration Statement
on Form 10 (No. 000-23007) filed August 22, 1997)
4.12 American TeleSource International, Inc. 1998 Stock Option Plan (Exhibit 4.7
to Registration Statement on Form S-8 filed January 11, 2000)
10.1 Agreement with SATMEX (Agreement #095-1) (Exhibit 10.31 to Annual Report on
Form 10-K for year ended July 31, 1998 (No. 000-23007))
10.2 Agreement with SATMEX (Agreement #094-1) (Exhibit 10.32 to Annual Report on
Form 10-K for year ended July 31, 1998 (No. 000-23007))
10.3 Amendment to Agreement #094-1 with SATMEX (Exhibit to this Amended Annual
Report on Form 10-K for year ended July31, 1999 filed April 13, 2000)
Confidential treatment requested for portions of this document
10.4 Amendment to Agreement #095-1 with SATMEX (Exhibit to this Amended Annual
Report on Form 10-K for year ended July31, 1999 filed April 13, 2000)
Confidential treatment requested for portions of this document
10.5 Bestel Fiber Lease (Exhibit to this Amended Annual Report on Form 10-K for
year ended July31, 1999 filed April 13, 2000)
10.6 Amendment to Private Line Agreement with Bestel, S.A. de C.V. (Exhibit to
this Amended Annual Report on Form 10-K for year ended July 31, 1999 filed
April 13, 2000)
10.7 Lease Finance Agreements between IBM de Mexico and ATSI-Mexico (Exhibit
10.21 to Amendment No. 1 to Registration Statement on Form 10 (No. 023007)
filed September 11, 1997)
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<PAGE>
10.8 Telecommunications Services Agreement with Best Marketing and Natta
Marketing (Exhibit to this Amended Annual Report on Form 10-K for year
ended July 31, 1999 filed April 13, 2000)
10.9 Master Lease Agreement with NTFC (Exhibit to this Amended Annual Report
on Form 10-K for year ended July 31, 1999 filed April 13, 2000)
10.10 BancBoston Master Lease Agreement (Exhibit to this Amended Annual Report
on Form 10-K for year ended July31, 1999 filed April 13, 2000)
10.11 Employment Agreement with Arthur L. Smith dated - February 28,
1997(Exhibit 10.16 to Registration Statement on Form 10 (No. 333-05557)
filed August 22, 1997)
10.12 Employment Agreement with Arthur L. Smith dated September 24, 1998
(Exhibit to this Amended Annual Report on Form 10-K filed April 13, 2000)
10.13 Employment Agreement with Craig K. Clement dated February 28, 1997
(Exhibit 10.18 to Registration Statement on Form 10 (No. 333-05557) filed
August 22, 1997)
10.14 Employment Agreement with Craig K. Clement dated January 1, 2000 (Exhibit
to this Amended Annual Report on Form 10-K for year ended July 31, 1999
filed April 13, 2000)
10.15 Employment Agreement with Sandra Poole-Christal dated January 1, 1998
(Exhibit to this Amended Annual Report on Form 10-K for year ended July
31, 1999 filed April 13, 2000)
10.16 Employment Agreement with Charles R. Poole dated February 28, 1997
(Exhibit 10.20 to Registration Statement on Form 10 (No. 333-05557) filed
August 22, 1997)
10.17 Employment Agreement with Charles R. Poole dated September 24, 1998
(Exhibit to this Amended Annual Report on Form 10-K filed April 13, 2000)
10.18 Employment Agreement with H. Douglas Saathoff dated February 28,
1997(Exhibit 10.17 to Registration Statement on Form 10 (No. 333-05557)
filed August 22, 1997)
10.19 Employment Agreement with H. Douglas Saathoff dated January 1, 2000
(Exhibit to this Amended Annual Report on Form 10-K for year ended July
31, 1999 filed April 13, 2000)
10.20 Office Space Lease Agreement (Exhibit 10.14 to Registration Statement on
Form S-4 (No. 333-05557) filed June 7, 1996)
10.21 Amendment to Office Space Lease Agreement (Exhibit 10.14 to Registration
Statement on Form S-4 (No. 333-05557) filed June 7, 1996)
10.22 Office Space Lease Agreement for GlobalSCAPE (Exhibit 10.29 to
Registration Statement on Form S-4 (No. 333-47511) filed on March 6,
1998)
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<PAGE>
10.23 Commercial Lease with ACLP University Park SA, L.P. (Exhibit to this
Amended Annual Report on Form 10-K for year ended July 31, 1999 filed
April 13, 2000)
10.24 Amendment to Commercial Lease with ACLP University Park SA, L.P. (Exhibit
to this Amended Annual Report on Form 10-K for year ended July 31, 1999
filed April 13, 2000)
10.25 Commercial Lease between GlobalSCAPE, Inc. and ACLP University Park SA,
L.P (Exhibit to this Amended Annual Report on Form 10-K for year ended
July 31, 1999 filed April 13, 2000)
10.26 Amendment to Commercial Lease between GlobalSCAPE, Inc. and ACLP
University Park SA, L.P (Exhibit to this Amended Annual Report on Form
10-K for year ended July 31, 1999 filed April 13, 2000)
10.27 Compensation Agreement between ATSI-Texas and James McCourt relating to
Guarantee of Equipment Line of Credit by James McCourt (Exhibit 10.3 to
Registration Statement on Form 10 (No. 000-23007) filed on August 22,
1997)
10.28 Consulting Agreement with KAWA Consultores, S.A. de C.V. (Exhibit to this
Amended Annual Report on Form 10-K for year ended July 31, 1999 filed
April 13, 2000)
11 Statement of Computation of Per Share Earnings (Exhibit 11 to Annual
Report on Form 10-K for year ended July 31, 1999 filed October 26, 1999)
22 Subsidiaries of ATSI (Exhibit 22 to Annual Report on Form 10-K for year
ended July 31, 1999 filed October 26, 1999)
23 Consent of Arthur Andersen LLP) (Exhibit to this Amended Annual Report on
Form 10-K for year ended July 31, 1999 filed April 13, 2000)
27 Financial Data Schedule (Exhibit 27 to Annual Report on Form 10-K for
year ended July 31, 1999 filed October 26, 1999)
99.1 ATSI Shareholder Newsletter (Exhibit 99.1 to Annual Report on Form 10-K
for year ended July 31, 1999(File No. 000-23007) filed October 26, 1999)
99.2 FCC Radio Station Authorization - C Band (Exhibit 10.10 to Registration
Statement on Form S-4 (No. 333-05557) filed June 7, 1996)
99.3 FCC Radio Station Authorization - Ku Band (Exhibit 10.11 to Registration
Statement on Form 10 (No. 333-05557) filed June 7, 1996)
99.4 Section 214 Certification from FCC (Exhibit 10.12 to Registration
Statement on Form 10 (No. 333-05557) filed June 7, 1996)
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<PAGE>
99.5 Comercializadora License (Payphone License) issued to ATSI-Mexico
(Exhibit 10.24 to Registration Statement on Form 10 (No. 000-23007) filed
August 22, 1997)
99.6 Network Resale License issued to ATSI-Mexico (Exhibit 10.25 to
Registration Statement on Form 10 (No. 000-23007) filed August 22, 1997)
99.7 Shared Teleport License issued to Sinfra (Exhibit to this Amended Annual
Report on Form 10-K for year ended July 31, 1999 filed April 13, 2000)
99.8 Packet Switching Network License issued to SINFRA (Exhibit 10.26 to
Registration Statement on Form 10 (No. 000-23007) filed August 22, 1997)
99.9 Value-Added Service License issued to SINFRA(Exhibit to this Amended
Annual Report on Form 10-K for year ended July 31, 1999 filed April 13,
2000)
99.10 Potential Dilution Chart (Exhibit to this Amended Annual Report on Form
10-K for year ended July 31, 1999 filed April 13, 2000)
99.11 Preferred Stock Features (Exhibit to this Amended Annual Report on Form
10-K for year ended July 31, 1999 filed April 13, 2000)
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<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto authorized, in San Antonio, Texas on
April 13, 2000.
AMERICAN TELESOURCE INTERNATIONAL, INC.
By: /s/ Arthur L. Smith
-------------------
Arthur L. Smith
Chief Executive Officer
By: /s/ H. Douglas Saathoff
-------------------------
H. Douglas Saathoff
Senior Vice President, Chief Financial Officer and
Corporate Secretary
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of
1934, this report has been signed below by the following persons in the
capacities indicated on April 13, 2000.
Signature Title
--------- -----
/s/ ARTHUR L. SMITH Chairman of the Board, Chief
-------------------
Executive Officer, Director
/s/ H. DOUGLAS SAATHOFF Chief Financial Officer, Senior Vice
-----------------------
President, and Corporate Secretary
/s/ RICHARD C. BENKENDORF Director
-------------------------
/s/ CARLOS K. KAUACHI Director
---------------------
/s/ MURRAY R. NYE Director
-----------------
/s/ TOMAS REVESZ Director
----------------
/s/ ROBERT B. WERNER Director
--------------------
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<PAGE>
Exhibit List for 10-K
3.1 Amended and Restated Certificate of Incorporation of American TeleSource
International, Inc., a Delaware corporation (Exhibit 3.3 to Amendment
No. 2 to Registration Statement on Form 10 (No. 333-05557) of ATSI filed
on September 11, 1997)
3.2 Amended and Restated Bylaws of American TeleSource International, Inc.
(Exhibit to Amended Annual Report on Form 10-K for year ended July 31,
1999 filed April 11, 2000)
4.1 Certificate of Designation, Preferences and Rights of 10% Series A
Cumulative Convertible Preferred Stock (Exhibit 10.43 to Annual Report
on Form 10-K for year ending July 31, 1999 filed on October 26, 1999)
4.2 Certificate of Designation, Preferences and Rights of 6% Series B
Cumulative Convertible Preferred Stock (Exhibit 10.34 to Registration
Statement on Form S-3 (No. 333-84115) filed August 18, 1999)
4.3 Certificate of Designation, Preferences and Rights of 6% Series C
Cumulative Convertible Preferred Stock (Exhibit 10.40 to Registration
Statement on Form S-3 (No. 333-84115) filed October 26, 1999)
4.4 Securities Purchase Agreement between The Shaar Fund Ltd. and ATSI dated
July 2, 1999 (Exhibit 10.33 to Registration Statement on Form S-3 (No.
333-84115) filed August 18, 1999)
4.5 Common Stock Purchase Warrant issued to The Shaar Fund Ltd. by ATSI
dated July 2, 1999 (Exhibit 10.35 to Registration Statement on Form S-3
(No. 333-84115) filed August 18, 1999)
4.6 Registration Rights Agreement between The Shaar Fund Ltd. and ATSI dated
July 2, 1999 (Exhibit 10.36 to Registration Statement on Form S-3 (No.
333-84115) filed August 18, 1999)
4.7 Securities Purchase Agreement between The Shaar Fund Ltd. and ATSI dated
September 24, 1999 (Exhibit 10.39 to Registration Statement on Form S-3
(No. 333-84115) filed October 26, 1999)
4.8 Common Stock Purchase Warrant issued to The Shaar Fund Ltd. by ATSI
dated September 24, 1999 (Exhibit 10.41 to Registration Statement on
Form S-3 (No. 333-84115) filed October 26, 1999)
4.9 Registration Rights Agreement between The Shaar Fund Ltd. and ATSI dated
September 24, 1999 (Exhibit 10.42 to Registration Statement on Form S-3
(No. 333-84115) filed October 26, 1999)
<PAGE>
4.10 Amended and Restated 1997 Option Plan (Exhibit 10.30 to Registration
Statement on Form S-4 (No. 333-47511) filed March 6, 1998)
4.11 Form of 1997 Option Plan Agreement (Exhibit 10.7 to Registration
Statement on Form 10 (No. 000-23007) filed August 22, 1997)
4.12 American TeleSource International, Inc. 1998 Stock Option Plan (Exhibit
4.7 to Registration Statement on Form S-8 filed January 11, 2000)
10.1 Agreement with SATMEX (Agreement #095-1) (Exhibit 10.31 to Annual Report
on Form 10-K for year ended July 31, 1998 (No. 000-23007))
10.2 Agreement with SATMEX (Agreement #094-1) (Exhibit 10.32 to Annual Report
on Form 10-K for year ended July 31, 1998 (No. 000-23007))
10.3 Amendment to Agreement #094-1 with SATMEX (Exhibit to this Amended
Annual Report on Form 10-K for year ended July 31, 1999 filed April 11,
2000)
10.4 Amendment to Agreement #095-1 with SATMEX (Exhibit to this Amended
Annual Report on Form 10-K for year ended July 31, 1999 filed April 11,
2000)
10.5 Bestel Fiber Lease (Exhibit to this Amended Annual Report on Form 10-K
for year ended July 31, 1999 filed April 11, 2000)
10.6 Amendment to Private Line Agreement with Bestel, S.A. de C.V. (Exhibit
to this Amended Annual Report on Form 10-K for year ended July 31, 1999
filed April 11, 2000)
10.7 Lease Finance Agreements between IBM de Mexico and ATSI-Mexico (Exhibit
10.21 to Amendment No. 1 to Registration Statement on Form 10 (No.
023007) filed September 11, 1997)
10.10 BancBoston Master Lease Agreement (Exhibit to this Amended Annual Report
on Form 10-K for year ended July 31, 1999 filed April 11, 2000)
10.11 Employment Agreement with Arthur L. Smith dated - February 28, 1997
(Exhibit 10.16 to Registration Statement on Form 10 (No. 333-05557)
filed August 22, 1997)
10.12 Employment Agreement with Arthur L. Smith dated September 24, 1998
(Exhibit to this Amended Annual Report on Form 10-K filed April 11,
2000)
10.13 Employment Agreement with Craig K. Clement dated February 28, 1997
(Exhibit 10.18 to Registration Statement on Form 10 (No. 333-05557)
filed August 22, 1997)
<PAGE>
10.14 Employment Agreement with Craig K. Clement dated January 1, 2000
(Exhibit to this Amended Annual Report on Form 10-K for year
ended July 31, 1999 filed April 11, 2000)
10.15 Employment Agreement with Sandra Poole-Christal dated January 1,
1998 (Exhibit to this Amended Annual Report on Form 10-K for year
ended July 31, 1999 filed April 11, 2000)
10.16 Employment Agreement with Charles R. Poole dated February 28,
1997 (Exhibit 10.20 Registration Statement on Form 10 (No. 333-
05557) filed August 22, 1997)
10.17 Employment Agreement with Charles R. Poole dated September 24,
1998 (Exhibit to this Amended Annual Report on Form 10-K filed
April 11, 2000)
10.18 Employment Agreement with H. Douglas Saathoff dated February 28,
1997 (Exhibit 10.17 to Registration Statement on Form 10
(No. 333-05557) filed August 22, 1997)
10.19 Employment Agreement with H. Douglas Saathoff dated January 1,
2000 (Exhibit to this Amended Annual Report on Form 10-K for year
ended July 31, 1999 filed April 11, 2000)
10.20 Office Space Lease Agreement (Exhibit 10.14 to Registration
Statement on Form S-4 (No. 333-05557) filed June 7, 1996)
10.21 Amendment to Office Space Lease Agreement (Exhibit 10.14 to
Registration Statement on Form S-4 (No. 333-05557) filed June 7,
1996)
10.22 Office Space Lease Agreement for GlobalSCAPE (Exhibit 10.29 to
Registration Statement on Form S-4 (No. 333-47511) filed on March
6, 1998)
10.23 New Office Space Lease Agreement for American TeleSource
International, Inc. (Exhibit to this Amended Annual Report on
Form 10-K for year ended July 31, 1999 filed April 11, 2000)
10.24 Amendment to New Office Space Lease Agreement for American
TeleSource International, Inc. (Exhibit to this Amended Annual
Report on Form 10-K for year ended July 31, 1999 filed
April 11, 2000)
10.25 New Office Space Lease Agreement for GlobalSCAPE, Inc. (Exhibit
to this Amended Annual Report on Form 10-K for year ended July
31, 1999 filed April 11, 2000)
<PAGE>
10.26 Amendment to New Office Space Lease Agreement for GlobalSCAPE,
Inc. (Exhibit to this Amended Annual Report on Form 10-K for year
ended July 31, 1999 filed April 11, 2000)
10.26 Compensation Agreement between ATSI-Texas and James McCourt
relating to Guarantee of Equipment Line of Credit by James
McCourt (Exhibit 10.3 to Registration Statement on Form 10 (No.
000-23007) filed on August 22, 1997)
10.28 Consulting Agreement with KAWA Consultores, S.A. de C.V. (Exhibit
to this Amended Annual Report on Form 10-K for year ended July
31, 1999 filed April 11, 2000)
11 Statement of Computation of Per Share Earnings (Exhibit 11 to
Annual Report on Form 10-K for year ended July 31, 1999 filed
October 26, 1999)
22 Subsidiaries of ATSI (Exhibit 22 to Annual Report on Form 10-K
for year ended July 31, 1999 filed October 26, 1999)
23 Consent of Arthur Andersen LLP (Exhibit to this Amended Annual
Report on Form 10-K for year ended July 31, 1999 filed April 11,
2000)
27 Financial Data Schedule (Exhibit 27 to Annual Report on Form 10-K
for year ended July 31, 1999 filed October 26, 1999)
99.1 ATSI Shareholder Newsletter (Exhibit 99.1 to Annual Report on
Form 10-K for year ended July 31, 1999 (File No. 000-23007) filed
October 26, 1999)
99.2 FCC Radio Station Authorization - C Band (Exhibit 10.10 to
Registration Statement on Form S-4 (No. 333-05557) filed June 7,
1996)
99.3 FCC Radio Station Authorization - Ku Band (Exhibit 10.11 to
Registration Statement on Form 10 (No. 333-05557) filed June 7,
1996)
99.4 Section 214 Certification from FCC (Exhibit 10.12 to Registration
Statement on Form 10 (No. 333-05557) filed June 7, 1996)
99.5 Comercializadora License (Payphone License) issued to ATSI-Mexico
(Exhibit 10.24 to Registration Statement on Form 10 (No.
000-23007) filed August 22, 1997)
99.6 Network Resale License issued to ATSI-Mexico (Exhibit 10.25 to
Registration Statement on Form 10 (No. 000-23007) filed August
22, 1997)
99.7 Shared Teleport License issued to Sinfra (Exhibit to this Amended
Annual Report on Form 10-K for year ended July 31, 1999 filed
April 11, 2000
<PAGE>
99.8 Packet Switching Network License issued to SINFRA (Exhibit 10.26 to
Registration Statement on Form 10 (No. 000-23007) filed August 22, 1997)
99.9 Value-Added Service License issued to SINFRA (Exhibit to this Amended
Annual Report on Form 10-K for year ended July 31, 1999 filed April 11,
2000)
<PAGE>
Exhibit 3.2
Amended and Restated Bylaws
of
American TeleSource International, Inc.
(formerly known as ATSI Merger Corp.)
TABLE OF CONTENTS
-----------------
<TABLE>
<S> <C>
ARTICLE I. OFFICES........................................................................ 1
Section 1.1. Registered Office........................................................ 1
Section 1.2. Additional Offices....................................................... 1
ARTICLE II. STOCKHOLDERS MEETINGS.......................................................... 1
Section 2.1. Annual Meetings.......................................................... 1
Section 2.2. Special Meetings......................................................... 1
Section 2.3. Notices.................................................................. 1
Section 2.4. Quorum................................................................... 1
Section 2.5. Organization and Conduct of Meetings..................................... 2
Section 2.6. Notification of Stockholder Business..................................... 2
Section 2.7. Voting of Shares......................................................... 3
2.7.1. Voting Lists..................................................... 3
2.7.2. Votes Per Share.................................................. 3
2.7.3. Proxies.......................................................... 4
2.7.4. Required Vote.................................................... 4
2.7.5. Consents in Lieu of Meeting...................................... 4
Section 2.8. Inspectors of Election................................................... 4
ARTICLE III. DIRECTORS...................................................................... 5
Section 3.1. Purpose.................................................................. 5
Section 3.2. Number and Class......................................................... 5
Section 3.3. Election................................................................. 5
Section 3.4. Notification of Nominations.............................................. 5
Section 3.5. Vacancies and Newly Created Directorships................................ 6
3.5.1. Vacancies........................................................ 6
3.5.2. Newly Created Directorships...................................... 6
Section 3.6. Removal.................................................................. 7
Section 3.7. Compensation............................................................. 7
ARTICLE IV. BOARD MEETINGS................................................................. 7
Section 4.1. Regular Meetings......................................................... 7
Section 4.2. Special Meetings......................................................... 7
Section 4.3. Organization, Conduct of Meetings........................................ 7
Section 4.4. Quorum, Required Vote.................................................... 7
Section 4.5. Consent in Lieu of Meeting............................................... 8
ARTICLE V. COMMITTEES OF DIRECTORS........................................................ 8
Section 5.1. Establishment; Standing Committees....................................... 8
5.1.1. Executive Committee.............................................. 8
5.1.2. Finance Committee................................................ 8
5.1.3. Conflicts and Audit Committee.................................... 8
5.1.4. Compensation Committee........................................... 9
Section 5.2. Available Powers......................................................... 9
Section 5.3. Unavailable Powers....................................................... 9
Section 5.4. Alternate Members........................................................ 10
Section 5.5. Procedures............................................................... 10
ARTICLE VI. OFFICERS....................................................................... 10
Section 6.1. Executive Officers; Term of Office....................................... 10
</TABLE>
1
<PAGE>
<TABLE>
<S> <C>
Section 6.2. Powers and Duties........................................................ 11
6.2.1. President........................................................ 11
6.2.2. Vice President................................................... 11
6.2.3. Secretary........................................................ 11
6.2.4. Treasurer........................................................ 11
6.2.5. Assistant Secretary.............................................. 11
6.2.6. Assistant Treasurer.............................................. 12
Section 6.3. Resignations and Removal................................................. 12
Section 6.4. Vacancies................................................................ 12
Section 6.5. Compensation, Vacancies.................................................. 12
Section 6.6. Additional Powers and Duties............................................. 12
Section 6.7. Voting Upon Stocks....................................................... 12
ARTICLE VII. SHARE CERTIFICATES............................................................. 13
Section 7.1. Entitlement to Certificates.............................................. 13
Section 7.2. Multiple Classes of Stock............................................... 13
Section 7.3. Signatures............................................................... 13
Section 7.4. Issuance and Payment..................................................... 13
Section 7.5. Lost, Stolen or Destroyed Certificates................................... 13
Section 7.6. Transfer of Stock........................................................ 14
Section 7.7. Registered Stockholders.................................................. 14
ARTICLE VIII. INDEMNIFICATION................................................................ 14
Section 8.1. General.................................................................. 14
Section 8.2. Actions by or in the Right of the Company................................ 14
Section 8.3. Board Determinations..................................................... 15
Section 8.4. Advancement of Expenses.................................................. 15
Section 8.5. Nonexclusive............................................................. 15
Section 8.6. Indemnification of Employees and Agents of the Company................... 15
Section 8.7. Insurance................................................................ 16
Section 8.8. Certain Definitions...................................................... 16
Section 8.9. Change in Governing Law.................................................. 16
ARTICLE IX. INTERESTED DIRECTORS, OFFICERS AND STOCKHOLDERS................................ 16
Section 9.1. Validity................................................................. 16
Section 9.2. Disclosure, Approval..................................................... 17
Section 9.3. Nonexclusive............................................................. 17
ARTICLE X. MISCELLANEOUS.................................................................. 17
Section 10.1. Place of Meetings........................................................ 17
Section 10.2. Fixing Record Dates...................................................... 17
Section 10.3. Means of Giving Notice................................................... 18
Section 10.4. Waiver of Notice......................................................... 18
Section 10.5. Attendance via Communications Equipment.................................. 18
Section 10.6. Dividends................................................................ 18
Section 10.7. Reserves................................................................. 18
Section 10.8. Reports to Stockholders.................................................. 18
Section 10.9. Checks, Notes and Contracts.............................................. 18
Section 10.10. Loans.................................................................... 19
Section 10.11. Fiscal Year.............................................................. 19
Section 10.12. Seal..................................................................... 19
Section 10.13. Books and Records........................................................ 19
Section 10.14. Resignation.............................................................. 19
Section 10.15. Surety Bonds............................................................. 19
Section 10.16. Amendments............................................................... 20
</TABLE>
2
<PAGE>
AMENDED AND RESTATED BYLAWS
OF
AMERICAN TELESOURCE INTERNATIONAL, INC.
ARTICLE I.
OFFICES
Section 1.1. Registered Office. The registered office of the Company
-----------------
within the State of Delaware shall be located at the principal place of business
in said state of such Company or individual acting as the Company's registered
agent in Delaware.
Section 1.2. Additional Offices. The Company may, in addition to its
------------------
registered office in the State of Delaware, have such other offices and places
of business, both within and without the State of Delaware, as the Board of
Directors of the Company (the Board) may from time to time determine or as the
business and affairs of the Company may require.
ARTICLE II.
STOCKHOLDERS MEETINGS
Section 2.1. Annual Meetings. Annual meetings of stockholders shall be
---------------
held at a place and time on any weekday which is not a holiday as shall be
designated by the Board and stated in the notice of the meeting, at which
meeting the stockholders shall elect the directors of the Company and transact
such other business as may properly be brought before the meeting.
Section 2.2. Special Meetings. Special meetings of the stockholders, for
----------------
any purpose or purposes, shall be called in the manner prescribed by Article VI
of the Certificate of Incorporation (the Certificate).
Section 2.3. Notices. Written notices of each stockholders meeting
-------
stating the place, date and hour of the meeting shall be given to each
stockholder entitled to vote thereat at the address of such stockholder as
reflected in the records of the Company. Such notice shall be given by or at
the direction of the party calling such meeting not less than 10 nor more than
60 days before the date of the meeting. If said notice is for a stockholders
meeting other than an annual meeting, it shall in addition state the purpose or
purposes for which said meeting is being called, and the business transacted at
such meeting shall be limited to the matters so stated in said notice and any
matters reasonably related thereto.
Section 2.4. Quorum. At any stockholders meeting, the holders present in
------
person or by proxy of a majority of the voting power of the shares of capital
stock of the Company entitled to vote thereat shall constitute a quorum of the
stockholders for all purposes (unless the representation of a larger number of
shares shall be required by law or by the Certificate, in which case the
representation of the number of shares so required shall constitute a quorum).
The holders of a majority of the voting power of the Shares of capital
stock of the Company entitled to vote which are present in person or by proxy at
any meeting *whether or not constituting a quorum of the outstanding shares) may
adjourn the meeting from time to time without notice other than by announcement
thereat; and at any adjourned meeting at which a quorum shall be present, any
business may be transacted which might have been transacted at the meeting as
originally called, but only those stockholders entitled to vote at the meeting
originally noticed shall be entitled to vote at any adjournment or adjournments
thereof. However, if the adjournment is for more than 30 days, or if after the
adjournment a new record date is fixed, notice of the adjourned meeting shall be
given to each stockholder of record entitled to vote at the meeting.
3
<PAGE>
Section 2.5. Organization and Conduct of Meetings. Such person as the
------------------------------------
Board of Directors may have designated or, in the absence of such a person, the
President of the Corporation or, in his absence, such person as may be chosen by
the holders of shares representing a majority of the votes which could be cast
by those present, in person or by proxy and entitled to vote, shall call to
order any meeting of the stockholders and act as chairman of the meeting.
The Secretary shall act as secretary of all stockholders meetings; but, in
the absence of the Secretary, the Chairman may appoint any person to act as
secretary of the meeting.
The date and time of the opening and the closing of the polls for each
matter upon which the stockholders will vote at a meeting shall be announced at
the meeting by the chairman of the meeting. The Board may, to the extent not
prohibited by law, adopt by resolution such rules and regulations for the
conduct of the meeting of stockholders as it shall deem appropriate. Except to
the extent inconsistent with such rules and regulations as adopted by the Board,
the chairman of any meeting of stockholders shall have the right and authority
to prescribe such rules, regulations and procedures and to do all such acts as,
in the judgment of such chairman, are appropriate for the proper conduct of the
meeting. Such rules, regulations or procedures, whether adopted by the Board or
prescribed by the chairman of the meeting, may to the extent not prohibited by
law include, without limitation, the following: (i) the establishment of an
agenda or order of business for the meeting; (ii) rules and procedures for
maintaining order at the meeting and for the safety of those present; (iii)
limitations on attendance at or participation in the meeting to stockholders of
record of the Company, their duly authorized and constituted proxies or such
other persons as the chairman of the meeting shall determine; (iv) restrictions
on entry to the meeting after the time fixed for the commencement thereof; and
(v) limitation of the time allotted to questions or comments by participants.
Unless and to the extent determined by the Board or the chairman of the meeting,
meetings of stockholders shall not be required to be held in accordance with the
rules of parliamentary procedures.
Proceedings at every stockholders meeting shall, at the election of the
chairman, comply with Robert's Rules of Order (latest published edition).
Section 2.6. Notification of Stockholder Business. All business properly
------------------------------------
brought before an annual meeting shall be transacted at such meeting. Subject
to the right of stockholders to elect a chairman of the meeting, as set forth in
Section 2.5, business shall be deemed properly brought only if it is (i)
specified in the notice of meeting (or any supplement thereto) given by or at
the direction of the Board, (ii) otherwise properly brought before the meeting
by or at the direction of the Board or (iii) brought before the meeting by a
stockholder of record entitled to vote at such meeting if written notice of such
stockholder's intent to bring such business before such meeting is delivered to,
or mailed, postage prepaid, and received by, the Secretary at the principal
executive offices of the Company not later than the close of business on the
tenth day following the date on which the Company first makes public disclosure
of the date of the annual meeting; provided, however, that if the annual meeting
is adjourned, and the Company is required by Delaware law to give notice to
stockholders of the adjourned meeting date, written notice of such stockholder's
intent to bring such business before the meeting must be delivered to or
received by the Secretary no later than the close of business on the fifth day
following the earlier of (1) the date the Company makes public, disclosure of
the date of the adjourned meeting or (2) the date on which notice of such
adjourned meeting is first given to stockholders. Each notice given by such
stockholder shall set forth: (A) a brief description of the business desired to
be brought before the meeting and the reasons for conducting such business at
the meeting; (B) the name and address of the stockholder who intends to propose
such business; (C) a representation that the stockholder is a holder of record
of stock of the Company entitled to vote at such meeting (or if the record date
for such meeting is subsequent to the date required for such stockholder notice,
a representation that the stockholder is a holder of record at the time of such
notice and intends to be a holder of record on the record date for such meeting)
and intends to appear in person or by proxy at such meeting to propose such
business; and (D) any material interest of the stockholder, if any, in such
business. The chairman of the meeting may refuse to transact any business at
any meeting made without compliance with the foregoing procedure. For this
Section 2.6, public disclosure shall be deemed to first be given to stockholders
when disclosure of such date of the meeting of stockholders is first made in a
press release reported by the Dow Jones News Services, Associated Press or
comparable national news service, or in a document publicly filed by the Company
with the Securities and Exchange Commission pursuant to Section 13, 14 or 15 (d)
of the Securities Exchange Act of 1934, as amended.
Section 2.7. Voting of Shares
----------------
4
<PAGE>
Section 2.7.1. Voting Lists. The officer or agent who has charge of
------------
the stock ledger of the Company shall prepare, at least 10 days before every
meeting of stockholders, a complete list of the stockholders entitled to vote
thereat arranged in alphabetical order and showing the address and the number of
shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours for a period of at least 10 days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present. The original
stock transfer books shall be prima facie evidence as to who are the
stockholders entitled to examine such list or transfer books or to vote at any
meeting of stockholders. Failure to comply with the requirements of this
Section shall not affect the validity of any action taken at said meeting.
Section 2.7.2 Votes Per Share. Each outstanding share of capital
---------------
stock shall be entitled to vote in accordance with the provisions for voting
included in the Certificate. In determining the number of shares of stock
required by law, by the Certificate or by the Bylaws to be represented for any
purpose, or to determine the outcome of any matter submitted to stockholders for
approval or consent, the number of shares represented or voted shall be weighted
in accordance with the provisions of the Certificate regarding voting powers of
each class of stock. Any reference in these Bylaws to a majority or a
particular percentage of the voting stock or a majority or a particular
percentage of the capital stock shall be deemed to refer to a majority or a
particular percentage, respectively, of the voting power of such stock. Issues
shall be determined by a class vote only when a class vote is required by law or
the Certificate.
Section 2.7.3. Proxies. Every Stockholder entitled to vote at a
-------
meeting or to express consent or dissent without a meeting or a stockholder's
duly authorized attorney-in-fact may authorize another person or persons to act
for him by proxy. Each proxy shall be in writing, executed by the stockholder
giving the proxy or by his duly authorized attorney. No proxy shall be voted on
or after three years from its date, unless the proxy provides for a longer
period. Unless and until voted, every proxy shall be revocable at the pleasure
of the person who executed it, or his legal representatives or assigns, except
in those cases where an irrevocable proxy permitted by statute has been given.
Section 2.7.4. Required Vote. When a quorum is present at any
-------------
meeting, the vote of the holders, present in person or represented by proxy, of
capital stock of the Company representing a majority of the votes of the capital
stock of the Company, present in person or represented by proxy and entitled to
vote thereat, shall decide any question brought before such meeting unless the
question is one upon which, by express provision of law or the Certificate or
these Bylaws, a different vote is required, in which case such express provision
shall govern and control the decision of such question.
Section 2.7.5. Consents in Lieu of Meeting. Pursuant to Article VII
---------------------------
of the Company's Certificate, no action that is required or permitted to be
taken by the stockholders of the Company at any annual or special meeting of
stockholders may be effected by written consent of stockholders in lieu of a
meeting of stockholders, unless, subject to certain exceptions contained in the
Certificate, the action to be effected by written consent of stockholders and
the taking of such action by such written consent have expressly been approved
in advance by the Board.
Section 2.8. Inspectors of Election. The Company shall, in advance of any
-----------------------
meeting of stockholders, appoint one or more inspectors of election, who may be
employees of the Company, to act at the meeting or any adjournment thereof and
to make a written report thereof. The Company may designate one or more persons
as alternate inspectors to replace any inspector who fails to act. If no
inspector so appointed or designated is able to act at a meeting of
stockholders, the chairman or the person presiding at the meeting shall appoint
one or more inspectors to act at the meeting. Each inspector, before entering
upon the discharge of his or her duties, shall take and sign an oath to execute
faithfully the duties inspector with strict impartiality and according to the
best of his or her ability.
The inspector or inspectors so appointed or designated shall: (a)
ascertain the number of shares of capital stock of the Company outstanding and
the voting power of each such share; (b) determine the shares of capital stock
5
<PAGE>
of the Company represented at the meeting and the validity of proxies and
ballots; (c) count all votes and ballots; (d) determine and retain for a
reasonable period a record of the disposition of any challenges made to any
determination by the inspectors; and (e) certify their determination of the
number of shares of capital stock of the Company represented at the meeting and
such inspectors' count of all votes and ballots. Such certification and report
shall specify such other information as may be required by law. In determining
the validity and counting of proxies and ballots cast at any meeting of
stockholders of the Company, the inspectors may consider such information as is
permitted by applicable law. No person who is a candidate for an office at an
election may serve as an inspector at such election.
ARTICLE III.
DIRECTORS
Section 3.1. Purpose. The business and affairs of the Company shall be
-------
managed by or under the direction of the Board acting by not less than a
majority of the directors then in office. The Board shall exercise all such
powers of the Company and do all such lawful acts and things as are not by law,
the Certificate or these Bylaws directed or required to be exercised or done by
the stockholders. Directors need not be stockholders or residents of the State
of Delaware.
Section 3.2. Number and Class. The number of directors constituting the
----------------
Board shall never be less than one (1), and shall be determined by resolution of
the Board. At each election held after the initial elections, directors elected
to succeed such directors whose terms expire shall be elected for a term of
office which shall expire at the third succeeding annual meeting of stockholders
after their election. The foregoing notwithstanding, except as otherwise
provided in the Certificate or any resolution or resolutions of the Board
designating a series of preferred stock of the Company, directors who are
elected at an annual meeting of stockholders, and directors elected in the
interim to fill vacancies and newly created directorships, shall hold office for
the term for which elected and until their successors are elected and qualified
or until their earlier death, resignation or removal. Whenever the holders of
any class or classes of stock or any series thereof shall be entitled to elect
one or more directors pursuant to the provisions of the Certificate or any
resolution or resolutions of the Board designating a series of preferred stock
of the Company, and except as otherwise provided herein or therein, vacancies
and newly created directorships of such class or classes or series thereof may
be filled by a majority of the directors elected by such class or classes or
series thereof then in office, by a sole remaining director so elected or by the
unanimous written consent or the affirmative vote of a majority of the
outstanding shares of such class or classes or series entitled to elect such
director or directors. Except as otherwise provided in the Certificate,
directors need not be stockholders.
Section 3.3. Election. Directors shall be elected by the stockholders by
--------
plurality vote at a stockholders meeting as provided in the Certificate and
these Bylaws, and each director shall hold office until his successor has been
duly elected and qualified or until the earlier of his death, resignation or
removal from office.
Section 3.4. Notification of Nominations. Subject to the rights of the
---------------------------
holders of any one or more series of Preferred Stock then outstanding,
nominations for the election of directors may be made by the Board or by any
stockholder entitled to vote for the election of directors. Any stockholder
entitled to vote for the election of directors at an annual meeting or a special
meeting called for the purpose of electing directors may nominate persons for
election as directors at such meeting only if written notice of such
stockholder's intent to make such nomination is delivered to, or mailed, postage
prepaid, and received by, the Secretary at the principal executive offices of
the Company not later than the close of business on the tenth day following the
date on which the Company first makes public disclosure of the date of the
meeting; provided, however, that if the meeting is adjourned, and the Company is
required by Delaware law to give notice to stockholders of the adjourned meeting
date, written notice of such stockholder's intent to make such nomination at
such adjourned meeting must be delivered to or received by the Secretary no
later than the close of business on the fifth day following the earlier of (1)
the date the Company makes public disclosure of the date of the adjourned
meeting or (2) the date on which notice of such adjourned meeting is first given
to stockholders. Each notice given by such stockholder shall set for: (A) the
name and address of the stockholder who intends to make the nomination and of
the person or persons to be nominated; (B) a representation that the stockholder
is a holder of record of stock of the Company entitled to vote at such meeting
(or if the record
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date for such meeting is subsequent to the date required for such stockholder
notice, a representation that the stockholder is a holder of record at the time
of such notice and intends to be a holder of record on the record date for such
meeting) and intends to appear in person or by proxy at the meeting to nominate
the person or persons specified in the notice; (C) a description of all
arrangements or understandings between the stockholder and each nominee and any
other person or persons (naming such person or persons) pursuant to which the
nomination or nominations are to be made by the stockholder; (D) such other
information regarding each nominee proposed by such stockholder as would have
been required to be included in a proxy statement filed pursuant to the proxy
rules of the Securities and Exchange Commission had each nominee been nominated,
or intended to be nominated, by the Board; and (E) the written consent of each
nominee to serve as a director of the Company if so elected. The chairman of the
meeting may refuse to acknowledge the nomination of any person made without
compliance with the foregoing procedure. For this Section 3.4, public disclosure
shall be deemed to be first given to stockholder when disclosure of such date of
the meeting of stockholders is first made in a press release reported by the Dow
Jones News Services, Associated Press or comparable national news service, or in
a document publicly filed by the Company with the Securities and Exchange
Commission pursuant to Sections 13, 14 or 15 (d) of the Securities Exchange Act
of 1934, as amended.
Section 3.5. Vacancies and Newly Created Directorships.
-----------------------------------------
Section 3.5.1. Vacancies. Any vacancy occurring in the Board shall
---------
be filled in accordance with Article V of the Certificate. A director elected
to fill a vacancy shall hold office until his successor has been duly elected
and qualifies or until his earlier death, resignation or removal from office.
Section 3.5.2. Newly Created Directorships. A directorship to be
---------------------------
filled because an increase in the number of directors shall be filled in
accordance with Article V of the Certificate. A director elected to fill a
newly created directorship shall hold office until his successor has been duly
elected and qualified or until his earlier death, resignation or removal from
office.
Section 3.6. Removal. Any director or the entire Board may be
-------
removed in accordance with the procedures set forth in Article V of the
Certificate.
Section 3.7. Compensation. Unless otherwise restricted by law, the
------------
Certificate or these Bylaws, the Board shall have the authority to fix
compensation of directors. The directors may be reimbursed for their expenses,
if any, or attendance at each meeting of the Board and may be paid either a
fixed sum for attendance at each meeting of the Board and/or a stated salary as
director. No such payment shall preclude any director from serving the Company
in any other capacity and receiving compensation therefor. Members of
committees of the Board may be allowed like compensation.
ARTICLE IV.
BOARD MEETINGS
Section 4.1. Regular Meetings. Regular meetings of the Board shall be
----------------
held at such times and places as the Board shall determine. No notice shall be
required for any regular meeting of the Board; but a notice of the fixing or
changing of the time or place of regular meetings shall be mailed to every
director at least five days before the first meeting held pursuant to the
notice.
Section 4.2. Special Meetings. Special meetings of the Board (i) may be
----------------
called by the President and (ii) shall be called by the President or Secretary
on the written request of two or more directors. Notice of each special meeting
of the Board shall be given to each director at least 24 hours before the
meeting if such notice is delivered personally or by means of telephone,
telegram, telex or facsimile transmission and delivery; two days before the
meeting if such notice is delivered by a recognized express delivery service;
and three days before the meeting if such notice is delivered through the United
States mail. Any and all business may be transacted at a special meeting which
may be transacted at a regular meeting of the Board. Except as may be otherwise
expressly provided by law, the Certificate or these Bylaws, neither the business
to be transacted at, nor the purpose of, any special meeting need be specified
in the notice or waiver of notice of such meeting.
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Section 4.3. Organization, Conduct of Meetings. The Board of Directors
---------------------------------
may, if it chooses, elect a Chairman of the Board and Vice Chairman of the Board
from its members. Meetings of the Board of Directors shall be presided over by
the Chairman of the Board, if any, or in his absence the Vice Chairman of the
Board, if any, or in his absence by the President, or in their absence by a
chairman chosen at the meeting. The Secretary of the Corporation, if present,
shall act as secretary of the meeting; but in his absence the secretary of the
meeting shall be such person as the chairman of the meeting appoints.
Section 4.4. Quorum, Required Vote. A majority of the directors shall
---------------------
constitute a quorum for the transaction of business at any meeting of the Board,
and the act of a majority of the directors present at any meeting at which there
is a quorum shall be the act of the Board, except as may be otherwise
specifically provided by law, the Certificate or these Bylaws. If a quorum
shall not be present at any meeting, a majority of the directors present may
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum is present.
Section 4.5. Consent In Lieu of Meeting. Unless otherwise restricted by
--------------------------
the Certificate or these Bylaws, any action required or permitted to be taken at
any meeting of the Board or any committee thereof may be taken by written
consent in lieu of a meeting in accordance with applicable provisions of law.
ARTICLE V.
COMMITTEES OF DIRECTORS
Section 5.1. Establishment; Standing Committees. The Board may by
----------------------------------
resolution establish, name or dissolve one or more committees, each committee to
consist of one or more of the directors. Each committee shall keep regular
minutes of its meetings and report the same to the Board when required. Such
committees may include the following standing committees, which committees, if
established, shall have and may exercise the following powers and authority.
Section 5.1.1. Executive Committee. The Executive Committee shall have
-------------------
and may exercise all the powers of the Board delegable, by law in the management
of the business and affairs of the Company, unless the resolution creating such
committee or further defining its powers provides otherwise, in which case the
Executive Committee shall have and exercise the powers so provided in such
resolution or resolutions. The Executive Committee shall be comprised of the
Chairman of the Board and such other director or directors as the Board by
resolution shall appoint thereto. In addition to the foregoing, the Executive
Committee shall have such other powers and duties as shall be specified by the
Board in a resolution or resolutions.
Section 5.1.2. Finance Committee. The Finance Committee shall, from time
-----------------
to time, meet to review the Company's consolidated operating and financial
affairs, both with respect to the Company and its subsidiaries, if any, and to
report its findings and recommendations to the Board for final action. The
Finance Committee shall not be empowered to approve any corporate action, of
whatever kind or nature, and the recommendations of the Finance Committee shall
not be binding on the Board, except when, pursuant to Section 5.2, such power
and authority have been specifically delegated to such committee by the Board by
resolution. In addition to the foregoing, the specific duties of the Finance
Committee shall be determined by the Board by resolution.
Section 5.1.3. Conflicts and Audit Committee. The Conflicts and Audit
-----------------------------
Committee shall, from time to time, but no less than two times per year, meet to
review and monitor the financial and cost accounting practices and procedures of
the Company and its subsidiaries, if any, and to report its findings and
recommendations to the Board for final action. In addition, the Conflicts and
Audit Committee shall recommend an independent public accountant to audit the
Company's financial statements and perform other accounting services for the
Company to the Board for submission to the stockholders for approval.
Furthermore, the Conflicts and Audit Committee will, at the request of the Board
by resolution, review specific matters as to which the Board believes there may
be a conflict of interest between the Company and an affiliate, officer and/or
director of the Company to determine if the resolution of such conflict proposed
by the Board or management of the Company, as the case may be, if fair and
reasonable. The composition of the Conflicts and Audit Committee shall meet the
requirements of any national securities exchange or national market system on
which the Company lists any of its capital stock. The Conflicts and Audit
Committee shall not be empowered to approve any corporate action, of whatever
kind or nature, and the recommendations of
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the Conflicts and Audit Committee shall not be binding on the Board, except
when, pursuant to Section 5.2, such power and authority have been specifically
delegated to such committee by the Board by resolution. In addition to the
foregoing, the specific duties of the Conflicts and Audit Committee shall be
determined by the Board by resolution. In addition to the foregoing, the
specific duties of the Conflicts and Audit Committee shall be determined by the
Board by resolution. For this Section, "affiliate" shall include (i) any entity
that is an "affiliate" within the meaning set forth in Section 12b-2 of
Regulation 12B promulgated under the Securities Exchange Act of 1934, as
amended, and (ii) any officer or director of an "affiliate" as defined therein.
Section 5.1.4. Compensation Committee. The Compensation Committee
----------------------
shall, from time to time, meet to review the various compensation plans,
policies and practices of the Company and its subsidiaries, if any, and to
report its findings and recommendations to the Board for final action. The
Compensation Committee shall not be empowered to approve any corporate action,
of whatever kind or nature, and the recommendations of the Compensation
Committee shall not be binding on the Board, except when, pursuant to Section
5.2, such power and authority have been specifically delegated to such committee
by the Board by resolution. In addition to the foregoing, the specific duties
of the Compensation Committee shall be determined by the Board by resolution.
Section 5.2. Available Powers. Any committee established pursuant to
----------------
Section 5.1, including the Executive Committee, the Finance Committee, the
Conflicts and Audit Committee and the Compensation Committee, but only to the
extent provided in the resolution of the Board establishing such committee or
otherwise delegating specific power and authority to such committee, and as
limited by law, the Certificate, and these Bylaws, shall have and may exercise
all the powers and authority of the Board in the management of the business and
affairs of the Company, and may authorize the seal of the Company to be affixed
to all papers which may require it. Without limiting the foregoing, such
committee may, but only to the extent authorized in the resolution or
resolutions providing for the issuance of shares of stock adopted by the Board
as provided in Section 151 (a) of the General Corporation Law of Delaware (the
DGCL), fix any of the preferences or rights of such shares relating to
dividends, redemption, dissolution, any distribution of assets of the Company or
the conversion into, or the exchange of such shares for, shares of any other
class or classes or any other series of the same or any other class or classes
of stock of the company.
Section 5.3. Unavailable Powers. No committee of the Board shall have the
------------------
power or authority to amend the Certificate (except in connection with the
issuance of capital stock as provided in the previous Section); adopt an
agreement of merger or consolidation; recommend to the stockholders the sale,
lease or exchange of all or substantially all of the Company's property gad
assets, a dissolution of the Company or a revocation of such a dissolution;
amend the Bylaws of the Company; or, unless the resolution establishing such
committee or the Certificate expressly so provides, declare a dividend,
authorize the issuance of stock or adopt a certificate of ownership and merger.
Section 5.4. Alternate Members. In the absence or disqualification of a
-----------------
member of a committee, (i) the Board may designate one or more directors as
alternate members of any such committee or (ii) the member or members of the
committee present at any meeting and not disqualified from voting, whether or
not he or they constitute a quorum may unanimously appoint another member of the
Board to act at the meeting in the place of any such absent or disqualified
member; provided, however, that any person or persons appointed pursuant to
subparagraph (i) or (ii) are qualified to serve on such committee in accordance
with these Bylaws and/or the resolutions establishing the same.
Section 5.5. Procedures. Time, place and notice, if any, of meeting of a
----------
committee shall be determined by such committee. At meetings of a committee, a
majority of the number of members designated by the Board to serve on such
committee shall constitute a quorum for the transaction of business. The act
of a majority of the members present at any meeting at which a quorum is present
shall be the act of the committee, except as otherwise specifically provided by
law, the Certificate, these Bylaws or the resolution or resolutions establishing
such committee. If a quorum is not present at a meeting of a committee, the
members present may adjourn the meeting from time to time, without notice other
than an announcement at the meeting, until a quorum is present. Any member of
any committee established pursuant to Section 5.1 shall serve until his
successor is duly elected by the Board and qualified or until the earlier of his
death or resignation or removal from such committee or the Board. The Board by
resolution shall have at any time and from time to time the power to change the
membership of, fill any vacancies in, or dissolve any, committee established
pursuant to Section 5.1; provided,
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however, that in no event shall the Audit and Conflicts Committee be dissolved
once it is established nor shall the membership of any committee, including,
without limitations the Audit and Conflicts Committee and the Executive
Committee, be altered in any way if such alteration would cause such committee
to fail to meet its membership standards as set forth in the resolutions or
resolutions of the Board creating such committee.
ARTICLE VI.
OFFICERS
Section 6.1. Executive Officers; Term of Office. The Board shall elect a
----------------------------------
President, Secretary and Treasurer. The Board may elect one or more Vice
Presidents (with such descriptive titles, if any, as the Board shall deem
appropriate), one or more Assistant Secretaries, one or more Assistant
Treasures, and such other officers as the Board may determine. Vice Presidents,
Assistant Secretaries and Assistant Treasurers my also be appointed by the
President as provided in Section 6.2.1. Each officer shall hold office until
-------------
his successor is elected and qualified or until his earlier death, resignation
or removal in the manner provided in these Bylaws. Any number of offices may be
held by the same person. The Board may require any officer to give bond or
other security for the faithful performance of his duties, in such amount and
with such sureties as the Board may determine.
Section 6.2. Powers and Duties. The officers of the Company shall have
-----------------
such powers and duties in the management of the Company as may be provided by
applicable laws, the Certificate and these Bylaws, and as may be prescribed by
the Board and, to the extent not so provided, as generally pertain and are
incident to their respective offices, subject to the control of the Board.
Without limiting the generality of the foregoing, the following officers shall
have the respective duties and powers enumerated below:
Section 6.2.1. President. The President shall be the chief executive
---------
officer of the Company. He shall have the responsibility for the general
management and control of the business and affairs of the Company and shall
perform all duties and have all powers which are commonly incident to the office
of chief executive. The President may sign and execute, in the name of the
Company, stock certificates, deeds, mortgages, bonds, contracts or other
instruments authorized by the Board, except when signing and execution thereof
shall be expressly and exclusively delegated by the Board or the Bylaws to some
other person, or shall be required by law to be signed otherwise. The President
shall also have the power to appoint Vice Presidents, Assistant Secretaries and
Assistant Treasurers as he deems necessary from time to time. The President may
remove such appointed officers at any time for or without cause. The President
shall have general supervision and direction of all other officers, employees
and agents of the Company.
Section 6.2.2. Vice Presidents. The Vice President, or if there be
---------------
more than one, the Vice Presidents in the order determined by the Board (or if
there be no such determination, then in the order of their election or
appointment) shall, in the absence of the President or in the event of his
inability or refusal to act, perform the duties and exercise the powers of the
President and shall perform such other duties and have such other powers as the
President or the Board may from time to time prescribe. The Vice President may
sign certificates evidencing shares of stock of the Company.
Section 6.2.3. Secretary. The Secretary shall issue all authorized
---------
notices for, and shall keep minutes of, all meetings of stockholders and the
Board. He may sign certificates evidencing shares of stock of the Company. He
shall have custody of the corporate seal and shall have authority to affix the
seal to any instrument requiring it, and when so affixed, it may be attested by
his signature or by the signature of an Assistant Secretary. The Secretary
shall keep and account for all books, documents, papers and records of the
Company except those for which some other officer or agent is properly
accountable.
Section 6.2.4. Treasurer. The Treasurer shall be the chief
---------
accounting and financial officer of the Company. He shall have the custody of
the corporate funds and securities, and shall disburse the funds of the Company
as are authorized. He shall keep full and accurate accounts of receipts and
disbursements in books belonging to the Company, and, when requested by the
President or Board, shall render from time to time an accounting of all
transactions and of the financial condition of the Company. The Treasurer may
sign certificates evidencing shares of stock of the Company.
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Section 6.2.5. Assistant Secretary. The Assistant Secretary, or if
-------------------
there be more than one, the Assistant Secretaries in the order determined by the
Board (or if there be no such determination, then in the order of their election
or appointment) shall, in the absence of the Secretary or in the event of his
inability or refusal to act, perform the duties and exercise the powers of the
Secretary and shall perform such other duties and have such other powers as the
President, Secretary or Board may from time to time prescribe.
Section 6.2.6. Assistant Treasurer. The Assistant Treasurer, or if
--------------------
there be more than one, the Assistant Treasurers in the order determined by the
Board (or if there be no such determination, then in the order of their election
or appointment) shall, in the absence of the Treasurer or in the event of his
inability or refusal to act, perform the duties and exercise the powers of the
Treasurer and shall perform such other duties and have such other powers as the
President, Treasurer of Board my from time to time prescribe.
Section 6.3. Resignations and Removal. Any officer may resign at any time
------------------------
by giving written notice to the Board or, if the President is not resigning, to
the President of the Company. Such resignation shall take effect at the time
therein specified, or if no time is specified, upon receipt. Unless otherwise
specified, the acceptance of such resignation shall not be necessary to make it
effective. All officers serve at the pleasure of the Board; any elected or
appointed officer may be removed at any time for or without cause by the Board.
Officers appointed by the President may also be removed at any time for or
without cause by the President.
Section 6.4. Vacancies. Any vacancy in any office because of death,
---------
resignation, removal, disqualification or any other cause shall be filled for
the unexpired term in the manner prescribed in these Bylaws for the regular
election or appointment to such office.
Section 6.5. Compensation, Vacancies. The Board shall have the power to
-----------------------
establish the compensation of officers of the Company or authorize the Company
to enter into an agreement with an affiliate whereby the services of such
officers, along with certain other services specified therein, are provided to
the Company for a fee. To the extent not governed by such an agreement, the
Board shall fill any vacancy in an office. Any of the powers granted in this
Section may be delegated to a committee established pursuant to Section 5.1. No
officer shall be prevented from receiving a salary or other compensation by
reason of the fact that he is also a director. For this Section, "affiliate"
shall include (i) any entity that is an "affiliate" within the meaning set forth
in Section 12b-2 of Regulation 12B promulgated under the Securities Exchange Act
of 1934, as amended, and (ii) any officer or director of an "affiliate" as
defined therein.
Section 6.6. Additional Powers and Duties. In addition to the foregoing
----------------------------
especially enumerated powers and duties, the several officers of the Company
shall perform such other duties and exercise such further powers as may be
provided by law, the Certificate or these Bylaws or as the Board may from time
to time determine or as may be assigned to them by any competent committee or
superior officer.
Section 6.7. Voting Upon Stocks. Unless otherwise ordered by the Board,
------------------
the President or any other officer of the Company designated by the President
shall have full power and authority on behalf of the Company to attend and to
act and to vote in person or by proxy at any meeting of the holders of
securities of any corporation or entity in which the Company may own or hold
stock or other securities, and at any such meeting shall possess and may
exercise in person or by proxy any and all rights, powers and privileges
incident to the ownership of such stock or other securities which the Company,
as the owner or holder thereof, might have possessed and exercised if present.
The President or any other officer of the Company designated by the President
may also execute and deliver on behalf of the Company powers of attorney,
proxies, waivers of notice and other instruments relating to the stocks or
securities owned or held by the Company. The Board may, from time to time, by
resolution confer like powers upon any other person or persons.
ARTICLE VII.
SHARE CERTIFICATES
Section 7.1. Entitlement to Certificates. Every holder of the capital
---------------------------
stock of the Company, unless and to the extent the Board by resolution provides
that any or all classes or series of stock shall be uncertificated, shall
11
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be entitled to have a certificate, in such form as is approved by the Board and
conforms with applicable law, certifying the number of shares owned by him.
Section 7.2. Multiple Classes of Stock. If the Company shall be
-------------------------
authorized to issue more than one class of capital stock or more than one series
of any class, a statement of the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualification, limitations or restrictions of such preferences
and/or rights shall, unless the Board shall by resolution provide that such
class or series of stock shall be uncertificated, be set forth in full or
summarized on the face or back of the certificate which the Company shall issue
to represent such class or series of stock; provided that, to the extent allowed
by law, in lieu of such statement, the face or back of such certificate may
state that the Company will furnish a copy of such statement without charge to
each requesting stockholder.
Section 7.3. Signatures. Each certificate representing capital stock of
----------
the Company shall be signed by or in the name of, the Company by (1) the
President or a Vice President; and (2) the Treasurer, an Assistant Treasurer,
the Secretary or Assistant Secretary. The signatures of the officers of the
Company may be facsimiles. In case any officer who has signed or whose
facsimile signature has been placed upon a certificate shall have ceased to hold
such office before such certificate is issued, it may be issued by the Company
with the same effect as if he held such office on the date of issue.
Section 7.4. Issuance and Payment. Subject to any provision of applicable
--------------------
law, the Certificate or these Bylaws, shares of capital stock of the Company may
be issued for such consideration and to such persons as the Board may determine
from time to time. Shares may not be issued until the full amount of the
consideration has been paid, unless upon the face or back of each certificate
issued to represent any partly paid shares of capital stock there shall have
been set forth the total amount of the consideration to be paid.
Section 7.5. Lost, Stolen or Destroyed Certificates. The Board may direct
--------------------------------------
a new certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the Company alleged to have been lost, stolen
or destroyed upon the making of an affidavit of that fact by the person claiming
the certificate of stock to be lost, stolen or destroyed. When authorizing such
issue of a new certificate or certificates, the Board may, in its discretion and
as a condition precedent to the issuance thereof, require the owner of such
lost, stolen or destroyed certificate or certificates, or his legal
representative, to advertise the same in such manner as it shall require and/or
to give the Company a bond in such sum as it may direct as indemnity against any
claim that may be made against the Company with respect to the certificate
alleged to have been lost, stolen or destroyed.
Section 7.6. Transfer of Stock. Upon surrender to the Company or its
-----------------
transfer agent , if any, of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignation or authority to
transfer of said shares, The Company shall be obligated to issue a new
certificate to the person entitled thereto, cancel the old certificate and
record the transaction upon its books; provided, however, that the Company shall
not be so obligated unless such transfer was made in compliance with applicable
state and federal securities laws.
Section 7.7. Registered Stockholders. The Company shall be entitled to
-----------------------
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, vote and be held liable for calls and
assessments and shall not be bound to recognize any equitable or other claim to
or interest in such share or shares on the part of any person other than such
registered owner, whether or not it shall have express or other notice thereof,
except as otherwise provided by law.
ARTICLE VIII
INDEMNIFICATION
Section 8.1. General. The Company shall indemnify any person who was or
-------
is party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Company), because
he is or was a director or officer of the Company, or, while a director or
officer of the Company, is or was serving at the written request of the Company
as a director, officer, trustee, employee or agent of or in any other capacity
with another
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corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys, fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Company, and with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgement, order, settlement, conviction, or upon
a plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
Company, and, with respect to any criminal action or proceeding, have reasonable
cause to believe that his conduct was unlawful.
Section 8.2. Actions by or in the Right of the Company. The Company shall
-----------------------------------------
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action or suit by or in the right of the
Company to procure a judgment in its favor because he is or was a director or
officer of the Company, or, while a director or officer of the Company, is or
was serving at the written request of the Company as a director, officer,
trustee, employee or agent of or in any other capacity with another corporation,
partnership, joint venture or trust or other enterprise, against expenses (
including attorneys' fees) actually and reasonably incurred by him in connection
with the defense or settlement of such action or suit if he acted in good faith
and in a manner he reasonably believed to be in or not opposed to the best
interests of the Company and except that no indemnification shall be made in
respect to any claim, issue or matter as to which such person shall have been
adjudged to be liable to the Company unless and only to the extent that the
Court of Chancery or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery or such
other court shall deem proper.
Section 8.3. Board Determinations. Any indemnification under Sections 8.1
--------------------
and 8.2 (unless ordered by a court) shall be made by the Company only as
authorized in the specific case upon a determination that indemnification of the
director, officer, employee or agent is proper in the circumstances because he
has met the applicable standard of conduct set forth in Sections 8.1 and 8.2.
Such determination shall be made (1) by the Board by a majority vote of a quorum
consisting of directors who were not parties to such action, suit or proceeding,
or (2) if such a quorum is not obtainable, or, even if obtainable, a quorum of
disinterested directors so directs, by independent legal counsel ( which may be
counsel ordinarily used by, the Company) in a written opinion, or (3) by the
holders of a majority of the outstanding shares of capital stock of the Company
entitled to vote thereon.
Section 8.4. Advancement of Expenses. Expenses incurred by a director or
-----------------------
officer of the Company in defending a civil or criminal action, suit or
proceeding shall ( in the case of any action, suit or proceeding against the
director of the Company) or may ( in the case of any pending threatened action,
suit or proceeding against an officer) be paid by the Company in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such amount if
it shall ultimately be determined that he is not entitled to be indemnified by
the Company as authorized by law or in this Article VIII.
Section 8.5. Nonexclusive. The indemnification and advancement of
------------
expenses provided by, or granted pursuant to, this Article VIII shall not be
deemed exclusive of any other rights to which any director, officer, employee or
agent of the Company seeking indemnification or advancement of expenses may be
entitled under any other provision of there Bylaws or by the Certificate, an
agreement, a vote of stockholders or disinterested directors or otherwise, both
as to action in his official capacity and as to action in another capacity while
holding such office, and shall, unless otherwise provided when authorized or
ratified, continue as to a person who has ceased to be a director, officer,
employee or agent of the Company and shall inure to the benefit of the heirs,
executors and administrators of such a person.
Section 8.6. Indemnification of Employees and Agents of the Company. The
------------------------------------------------------
Company may, to the extent authorized from time to time by the Board, grant
rights to indemnification and to the advancement of expenses, to any employee or
agent of the Company to the fullest extent of the provisions of this section
with respect to the indemnification and advancement of expenses of directors and
officers of the Company.
Section 8.7. Insurance. The Company may purchase and maintain insurance
---------
on behalf of any person who is or was a director, officer, employee or agent of
the Company, or is or was serving that the request of the
13
<PAGE>
Company as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust, or other enterprise, against any liability
asserted against him and incurred by him in any such capacity or arising out of
his status as such, whether or not the Company would have the power to indemnify
him against such liability under provisions of applicable law, the Certificate
or this Article VIII.
Section 8.8. Certain Definitions. For this Article VIII, (a) references
-------------------
to the "Company" shall include, in addition to the resulting corporation, any
constituent corporation (including any constituent of a constituent) absorbed in
a consolidation or merger, which, if its separate existence had continued, would
have the power and authority to indemnify its directors, officers, employees or
agents, so that any person who is or was a director, officer, employee, or agent
of such constituent corporation, or is serving at the request of such
constituent corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, shall stand
in the same position under this Article VIII with respect to the resulting or
surviving corporation as he would have with respect to such constituent
corporation if its separate existence had continued; (b) references to "other
enterprises" shall include employee benefit plans; (c) references to "fines"
shall include any excise taxes assessed on a person with, respect to an employee
benefit plan; and (d) references to "serving at the request of the Company"
shall include any service as a director, officer, employee or agent of the
Company which imposes duties on, or involves services by, such director,
officer, employee, or agent with respect to any employee benefit plan, its
participants, or beneficiaries; and a person who acted in good faith and in a
manner he reasonably believed to be in the interest of the participants and
beneficiaries of an employee benefit plan shall be deemed to have acted in a
manner "not opposed to the best interests of the Company" as referred to in this
Article VIII.
Section 8.9. Change in Governing Law. Upon any amendment or addition to
-----------------------
Section 145 of the DGCL or the addition of any other section to such law which
shall limit indemnification rights thereunder, the Company shall, to the extent
permitted by the DGCL, indemnify to the fullest extent authorized or permitted
hereunder, any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (including action by or in the
right of the Company) because he is or was a director or officer of the Company
or, while a director or officer of the Company, is or was serving at the request
of the Company as a director, officer, employee, trustee or agent of another
corporation, partnership, joint venture, trust, or other enterprise, against
expenses (including attorney's fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding.
ARTICLE IX
INTERESTED DIRECTORS, OFFICERS AND STOCKHOLDERS
Section 9.1. Validity. Any contract or other transaction between the
--------
Company and any of its directors, officers or stockholders (or any corporation
or firm in which any of them are directly or indirectly interested) shall be
valid for all purposes notwithstanding the presence of such director, officer,
or stockholder at the meeting authorizing such contract or transaction, or his
participation or vote in such meeting authorization.
Section 9.2. Disclosure, Approval. The foregoing shall, however, apply
--------------------
only if the material facts of the relationship or the interest of each such
director, officer or stockholder is known or disclosed:
(1) to the Board and it nevertheless in good faith authorizes or
ratifies the contract or transaction by a majority of the directors present,
each such interested director to be counted in determining whether a quorum is
present but not in calculating the majority to carry the vote; or
(2) to the stockholders and they nevertheless in good faith authorize
or ratify the contract or transaction by a majority of the shares present, each
such interested stockholder to be counted for quorum and voting purposes.
Section 9.3. Nonexclusive. This provision shall not be construed to
------------
invalidate any contract of transaction which would be valid in the absence of
this provision.
14
<PAGE>
ARTICLE X.
MISCELLANEOUS
Section 10.1 Place of Meetings. All stockholders, directors and
-----------------
committee meetings shall be held at such place or places, within or without the
State of Delaware, as shall be designated from time to time by the Board or such
committee and stated in the notices thereof. If no such place is so designated,
said meetings shall be held at the principal business office of the Company.
Section 10.2 Fixing Record Dates. So that the Company may determine the
-------------------
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, to receive payment of any dividend or other
distribution or allotment of any rights, to exercise any rights in respect of
any change, conversion or exchange of stock or to effect any other lawful
action, or to make a determination of stockholders for any other proper purpose,
the Board may fix, in advance, a record date for any such determination of
stockholders, which shall not be more than 60 nor less than 10 days prior to the
date on which the particular action requiring such determination of stockholders
is to be taken. In the absence of any action by the Board, the date on which a
notice of meeting is given, or the date the Board adopts the resolution
declaring a dividend or other distribution or allotment or approving any change,
conversion or exchange, as the case may be, shall be the record date. A record
date validly fixed for any meeting of stockholders and the determination of
stockholders entitled to vote at such meeting shall be valid for any adjournment
of said meeting except where such determination has been made through the
closing of stock transfer books and the stated period of closing has expired.
Section 10.3. Means of Giving Notice. Except as expressly provided
----------------------
elsewhere herein, whenever under law, the Certificate or these Bylaws, notice is
required to be given to any director or stockholder, such notice may be given in
writing and delivered personally, through the United States mail, by a
recognized express delivery service (such as Federal Express) or by means of
telegraph, telex, or facsimile transmission, addressed to such director or
stockholder at his address, telex of facsimile transmission number, as the case
may be, appearing on the records of the Company, with postage and fees thereon
prepaid. Such notice shall be deemed to be given at the time when the same
shall be deposited in the United States mail or with an express delivery service
or when transmitted, as the case may be.
Section 10.4. Waiver of Notice. Whenever notice is required to be given
----------------
under any provision of law or of the Certificate or of these Bylaws, a written
waiver thereof, signed by the person entitled to notice, whether before or after
the time stated therein, shall be deemed equivalent to notice. Attendance of a
person at a meeting of stockholders or of directors or of a committee shall
constitute waiver of notice of such meeting, except where otherwise provided by
law.
Section 10.5. Attendance via Communications Equipment. Unless otherwise
---------------------------------------
restricted by law, the Certificate or these Bylaws, members of the Board or any
committee thereof or the stockholders may hold a meeting by means of conference
telephone or other communications equipment by means of which all persons
participating in the meeting can effectively communicate with each other. Such
participation in a meeting shall constitute presence in person at the meeting,
except where a person participates in the meeting for the express purpose of
objecting to the transaction of any business on the ground that the meeting is
not lawfully called or convened.
Section 10.6. Dividends. Dividends on the capital stock of the Company,
---------
paid in cash, property, or securities of the Company and as may be limited by
applicable law and applicable provisions of the Certificate (if any), may be
declared by the Board at any regular or special meeting.
Section 10.7. Reserves. Before payment of any dividends, there may be set
--------
aside out of any funds of the Company available for dividends such sum or sums
as the Board from time to time, in its absolute discretion, think proper as a
reserve or reserves to meet contingencies, for equalizing dividends, for
repairing or maintaining any property of the Company to be distributed to
stockholders, or for such other purpose as the Board shall determine to be in
the best interest of the Company; and the Board may modify or abolish any such
reserve in the manner in which it was created.
15
<PAGE>
Section 10.8. Reports to Stockholders. The Board shall present at each
-----------------------
annual meeting of stockholders, and at any special meeting of stockholders when
called for by vote of stockholders, a statement of the business and condition of
the Company.
Section 10.9. Checks, Notes and Contracts. Checks and other orders for
---------------------------
the payment of money shall be signed by such person or persons as the Board
shall from time to time by resolution determine. Contracts and other
instruments or documents may be signed in the name of the Company by the
President or by any other officer authorized to sign such contract, instrument
or document by the Board, and such authority may be general or confined to
specific instances.
Checks and other orders for the payment of money made payable to the
Company may be endorsed for deposit to the credit of the Company, with a
depositary authorized by resolution of the Board, by the President or Treasurer
or such other persons as the Board may from time to time by resolution
determine.
Section 10.10. Loans. No loans and no renewals of any loans shall be
-----
contracted on behalf of the Company except as authorized by the Board. When
authorized so to do by the Board, any officer or agent of the Company may effect
loans and advances for the Company from any bank, trust company or other
institution or from any firm, corporation or individual, and for such loans and
advances may make, execute and deliver promissory notes, bonds or other
evidences of indebtedness of the Company. When authorized so to do by the
Board, any officer or agent of the Company may pledge, hypothecate or transfer,
as security for the payment of any and all loans, advances, indebtedness and
liabilities of the Company, any and all stocks, securities and other personal
property at any time held by the Company, and to that end may endorse, assign
and deliver the same. Such authority may be general or confined to specific
instances.
Section 10.11. Fiscal Year. The fiscal year of the Company shall begin on
-----------
the first day of August in each year and terminate on the final day of July in
the succeeding calendar year.
Section 10.12. Seal. The seal of the Company shall be in such form as
----
shall from time to time be adopted by the Board. The seal may be used by
causing it or a facsimile thereof to be impressed, affixed or otherwise
reproduced.
Section 10.13. Books and Records. The Company shall keep correct and
------------------
complete books and records of account and shall keep minutes of the proceeding
of its stockholders, Board and committees and shall keep at its registered
office or principal place of business, or at the office of its transfer agent or
registrar, a record of its stockholders, giving the names and addresses of all
stockholders and the number and class of the shares held by each.
Section 10.14. Resignation. Any director, committee member, officer or
-----------
agent may resign by giving written notice to the President or the Secretary.
The resignation shall take effect at the time specified therein, or immediately
if no time is specified. Unless otherwise specified therein, the acceptance of
such resignation shall not be necessary to make it effective.
Section 10.15. Surety Bonds. Such officers and agents of the Company (if
------------
any) as the President or the Board may direct, from time to time , shall be
bonded for the faithful performance of their duties and for the restoration to
the Company, in case of their death, resignation, retirement, disqualification
or removal from office, of all books, papers, vouchers, money and other property
of whatever kind in their possession or under their control belonging to the
Company, in such amounts and by such surety companies as the President or the
Board may determine. The premiums on such bonds shall be paid by the Company
and the bonds so furnished shall be in the custody of the Secretary.
Section 10.16. Amendments. These Bylaws may from time to time be altered,
----------
amended or repealed and new Bylaws may be adopted, as provided in the
certificate.
16
<PAGE>
CERTIFICATE
-----------
I, the undersigned Secretary of AMERICAN TELESOURCE INTERNATIONAL, INC., do
hereby certify that the foregoing is a true and correct copy of the Amended and
Restated Bylaws of said Company as duly approved at the organizational meeting
of the Company.
WITNESS my hand and the seal of the Company this the _________ day of
____________ , 2000.
/s/ H. Douglas Saathoff
-------------------
17
<PAGE>
EXHIBIT 10.3
AMENDMENT TO AGREEMENT NO. 094-1 FOR PROVISION OF INTERNATIONAL SATELLITE
SERVICES VIA THE MEXICAN SATELLITE SYSTEM EXECUTED BETWEEN SATELITES MEXICANOS,
S.A. DE C.V. ("SATMEX"), REPRESENTED BY ING. LAURO ANDRES GONZALEZ MORENO,
GENERAL DIRECTOR AND TELESPAN, INC. ("THE CUSTOMER"), REPRESENTED BY CHARLES
RANDY POOLE, LEGAL REPRESENTATIVE IN ACCORDANCE WITH THE FOLLOWING BACKGROUND,
RECITALS, AND CLAUSES:
BACKGROUND
1. On April 28, 1998 SATMEX and the Customer executed Agreement No. 094-1
("the Agreement") for the provision of International Satellite Services via
the Mexican Satellite System.
1. In accordance with Paragraph One of the Agreement, SATMEX agreed to provide
to the Customer international satellite services via the Mexican Satellite
System by assigning uninterrupted space segment on C Band, transponders 8N
and 10N, Region 2, Solidaridad 2 with a bandwidth of 10.225 MHz.
1. In accordance with Paragraph Eleven of the Agreement, the Customer agreed
to pay SATMEX for the services in advance on a monthly basis a total of
$51,696.10.
RECITALS
1. The parties hereby state:
.1 That they ratify all Recitals stated in the Agreement.
.1 That they hereby agree to the terms and conditions of this present
Amendment.
After having made the above statements and recitals the Parties hereby agree to
execute and adhere to the following:
CLAUSES
FIRST.- The Parties agree to modify Paragraph One of the Agreement to state as
follows:
SATMEX agrees to provide the Customer international satellite
services via the Mexican Satellite System by assigning uninterrupted
space segment on C Band, transponders 10N, 11N and 12N Region 2 and
3, Solidaridad 2 with a total bandwidth of 22.00 MHz.
The Parties agree that the capacity referred to above will be
utilized by the Customer as follows:
May 1, 1998 to October 31, 1999 10.225 MHz
November 1, 1999 to March 31, 2000 15.00 MHz
April 1, 2000 to April 30, 2001 22.00 MHz
SECOND.- The Parties agree in modifying the Paragraph Eleven of the Agreement
as follows:
The Customer shall pay SATMEX for the services in advance on a
monthly basis a total of ************* in accordance with the
following schedule:
From May 1, 1998 to October 31, 1999 ********** monthly.
From November 1, 1999 to March 31, 2000 ********** monthly.
18
<PAGE>
From April 1, 2000 to April 1, 2001 ********** monthly.
SECOND.- The Parties agree in substituting Addendum 1 of the Agreement for
Addendum 1 attached hereto and duly executed by the parties and shall
form an integral part of this Amendment.
THIRD.- The term of this Amendment shall begin upon the date of execution and
shall terminate in accordance with the term established in Paragraph
Fourteen of the Agreement.
FOURTH.- The Parties agree that all other Paragraphs of the Agreement,
Amendment 1, and Amendment 2 as well as all other Addenda shall
prevail as agreed to.
FIFTH.- For everything relating to the fulfillment, contents, interpretation
and scope of this Amendment as well as that not expressly stated
herein, the Parties agree to submit to the established in the Civil
Code of the Federal District and the jurisdiction and competence of
the Federal Courts located in Mexico City waiving the right to any
other jurisdiction future or present and for any reason whatsoever.
This Amendment is executed in duplicate with each party retaining an original in
Mexico City on November 1, 1999.
SATMEX CUSTOMER
ING. LAURO GONZALEZ MORENO CHARLES RANDY POOLE
GENERAL DIRECTOR LEGAL REPRESENTATIVE
19
<PAGE>
TECHNICAL ADDENDUM I
GENERAL INFORMATION
Customer: TELESPAN, INC.
Address: 12500 NETWORK BOULEVARD, SUITE 407
City: SAN ANTONIO TEXAS USA
Contract No. 094-I Date: April 28, 1998 Term: 3 years
Legal Rep: CHARLES RANDY POOLE
TECHNICAL INFORMATION OF ASSIGNED CAPACITY
<TABLE>
<S> <C> <C>
Type of Network: POINT TO POINT Bandwidth:
May 1, 1998-October 31, 1999 10.225 MHz
November 1, 1999-March 31, 2000 15.00 MHz
April 1, 2000-April 30, 2001 22.00 MHz
</TABLE>
Type: PRIVATE NETWORK
Satellite: SOLIDARIDAD 2 Band: C Service Category: Uninterrupted
Orbital Position: 113 (degrees) 0" Transponder: 10N, 11N and 12N
Region: R2 and 3 Polarization: H/V Connectivity: R2/R2
Teleport: SAN ANTONIO, TEXAS
TARIFF
AGREEMENT TERM: TOTAL AGREEMENT ************* USD
THREE YEARS
MONTHLY RECURRING:
May 1, 1998-October 31, 1999 **********
November 1, 1999-March 31, 2000 **********
April 1, 2000-April 30, 2001 **********
Commencement Date: May 1, 1998 Termination Date: April 30, 2001
Mexico, D.F. November 1, 1999
SATMEX THE CUSTOMER
ING. LAURO ANDRES GONZALEZ MORENO CHARLES RANDY POOLE
PRESIDENT PRESIDENT
20
<PAGE>
EXHIBIT 10.4
THIRD AMENDMENT TO AGREEMENT NO. 095-1 FOR PROVISION OF INTERNATIONAL SATELLITE
SERVICES VIA THE MEXICAN SATELLITE SYSTEM EXECUTED BETWEEN SATELITES MEXICANOS,
S.A. DE C.V. ("SATMEX"), REPRESENTED BY ING. LAURO ANDRES GONZALEZ MORENO,
GENERAL DIRECTOR AND TELESPAN, INC. ("THE CUSTOMER"), REPRESENTED BY CHARLES
RANDY POOLE, LEGAL REPRESENTATIVE IN ACCORDANCE WITH THE FOLLOWING BACKGROUND,
RECITALS, AND CLAUSES:
BACKGROUND
1. On April 28, 1998 SATMEX and the Customer executed Agreement No. 095-1
("the Agreement") for the provision of International Satellite Services via
the Mexican Satellite System.
1. On September 1, 1998 SATMEX and the Customer executed an Amendment
("Amendment 1") to Agreement No. 095-1 for the provision of International
Satellite Services via the Mexican Satellite System in which it was
established that the monthly recurring would be $161,000 USD.
1. On January 4, 1999 SATMEX and the Customer executed an Amendment
("Amendment 2") to Agreement No. 095-1 for the provision of International
Satellite Services via the Mexican Satellite System in which it was
established that the late payment fees would be calculated based on the
rate resulting from 1.5 times the Prime Rate issued by Citibank.
1. In accordance with Paragraph One of the Agreement, SATMEX agreed to provide
to the Customer international satellite services via the Mexican Satellite
System by assigning uninterrupted space segment on C Band, transponder 3W,
Region 1, Solidaridad 2 with a bandwidth of 72 MHz.
RECITALS
.1 The parties hereby state:
.1 That they ratify all Recitals stated in the Agreement.
.1 That they hereby agree to the terms and conditions of this present
Amendment.
After having made the above statements and recitals the Parties hereby agree to
execute and adhere to the following:
CLAUSES
FIRST.- The Parties agree that the Bandwidth established in the First
Paragraph of The Agreement shall be utilized by the Customer as
follows:
May 1, 1998 to October 31, 1999 72.00 MHz
November 1, 1999 to March 31, 2000 36.00 MHz
April 1, 2000 to July 31, 2000 54.00 MHz
August 1, 2000 to April 30, 2001 72.00 MHz
SECOND.- The Parties agree in modifying the First Clause of Amendment
1 as follows:
The Customer shall pay SATMEX for the services in advance on a
monthly basis a total of ************* in accordance with the
following schedule:
From May 1, 1998 to October 31, 1999 *********** monthly.
From November 1, 1999 to March 31, 2000 ********** monthly.
21
<PAGE>
From April 1, 2000 to July 31, 2000 *********** monthly.
From August 1, 2000 to April 30, 2001 *********** monthly.
SECOND.- The Parties agree in substituting Addendum 1 of Amendment 1 for
Addendum 1-b attached hereto and duly executed by the parties and
shall form an integral part of this Amendment.
THIRD.- The term of this Amendment shall begin upon the date of execution
and shall terminate in accordance with the term established in
Paragraph Fourteen of the Agreement.
FOURTH.- The Parties agree that all other Paragraphs of the Agreement,
Amendment 1, and Amendment 2 as well as all other Addenda shall
prevail as agreed to.
FIFTH.- For everything relating to the fulfillment, contents,
interpretation and scope of this Amendment as well as that not
expressly stated herein, the Parties agree to submit to the
established in the Civil Code of the Federal District and the
jurisdiction and competence of the Federal Courts located in Mexico
City waiving the right to any other jurisdiction future or present
and for any reason whatsoever.
This Amendment is executed in duplicate with each party retaining an original in
Mexico City on November 1, 1999.
SATMEX CUSTOMER
ING. LAURO GONZALEZ MORENO CHARLES RANDY POOLE
GENERAL DIRECTOR LEGAL REPRESENTATIVE
22
<PAGE>
TECHNICAL ADDENDUM I-b
GENERAL INFORMATION
Customer: TELESPAN, INC.
Address: 12500 NETWORK BOULEVARD, SUITE 407
City: SAN ANTONIO TEXAS USA
Contract No. 095-I Date: April 28, 1998 Term: 3 years
Legal Rep: CHARLES RANDY POOLE
TECHNICAL INFORMATION OF ASSIGNED CAPACITY
Type of Network: POINT TO POINT Bandwidth:
May 1, 1998-October 31, 1999 72.00 MHz
November 1, 1999-March 31, 2000 36.00 MHz
April 1, 2000-July 31, 2000 54.00 MHz
August 1, 2000-April 30, 2001 72.00 MHz
Type: PRIVATE NETWORK
Satellite: SOLIDARIDAD 2 Band: C Service Category: Uninterrupted
Orbital Position: 113(degrees) 0" Transponder: 3W
Region: R1 Polarization: H/V Connectivity: R1/R1
Teleport: SAN ANTONIO, TEXAS
TARIFF
AGREEMENT TERM: TOTAL AGREEMENT ************* USD
THREE YEARS
MONTHLY RECURRING:
May 1, 1998-October 31, 1999 ***********
November 1, 1999-March 31, 2000 ***********
April 1, 2000-July 31, 2000 ***********
August 1, 2000-April 30, 2001 ***********
Commencement Date: May 1, 1998 Termination Date: April 30, 2001
Mexico, D.F. November 1, 1999
SATMEX THE CUSTOMER
ING. LAURO ANDRES GONZALEZ MORENO CHARLES RANDY POOLE
PRESIDENT PRESIDENT
23
<PAGE>
Exhibit 10.5
MASTER AGREEMENT FOR THE PROVISION OF TELECOMMUNICATION SERVICES EXECUTED
BETWEEN "American TeleSource International, Inc." and BESTEL, S.A. DE C.V.
Master Agreement for the provision of Telecommunication Services executed
between BESTEL, S.A. DE C.V., represented by Lic. F. Xavier Basave Gonzalez and
Ing. Pablo J. Galindo Tovar, ("BESTEL") and "American TeleSource International,
Inc." represented by Charles R. Poole, (the "Customer") in accordance with the
following Recitals and Clauses.
AGREEMENT NUMBER: 100948-0011
The telecommunication Services that BESTEL shall provide to the Customer will be
those shown in the following table and the parties agree that the provision of
such services are governed by the terms and conditions of this Master Agreement
for the Provision of Telecommunication Services and by that established in the
Addenda corresponding to those Services and/or Promotional Programs selected:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
SERVICES AND ADDENDA OF CONTRACT DATE CUSTOMER'S SIGNATURE
THIS PRESENT AGREEMENT
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG DISTANCE xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
xx x
- --------------------------------------------------------------------------------------------------------------
OPERATOR SERVICES xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
xx x
- --------------------------------------------------------------------------------------------------------------
800 SERVICES 29/SEPT/98
- --------------------------------------------------------------------------------------------------------------
PRIVATE LINE SERVICES xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
xx x
- --------------------------------------------------------------------------------------------------------------
DATA SERVICES xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
xx x
- --------------------------------------------------------------------------------------------------------------
LIT FIBER xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
xx x
- --------------------------------------------------------------------------------------------------------------
DARK FIBER xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
xx x
- --------------------------------------------------------------------------------------------------------------
COLLOCATION xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
xx x
- --------------------------------------------------------------------------------------------------------------
INTERNET SERVICES xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
xx x
- --------------------------------------------------------------------------------------------------------------
OTHER SERVICES (SPECIFY) xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
xx x
- --------------------------------------------------------------------------------------------------------------
</TABLE>
CONDITIONS
THE CUSTOMER accepts and acknowledges that once the Addenda corresponding to the
Services and/or Promotional Programs selected are executed, these shall form an
integral part of this Master Agreement for the Provision of Telecommunication
Services.
The Addenda corresponding to the Services and/or Promotional Programs selected
at a later date than the date of execution of this Master Agreement, shall have
an effective date as of the date of execution and acceptance and shall become an
integral part of this Agreement.
RECITALS
I. BESTEL states through its legal representatives:
24
<PAGE>
That they represent a Corporation duly incorporated under the laws of Mexico
under the name of "Cableado y Sistemas" as is shown in Corporate Charter Number
33,515 dated August 1, 1995 and granted before Notary Public number 70 of
Guadalajara, Jalisco and registered in the Public Commerce Registry of that city
under number 177-178, Volume 586, First Book.
That on September 2, 1996 its corporate name changed to "Bestel", S.A. de C.V.
as is shown in corporate charter number 26,414 before Notary Public number 42 of
Guadalajara and registered in the Public Commerce Registry of that city under
number 146 of Volume 613, First Book.
That the personality and capacity of its legal representatives as of this date
has not been modified nor limited in any way.
That on January 8, 1996 the Federal Government through the Ministry of
Communications and Transportation (the "Ministry") granted a concession to
install, operate and exploit a Public Telecommunications Network and therefore
has the ability to provide the Services under this Agreement.
That it desires to provide the Services under this Agreement to the Customer.
That its tax identification number is BES950801CA1 and its address is Lopez
Cotilla #1987-A, Colonia Obrera Centro, Guadalajara, Jalisco, 44140.
That it has the personnel and technical capacity, as well as its own
infrastructure or that of a third party necessary to provide the Services under
this Agreement.
II. THE CUSTOMER states through its legal representative:
That it represents a Corporation duly incorporated under the laws of the State
of Texas under the name of "American TeleSource International, Inc.".
That the personality and capacity of its legal representative as of this date
has not been modified nor limited in any way.
That its address is 12500 Network Boulevard, Suite 407, San Antonio, TX 78249.
That its telecommunications terminal equipment to be utilized by the CUSTOMER is
duly homologated before the competent authorities and can be interconnected to a
public telecommunications network without causing interferences or any damages
to said network and complies with the authorized signaling.
That it desires to contract with BESTEL the Services shown on the First Page of
this Agreement which after its execution forms an integral part hereof.
That it desires to commit to the traffic corresponding to the Services under
this Agreement in the percentages shown hereunder or in its Addenda.
Based on the above, the parties agree to the following:
CLAUSES
1. OBJECTIVE.
.1 BESTEL shall provide to the CUSTOMER the Services shown on the First page
of this Agreement (the "Services") and THE CUSTOMER agrees to pay the
consideration for such Services as established in the corresponding
Addenda.
.1 In the event THE CUSTOMER receives the Services or opts for any of the
Promotional Programs
25
<PAGE>
(modified from time to time) it is understood that THE CUSTOMER has
accepted the applicable terms and conditions for those Services and/or
Promotional Programs registered with the Federal Telecommunications
Commission.
2. CONSIDERATION.
2.1 THE CUSTOMER agrees to pay BESTEL the total value of the consideration
specified in the corresponding Addenda for the Contracted Services (the
"Price") by no later than the date agreed upon.
2.2 The Price for the Services agreed to by the parties shall be subject to
modifications in accordance with the changes that could arise under the
terms and conditions of the Promotional Program under which the Customer
has subscribed. In the event of conflict between the terms and conditions
of this Agreement and those of the Promotional Program selected by the
CUSTOMER, those contained in the Promotional Program shall prevail.
2.3 Except for that established in the Addenda, the rates can be modified at
any time by BESTEL. The CUSTOMER acknowledges that BESTEL can make
adjustments or discounts of such Price as of the effective date for the
month of such adjustments or discounts. Such adjustments or discounts
shall be stated in BESTEL's invoices presented to the CUSTOMER on the
effective date of such rates. BESTEL shall be able to apply any
adjustments or discounts against any outstanding amounts owed by the
CUSTOMER.
2.4 All payments specified in this Agreement shall be made in accordance with
that established in the corresponding service Addendum.
In the event that the Price or any consideration would be established in
another currency that is not Mexico's legal currency, but legal in any
other country, the CUSTOMER agrees to pay BESTEL in such preestablished
currency or in Mexican pesos at the exchange rate published by the Bank of
Mexico in the Federal Daily Gazette on the date payment is made by the
CUSTOMER.
2.5 The CUSTOMER acknowledges and accepts that if any other carrier would
charge BESTEL any other amount for access to BESTEL's network required by
the CUSTOMER or its customers, the CUSTOMER shall reimburse BESTEL such
amounts.
2. FORM AND PLACE OF PAYMENT.
3.1 BESTEL shall send on a monthly basis an invoice to the CUSTOMER for the
Services provided to the address shown in this Agreement.
3.2 Payment for the invoice(s) for the Services provided can be made in cash at
the locations provided by BESTEL on such invoices or by check payable to
BESTEL, S.A. DE C.V., by wire transfer or any other form specified by
BESTEL.
3.3 Any differences that the CUSTOMER should have with the charges billed on
the invoice should be directed to the Customer Service Center established
by BESTEL. In the event the CUSTOMER wishes to dispute, CUSTOMER shall do
so in writing by no later than the payment date shown on the invoice.
3.4 The invoices should be received by the CUSTOMER within the corresponding
delivery time set for such CUSTOMER and can be modified by BESTEL from time
to time. If the CUSTOMER does not receive the invoice, the CUSTOMER shall
notify BESTEL so that a copy can be sent. Notwithstanding the above, the
CUSTOMER shall pay immediately any outstanding amounts.
3.5 The CUSTOMER shall pay to BESTEL the amounts specified on the corresponding
invoice by no later than the date established on the invoice which shall
always be twenty (20) days after the close of the billing period. The
CUSTOMER shall abide by the established in Paragraph 2.4 above.
26
<PAGE>
3.6 THE CUSTOMER agrees that BESTEL may apply the payment for one of more of
the Services under this Agreement to any outstanding amount generated by
the provision of any of the Services for an amount or in any invoice order
established by BESTEL.
3.7 BESTEL shall be able to partially or totally suspend the provision of the
Services under this Agreement upon previous notice to the CUSTOMER, in the
event the CUSTOMER pays late or does not completely pay its outstanding
amounts. In the event of suspension and in order to reestablish the
Services, the CUSTOMER shall pay any outstanding amounts as well as pay any
reconnection charges. As well, in the event BESTEL so determines, the
CUSTOMER shall provide BESTEL any security requested.
3.8 The amounts owed by the CUSTOMER after the payment date of the invoice
shall be subject to late payment fees calculated by multiplying the TIIE
Rate ( Interbank Interest Rate) published in the Federal Daily Gazette
effective on the date of payment or substituted rate times 2.0 for the
entire late period and until total payment has been made.
3.9 BESTEL shall be able to request total payment of any amount owed by the
CUSTOMER before continuing to provide the Services under this Agreement.
In the event that BESTEL should omit in any invoice amounts referred to in
this Paragraph, such charges can be invoiced in any subsequent invoice in
order for the CUSTOMER to cover its outstanding amounts. Such omission
does not constitute a waiver by BESTEL to collect any amounts nor shall it
be interpreted as the CUSTOMER'S right to not pay such amounts.
4.0 TERM.
4.1 This Agreement shall be in force as long as any Service in accordance with
the corresponding Addenda remains in force unless otherwise specified.
4.2 In the event the CUSTOMER stops receiving BESTEL's services for any cause
and receives them from another vendor or has terminated this Agreement, the
parties agree that in the event the CUSTOMER desires to receive the
SERVICES again and receive the Promotional Programs, it shall be understood
that the CUSTOMER has accepted the terms and conditions established
hereunder, which will be in force under the specified in subparagraph 4.1
above.
27
<PAGE>
5. TERMINATION.
5.1 In the event the CUSTOMER does not fulfill any of its obligations under
this Agreement, BESTEL shall terminate this Agreement without any
liability. If this occurs, all amounts owed by the CUSTOMER to BESTEL at
that time shall become due immediately.
5.2 BESTEL shall notify the CUSTOMER the termination of this Agreement
indicating the amount owed and the due date in which such amount is to be
paid. Those amounts owed by the CUSTOMER as of the termination date shall
cause late fees as mentioned in 3.8 above.
5.3 In the event of default by BESTEL, the CUSTOMER shall notify BESTEL the
cause(s) of such default so that BESTEL may correct to the CUSTOMER's
satisfaction. After thirty (30) days and if such default continues, the
CUSTOMER shall be able to terminate this Agreement, after paying any
amounts owed to BESTEL without any liability.
5. SERVICE INTERRUPTIONS.
6.1 BESTEL shall not be responsible for the suspension or interruption of the
Services because of force majeure or fortuitous cause or because of
unforeseen circumstances including transmission failures as well as the
suspension or interruption of communication by other networks through which
the signals or traffic runs through.
6.2 BESTEL shall be able to interrupt for any necessary time the provision of
the Services under this Agreement when an inspection or maintenance is
needed for their facilities and/or equipment. BESTEL shall try to program
such inspection or maintenance at hours that do not result inconvenient for
the CUSTOMER.
6.3 Unless otherwise specified in this Agreement, the CUSTOMER acknowledges
that the equipment and the lines through which the switched or dedicated
local service is to be provided are not owned by BESTEL; therefore BESTEL
shall not be responsible for any failures attributable to such equipment or
lines. BESTEL shall only be responsible for the Services provided through
circuits, equipment and fiber optic network owned by BESTEL or affiliates.
6.4 Unless otherwise specified in this Agreement, neither party shall be
responsible for any damages, including indirect and/or consequential or for
the loss of income derived or related with the provision of the Services
under this Agreement.
5. LIABILITY.
7.1 According to the type of Services provided, the CUSTOMER shall not use such
Services for international callback that utilizes the signaling of an
incomplete call to any country where this type of service is not legal. As
well, the CUSTOMER shall not use the contracted Services for transport of
switched voice services to or from any other country since this is a
violation of Mexican law. The CUSTOMER hereby assumes such responsibility
and shall be responsible for any claims arising against BESTEL .
7.2 The CUSTOMER acknowledges that the Services provided hereunder and
especially those of the corresponding Addenda cannot be marketed by the
CUSTOMER unless the CUSTOMER has the licenses and/or authorizations to do
so.
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<PAGE>
7.3 The CUSTOMER shall indemnify and hold BESTEL harmless from any damages,
costs, responsibility and expenses resulting from such connections or
connection intents and marketing of Services including those damages
resulting from the use or unauthorized access to BESTEL's Public
Telecommunications Network.
7.4 If necessary, the CUSTOMER hereby authorizes the Federal Telecommunications
Commission, the Auditor of the Long Distance Carriers Committee and BESTEL
to supervise the international private lines contracted through the
execution of the corresponding Addenda authorizing BESTEL to immediately
terminate this Agreement without any liability in the event misuse is
detected.
7.2 BESTEL shall not be responsible for the contents of the information that
the CUSTOMER transmits through its telecommunications network.
5. RELATIONSHIP OF PARTIES.
8.1 The nature of this Agreement is essentially commercial since BESTEL and THE
CUSTOMER are companies of everyday business activities and in addition have
the necessary elements to fulfill each and every obligation with their
employees. As well, between the CUSTOMER' s employees and BESTEL's
employees there does not exist any relationship whatsoever; therefore there
is no labor relationship. THE CUSTOMER shall be the only party responsible
of the obligations that the law establishes as an employer with regards to
the personnel utilized and shall be responsible for each and every
individual and collective claim that the CUSTOMER's employees could present
against BESTEL assuming the liability of any claim presented and reimburse
immediately any legal expense or of any other nature that BESTEL could
incur for such concept. In the same fashion, BESTEL shall be the only
responsible party of the obligations that the law establishes as an
employer with regards to the personnel utilized and shall be responsible
for each and every individual and collective claim that BESTEL's employees
could present against the CUSTOMER assuming the liability of any claim
presented.
5. TROUBLE REPORTS/REPAIRS
9.1 The CUSTOMER shall notify its trouble reports to BESTEL and BESTEL shall
make available to the CUSTOMER a Customer Service Center that will be
available 24 hours a day, 365 days per year where trouble tickets will be
reported. BESTEL shall assign a confirmation number.
5. SERVICE GUARANTEES.
10.1 The guarantees offered by BESTEL are described and detailed in the
Promotional Programs selected by the Customer and shall be attached to this
Agreement forming an integral part hereof.
5. CREDIT INVESTIGATION.
11.1 THE CUSTOMER states that the information provided regarding its solvency
and payment capacity is correct and based on that information BESTEL has
made the decision to provide the Services under this Agreement. THE
CUSTOMER hereby authorizes BESTEL to verify such information. As well, the
CUSTOMER agrees that this authorization shall continue in force during the
term of this Agreement for BESTEL's benefit.
5. NOTICES.
12.1 The parties agree that all notices, communications and notifications
regarding this Agreement shall be directed to the addresses mentioned in
the recitals of this Agreement. Such notices shall be made in writing
29
<PAGE>
through certified mail or courier with a return receipt, facsimile or any
other method that the other party has received such notification. In the
event of address change, the parties agree to notify the other party with
at least fifteen (15) days advance notice; otherwise the latest address
shall prevail.
5. ASSIGNMENT; MODIFICATION.
13.1 THE CUSTOMER agrees that the rights and obligations derived under this
Agreement shall not be assigned, transferred, negotiated nor modified in
any way without the previous consent in writing from BESTEL. As well,
BESTEL may assign its rights and obligations derived under this Agreement
to any of its subsidiaries or affiliates or guarantee any obligation
through notification to the CUSTOMER.
13.3 THE CUSTOMER shall notify BESTEL with sixty (60) days advance notice any
modification to its corporate name, otherwise all documentation shall be
generated using the previous name.DISPUTE RESOLUTION.
14.1 The parties express their firm conviction that in good faith in the event
there are differences or disputes because of the interpretation,
fulfillment and execution of this Agreement and in unlimited form for any
technical aspect, service provision, application and collection of
consideration and any other that require specific technical capacity, they
shall reasonably try to resolve in a friendly fashion through mediation
and/or conciliation, voluntarily and previous to any other procedure that
the parties could have and take place during a term of thirty (30) days in
which the parties promote a mutual consulting process in order to resolve
or avoid any controversy or dispute without waiving their rights.
14.2 It shall be considered that the attempts to reach a friendly solution have
failed when one of the parties notifies the other party at the termination
of such term that the negotiations have not been satisfactory; therefore
the parties may execute their rights or effect any action as specified in
this Agreement.
14.3 For anything relating to the Agreement including its interpretation,
fulfillment and execution of, the parties hereby agree to submit to the
jurisdiction of the courts in Guadalajara, Jalisco and the Mexican laws
thereby waiving any other jurisdiction which may correspond to them for
reason of their present or future domiciles or for any other reason
whatsoever or the invocation of the protection of their country.
5. ENTIRE AGREEMENT.
15.1 The parties agree that this Agreement and its Addenda constitute the only
agreement and agree that this Agreement supersedes any agreement,
communication, or proposal previously related with the objective of this
Agreement.
The parties hereby agree and acknowledge that this Agreement is subject to the
terms and conditions of any applicable regulations. In the event such
regulations are not followed, the responsible party shall cure such failure
without terminating this Agreement unless such cure is not done in a reasonable
time.
The parties execute this Agreement in duplicate in Mexico, D.F. on September 29,
1998.
`THE CUSTOMER' "BESTEL"
"American TeleSource International, Inc." BESTEL, S.A. DE C.V.
(Signature) (Signature)
By: Charles R. Poole By: Lic. F. Xavier Basave Gonzalez
Title: President Pablo J. Galindo Tovar
Title: Legal Representatives
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Exhibit 10.6
ADDENDUM TO THE AGREEMENT FOR PRIVATE LINE SERVICES NUMBER 100948-0011 FOR
PROVISION OF TELECOMMUNICATION SERVICES
This Addendum forms an integral part of the Master Telecommunications Services
Agreement (Master Agreement). The information contained herein will be governed
by the terms and conditions established in the Master Agreement executed between
American Telesource International, Inc. (The "CUSTOMER") and BESTEL, S.A. DE
C.V. ("BESTEL") dated September 29, 1998.
This document may be modified or added to as necessary in the understanding that
in order to form and become an integral part of the Master Agreement, it should
be executed by the parties authorized legal representatives.
In the event that this Addendum is substituted by another or other Addenda,
these must maintain consecutive numbering taking into account the letter of the
Addendum, with the last Addendum being the document in effect for both parties.
Without prejudice of the above and as established in the Master Agreement, the
Addenda corresponding to Services and/or Promotional Programs selected by the
CUSTOMER at a date later than the execution date of the Master Agreement, will
become effective as of the date of implementation of Services.
1. DESCRIPTION AND COST OF PRIVATE LINE SERVICES.
1 International DS3 link Mexico, D.F. - San Antonio, Tx
-------------------------------------------------------
--------------------------------------------------------------------------
Circuit Installation Monthly Recurring
(Pesos) (Pesos)
--------------------------------------------------------------------------
1 International DS3 Mexico - Laredo $0.00 xxxxxxxxxxx
--------------------------------------------------------------------------
DS3 Laredo, Tx - San Antonio, Tx $0.00 xxxxxxxxxxx
--------------------------------------------------------------------------
The CUSTOMER shall provide and maintain all necessary equipment for these
circuits.
These prices include the complete international circuit, including the local
loops on both sides of the border.
As of the date of execution of this Addendum, the CUSTOMER has not elected the
option of adding an "ADD/DROP" in Monterrey; however, if the CUSTOMER should
decide to do so, the monthly rate will be $18,512.00.
2. TERM
2.1 This Addendum shall be for 3 (three) years; however, either party may
request in writing the termination with at least 1 calendar month in advance of
the desired termination date, observing the obligations established herein.
3. CONSIDERATION
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3.1 The CUSTOMER shall pay BESTEL for the services provided the amount
specified above in Section 1 of this document or the amount specified on the
invoice by no later than the due date shown on the invoice. BESTEL shall be able
to collect any amount established in the tariff rates of the selected
Promotional Program and accepted by the CUSTOMER.
3.2 In the event the CUSTOMER decides to terminate the services of this
Addendum, the CUSTOMER shall be responsible for payment of the 100% of the
amounts resulting from the remaining time left based on 2.1 of this Addendum.
For this paragraph, the CUSTOMER shall always observe the specified in the
Master Agreement.
4. RESPONSIBILITIES
4.1 The CUSTOMER shall be responsible for the use of the services contracted.
4.2 BESTEL shall not be responsible for the use, negligence, fraudulent use,
contrary use against service specifications, illegal and/or unauthorized use by
the CUSTOMER.
4.3 BESTEL shall not be responsible for any authorization, permit, license
needed by the CUSTOMER in regards to this Agreement.
4.4 The CUSTOMER shall observe at all times the Intellectual Property Law and
shall respond to all and each of any claims presented directly by or indirectly
against BESTEL, The CUSTOMER shall indemnify and hold BESTEL harmless from and
against any claim. Such indemnification shall include any legal expenses that
BESTEL might incur.
The parties hereby agree and execute this Addendum in duplicate in Mexico
City, D.F. on March 16, 1999.
THE CUSTOMER BESTEL
AMERICAN TELESOURCE INTERNATIONAL, INC. BESTEL, S.A. DE C.V.
(Signature) (Signatures)
By: Mr. Charles R. Poole By: Lic. Ignacio de J. Romo Davila
Title: President Ing. Pablo J. Galindo Tovar
Title: Legal Representatives
32
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Exhibit 10.8
TELECOMMUNICATION SERVICES AGREEMENT
This Agreement is entered into this 1st day of October ____ 1998, by and
between BEST TELEMARKETING, INC. AND NAFTA MARKETING, INC., Texas corporations
with their principal offices at 221 East Upas, McAllen, Texas 78501
(`BEST/NAFTA), and TELESPAN, INC., a Texas corporation with its principal office
at 12500 Network Blvd., Suite 407, San Antonio, Texas 78249 ("Customer").
WITNESSETH:
WHEREAS, BEST/NAFTA are in the business of providing telecommunications
services; and
WHEREAS, Customer desires to contract telecommunications services from
BEST/NAFTA;
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, and for other good valuable consideration, the parties do
hereby contract and agree as follows:
1. BEST/NAFTA agree to furnish to Customer, and Customer agrees to
contract with BEST/NAFTA, the telecommunication services as set forth in Exhibit
A attached hereto and made a part of this Agreement as if set forth verbatim
herein.
2. This Agreement shall commence on the 1st day of October 1998 (the
"Commencement Date") subject to approval by the Board of Directors of American
TeleSource International, Inc. (ATSI), who wholly owns Customer and continue
for a period of one (1) year. This Agreement shall be extended, on the same
terms and conditions, for an additional period of one (1) year unless either
party notifies the other party in writing not less than sixty (60) days prior to
the termination date of its desire to terminate this Agreement.
3. During the term of this Agreement, BEST/NAFTA shall charge for the
telecommunication services, and Customer shall pay for such telecommunication
services, that amount as determined by using the rates set out in Exhibit A.
4. BEST/NAFTA shall give Customer at least forty-five (45) days
notification in the event any service rate in Exhibit A is modified and both
parties must agree to any modifications.
5. Customer hereby acknowledges that BEST/NAFTA'S charges for the
provision of its telecommunication services will be billed on a monthly basis
and that payment for such services is due and payable fifteen (15) days from
invoice date. Late payments will be assessed a late charge of 1.5% per month.
Payments not received within thirty (30) days of the date of billing will result
in the right of BEST/NAFTA to cancel and terminate the services provided herein.
6. Should Customer dispute any of the monthly charges on its monthly
invoice, it shall notify BEST/NAFTA of the disputed charges not later than ten
(10) days from the date of invoice. Said dispute shall set forth in writing all
details concerning the disputed charges. In the event of a dispute, Customer
shall pay the entire invoice in accordance with the payment terms set forth
herein. After resolution of the disputed portion of the invoice, the
adjustment, if any, shall be immediately credited to Customer's account.
7. No term or provision of this Agreement shall be deemed waived, and no
breach shall be deemed excused, unless such waiver or consent shall be in
writing and signed by the party claimed to have waived or consented. No consent
by any party to, or waiver of, a breach or default by the other, whether
expressed or implied, shall constitute a consent to, waiver of or excuse for any
different or subsequent breach or default.
8. Neither BEST/NAFTA nor Customer shall be liable to the other for any
consequential, indirect, special or incidental damages whatsoever, including,
without limitation, any loss of revenue, goodwill, or profits or claims by third
parties or otherwise in connection with or related to any of the services
provided pursuant to this Agreement.
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9. BEST/NAFTA warrant that the equipment used in providing the services
to Customer pursuant to this Agreement is suitable for the uses intended, and
Customer warrants and represents that it is fully authorized to contract for the
services under this Agreement.
BEST/NAFTA MAKES NO OTHER WARRANTIES, EITHER EXPRESSED OR IMPLIED
10 a. This Agreement authorizes BEST/NAFTA to start provisioning of
telecommunications services as set forth herein, to Customer on the Commencement
Date. This Agreement also authorizes BEST/NAFTA to act as Customer's agent in
placing orders with the other carriers in order to provide telecommunications
services, if requested.
10 b. Customer hereby represents and warrants that it is certified to do
business in all jurisdictions in which it conducts business and is in good
standing in all such jurisdictions. Customer shall be responsible for dealing
with the proper regulatory agencies in order to obtain all necessary
authorizations for its operations towards third parties (including End Users) in
those jurisdictions where services are provided by the Customer.
10 c. Customer shall be responsible for and pay all expenses in connection
with its business and its performance of this Agreement. Customer shall at all
times conduct its efforts in a commercially reasonable and ethical manner. To
the extent Customer makes any statements or representations to third parties
(including End-Users) with regard to BEST/NAFTA, the Services, or the terms of
this Agreement, such statements or representations shall be true, accurate and
not misleading and shall conform to and be consistent with the terms herein.
11. If the performance of the respective obligations of BEST/NAFTA or
Customer shall be prevented or interfered with by reason of any fire, flood,
epidemic, earthquake or any other act of God, explosion, strike or other
disputes, riot or civil disturbance, war (whether declared or undeclared) or
armed conflict, any municipal ordinance or state or federal law, governmental
orderer regulation or order of any court of competent jurisdiction, or other
similar forces not within the control of BEST/NAFTA or Customer, as the case may
be, then Customer and/or BEST/NAFTA, as the case may be, shall not be liable to
the other for its failure to perform such obligations hereunder.
12. If any term or provision of this Agreement shall be found to be
illegal or unenforceable, then, notwithstanding such illegality or
unenforceability, this Agreement shall remain in full force and effect and such
term or provision shall be deemed to be deleted. In addition, this Agreement
shall be terminated upon the determination of a governmental entity having
jurisdiction over the services provided under this Agreement.
13. Except as otherwise provided herein, the remedies provided for in
this Agreement are in addition to any other remedies available at law or in
equity, by statute or otherwise.
14. Should it be necessary for either party to this Agreement to retain
the services of an attorney to enforce its rights under this Agreement, and
should any suit be necessary to enforce said rights, then the prevailing party
shall be entitled to receive reasonable attorney's fees from the other party.
15. This Agreement shall be governed by the laws of the State of Texas,
with venue at San Antonio, Texas.
16. This Agreement shall be binding upon and inure to the benefit of
BEST/NAFTA and Customer and their respective successors and assigns. BEST/NAFTA
retains the right to assign all or part of this Agreement. In order to do so,
BEST/NAFTA shall obtain prior written consent from the Customer. Likewise, the
Customer has the right to assign all or part of this Agreement after obtaining
prior written consent from BEST/NAFTA. BEST/NAFTA reserve the right to obtain
necessary credit information or require additional security deposits from
successors and assigns.
17. This Agreement, including the exhibits hereto and the documents and
instruments referred to therein, embodies the entire agreement and understanding
of the parties hereto in respect of the subject matter contained herein. There
are no restrictions, promises, representations, warranties, covenants or
undertakings, other than those expressly set forth or referred to herein. This
Agreement, and any documents and instruments
2
<PAGE>
contemplated hereby, supersedes all prior agreements and understandings between
the parties with respect to such subject matter.
18. This Agreement may be amended, modified or supplemented only by and
instrument in writing executed by the party against which enforcement of the
amendment, modification or supplement is sought.
19. This Agreement may be executed in two (2) or more counterparts, each
of which shall be deemed an original. It shall not be necessary in making proof
of this Agreement to produce or account for more than one (1) of such
counterparts.
BEST TELEMARKETING, INC. TELESPAN, INC.
NAFTA MARKETING, INC.
BY: Tomas Revesz BY: Randy Poole
---------------------------------- --------------------------------
SIGNATURE:___________________________ SIGNATURE:_________________________
TITLE: President TITLE: President
------------------------------- -----------------------------
DATE:________________________________ DATE:______________________________
3
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EXHIBIT "A"
-----------
CONDITIONS FOR TELECOMMUNICATION SERVICES
BEST/NAFTA shall provide network interconnection services to the Customer
subject to the following conditions for pricing and otherwise as is stated in
the following:
1. Operations
----------
(A) The interconnection of transmission facilities shall be provided at
BEST/NAFTA's point-of-presence in Mexico. BEST/NAFTA shall contract with
Facility Carriers to provide high quality standards in order to guarantee
maximum reliability for digital state-of-the-art telecommunications network for
voice, video and high-speed data. BEST/NAFTA shall assist the Customer and the
Facility Carriers in testing as required to ensure the above-mentioned standards
are met.
(B) BEST/NAFTA shall provide the Customer with copy of original invoice
and Call Detail Records ("CDR") of the switched voice services provided in
Mexico.
2. COMPENSATION;
-----------------
(A) The Customer shall pay BEST/NAFTA $12,500.00 US every month in total
expenses and 2/10 cent for each minute of switched voice services provided in
Mexico up to a maximum of $3,000 per month per company. In other words the
total maximum payable per month could only be $18,500.00.
(B) As stated in paragraph 5 of this Agreement, BEST/NAFTA shall invoice
Customer monthly and Customer shall pay BEST/NAFTA within fifteen (15) days of
invoice date.
(C) BEST/NAFTA shall help negotiate directly with the Facility Carriers
for any discounts and/or reimbursements due to facility outages of any duration.
Such discounts and/or reimbursements will be passed through to the Customer via
copy of original invoice.
4
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Exhibit 10.9
- --------------------------------------------------------------------------------
Lender: Loan and Security Agreement
NTFC CAPITAL CORPORATION, a subsidiary of GE CAPITAL CORPORATION
- --------------------------------------------------------------------------------
BORROWER INFORMATION
BORROWER: AMERICAN TELESOURCE INTERNATIONAL, INC. ("ATII"), and each Subsidiary
of ATII on a joint and several basis
Person to contact/Title: Doug Saathoff, CFO
Address: 12500 Network Blvd., Suite 407
City: San Antonio
County:
State: Texas
Zip Code: 78249
Telephone Number: 210-558-6090
Facsimile Number: 210-558-6095
_X_ Corporation
___ Partnership
___ Cooperative
AGREEMENT TERMS AND CONDITIONS SET FORTH BELOW AND ON FOLLOWING PAGES
Fees:
Borrowers shall pay to Lender an Origination Fee equal to one percent (1%) of
the Commitment Amount (20,000) on the closing date. Borrower also shall pay at
closing the expenses of Lender's counsel incurred in the preparation,
negotiation and finalization of this Agreement and all attendant documentation
and on the date of each subsequent Advance such expenses incurred since the
closing date.
Interest Rate:
A fixed rate per annum of interest equal to the five year bank swap rate as
reported on the First Borrowing Date on Telerate, plus 495 basis points. If
Telerate should cease publication or cease publishing such rate, Lender shall
designate a comparable reference rate for use in determining the Interest Rate
hereunder.
Agreement Date: June______, 1999
Financing Termination Date: ___________, 1999
Commitment Amount (US) $2,000,000
No. Of Payments: 20 payments after the expiration of the Capitalized Interest
Period
Supplier: NORTEL and any other vendor approved by Lender
Initial Payment Date: The first day of the first calendar quarter following the
Conversion Date
Interest Payment Date: The Initial Payment Date and the first day of each
subsequent calendar quarter.
Payment Date: The Initial Payment Date and first day of each subsequent calendar
quarter.
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Payment Schedule:
All amounts borrowed and outstanding hereunder shall be amortized and repaid
quarterly, in arrears, in 20 equal payments of principal and interest sufficient
to pay the Note in full, commencing on the Initial Payment Date, and on each
Payment Date thereafter through and including the Maturity Date, provided,
however, in any event the final payment shall be in an amount equal to all
outstanding principal hereunder, plus all accrued and unpaid interest and all
other unpaid charges hereunder.
Capitalized Interest Period:
The period of six full calendar months following the First Borrowing Date.
During the Capitalized Interest Period, interest shall accrue on all principal
amounts outstanding under the Note at the Interest Rate, and up to an aggregate
of the maximum amount of Capitalized Interest shall be capitalized, monthly in
arrears, and added to the principal amount of the Note by Lender, on behalf of
Borrower, on the first day of each calendar month, thereby increasing the
principal amount of the Note. The Lender may also evidence such increase by
noting the date and amount of each such addition on a schedule to the Note.
Interest accruing during the Capitalized Interest hereto shall be paid by
Borrower monthly in arrears, on the first day of each calendar month, commencing
on the first day of the month after the month in which such limit is exceeded.
Interest Only Period: N/A
Collateral Location Schedule: San Antonio, Texas
First Borrowing Date: The date of the first borrowing hereunder by a Borrower
Maximum Amount of Capitalized Interest: N/A
Conversion Date: The last day of the capitalized Interest Period
Maturity Date: The twentieth Payment Date
6
<PAGE>
1. COMMITMENT TO LEND: (a) Subject to the terms and conditions provided
in this Loan and Security Agreement ("Agreement") and so long as no Event of
Default (as defined in Section 14 hereof) or event or condition which with
notice or passage of time or both would constitute an Event of Default has
occurred and is continuing hereunder, Lender agrees to lend to AMERICAN
TELESOURCE INTERNATIONAL, INC., a Delaware corporation ("ATII"), to the Domestic
and/or Foreign Subsidiaries of ATII which are signatories to this Agreement, and
to such additional Domestic and/or Foreign Subsidiaries of ATII which hereafter
may become a party hereto pursuant to Section 1(b) hereof (ATII, Domestic and/or
Foreign Subsidiaries of ATII which are signatories to this Agreement, and such
additional Domestic and/or Foreign Subsidiaries of ATII which may hereafter
become a party hereto pursuant to Section 1(b) of this Agreement are
individually referred to as a "Borrower" and collectively as the "Borrowers"),
-------- ---------
until the Termination Date set forth above, an amount in the aggregate not to
exceed the Commitment Amount set forth above, which sum shall be used solely for
the purchase by a Borrower of telecommunications equipment and associated
software sublicenses from the Supplier pursuant to one or more Purchase
Agreements (individually, a "Purchase Agreement" and collectively, the
"Purchase Agreements") made by and between the Supplier and such Borrower for
installation, if such Borrower is a Domestic Borrower, in the United States,
Mexico and other Latin American jurisdictions, and if such Borrower is a Foreign
Borrower, in Mexico and other Latin American jurisdictions. "Subsidiary" means,
----------
as to any person, a corporation, partnership, limited liability company or other
entity of which shares of stock or other ownership interests having ordinary
voting power (other than stock or other ownership interests having such power
only by reason of the happening of a contingency) to elect a majority of the
board of directors or other managers of such corporation, partnership, limited
liability company, or other entity, are at the time owned, or the management of
which is otherwise controlled, directly or indirectly, through one or more
intermediaries, or both, by such person. "Domestic Subsidiary" means a
-------------------
Subsidiary incorporated under the laws of the United States, one of the states
of the United States, the District of Columbia, or any territory, possession or
protectorate of the United States. "Foreign Subsidiary" means a Subsidiary
------------------
incorporated under the laws of any jurisdiction other than the laws of the
United States, one of the states of the United States, the District of Columbia,
or any territory, possession or protectorate of the United States. "Domestic
--------
Borrower" means ATII or a Borrower which is a Domestic Subsidiary of ATII, and
- --------
"Foreign Borrower" means a Borrower which is a Foreign Subsidiary of ATII.
----------------
Unless otherwise qualified, all references to a "Subsidiary" or to
"Subsidiaries" in this Agreement shall refer to a Subsidiary or Subsidiaries of
ATII.
(b) Lender and each Borrower acknowledge and agree that subject to the
terms and conditions of this Agreement, ATII shall cause Domestic and/or Foreign
Subsidiaries of ATII formed or acquired hereafter to become a Borrower hereunder
(without the consent of any other Borrower) by executing a form of the annex to
this Agreement set forth as Exhibit A and such additional Domestic Subsidiaries
---------
may thereafter borrow amounts hereunder to finance the acquisition of equipment
which is, or is to be placed, in the United States, Mexico and other Latin
American jurisdictions, and such additional Foreign Subsidiaries of ATII may
thereafter borrow amounts hereunder to finance the acquisition of equipment
which is, or is to be placed, in Mexico and other Latin American jurisdictions.
ATII and the other Borrowers agree that, prior to any additional Subsidiary of
ATII becoming a Borrower hereunder, such Subsidiary and ATII shall execute and
deliver to Lender a form of the annex to this Agreement set forth as Exhibit A,
and if required by Lender cause the delivery of an opinion of legal counsel to
ATII and such additional Subsidiary dated the date of the execution of the form
of the annex to this Agreement set forth as Exhibit A in form and substance
satisfactory to Lender and such other documents as the Lender may request,
including but not limited to a certificate of a responsible officer of such
additional Subsidiary as to the authority of such additional Subsidiary to
execute, deliver and perform this Agreement and the Notes and as to the
incumbency and signature of the officer or officers signing Borrowing
Certificates and Notes.
(c) The obligations of each Domestic Borrower hereunder and under each
Note evidencing amounts from time to time advanced hereunder to a Borrower shall
be joint and several obligations of ATII and all other Domestic Borrowers. The
obligations of each Foreign Borrower hereunder and under each Note evidencing
amounts from time to time advanced hereunder to a Foreign Borrower shall be
joint and several obligations of ATII and all other Borrowers.
2. THE NOTES AND PAYMENT TERMS: All advances of funds to a Foreign
Borrower (a "Foreign Borrower Advance") shall be evidenced by a single
promissory note in the form of Exhibit B-1 executed by the Borrowers (the
"Foreign Borrowing Note"), which shall be in a form and substance satisfactory
to the Lender and
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<PAGE>
represent the joint and several obligations of the Borrowers to pay the
aggregate unpaid advances on the Foreign Borrowing Note (the "Foreign Principal
Amount"), plus any accrued interest thereon, and all extensions, renewals or
modifications thereof including, without limitation, any expenses of Lender or
other amounts due to Lender under the Foreign Borrowing Note or this Agreement.
All advances of funds to a Domestic Borrower (a "Domestic Borrower Advance," and
together with a Foreign Borrower Advance, an "Advance") shall be evidenced by a
single promissory note in the form of Exhibit B-2 executed by the Domestic
Borrowers (the "Domestic Borrowing Note," and together with the Foreign
Borrowing Note, the "Note(s)"), which shall be in a form and substance
satisfactory to the Lender and represent the joint and several obligations of
the Domestic Borrowers to pay the aggregate unpaid advances on the Domestic
Borrowing Note (the "Domestic Principal Amount," and together with the Foreign
Principal Amount, the "Principal Amount"), plus any accrued interest thereon,
and all extensions, renewals or modifications thereof including, without
limitation, any expenses of Lender or other amounts due to Lender under the
Domestic Borrowing Note or this Agreement. Each Note shall be dated the Closing
Date and shall mature on the Maturity Date. Except as otherwise provided herein,
each Note shall bear interest from the borrowing date on the outstanding unpaid
Principal Amount thereof at the Interest Rate stated above (compounded monthly
and computed on the basis of a year of 365 days for the actual days elapsed). In
computing interest on the Notes, the borrowing date shall be included and the
date of payment excluded. Each Borrower and Lender understand that the Payment
Schedule is intended to amortize fully the principal amount of the Notes and any
other principal and interest amounts outstanding will be added to the final
payment on the Maturity Date. In any event, the entire outstanding principal
amount of the Notes and all accrued but unpaid interest and all other
outstanding amounts due thereunder shall be paid on the Maturity Date. If a
Payment Date is not a business day, the Payment Date shall be on the first
business day following the nonbusiness day, and interest thereon shall be
payable at the rate in effect during such extension. Each payment shall be
credited first to accrued and unpaid interest and the balance to the Principal
Amount (provided that in any event the entire Principal Amount of the Notes then
outstanding together with any accrued and unpaid interest shall be paid on the
Maturity Date). The Lender is authorized to endorse the date and amount of each
Advance and each payment of the Principal Amount and interest with respect to
the Notes on the schedule annexed to and constituting a part of the Notes, which
endorsement shall constitute prima facie evidence of the accuracy of the
information endorsed.
All payments shall be made in lawful money of the United States of America
in immediately available funds and without set off or counterclaim to the Lender
or any subsequent assignee of a Note.
Each Borrower agrees to pay all amounts owing by it under this Agreement,
any Note or the other Loan Documents free and clear of and without deduction for
any present or future taxes (excepting any taxes assessed on Lender's income by
the United States of America ) (collectively, the "Taxes") and has paid or shall
pay when due all applicable deductions or withholdings for or on account of any
Taxes, levies, duties, fees, deductions or withholdings, restrictions or
conditions of any nature imposed by or on behalf of any jurisdiction (other than
the United States of America) or any taxing authority (other than the United
States of America) whatsoever on the payments by Borrowers to Lender under this
Agreement, any Note or the other Loan Documents and
(A) that if it is prevented by operation of law from paying any
Taxes, then the interest rate or fees required to be paid under this
Agreement, any Note or the other Loan Documents shall be increased by the
amount necessary to yield to Lender interest or fees at the rates specified
in this Agreement, any Note or the other Loan Documents after provision for
the payment of all such Taxes and without taking into account any tax
benefits accruing to Lender from such payment;
(B) that it shall at the request of Lender execute and deliver to
Lender such further instruments as may be necessary or desirable to effect
the increase in the interest or fees as provided for in clause (a)
immediately above, including a new Note to be issued in exchange for any
Note theretofore issued;
(C) that it shall hold Lender harmless from and against any
liabilities with respect to any Taxes (whether or not properly or legally
asserted); and
(D) that it shall provide Lender with the original or a certified
copy of evidence of the payment of any Taxes by it, as Lender may
reasonably request, or, if no taxes have been paid to provide to Lender, at
8
<PAGE>
Lender's request, with a certificate from the appropriate taxing authority
or an opinion of counsel acceptable to Lender stating that no Taxes are
payable.
If Lender shall receive a refund of any Taxes paid by Borrower pursuant to
this Section by reason of the fact that such Taxes were not correctly or legally
asserted, Lender shall within sixty (60) days after receipt of such refund pay
to Borrower the amount of such refund, as determined solely by Lender; provided,
--------
however, that in no event shall the amount paid by Lender to Borrower pursuant
- -------
to this sentence exceed the amount of Taxes originally paid by Borrower; and
further provided that Lender shall not have any obligation under this Agreement
- ------- --------
to claim or otherwise seek to obtain any such refund.
Notwithstanding the foregoing, if the Borrowers shall fail to pay within
five (5) days after when due any part of the Principal Amount, interest or any
other amount payable hereunder or under a Note, such amount shall bear interest
at a rate per annum that is three percent (3%) higher than the Interest Rate
from the due date until such overdue Principal Amount, interest, or other
amounts are paid in full (before and after judgment) whether or not any notice
of default in the payment thereof has been delivered.
Notwithstanding any provision of this Agreement, it is the intent of the
Lender and the Borrowers that the Lender, or any subsequent holder of a Note,
shall never be entitled to receive, collect, reserve or apply, as interest, any
amount in excess of the maximum lawful rate of interest permitted to be charged
by applicable law, as amended or enacted from time to time. In the event the
Lender, or any subsequent holder of a Note, ever receives, collects, reserves or
applies as interest, interest in excess of the then maximum lawful rate of
interest, such amount which would be excessive interest shall be deemed a
partial prepayment of the Principal Amount and treated hereunder as such, or, if
the Principal Amount and all other amounts due are paid in full, any remaining
excess funds shall immediately be paid to the Borrowers. In determining whether
or not the interest paid or payable, under any specific contingency, exceeds the
maximum lawful rate of interest, the Borrowers and the Lender shall, to the
maximum extent permitted under applicable law, (a) exclude voluntary prepayments
and the effects thereof as it may relate to any fees charged by the Lender, and
(b) amortize, prorate, allocate and spread, in equal parts, the total amount of
interest throughout the entire term of the Indebtedness; provided that if the
Indebtedness is paid in full prior to the end of the full contemplated term
hereof, and if the interest received over the actual period of existence hereof
exceeds the maximum lawful rate of interest, the Lender or any subsequent holder
of a Note shall refund to the Borrowers the amount of such excess, and in such
event shall not be subject to any penalties provided by any laws for contracting
for, charging, reserving, collecting or receiving interest in excess of the
maximum lawful rate of interest.
3. PROCEDURES FOR BORROWING: ATII (and if a Borrower other than ATII is
acquiring the equipment to be financed thereby, such other Borrower) shall
execute and deliver to Lender, at least five (5) business days prior to the date
of the requested Advance, a Borrowing Certificate in the form of Exhibit C-1 (a
"Domestic Advance Borrowing Certificate") to request Advances to finance the
acquisition by ATII or such other Domestic Borrower of equipment which is, or is
to be placed, in jurisdictions within the United States, and at least thirty
(30) business days prior to the date of the requested Advance, a Borrowing
Certificate in the form of Exhibit C-2 (a "Foreign Advance Borrowing
Certificate" and together with a Domestic Advance Borrowing Certificate, a
"Borrowing Certificate") to request Advances to finance the acquisition by ATII
or such other Borrower of equipment which is, or is to be placed, in Mexico or
another Latin American jurisdiction. Each Borrowing Certificate shall be in
form and substance satisfactory to Lender, and shall specify the business day on
which the borrowing is to be made and the amount of the borrowing and have
attached thereto the applicable purchase order issued by such Borrower and
related invoice from the Supplier which is to be paid by Lender with the
proceeds of the loan. On the borrowing date specified in the Borrowing
Certificate, providing that all conditions precedent have been satisfied, Lender
shall transmit the borrowed funds to an account maintained by and in the name of
Supplier. The aggregate principal amount of each borrowing shall be not less
than $25,000. Lender shall not be required to make Advances more than twice per
calendar month.
4. PLACE OF PAYMENT: The Principal Amount, interest and fees, if any,
shall be payable at 501 Corporate Centre Drive, Suite 600, Franklin, Tennessee
37067, or such other place as may be designated, from time to time in writing,
by Lender or any subsequent holder.
9
<PAGE>
5. PREPAYMENT: The Borrowers may, at their option but subject to the
satisfaction of the requirements of the next sentence, at any time and from time
to time, prepay any Advance, in whole or in part, upon at least (30) business
days prior written notice to Lender specifying the date and amount of prepayment
in a minimum amount of $50,000. Any such prepayment occurring during the first,
second and third years following the date of such Advance shall be subject to a
prepayment premium equal to a percentage of the amount being prepaid as follows:
three percent (3%) if the prepayment is made during the first year following the
date of such Advance; two percent (2%) if the prepayment is made during the
second year following the date of such Advance; and one percent (1%) if the
prepayment is made during the third year following the date of such Advance.
6. SECURITY INTEREST: OBLIGATIONS SECURED: Each Domestic Borrower (as
debtor) hereby assigns as collateral and grants to Lender (as secured party), as
security for all of the Indebtedness, and each Foreign Borrower (as debtor)
hereby assigns as collateral and grants to Lender (as secured party), as
security for the Foreign Borrower Indebtedness, a continuing security interest
in and to, all of such Borrower's right, title and interest in and to the
property and the property rights described in Section 7 hereof, whether now
owned or hereafter acquired or arising, wherever located, together with all
substitutions therefor and all accessions, replacements and renewals thereof,
and in all proceeds and products thereof (collectively, the "Collateral").
----------
"Indebtedness" means all Domestic Borrower Indebtedness and Foreign Borrower
------------
Indebtedness. "Foreign Borrower Indebtedness" means all indebtedness,
-----------------------------
liabilities and obligations to Lender of all Foreign Borrowers, of any class or
nature, whether arising under or in connection with this Agreement, and/or the
other Loan Documents or otherwise, whether now existing or hereafter incurred,
direct or indirect, absolute or contingent, secured or unsecured, matured or
unmatured, joint or several, whether for principal, interest, fees, expenses,
lease obligations, indemnities or otherwise, including, without limitation,
future advances of any sort, including all future advances made by Lender for
taxes, levies, insurance and/or repairs to or maintenance of the Collateral, the
unpaid principal amount of, and accrued interest owed by the Foreign Borrowers
on the Notes, and any expenses of collection or protection of Lender's rights,
including reasonable attorneys' fees. "Domestic Borrower Indebtedness" means
------------------------------
all indebtedness, liabilities and obligations to Lender of ATII or any other
Domestic Borrower, of any class or nature, whether arising under or in
connection with this Agreement and/or all other documents, instruments,
agreements and certificates evidencing or securing any advance hereunder or any
obligation for the payment or performance thereof and/or executed and delivered
in connection with any of the foregoing (the "Loan Documents") or otherwise,
--------------
whether now existing or hereafter incurred, direct or indirect, absolute or
contingent, secured or unsecured, matured or unmatured, joint or several,
whether for principal, interest, fees, expenses, lease obligations, indemnities
or otherwise, including, without limitation, future advances of any sort, all
future advances made by Lender for taxes, levies, insurance and/or repairs to or
maintenance of the Collateral, the unpaid principal amount of, and accrued
interest owed by the Domestic Borrowers on the Notes, and any expenses of
collection or protection of Lender's rights, including reasonable attorneys'
fees.
7. DESCRIPTION OF COLLATERAL: The Collateral includes, and each Borrower
hereby grants Lender a security interest in, all such Borrower's presently
existing or hereafter acquired right, title and interest in, and to (i) the
equipment, fixtures, and other property identified in a Borrowing Certificate
pursuant to which Lender advances funds hereunder (Borrowing Certificates are
collectively referred to as the "Collateral Schedule") or otherwise acquired or
financed directly or indirectly with loan proceeds from Lender, including,
without limitation, hardware and software, components, wiring, cabling and
associated electronics and any and all replacements, additions, substitutions to
or of any of the foregoing, together with all attachments, components, parts,
accessions, improvements, upgrades, all accessories installed thereon or affixed
thereto and all of the foregoing forming an integral part thereof; and (ii) to
the extent not otherwise included, all proceeds of the foregoing, including
without limitation, (A) any and all proceeds of any insurance, indemnity,
warranty or guaranty payable to a Borrower from time to time with respect to any
of the Collateral; (B) any and all payments (in any form whatsoever) made or due
and payable to a Borrower from time to time in connection with any requisition,
confiscation, condemnation, seizure or forfeiture of all or any part of the
Collateral by any governmental body, authority, bureau or agency (or any person
acting under color of governmental authority); (C) any and all other amounts
from time to time paid or payable under or in connection with any of the
Collateral; and (D) any and all cash proceeds and non-cash proceeds in the form
of equipment, inventory, accounts, general intangibles, chattel paper or other
proceeds (collectively, "Proceeds"). The Collateral Schedule is incorporated in
and made a part of this Agreement.
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<PAGE>
8. REPRESENTATIONS AND WARRANTIES: In order to induce the Lender to
enter into this Agreement and to make the loans contemplated herein, each
Borrower represents and warrants that on the date of each Note's execution and
until payment in full of the indebtedness:
(a) Each Borrower (i) is duly organized, validly existing and in good
standing under the laws of the jurisdiction in which it was formed; (ii) has the
power and legal authority to own or lease and operate its property and to carry
on its business as now being conducted; (iii) is properly licensed, in good
standing and duly qualified to do business in every jurisdiction where
necessary; (iv) has the power and authority and the legal right to make, deliver
and perform this Agreement and each Note to which it is a party and to borrow
hereunder and has received all necessary authorization from its directors or
partners, as applicable, to execute, deliver and perform this Agreement, the
Notes to which it is a party and any related documents to be delivered pursuant
to this Agreement, and (v) the Borrowers other than ATII are, and will remain,
Subsidiaries of ATII for so long as such Subsidiary remains obligated to Lender
hereunder.
(b) The person executing this Agreement and each Note on behalf of each
Borrower has been given the authority to bind each Borrower, and this Agreement
and the Notes to which it is a party constitute legally binding and enforceable
obligations of each Borrower.
(c) The execution, delivery and performance of this Agreement and any Note
will not violate any Borrower's charter, bylaws, partnership agreement or other
organizational papers, or any law, agreement or undertaking to which any
Borrower is a party, or by which any Borrower is bound or affected.
(d) All required consents relative to the execution, delivery, and
performance of this Agreement and the Notes have been obtained, including any
required of the Federal Communications Commission, the Commerce Commission for
any state or other jurisdiction in which any Borrower is operating ("PUC") or
any other governmental authority.
(e) All information, reports and other papers and data with respect to
each Borrower (other than projections) furnished to the Lender by a Borrower at
any time prior to the date hereof, were, to the best knowledge of each Borrower
at the time the same were furnished, true and correct in all material respects,
or have been subsequently supplemented by other information, reports or other
papers or data, to the extent necessary to give the Lender a true and accurate
knowledge of the subject matter thereof in all material respects; and all
projections with respect to each Borrower furnished by a Borrower, as
supplemented, were prepared or presented in good faith by such Borrower and had
a reasonable basis. No fact is known to any Borrower which materially and
adversely affects the business, operations, assets (taken as a whole), or
financial condition of ATII or any Borrower which has not been set forth in the
financial statements provided to Lender in connection with this Agreement or in
such information, reports, papers and data, or otherwise disclosed in writing to
the Lender prior to the first borrowing date relative to the initial loan made
hereunder. All financial statements have been prepared in accordance with GAAP
applied consistently throughout the period involved.
(f) There have been no material adverse changes in ATII's consolidated
financial position since the date of the financial statements provided to Lender
in connection with the credit approval of ATII relative to this Agreement.
(g) There is no litigation, investigation or proceeding threatened or
pending against any Borrower or against any of its assets or revenues which, if
decided adversely, would have a material adverse effect upon ATII's consolidated
financial condition or its business, operations or assets (taken as a whole).
(h) The Borrower requesting the Advance is the sole owner of and has good
and marketable title to each item of Collateral acquired with proceeds of an
Advance (or will have at the time such Borrower acquires rights in the
Collateral hereafter arising), free and clear of all security interests, claims,
liens, and encumbrances except as granted to Lender. Lender has a fully-
perfected first priority lien on, and security interest in, all right, title and
interest of each Borrower in the Perfected Collateral enforceable against such
Borrower and third parties.
11
<PAGE>
(i) Neither ATII nor any other Borrower is in default under any agreement,
mortgage, note, security agreement or other documents to which it is a party or
by which it, or any of its property, is bound in any respect which could be
materially adverse to the business, operations, assets or financial condition of
ATII on a consolidated basis, or which could materially adversely affect the
ability of any Borrower to perform its obligations under this Agreement.
(j) Each of ATII and each other Borrower has paid all taxes due, except
such taxes as are being contested in good faith and against which ATII or such
other Borrower has set up reserves satisfactory to the Lender.
(k) No Borrower is engaged nor will any engage principally, or as one of
its important activities, in the business of extending credit for the purpose of
"purchasing" or "carrying" any "margin stock" within the respective meaning of
each of the quoted terms under Regulation U of the Board of Governors of the
Federal Reserve System as now, and from time to time, hereafter in effect. No
part of the proceeds of any loan will be used for "purchasing" or "carrying"
"margin stock" as so defined or for any purpose which violates, or which would
be inconsistent with, the provisions of the regulations of such Board of
Governors.
(l) No Borrower is an "investment company" or a company "controlled" by an
"investment company," within the meaning of the Investment Company Act of
1940 as amended.
(m) Neither ATII nor any other Borrower is in violation of any federal or
state law, rule or regulation or determination of an arbitrator, court or other
governmental authority, in each case applicable or binding upon ATII or any
other Borrower or any of its properties or to which ATII or any other Borrower
or any of its properties are subject, in each case which individually or in the
aggregate would have a material adverse effect on the rights of the Borrower or
the security interest of Lender in the Collateral or ATII's consolidated
financial condition or operations or assets taken as a whole.
(n) There is no event which is, or with notice or lapse of time, or both,
would be an Event of Default as defined in Section 14 of this Agreement.
(o) A Purchase Agreement has been duly executed and delivered by the
Borrower and the Supplier with respect to the Collateral for which proceeds of
an Advance are being requested by such Borrower and will be in full force and
effect on the date of such Note.
(p) ATII has reviewed its operations and those of its Subsidiaries with a
view to assessing whether its business (together with the businesses of its
Subsidiaries on a consolidated basis), will be vulnerable to a Year 2000 Problem
or will be vulnerable to the effects of a Year 2000 Problem suffered by any
major commercial customers of ATII or of any of its Subsidiaries, and has a
reasonable basis to believe that no Year 2000 Problem will cause a material
adverse effect to ATII on a consolidated basis. For purposes of this Agreement,
"Year 2000 Problem" means any significant risk that computer hardware, software
or equipment containing embedded microchips essential to the business or
operations of ATII or any other Borrower will not, in the case of dates or time
periods occurring after December 31, 1999, function at least as effectively and
reliably as in the case of times or time periods occurring before January 1,
2000, including the making of leap year calculations.
(q) Each Subsidiary of ATII is a signatory to this Agreement.
9. CONDITIONS PRECEDENT:
(a) Initial Loan. The obligation of the Lender to make the initial loan on
the first borrowing date shall be subject to the fulfillment prior to or
contemporaneously with the making of such loan of the following conditions
precedent:
(i) The Lender shall have received an opinion of legal counsel to
ATII and each other Borrower as of such date, dated the first borrowing date, in
a form and substance satisfactory to Lender.
12
<PAGE>
(ii) Lender shall have received a certificate of a responsible
officer of ATII and each other Borrower as of such date, dated the first
borrowing date, as to the authority of such Borrower(s) to execute, deliver and
perform this Agreement and all Notes.
(iii) The Lender shall have received a certificate of a responsible
officer of ATII and each other Borrower as of such date, dated the first
borrowing date, as to the incumbency and signature of the officer or officers
signing the Agreement, the Notes and any other certificate or other documents to
be delivered pursuant thereto, together with evidence of the incumbency of such
responsible officer.
(iv) The Lender shall have received copies of all consolidated
financial statements of ATII as required by Lender.
(v) The Lender shall have received copies, certified by a
responsible officer of ATII to the satisfaction of Lender, of contracts in
effect between one or more Borrowers and Qwest and Vartec containing such terms
as are customary for such business (including but not limited to pricing) in
form and substance satisfactory to Lender.
(vi) The Lender shall have received copies, certified by a
responsible officer of ATII to the satisfaction of Lender, of a copy of a vendor
financing facility in effect between one or more Borrowers and Network Equipment
Technologies, Inc. providing at least $1,000,000 of unrestricted borrowing
availability and containing such terms as are customary (including but not
limited to interest rates) in form and substance satisfactory to Lender.
(vii) The Lender shall have received copies, certified by a
responsible officer of ATII to the satisfaction of Lender, of a copy of a senior
secured loan facility of ATII with Coast Business Credit the "SENIOR SECURED
FACILITY" providing a credit line of at least $5,000,000 and containing such
terms as are customary (including but not limited to interest rates) in form and
substance satisfactory to Lender.
(b) All Loans. The obligation of the Lender to make any loan (including
the initial loan) to be made by it on any borrowing date is subject to the
satisfaction of the following conditions precedent:
(i) The Lender shall have received a Note conforming to the
requirements hereof, and fully executed by each Borrower.
(ii) The representations and warranties made by ATII and each other
Borrower in this Agreement and in each Borrowing Certificate shall be correct in
all material respects on and as of such borrowing date and after giving effect
to the loan to be made on such borrowing date.
(iii) No Event of Default or event or condition which with notice or
passage of time or both would constitute an Event of Default shall have occurred
and be continuing on such borrowing date or after giving effect to the loan to
be made on such borrowing date.
(iv) The Lender shall have received a Borrowing Certificate, dated
such borrowing date for such loan, satisfying the requirements of Section 3.
(v) Except where waived by Lender in the exercise of its reasonable
discretion, the Lender shall have received the waiver of liens and consent of
the real estate lessors of the Borrower, and of such other persons as the Lender
shall deem desirable, to facilitate the removal by the Lender, upon the
occurrence of an Event of Default, of all items of US Collateral which are or
were personalty where first located on any real property that is subject to any
real estate leases and/or mortgages, such waivers of liens and consents to be in
form and substance satisfactory to the Lender and its counsel.
(vi) The Borrowers shall have (1) executed and delivered to Lender
all documents (including, without limitation, financing statements) necessary to
create in favor of Lender a first-priority perfected security interest in, and
lien on, Collateral located in the United States ("US Collateral") with evidence
of any necessary filing,
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<PAGE>
registration or recordation of such documents, the payment of recording, stamp
or other taxes measured by indebtedness or otherwise required as a result of
filing, registration or recordation of such documents and searches confirming
the absence of any other liens or security interests thereon, and (2) with
respect to jurisdictions in the United States for which Lender has not
previously received an opinion of counsel covering its security interests in the
US Collateral, delivered an opinion of counsel to the applicable Borrower(s),
dated the date of such Advance, in form and substance satisfactory to Lender to
the effect that the lien and security interest of Lender on such US Collateral
constitutes a perfected security interest in favor of Lender.
(vii) the applicable Borrower(s) shall have (1) executed and
delivered to Lender all documents necessary to create in favor of Lender a
first-priority perfected security interest in, lien on, or trust or comparable
security ownership interest in, Collateral located in Mexico ("Foreign
Collateral," and together with US Collateral, the "Perfected Collateral"),
together with evidence of (x) any necessary filing, registration or recordation
of such documents, (y) the payment of recording, stamp or other taxes measured
by indebtedness or otherwise required as a result of filing, registration or
recordation of such documents and (z) the absence of any other liens or security
interests on such Foreign Collateral, and (2) delivered an opinion of counsel to
the applicable Borrower(s), dated the date of such advance, in form and
substance satisfactory to Lender to the effect that (y) the documents have been
validly executed and delivered by, and are binding and enforceable upon, the
applicable Borrower(s) and do not conflict with the applicable Borrower's
organizational documents, material contracts or applicable law, and (z) the
security interest in, lien on, or trust or comparable security ownership
interest of Lender on such Foreign Collateral is "perfected" or otherwise
enforceable against such Borrower and third parties in favor of Lender under the
laws of such foreign jurisdiction.
(viii) No event of default, or event which with the giving of notice
or the passage of time, or both, would constitute an event of default under the
Senior Secured Facility shall have occurred and be continuing, the Senior
Secured Facility must provide a credit line of at least $5,000,000, and, no
Borrower shall have any past due accounts payables.
(ix) All proceedings and all other documents and legal matters in
connection with the transactions contemplated by the Agreement shall be
satisfactory in form and substance to the Lender and its counsel.
10. INTENTIONALLY DELETED.
11. AFFIRMATIVE COVENANTS: Each Borrower (with respect to itself and its
business, property and Collateral) warrants, covenants and agrees that from the
Agreement date and until performance and payment in full of the Indebtedness, it
will:
(a) Furnish to Lender as soon as available, but in any event within one
hundred and twenty (120) days after the end of each fiscal year of ATII, a copy
of the consolidated balance sheet of ATII as of the end of such year and the
related statements of earnings and changes in financial position for such year,
setting forth in each case in comparative form, the figures for the previous
year audited by independent certified public accountants. The financial
statements shall be complete and correct in all material respects, and be
prepared in reasonable detail and in accordance with GAAP applied consistently
throughout the periods reflected therein (except as approved by such accountants
or a responsible officer, as the case may be, and disclosed therein).
(b) Furnish to Lender, concurrently with the delivery of the financial
statements referred to in subsection (a) hereof, a certificate of a responsible
officer of ATII and each other Borrower stating that, to the best of such
officer's knowledge, ATII and each other Borrower, during such period, has
observed or performed all of its covenants and other agreements, and satisfied
every condition contained in this Agreement and in the Notes to be observed,
performed or satisfied by it, and that such officer has obtained no knowledge of
any Event of Default except as specified in such certificate.
(c) Promptly upon receipt thereof, furnish to Lender one copy of each
written financial audit report submitted to ATII by independent accountants
resulting from any annual, interim or special audits made by them of ATII's
books.
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(d) Furnish to Lender copies of all financial statements and material
reports which ATII or any other Borrower may make to, or file with, the
Securities and Exchange Commission or any successor.
(e) Pay promptly when due all taxes, assessments, governmental charges,
claims for labor, supplies, rent and other obligations, which, if unpaid, might
become a lien against the Perfected Collateral or any Borrower's other assets,
except liabilities (i) being contested in good faith and by appropriate
proceedings, which proceedings do not involve any danger of the sale, forfeiture
or loss of the Perfected Collateral or any interest therein or a material part
of ATII's or such Borrower's other assets, and (ii) against which ATII has set
up reserves satisfactory to the Lender.
(f) Comply with all applicable laws, statutes, orders, rules, regulations,
and directions applicable to each Borrower and the Perfected Collateral or any
part thereof or operation of any Borrower's business, except where the failure
to comply will not have a material adverse effect on the value of the Perfected
Collateral or the operations of ATII on a consolidated basis; provided that ATII
or such Borrower may contest any such statutes, orders, rules, regulations, and
directions in any reasonable manner which will not, in Lender's opinion,
adversely affect Lender's rights or ATII's or such Borrower's financial
condition, business or operations taken as a whole or the priority of the lien
or security interest in the Perfected Collateral.
(g) Maintain and preserve in full force and effect all rights, privileges,
licenses, and franchises applicable to each Borrower necessary for the orderly
and efficient conduct of each Borrower's business as is now conducted including,
without limitation, any licenses or authorizations required by the FCC or any
other public utility commission or comparable regulatory agency (a "PUC") for
the operation and maintenance of its present systems.
(h) Perform and comply in all material respects with all obligations under
the contracts and all other agreements to which it is a party or by which it is
bound relating to the Collateral except where the failure to do so would not
materially and adversely affect the value of the Collateral taken as a whole.
(i) Advise Lender promptly, in reasonable detail (i) of any lien, security
interest, encumbrance or claim made or asserted against any of the Collateral,
(ii) of any material change in the composition of the Collateral, and (iii) of
the occurrence of any other event which would have a material adverse effect on
the aggregate value of the Collateral, the security interest created hereunder,
or on any Borrower's financial condition, business, or operations.
(j) (1) Maintain books, records and accounts which, in reasonable detail,
accurately and fairly reflect its transactions and dispositions of its assets
and maintain a system of internal accounting controls sufficient to provide
reasonable assurances that (A) transactions are executed in accordance with
management's general or specific authorization, (B) transactions are recorded as
necessary (x) to permit preparation of financial statements in conformity with
GAAP and (y) to maintain accountability for assets, (C) access to assets is
permitted only in accordance with management's general or specific authorization
and (D) the recorded accountability for assets is compared with the existing
assets at reasonable intervals and appropriate action is taken with respect to
any differences, and (2) prepare all financial statements required hereunder in
accordance with GAAP consistently applied and in compliance with the regulations
of any governmental regulatory body having jurisdiction over any Borrower or any
Borrower's business and keep such books and records pertaining to its financial
affairs and to the Collateral at ATII's address set forth above.
(k) Permit Lender or its representatives, at all reasonable times, to
inspect and copy each Borrower's books and records pertaining to its financial
affairs and to the Collateral;
(l) Keep the Collateral at the original location set forth in the
Collateral Schedule and such principal place of business at the address set
forth above and not move any of the Collateral from such locations, or change
the location of ATII's or any other Borrower's principal place of business
without giving Lender at least thirty (30) days advance written notice of such
change or move, and in connection with any change in location of Collateral or
of the principal place of business of ATII or any other Borrower, at its cost
and expense, from time to time, at the written request of Lender, execute,
deliver, file or record documents, agreements and instruments (in such manner
and form as Lender may reasonably require) in order to create, preserve,
perfect, validate or satisfy the first priority security interest
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in, lien on, or trust or comparable security ownership interest in the
Collateral as a result of the move of the Collateral or of the change of ATII's
or such other Borrower's principal place of business.
(m) Keep the Collateral in good repair and operating condition, ordinary
wear and tear excepted, and maintain the Collateral owned or used by that
Borrower in good working order in accordance with established maintenance
procedures such that the Collateral performs to published specifications and
shall maintain the equipment within two of the latest Product Computing Loads of
the Supplier, and permit Lender or its representatives at all times, upon
reasonable notice, to enter into and upon any premises where any of the
Collateral is located for the purpose of inspecting it, observing its use or
otherwise protecting its interest therein.
(n) If any Collateral, in whole or in part, shall be lost, stolen or
destroyed or damaged, or is taken in any condemnation or similar proceeding by a
governmental authority (any such Collateral is referred to as the "Affected
Collateral"), promptly and fully notify Lender and (i) immediately place the
Affected Collateral in good condition and working order, or (ii) replace the
Affected Collateral with one of like value which is in good repair, condition,
and working order, and grant a first priority perfected security interest in,
lien on, or trust or comparable security ownership interest in such substitution
to the same extent that Lender had (or was required to have) in the Affected
Collateral, or (iii) prepay Lender, without prepayment premium, loans in an
amount equal to the value of such Affected Collateral.
(o) At its cost and expense, from time to time, at the written request of
Lender, execute, deliver, file or record documents, agreements and instruments
(in such manner and form as Lender may reasonably require) in compliance with or
to accomplish the covenants and agreements of each Borrower in this Agreement;
in order to create, preserve, perfect, validate or satisfy the security interest
in, lien on, or trust or comparable security ownership interest in the
Collateral granted or required hereby; or to enable Lender to exercise and
enforce its rights hereunder. Each Borrower also hereby authorizes Lender to
file any such financing statement or amendment thereto, without the signature of
the Borrower, or with a copy or telecopy of the Borrower's signature, to the
extent permitted by applicable law, or during upon the occurrence and during the
continuance of an Event of Default hereunder to execute any financing statement
or amendment thereof on behalf of each Borrower as each Borrower's attorney-in-
fact. Lender will promptly provide such Borrower with copies of any such
financing continuation statements.
(p) ATII shall take all actions necessary and commit adequate resources to
assure that computer-based and other systems of ATII and its Subsidiaries are
able to process dates effectively, including dates before, on and after January
1, 2000, without experiencing any Year 2000 Problem that could cause a material
adverse effect to ATII. At the request of Lender, ATII will provide Lender with
assurances and substantiations (including but not limited to the results of
internal and external audit reports prepared in the ordinary course of business)
reasonably acceptable to Lender as to the capability of ATII and its
Subsidiaries to conduct its and their businesses and operations before, on and
after January 1, 2000 without experiencing a Year 2000 Problem causing a
material adverse effect.
(q) Cause each Subsidiary of ATII formed or acquired after the date hereof
to become a Borrower hereunder in conformity with the terms and conditions of
Section 1(b).
(r) Obtain Lender's prior written consent before using or generating any
press release, advertisement, publicity materials or other publication in which
the name or logo of Lender or any of its affiliates is used or may be reasonably
inferred, and will not distribute any such materials in the absence of such
prior written approval.
(s) Comply with the financial covenants set forth on Exhibit C.
(t) Furnish to Lender such additional information or documents,
certificates, reports and agreements regarding ATII or any other Borrower, its
financial condition or the Collateral, as Lender may reasonably request.
12. NEGATIVE COVENANTS: Until payment in full of the indebtedness, each
Borrower covenants that it will not directly or indirectly;
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(a) Sell, lease, assign, transfer, pledge, create, or permit a security
interest in, or otherwise encumber any of the Perfected Collateral, or any of
its rights therein, or permit any levy, lien or encumbrance thereon in favor of
anyone other than Lender.
(b) Use, or permit the Collateral to be used, for any unlawful purpose or
in violation of any law, statue or ordinance.
(c) Permit the Collateral to become part of, or be affixed to, any real
property without first assuring, to the reasonable satisfaction of Lender, that
Lender's security interest will be prior and senior to any interest or lien then
held, or thereafter acquired, by any mortgagee of such real property or the
owner or purchaser of any interest therein.
(d) Permit the Collateral to comprise a part of any Borrower's inventory.
(e) Permit anything to be done that may impair the value of any of the
Perfected Collateral or the security intended to be afforded by this Agreement.
(f) Dispose of any part of the Collateral without the express prior
written consent of Lender.
(g) Change its name or change its corporate structure in any material way
without giving Lender at least thirty (30) days advance written notice thereof,
and ensuring that any steps that Lender may deem desirable to continue the
perfection and priority of Lender's security interests in the Collateral shall
have been taken.
(h) Engage in any business activities or operations substantially
different from or unrelated to the present business activities and operations of
ATII and its current Subsidiaries.
(i) Enter into, become the subject of or effect any transaction of merger,
acquisition or consolidation or liquidate, wind up or dissolve itself (or suffer
any liquidation or dissolution), or convey, sell, lease, transfer or otherwise
dispose of, in one transaction or a series of transactions, all or any
substantial part of any Borrower's business or assets, whether now owned or
hereafter acquired.
(j) Change the fiscal year end of ATII from December 31, except with the
prior written consent of Lender, which consent shall not be unreasonably
withheld.
(k) Permit Borrowers which are Foreign Subsidiaries to acquire title to
Collateral to be located in the United States.
13. RISK OF LOSS AND INSURANCE: All risk of loss of, damage to, or
destruction of the Collateral shall, at all times, be with each Borrower. Each
Borrower shall procure and maintain with financially sound and reputable
companies, insurance policies (i) insuring the Collateral against loss by fire,
explosion, theft and such other casualties as are usually insured against by
companies engaged in the same or similar business, and (ii) insuring such
Borrower and the Lender against liability for personal injury and property
damage relating to the Collateral. The policies shall be in such form and in
such amounts and coverage as may be reasonably satisfactory to the Lender, with
losses payable to such Borrower and the Lender as their respective interest may
appear. Each Borrower shall, if requested by Lender, deliver to the Lender
evidence that such insurance coverage is in effect. All insurance shall (i)
contain a breach of warranty clause in favor of the Lender, (ii) provide that no
cancellation, reduction in amount or change in coverage thereof shall be
effective until at least thirty (30) days after receipt by the Lender of written
notice thereof, and (iii) be reasonably satisfactory in all respects to the
Lender. If any Borrower fails to furnish such insurance or fails to pay the
premiums therefor, Lender may do so or may obtain insurance of its interest only
and add the amount of any such premium thereof to the other amounts secured
hereby. Lender is under no obligation nor duty, however, to pay such premiums
or obtain such insurance.
14. DEFAULT: The occurrence of any one or more of the following will
constitute an "Event of Default" under this Agreement:
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(a) The failure of any Borrower to pay when due any Payment Amount or
any other amounts payable under this Agreement or any Note;
(b) A breach or failure in the observance or performance by any
Borrower of any other material provision of this Agreement or any other Loan
Document which is not remedied within thirty (30) days after receipt by any
Borrower of notice of such breach or failure;
(c) Any material representation, warranty or covenant made herein, or
in any certificate, document, financial or other statement delivered in
connection with this Agreement, or hereafter made by any Borrower proves to have
been incorrect in any material adverse respect when made or given;
(d) Any Borrower, or any surety or guarantor of the Indebtedness
evidenced by this Agreement or a Note (i) files a petition or has a petition
filed against it under the bankruptcy code, or any proceeding for relief of
insolvent debtors; (ii) generally fails to pay its debts as such debts become
due; (iii) shall admit in writing its inability to pay its debts as they become
due; (iv) has a custodian, trustee or receiver appointed, voluntarily or
otherwise, for it or its assets; (v) benefits from, or is subject to, the entry
of an order for relief by any court of insolvency; (vi) makes an assignment for
the benefit of creditors; (vii) becomes insolvent (however otherwise evidenced);
(viii) liquidates, winds-up, dissolves or suspends business; or (ix) has
commenced against it any case, proceeding or other action seeking the 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 sixty (60) days from the entry thereof;
(e) Any Borrower shall (i) default in any payment of any other
instrument or agreement (other than with Lender) with an outstanding principal
amount in excess of $10,000 beyond the period of grace, if any, provided in the
applicable instrument or agreement, or (ii) default in the observance of any
other provision of such other instrument or agreement as to cause, or permit the
holder of such instrument or agreement to cause, the obligations thereunder to
become due prior to its stated maturity;
(f) One or more judgments or decrees shall be entered against any
Borrower involving in the aggregate a liability (not paid or fully covered by
insurance) of $10,000 or more, and any of such judgments or decrees shall not
have been vacated, discharged, or stayed or bonded pending appeal within sixty
(60) days after the entry thereof; or
(g) Any guaranty or any subordination agreement required or delivered
in connection with this Agreement is breached or becomes ineffective, or any
guarantor, or subordinating creditor disavows its obligations under the guaranty
or subordination agreement, as the case may be; or
(h) Any Borrower fails to perform any of its obligations under any
other agreement or lease with Lender; or
(i) At any time a Borrower other than ATII ceases to be a Subsidiary
of ATII; or
(j) If any Change in Control should occur without Lender's prior
written consent. A "Change in Control" of ATII shall be deemed to have occurred
upon any change in the direct or indirect control of, or the ability or right to
control, a majority of the voting shares of any class of securities or ownership
rights in any ATII or any other Borrower or in the right and/or the power to
control the election of the board of directors of ATII or any other Borrower; or
(k) The occurrence of a material adverse effect on, or material
adverse change in, (i) the business, operations or financial condition of ATII
or any other Borrower, (ii) the ability of ATII or any other Borrower to perform
its obligations under this Agreement, any Note, or the other Loan Documents, or
(iii) the Lender's ability to enforce the rights and remedies granted under this
Agreement or the other Loan Documents, in all cases whether attributable to a
single circumstance or event or an aggregation of circumstances or events.
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15. RIGHTS AND REMEDIES ON DEFAULT: At Lender's option, upon the
occurrence of any such Event of Default under Section 14, and at any time
thereafter, at Lender's option, Lender's commitment to lend shall terminate
and/or all unmatured Indebtedness evidenced by the Note will immediately become
due and payable without presentation, demand, protest, or notice of any kind,
all of which are expressly waived. Lender may exercise, from time to time, any
rights and remedies available to it under this Agreement, any Note, the Uniform
Commercial Code and other applicable law. Each Borrower agrees that upon the
occurrence and during the continuance of an Event of Default, to the extent
permitted by applicable law (i) any amounts payable under this Agreement or
under any Note shall thereafter bear interest at a rate per annum equal to the
Interest Rate plus three percent (3%), or the maximum rate per annum allowed by
law, whichever is less, compounded monthly and payable on demand (both before
and after judgment), until the Indebtedness is paid in full or the Event of
Default is cured, (ii) it will, at Lender's request, assemble the Collateral and
make it available to Lender at places which Lender shall reasonably select, and
(iii) Lender, by itself or its agent, may, without notice to any person and
without judicial process of any kind, enter into any premises or upon any land
owned, leased or otherwise under the real or apparent control of any Borrower,
or any agent of any Borrower, where the Collateral may be, or where Lender
believes the Collateral may be, and disassemble, render unusable, and/or
repossess all or any item of the Collateral, disconnecting and separating the
Collateral from any other property. Each Borrower expressly waives all further
rights to possession of the Collateral after the occurrence and during the
continuance of an Event of Default and all claims for injuries suffered through,
or loss caused by, such entering and/or repossession.
Lender shall have the right to sell, lease or otherwise dispose of the
Collateral (or contract to do so), whether in its then condition or after
further preparation or processing, either at public or private sale, in lots or
in bulk, for cash or for credit, with or without warranties or representations,
and upon such terms and conditions as Lender, in its sole discretion, may deem
advisable. Lender shall have the right to purchase at any such sale. Lender
will give the applicable Borrower reasonable notice of the time and place of any
public sale of the Collateral or of the time after which any private sale or
other intended disposition of the Collateral is to be made. Unless otherwise
provided by law, the requirement of reasonable notice shall be met if such
notice is delivered to the address of such Borrower set forth above at least ten
(10) days before the time of the sale or disposition. Any proceeds of any
disposition by Lender of any of the Collateral may be first applied by Lender to
the payment of expenses, including reasonable attorneys' fees and legal
expenses, incurred in connection with the repossession, care, safekeeping, sale
or otherwise of any or all of the Collateral, or in any way relating to the
rights of Lender hereunder. Any balance of such proceeds may be applied by
Lender toward the payment of the Indebtedness in such order as Lender, in its
sole discretion, shall determine. The Borrowers shall be liable for, and shall
pay to Lender on demand, any deficiency which may remain after such sale, lease
or other disposition, and Lender agrees to remit to the Borrowers any surplus
resulting therefrom.
16. GENERAL AUTHORITY: Upon the occurrence and during the continuance of
an Event of Default hereunder, Lender shall have the full power to exercise at
any time and from time to time all or any of the following powers with respect
to all or any of the Collateral:
(a) To demand, sue for collection, receive and give acquittance for
any and all monies due or to become due upon or by virtue thereof;
(b) To receive, take, endorse, assign and deliver any and all checks,
notes, drafts, documents and other property taken or received by Lender in
connection therewith;
(c) To settle, compromise, compound, prosecute or defend any action
or proceeding with respect thereof;
(d) To sell, transfer, assign or otherwise deal in or with the same
or the proceeds thereof, as fully and effectually as if Lender were the absolute
owner thereof; and
(e) In general, to do all things necessary to perform the terms of
this Agreement, including, without limitation, to take any action or proceedings
which Lender deems necessary or appropriate to protect and preserve the security
interest of Lender in the Collateral. In the case of failure of ATII or any
Borrower to comply with any provision of this Agreement, Lender shall have the
right, but shall not be obligated, to so comply in whole or in
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part, and all moneys spent, and expenses and obligations incurred or assumed by
Lender in connection with such performance or compliance, shall be payable on
demand together with interest on such amounts equal to the Interest Rate plus
three percent (3%) from the date and amount is expended or advanced by the
Lender until paid. Such sums plus interest shall constitute indebtedness secured
hereby. Lender's effecting such compliance shall not be a waiver of any
Borrower's default. Lender shall be under no obligation or duty to exercise any
of the powers hereby conferred upon it.
17. EXPENSES: Each Borrower agrees (a) to pay or reimburse Lender for all
its reasonable costs, fees, charges and expenses incurred or arising in
connection with the negotiation, review, preparation and execution of this
Agreement, the Loan Documents, any commitment or proposal letter, or any
amendment, supplement, waiver, modification to, or restructuring of this
Agreement, the Indebtedness incurred hereunder, or the other Loan Documents,
including, without limitation, reasonable outside counsel legal fees and
disbursements, expenses, document charges and other charges and expenses of
Lender, (b) to pay or reimburse Lender for all its reasonable costs, fees,
charges and expenses incurred in connection with the administration of this
Agreement and the other Loan Documents or the enforcement, protection or
preservation of any rights under or in connection with this Agreement or any
other Loan Documents, including, without limitation, reasonable outside counsel
legal fees and disbursements, audit fees and charges, and all out-of-pocket
expenses, (c) to pay, indemnify, and to hold Lender harmless from, any and all
recording and filing fees and taxes and any and all liabilities with respect to,
or resulting from any delay in paying, stamp, excise and other taxes (excluding
income and franchise taxes and taxes of similar nature), if any, which may be
payable or determined to be payable in connection with the execution and
delivery or recordation or filing of, or consummation of any of the transactions
contemplated by, or any amendment, supplement or modification of, or any waiver
or consent under or in respect of, this Agreement and the other Loan Documents.
All of the amounts described in this Section are referred to collectively as the
"Lender's Expenses," shall be payable upon Lender's demand, and shall accrue
------------------
interest at the Interest Rate in effect when such demand is made from five (5)
days after the date of demand until paid in full. All Lender's Expenses, and
interest thereon, shall be part of the Indebtedness and shall be secured by the
Collateral. The agreements in this Section 17 shall survive repayment of the
other Indebtedness. All Lender's Expenses that are outstanding on any Borrowing
Date shall be paid before or with such Advance. If a Borrower has not paid to
Lender the amount of all Lender's Expenses billed to ATII before such Borrowing
Date, Lender shall be authorized to retain from any Advance on such Borrowing
Date the amount of such Lender's Expenses that remain unpaid. Each Borrower's
obligation to pay Lender's Expenses shall not be limited by any limitation on
the amount of the Commitment that may be designated as available for such
purposes, and any amounts so designated shall be used to pay Lender's Expenses
accrued at the time of any Advance before any of the legal fees or similar
expenses of the Borrowers.
18. NOTICES: Notices, demands and other communications required to be
given hereunder to be effective shall be transmitted in writing by telex,
telecopy, or facsimile transmission and confirmed by a similar mailed writing,
by hand delivery, by first class, registered or certified mail, return receipt
requested, or an overnight courier service, addressed to Lender at 501 Corporate
Centre Drive, Suite 600, Franklin, TN 37067 (Attention: Director Operations &
Administration), with a copy to TFS Portfolio Management, 10 Riverview Drive,
Danbury, CT 06810, or to the applicable as the case may be, at the address set
forth above or at such other address as any party may hereinafter substitute by
written notice. Notice shall be effective four (4) days after the date it was
mailed or upon receipt, whichever is earlier.
19. INDEMNIFICATION: Each Borrower shall indemnify Lender against and
hold Lender harmless from any and all claims, actions, suits, damages,
allegations, liabilities, and liens and all costs and expenses, including,
without limitation, reasonable attorneys' fees incurred by Lender, arising out
of or in any way related to a Borrower's ownership or use of the Collateral, or
in connection with the transactions contemplated by this Agreement, including
without limitation, the granting and perfection of the security interest and
lien described herein.
20. FCC AND PUC APPROVALS; NOTIFICATION: The exercise of any rights
hereunder by the Lender that may require FCC or PUC approval shall be subject to
obtaining such approval. Pending obtaining any such FCC or PUC approval, each
Borrower will refrain from taking or permitting any action to be taken which is
contrary to the interest of the Lender. In accordance with the requirements of
47 C.F.R. Section 22.917 (1984), or any successor provision, the Lender agrees
to notify the applicable Borrower and the FCC (if required) in writing at least
ten (10)
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days prior to the repossession, in accordance with the Agreement, of all or any
part of the Collateral which is subject to the regulation.
21. ASSIGNMENT: Lender may, in whole or in part, without notice to, or
the consent of any Borrower, sell, assign, grant a security interest in or
pledge its interest in the Collateral and/or a Note and any amounts due or to
become due hereunder to any third party ("Assignee"). Upon receiving written
notice from Lender, a Borrower shall, if so directed, pay the amounts due
hereunder, directly to Assignee. Any Assignee shall be entitled to rely on the
agreements, representations, warranties, and covenants of ATII and each Borrower
contained herein, as applicable, and shall be considered a third-party
beneficiary thereof. Each Borrower shall also execute and deliver to Lender, or
any Assignee, any additional documentation as Lender or Assignee may reasonably
request. Without Lender's prior written consent, no Borrower shall assign or
transfer its obligations hereunder. Any attempted transfer by any Borrower shall
be void ab initio.
22. MISCELLANEOUS:
(a) No failure or delay by the Lender to exercise any right, power or
privilege hereunder shall operate as a waiver of any such right, power or
privilege, nor shall any single or partial exercise of any right, power or
privilege preclude any other or future exercise thereof. The Lender may waive
any default before or after the same has been declared and restore this
Agreement to full force without impairing any rights hereunder, such right of
waiver being a continuing one. The waiver of any provision hereunder will not be
effective unless in writing signed by the Lender.
(b) If any provision in this Agreement or a Note shall be prohibited or
unenforceable, such provision shall be ineffective to the extent of such
prohibition or unenforceability without invalidating the remaining provisions.
(c) To the extent that the Indebtedness is now or hereafter secured by
property other than the Collateral, or by the guaranty, endorsement or property
of any other person, corporation or entity, then Lender shall have the right, in
its sole discretion, to determine which rights, security, liens, security
interest or remedies it shall, at any time, pursue, relinquish, subordinate,
modify, or take any other action with respect thereto without, in any way,
modifying or affecting any of them or any of its rights hereunder.
(d) Lender's duty of care (as imposed by law) with respect to the
Collateral in its possession shall be deemed fulfilled if Lender exercises
reasonable care in physically safekeeping such Collateral, or in the case of
Collateral in the custody or possession of a bailee or other third person,
exercises reasonable care in the selection of the bailee or other third person,
and Lender need not otherwise preserve, protect, insure, or care for any
Collateral.
(e) No right or remedy is exclusive of any other provided under this
Agreement or permitted by law or equity. All such rights and remedies shall be
cumulative and may be exercised singularly or concurrently at Lender's option.
The exercise or enforcement of any one such right or remedy shall neither be a
condition to, nor bar the exercise or enforcement of any other.
(f) All representations and warranties made herein or in any document,
certificate or statement delivered pursuant thereto, or in connection therewith,
shall survive the execution and delivery of this Agreement and the Notes.
(g) ATII and each Borrower waive presentment, demand, protest and notice
to the extent permitted by applicable law.
(h) Time is of the essence with regard to each and every provision of this
Agreement and each Note.
(i) This Agreement may be executed in more than one counterpart, all of
which taken together, shall constitute one agreement.
(j) Except as otherwise provided in this Agreement, all computations and
determinations as to accounting or financial matters and all financial
statements to be delivered pursuant to this Agreement shall be made and prepared
in accordance with GAAP (including principles of consolidation where
appropriate), consistently applied,
21
<PAGE>
and all accounting or financial terms shall have the meanings ascribed to such
terms by GAAP. At such time that ATII has any Subsidiaries, all accounting and
financial terms herein shall be deemed to include references to consolidated and
consolidating principles, and covenants, representations and agreements with
respect to ATII and its properties and activities shall be deemed to refer to
ATII and its consolidated Subsidiaries collectively.
23. SUCCESSORS AND ASSIGNS: This Agreement shall be binding on the parties
and inure to the benefit of Lender and each Borrower and their successors and
permitted assigns.
24. GOVERNING LAW, JURISDICTION AND VENUE: (a) This Agreement and the
Notes are being delivered to Lender in the State of New York and shall be
construed in accordance with and governed by the laws of such state, except to
the extent the internal laws of another jurisdiction are required to be applied
in connection with the exercise of rights pertaining to Collateral in that
jurisdiction.
(b) EACH BORROWER HEREBY IRREVOCABLY CONSENTS TO THE NONEXCLUSIVE
JURISDICTION OF THE COURTS LOCATED IN WILLIAMSON COUNTY, TENNESSEE AND DAVIDSON
COUNTY, TENNESSEE, INCLUDING WITHOUT LIMITATION FEDERAL COURTS SITTING IN THE
MIDDLE DISTRICT OF TENNESSEE, THE CHANCERY COURT FOR WILLIAMSON COUNTY,
TENNESSEE, AND THE CHANCERY COURT FOR DAVIDSON COUNTY, TENNESSEE, FOR ANY SUIT
BROUGHT OR ACTION COMMENCED IN CONNECTION WITH THIS AGREEMENT, THE NOTES, THE
OTHER LOAN DOCUMENTS, OR THE OBLIGATIONS, AND AGREES NOT TO CONTEST VENUE OR
JURISDICTION IN ANY SUCH COURTS. The choice of forum set forth herein shall not
be deemed to preclude the enforcement of any judgment obtained in such forum or
the taking of any action under this Agreement to enforce the same in any
appropriate jurisdiction.
25. WAIVERS AND LIMITATIONS OF LIABILITY: (a) EACH BORROWER AND LENDER
HEREBY KNOWINGLY AND WILLINGLY WAIVE THEIR RESPECTIVE RIGHTS TO DEMAND A JURY
TRIAL IN ANY ACTION OR PROCEEDING INVOLVING THIS AGREEMENT, THE NOTES ANY OTHER
LOAN DOCUMENT, THE OBLIGATIONS, OR ANY RELATIONSHIP BETWEEN LENDER AND BORROWER.
EACH BORROWER WARRANTS AND REPRESENTS THAT IT HAS REVIEWED THE FOREGOING WAIVERS
WITH ITS LEGAL COUNSEL AND HAS KNOWINGLY AND VOLUNTARILY WAIVED ITS JURY TRIAL
RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION,
THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
(b) LENDER SHALL HAVE NO LIABILITY UNDER OR IN CONNECTION WITH THIS
AGREEMENT THE NOTES OR ANY OF THE OTHER LOAN DOCUMENTS FOR SPECIAL, EXEMPLARY,
PUNITIVE, INCIDENTAL, INDIRECT OR CONSEQUENTIAL DAMAGES OF ANY SORT IN ANY SUIT
BROUGHT OR ACTION COMMENCED IN CONNECTION WITH THIS AGREEMENT, THE NOTES THE
OTHER LOAN DOCUMENTS, OR THE OBLIGATIONS, AND, EXCEPT TO THE EXTENT PROHIBITED
BY LAW, EACH PARTY WAIVES ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY SUCH
ACTION ANY SPECIAL, EXEMPLARY, PUNITIVE, INCIDENTAL, INDIRECT OR CONSEQUENTIAL
DAMAGES OF ANY SORT OTHER THAN ACTUAL DAMAGES.
(c) To the fullest extent permitted by law, except as otherwise expressly
provided herein, each Borrower hereby waives (i) presentment, demand and protest
and notice of presentment, protest, default, non-payment, maturity, release,
compromise, settlement, extension or renewal of any or all commercial paper,
accounts, contract rights, documents, instruments, chattel paper and guaranties
at any time held by Lender on which any Borrower may in any way be liable and
hereby ratifies and confirms whatever Lender may do in this regard; (ii) notice
prior to taking possession or control of the Collateral or any bond or security
which might be required by any court prior to allowing Lender to exercise any of
Lender's remedies, including the issuance of an immediate writ of possession,
except as expressly required in any of the Loan Documents; (iii) any marshalling
of assets, or any right to compel Lender to resort first to any Collateral or
other persons before pursuing any Borrower for payment of the Indebtedness and
any defenses based on suretyship or impairment of Collateral; (iv) the benefit
of all valuation, appraisement and exemption laws; (v) any right to require
Lender to terminate its security interest in the Collateral or in any other
property of any
22
<PAGE>
Borrower until termination of this Agreement and the execution by each Borrower
and by any person whose loans to a Borrower are used in whole or in part to
satisfy the Obligations, of an agreement indemnifying Lender from any loss or
damage Lender may incur as the result of dishonored or unsatisfied items of any
account debtor applied to the Indebtedness; and (vi) notice of acceptance
hereof. Each Borrower acknowledges that the foregoing waivers are a material
inducement to Lender's entering into this Agreement and that Lender is relying
upon the foregoing waivers in its future dealings with each Borrower.
26. ENTIRE AGREEMENT: This Agreement constitutes the entire agreement
between Lender and each Borrower with respect to the subject matter hereof and
supersedes all previous negotiations, proposals, commitments, writings, and
understandings of any nature whatsoever.
IN WITNESS WHEREOF, the parties have executed this Loan and Security
Agreement by their duly authorized representatives:
BORROWERS:
---------
AMERICAN TELESOURCE INTERNATIONAL, INC.
BY:_____________________________________
______________
TITLE:__________________________________
______________
[ADDITIONAL SIGNATURES FOR SUBSIDIARIES
OF ATII]
BY:__________________________________
______________
TITLE:_______________________________
______________
[ADDITIONAL SIGNATURES FOR SUBSIDIARIES
OF ATII]
BY:__________________________________
______________
TITLE:_______________________________
______________
[ADDITIONAL SIGNATURES FOR SUBSIDIARIES
OF ATII]
BY:__________________________________
______________
23
<PAGE>
TITLE:_______________________________
______________
[ADDITIONAL SIGNATURES FOR SUBSIDIARIES
OF ATII]
BY:__________________________________
______________
TITLE:_______________________________
______________
[ADDITIONAL SIGNATURES FOR SUBSIDIARIES
OF ATII]
BY:__________________________________
______________
TITLE:_______________________________
______________
[ADDITIONAL SIGNATURES FOR SUBSIDIARIES
OF ATII]
BY:__________________________________
______________
TITLE:_______________________________
______________
LENDER:
------
NTFC CAPITAL CORPORATION
BY:__________________________________
______________
TITLE:_______________________________
______________
24
<PAGE>
EXHIBIT A
---------
FORM OF ANNEX TO LOAN AND SECURITY AGREEMENT
--------------------------------------------
By executing this Annex to Loan and Security Agreement attached to and
forming a part of the Loan and Security Agreement dated as of June __________,
1999, (the "Loan Agreement"), between and among AMERICAN TELESOURCE
INTERNATIONAL, INC., a _______________________ corporation ("ATII"), NTFC
Capital Corporation (the "Lender"), Domestic and/or Foreign Subsidiaries of ATII
which are signatories to the Loan Agreement, and such additional Domestic and/or
Foreign Subsidiaries of ATII which may become a party to the Loan Agreement
pursuant to Section 1(b) thereof, _____________________________ represents and
warrants that it is a [FOREIGN or DOMESTIC] Subsidiary of ATII, joins as a party
---------------------
to the Loan Agreement, assumes the obligations of a Borrower under the Loan
Agreement, and confirms that it is bound by the terms and conditions of the Loan
Agreement, including but not limited to the grant to Lender of a security
interest in all its right, title and interest in and to the Collateral as
provided in the Loan Agreement. _________________________________________
acknowledges and agrees that one or more other Subsidiaries of ATII may become
additional Borrowers under the Loan Agreement without the consent of any other
Borrower by execution of a form of the Annex to the Loan Agreement by ATII, the
Subsidiary and the Lender. ______________________________ acknowledges and
agrees that (i) other Subsidiaries of ATII may become additional Borrowers under
the Loan Agreement without the consent of any other Borrower by execution of a
form of the Annex to the Loan Agreement by ATII, the Subsidiary and the Lender;
(ii) the Lender is willing to extend certain credit to the Borrowers, subject to
the terms and conditions set forth in the Loan Agreement, including the
condition that all Borrowers will be jointly and severally liable for all
amounts owed by any Borrower under the Loan Agreement to Lender; (iii) without
this joint and several liability for all Indebtedness owed by any Borrower to
Lender under the Loan Agreement, Lender would not be willing to extend credit to
any Borrower; and (iv) __________________________________________, the existing
Borrowers and other Subsidiaries of ATII which may become additional Borrowers
under the Loan Agreement are related entities, and ________________________
expects to increase its business, and to benefit directly and indirectly,
through the use of the equipment to be acquired by it and the other Borrowers
with the proceeds of the loans to be made pursuant to the Loan Agreement.
_______________________ authorizes the Lender to attach this Annex to the
Loan and Security Agreement, which shall be deemed a part of, and incorporated
by reference in, the Loan Agreement. This Annex to the Loan and Security
Agreement is being delivered to Lender in the State of Tennessee and shall be
construed in accordance with and governed by the laws of such state, except to
the extent the internal laws of another jurisdiction are required to be applied
in connection with the exercise of rights pertaining to Collateral in that
jurisdiction. Capitalized terms used in this Annex to the Loan Agreement without
definition shall have the meanings set forth in the Loan Agreement to which this
Annex is attached and form a part.
This Annex may be executed in any number of counterparts (by facsimile
transmission or otherwise) and by the different parties hereto on separate
counterparts, each of which, when so executed, shall be deemed an original, but
all such counterparts shall constitute but one and the same document.
IN WITNESS WHEREOF, the parties have executed this Annex to Loan and
Security Agreement by their duly authorized representatives:
ATII:
----
AMERICAN TELESOURCE INTERNATIONAL, INC.
25
<PAGE>
BY:__________________________________
______________
TITLE:_______________________________
______________
BORROWER:
--------
BY:__________________________________
TITLE:_______________________________
LENDER:
------
NTFC CAPITAL CORPORATION
BY:__________________________________
TITLE:_______________________________
Exhibit B
---------
Exhibit C
---------
26
<PAGE>
Exhibit 10.10
RIDER NO. 1
To
LEASE SCHEDULE NO. 1
To
MASTER AGREEMENT
Dated As Of December 4, 1998
This Rider No. 1 (the "Rider") is entered into between BancBoston
Leasing Inc. ("Lessor") and American TeleSource International, Inv.
("Lessee"), is contemporaneous with and amends the above-referenced Lease
Schedule together with all riders and amendments thereto, (the "Lease
Schedule") which incorporates the terms and conditions of above-referenced
Master Agreement by and between Lessor and Lessee (the "Master Agreement").
It is the intention of Lessor and Lessee that, upon execution, this Rider
shall constitute a part of the Lease Schedule and the Master Agreement.
IN CONSIDERATION OF the mutual covenants and promises as hereinafter set
forth, Lessor and Lessee hereby agree as follows:
1. All capitalized terms used in this Rider shall, unless otherwise defined,
have the meanings set forth in the Lease Schedule. The terms of this Rider
shall apply only to the equipment (the "Equipment") set forth on the Lease
Schedule.
2. To add a new Section 8 to the Lease Schedule, as follows:
"8. Tax Indemnification. In the event any of the Equipment
is, at any time during the Term of the Lease, located
outside the United States (the "Foreign Equipment"), Lessee
agrees to pay, indemnify and hold Lessor harmless from any
of the following Taxes, as hereinafter defined, attributable
to the Foreign Equipment or the Lease as it relates thereto:
(a) any sales, use, excise, import or export, value added,
or similar tax or duty and any other tax or duty not based
on Lessor's net income, and (b) any taxes required to be
withheld or deducted from any payment required under the
Lease from the Lessee and all such taxes and any additional
amounts which the Lessor specifies as necessary to preserve
the after-tax yield the Lessor would have received if such
taxes were not imposed shall be paid by the Lessee; and (c)
all government permit fees, license fees, customs fees or
similar fees levied upon the Foreign Equipment or the Lease.
All foregoing fees and taxes shall be referred to as Taxes.
The Taxes to be paid pursuant to this Section are in
addition to any other payment due under the Lease. The
obligations and indemnities of Lessee under this Section 8
shall continue in full force and effect, and shall survive,
notwithstanding the expiration or other termination of this
Master Agreement or the Lease Schedule".
The terms and conditions of this Rider shall prevail where there may be
conflicts or inconsistencies with the terms and conditions of the Lease Schedule
as it applies to the Equipment.
IN WITNESS WHEREOF, Lessor and Lessee, by their duly authorized
representatives, have executed and delivered this Rider which is intended to
take effect as a sealed instrument as of the date of the Lease Schedule.
Accepted and Agreed to at Boston, Massachusetts
BANCBOSTON LEASING INC AMERICAN TELESOURCE
INTERNATIONAL, INC.
By: _______________________________ By: /s/ H. Douglas Saathoff
Title: ____________________________ Title: CFO
33
<PAGE>
LEASE SCHEDULE NO. 1
TO
MASTER AGREEMENT
Date as Of December 4, 1998
This is Counterpart No. 2 of 2 which has been serially numbered and manually
executed. To the extent that this document constitutes chattel paper under
Article 9 of the Uniform Commercial Code of the Commonwealth of Massachusetts,
no security interest in this document may be created through transfer or
possession of any counterpart other than Counterpart No. 1.
This Lease Schedule dated as of the 21/st/ day of January, 1999 is attached
to and made a part of that certain Master Agreement ("Master Agreement") dated
December 4, 1998 between BANCBOSTON LEASING INC ("Lessor") and American
Telesource International, Inc. ("Lessee").
I. Equipment Location:
12500 Network Blvd. Suite 407
San Antonio, TX 78249
<TABLE>
<CAPTION>
Equipment Description:
Invoice 192047
Equipment Acquisition
Quantity Manufacturer/Supplier Description Cost
<S> <C> <C> <C>
1 Network Equipment INSTALLATION $xxxxx
Technologies, Inc. INSTALLATION
Invoice 192048
1 Network Equipment P2P-0192D $xxxxx
Technologies, Inc. POWER SUPPLY, 48-60VDC, DC
3 P2L-0148N $xxxxx
MOD.TRK,E3,NRDN 95
1 P2L-015OR $xxxxxx
MOD,ACS,MAIN,TXN,RDNT
8 P2L-0115 $xxxxxx
MOD,PR,E1,CE+75 TXN,NRDNT
1 P2N-0606D $xxxxxxx
PROMINA 2000, DC, MULTISRVC
1 P2R-0700U $xxxxxxx
P2000 REMOTEACCESS UNIT,
120VAC
1 P2S-278ML $xxxxxxx
PVP, FMS/CMS S/W ADD-ONS-LIC
1 P2S-301ML $xxxxxxx
PVP, FMS, OMS FMS FOUNDATION
1 P2SW-0600 $xxxxxxx
PROMINA 2000 S/W-INITIAL
LICENSE
Invoice 192050
1 Network Equipment 097013L-009 $xxxxxxx
Technologies, Inc. PS, STAGING SERVICES
Invoice 192051
1 Network equipment EOS-GXT ONLINE DBL CONV $xxxxx
Technologies, Inc. LIEBERT GXT1500-RT-120 UPS
1 EOS-CISCO760 $xxxxx
CISCO 766M ISDN ROUTER
2 EOS-US ROBOTICS V.34 $xxxxx
US ROBOTICS SPORTSTER 33.6 MODEM
V3
2 EOS-LMR4TA-01 $xxxxx
LANTRONIX LMR8TA-01 MIN HUB 8R
3 EOS-LRSI-T-01 $xxxxx
LANTRONIX REMOTE ACCESS SERVER
2 EOS-ADTRAN TSU 100 V.35 $xxxxx
ADTRAN TSU 100 V3.5 CSU/DSU
1 EOS-A21UFE1A9P SUN ULTRA $xxxxx
SUN ULTRA 5 MDL 270 128MB 4GB FLOP
1 EOS-X7121A SUN MONITOR $xxxxx
SUN X7121A 21" COLOR MONITOR
1 EOS-X1032A SUN ETHERNET $xxxxx
SUN X470A ADAPTER & X1032A
INSTALL
1 EOS-SG-XTAP8MM-010A TAPE $xxxxx
SUN SG-XTAP*MM-010A U/14GB
8M
1 EOS-SOLS-251-C SOLARIS $xxxxx
SUN X3856A CABLE W/PWR SOLARIS 2.5.1.
1 NET HANDLING FEE $xxxxx
Invoice 192056
1 Network Equipment INSTALL $xxxxx
Technologies Inc, INSTALLATION
Invoice 192284
1 Network Equipment PS, STAGING SERVICES $xxxxx
Technologies, Inc.
Invoice 192285
1 Network Equipment EXPORT $xxxxx
Technologies, Inc. EXPORT SERVICES
Invoice 193015
1 Network Equipment EOS-J1128AB $xxxxxx
Technologies, Inc. HP OPENVIEW VER.4.1/250 OR
LESS IP
1 EOS-SUPPORT UDATE LTU $xxxxx
HP PHONE/SAME DAY SYS
SUPPORT 1 YR
1 EOS-HP 5.01 CD-ROM $xxxxx
HP NETWORK NODE MANAGER
5.01 CD-ROM
1 EOS-UPDATE CD-ROM $xxxxx
HP SUPPORT FOR CD-ROM ONE
YEAR
1 EOS-HP 5.01 DOC FOR UNIX $xxxxx
HP NETWORK NODE MGR 5.01
DOCUMENT
1 EOS0HP 5.0X DOC FOR UNIX $xxxxx
PHONE SUPPORT FOR HP NODE
MGR
1 EOS-NET SHUTDOWN SOFTWARE $xxxxx
UPS SHUTDOWN S/W FOR SUN
SOLARIS
Invoice 193079
1 Network Equipment PS-TAC $xxxxx
Technologies, Inc. ANNUAL TAC&PARTS
MAINTENANCE
Equipment Location:
Roberto Rodriguez Saavadra
Andador 21 No.7
Col. Benito Juarez
Nvo. Laredo, Tamps 88274
R.F.C.-ROSR-540630-9J7
Equipment Description:
Invoice 192049
1 Network Equipment P2P-01920 $xxxxx
Technologies, Inc. POWER SUPPLY, 115-23 VAC, AC
3 P2L-0148N $xxxxx
MOD.TRK,E3,NRDNT
1 P2L-0150R $xxxxx
MOD,ACS MAIN, TXN, RDNT
8 P2L-0155N $xxxxx
MOD, PR, E1, CE+75 TXN, NRDNT
1 P2N-0606A $xxxxx
PROMINA 2000, AC, MULTISRVC
1 P2R-0700U $xxxxx
P2000REMOTE ACCESS UNIT,
120VAC
1 P2SW-0600 $xxxxx
PROMINA 2000 S/W-INITIAL
LICENSE
2 P2A-129AU $xxxxx
CBL, POWER, 115V
Invoice 192048
1. PSL-0148N $xxxxx
MOD.TRK,E3,NRDNT
Texas Up-Front Tax (7.75%) $xxxxxx
Total Acquisition Cost: $xxxxxxx
</TABLE>
2. Lease Term: thirty-six (36) months commencing on 4/15/99.
-------
3. Rent: The rent during this Lease Term shall be payable in that number of
consecutive payments and in the amount indicated below. The first rent
payment is due on April 15, 1999 subsequent payments are due on the 15/th/
day of each subsequent month.
Payment No. Monthly Rent
----------- ------------
1-36 $16,634.36 n advance plus applicable taxes
(amount to be paid on the fifteen of each month)
4. Purchase Option Price: $1.00
5. Security Interest; Remedies: Lessor and Lessee agree that this Lease
Schedule constitutes a lease intended as security within the meaning of
Article 9 of the Uniform Commercial Code ("UCC") as adopted by
Massachusetts. Accordingly, Lessee hereby assigns and grants to Lessor a
lien, claim and continuing security interest in the Equipment, additions,
replacements and proceeds thereof including, without limitation, proceeds
34
<PAGE>
of all insurance policies. Such lien, claim and continuing security
interest shall secure the payment and performance of all obligations of
Lessee to Lessor under this Lease Schedule as well as all other obligations
and indebtedness of Lessee to Lessor, whether direct or indirect, absolute
or contingent, due or to become due, now existing or hereafter arising. In
connection with the foregoing, Lessor shall hold legal title to, but not
beneficial ownership of, the Equipment as additional security for the
obligations of Lessee under this Lease Schedule. Any reference in the
Master Agreement to "title" to the Equipment as held by Lessor shall mean,
for purposes of this Lease Schedule, legal title.
Upon the occurrence of an Event of Default, without limiting any of the
rights of Lessor under Section 12 of the Master Agreement, Lessor may
pursue the rights and remedies of a secured party under the UCC of
Massachusetts or any other jurisdiction, and recover such other actual
damages as may be incurred by Lessor. In addition, Lessor may sell, lease
or otherwise dispose of any or all of the Equipment, whether or not in the
possession of Lessor, at public or private sale and with or without notice
to Lessee, which notice is hereby expressly waived by Lessee, to the extent
permitted by, and not inconsistent with, applicable law.
7. Terms of Schedule: Lessor and Lessee agree that this Lease Schedule shall
constitute a lease of the Equipment described in Section 1 above subject to
the terms and conditions of which are hereby incorporated by reference in
this Lease Schedule and made a part hereof to the same extent as if such
terms and conditions were set forth in full herein. Terms used in this
Lease Schedule and not otherwise defined herein shall have the meanings set
forth in the Master Agreement. In the event of a conflict between the
Master Agreement and the Lease Schedule, the terms and conditions of this
Lease Schedule shall prevail.
IN WITNESS WHEREOF, Lessor and Lessee have caused this Lease Schedule to be
duly executed by their authorized representatives as of this 15/th/ day of
-----
April, 1999.
----- ----
ACCEPTED AT BOSTON, MASSACHUSETTS
LESSOR LESSEE
BANCBOSTON LEASING INC. AMERICAN TELESOURCE INT'L., INC
By: /s/ Angela Petrone By: /s/ H. Douglas Saathoff
---------------------------- -----------------------------
Title: Assistant Vice President Title: Chief Financial Officer
------------------------- --------------------------
35
<PAGE>
February 19, 1999
BancBoston Leasing Inc.
100 Federal Street
Mail Stop 01-09-01
Attn.: Angela Petrone
Boston, MA 02110
RE: Master Agreement dated December 4, 1998 between
American TeleSource International, Inc. and BancBoston
Leasing Inc. (Master Agreement")
-------------------------------
Dear Ms. Petrone:
This letter is written to acknowledge and confirm certain matters relating to
the leasing of certain capital equipment manufactured by Network Equipment
Technologies, Inc. ("NET") which BancBoston Leasing Inc. as lessor ("Lessor")
has agreed to lease to American TeleSource International, Inc. ("Lessee")
pursuant to the Master Agreement, and specifically Lease Schedule No. 1 dated
February 19, 1999 to the Master Agreement (" Lease Schedule 1").
Lessee acknowledges that it agreed, at Lessor's request, to make a ten percent
(10%) security deposit based upon the Acquisition Cost relating to the Equipment
subject to Lease Schedule 1. Lessee erroneously made said security deposit to
NET rather than to Lessor. Further, the amount which Lessee paid to NET was
based upon its information and belief that the Acquisition Cost for the subject
Equipment was $426,975.00, so that the ten percent (10%) security deposit Lessee
forwarded to NET was $42,697.50. In fact, the Acquisition Cost relating to the
Equipment subject to Schedule No. 1 was $493,174.33, so that the original ten
percent (10%) security deposit should have been in the amount of $49,317.33. In
effect, the security deposit that Lessee made to NET was short $6,619.83.
Lessee forwards to BBL herewith said $6,619.83 shortfall, via Check #24544, and
-----
acknowledges and agrees that NET should forward the balance of $42,697.50 to
Lessor, thereby providing Lessor with the agreed upon amount of ten percent
(10%) of the Acquisition Cost for schedule 1, or $49,317.33.
The $49,317.33, ten percent (10%) security deposit, will be held by Lessor
and/or an affiliate of Lessor in an interest bearing cash collateral account
pursuant to a Pledge Agreement of even date herewith by and between Lessor and
Lessee, with the interest remitted semi-annually to Lessee directly by Lessor.
Lessee further recognizes that Lessor will fund to NET the amount of $493,174.33
the total amount of the Acquisition Cost of the Equipment relating to schedule
1; and Lessee will remit monthly lease payments to Lessor pursuant to Schedule
1.
AMERICAN TELSOURCE INTERNATIONAL, INC.
/s/ H. Douglas Saathoff
By: H. Douglas Saathoff
Its: CFO
36
<PAGE>
CERTIFICATE OF ACCEPTANCE AND WAIVER
To LEASE SCHEDULE NO. 1
Dated as of January 21, 1999 (the "Lease Schedule")
To Master Agreement dated as of December 4, 1998 (the "Master Agreement")
Between American TeleSource International, Inc. ("Lessee") and
BancBostonLeasing Inc. (Lessor")
1. EQUIPMENT ACCEPTANCE ; LEASE COMMENCEMENT:
-----------------------------------------
In order to induce Lessor to commence the Lease Term of the Lease Schedule and
to agree to pay the vendor of the Equipment the Equipment Cost thereof when due,
Lessee hereby certifies, covenants and represents: (a) that the Equipment has
been delivered but not yet fully installed at the location(s) specified on the
Lease Schedule, (b) that Lessee nevertheless desires to accept the Equipment for
all purposes under the Lease Schedule as of the date hereof (the "Commencement
Date"), to commence as of the date hereof the Lease Term including all of
Lessee's obligations under the Lease Schedule and the Master Agreement, and to
instruct Lessor to pay promptly the vendor of the Equipment the Equipment Cost
thereof, (c) that, notwithstanding that the Equipment has not yet been fully
installed, Lessee irrevocably waives any and all rights to revoke, reject,
repudiate or cancel the Lease Schedule and, as between Lessee and Lessor (but
not as between Lessee and vendor), Lessee hereby waives any and all rights to
inspect and reject the Equipment as nonconforming or for any other reason; (d)
that rent including Monthly rent for all the Equipment shall commence on the
Commencement Date and shall not be subject to abatement, offset, reduction,
defense, counterclaim, or recoupment for any reason whatsoever. Lessee hereby
authorizes and instructs Lessor to insert the payment dates and the Lease Term
commencement date, if applicable, in the Lease Schedule.
Lessee: AMERICAN TELESOURCE INTERNATIONAL,INC.
By: /s/ H. Douglas Saathoff
Name: H. Douglas Saathoff
Title: CFOS
Date: March 29, 1999
--
37
<PAGE>
PLEDGE AGREEMENT
This Agreement is made as of the 21/st/ day of January, 1999 among American
TeleSource International, Inc., a Texas corporation with its principal place of
business at 12500 Network Blvd., San Antonio, TX 78249 (The "Lessee") and
BancBoston Leasing Inc., a Massachusetts corporation with its principal place of
business at 100 Federal Street, Boston, MA 02110 ("Lessor" and "Agent").
WHEREAS, the Lessor is providing certain leasing accommodations to the
Lessee pursuant to and evidenced by a Master Agreement dated as of December 4,
1998, and all Lease Schedules, Exhibits, and Riders thereto (the "Master
Agreement"); and
WHEREAS, in consideration of such accommodations, the Lessee has agreed to
secure payment and performance of all obligations arising under the Master
Agreement by granting the Lessor a first lien and continuing security interest
in cash in an amount of not less than ten percent (10%) of the Acquisition Cost
of the Equipment leased under the master Agreement (subject to adjustment to be
negotiated by the Lessor and the Lessee for future lease schedules if and to the
extent that the total amount secured by this Pledge Agreement exceeds
$900,000.00) excluding interest earned thereon (the "cash Collateral").
NOW THEREFORE, for the mutual considerations herein contained, the parties
hereby agree as follows:
1. Cash collateral. The term "Cash Collateral" as used herein shall mean
---------------
all Cash Collateral delivered to the Lessor pursuant to this Agreement and all
additions, substitutions, accessions, and proceeds thereto and thereof.
2. Pledge. As collateral security for the payment and performance in
------
full of any and all obligations, indebtedness, and liabilities, and direct or
indirect, absolute or contingent, due or to become due, now existing or
hereafter arising, of the Lessee to the Lessor under the Master Agreement and
under any other agreement executed in connection therewith (all of the foregoing
collectively, the "Obligations"), the Lessee hereby pledges and assigns all of
its right, title, and interest, and grants a first lien and continuing security
interest to the Lessor, in the Cash Collateral.
3. Future Pledges. To the extent the Lessor extends additional
--------------
leasing accommodations to the Lessee, the Lessee agrees to pledge and deposit
with the Lessor, or at its direction, additional cash, to be additional Cash
Collateral, subject to the lien and security interest granted herein and to the
terms and provisions of this Agreement in such kinds and amounts as the parties
may agree.
4. Cash Collateral Account. The Lessor shall, directly or through its
-----------------------
agents, deposit the Cash Collateral in an interest-bearing First Rate Account
("Account ") with BancBoston. The Account shall be in the name of "BancBoston
Leasing Inc., Agent, as Collateral Pledge for American TeleSource International,
Inc., Collateral Account", and shall be administered by the agents or employees
of Agent and/or BankBoston. Any notices given with respect to the Collateral or
the Account shall be sent to Lessor. Lessor's security interest in and to the
Cash Collateral shall extend only to the principal sum deposited by the Lessee,
and any and all interest which may accrue on the Account ("Interest") shall be
remitted semi-annually to the Lessee directly by BankBoston. In the event that
Lessor receives any payment of or in respect of Interest on the Account, it
shall hold such payment in trust for the benefit of the Lessee and shall
immediately upon receipt notify the Lessee thereof and remit such payment to the
Lessee in accordance with the Lessee's written instructions. Any interest
earned on such Interest payments received by Lessor while in Lessor's possession
or under its control shall also belong to the Lessee and be held in trust by
Lessor for the Lessee and shall be remitted to the Lessee along with the
original Interest payment. In no event shall Lessor or BankBoston be entitled
to deduct, withhold, credit or set off any Interest or interest thereon against
any amounts owing from the Lessee to Lessor or BankBoston, respectively, under
this Agreement or any other agreement.
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5. Return of Collateral. The Cash Collateral shall be held in the
--------------------
Account until the Obligations shall no longer be outstanding, whereupon Lessor
shall assign and deliver to the Lessee such of the Cash Collateral, with
interest earned thereon, as has not been applied by Lessor pursuant to the terms
hereof and which is held by Lessor or by Agent on Lessor's behalf.
6. Remedies Upon Default. Upon an Event on Default, as hereinafter
---------------------
defined, either (i) Lessor, at its option, may transfer at any time to itself or
its nominee, or (ii) Agent, at Lessor's option and direction, shall transfer to
Lessor or Lessor's nominee any or all of the Cash Collateral and hold same as
security hereunder or apply it to any of the Obligations in such order and
manner as the Lessor may determine, all at the Lessor's sole discretion.
7. Representations, Warranties and Covenants of the Lessee.
-------------------------------------------------------
7.1 The Lessee represents and warrants that it is a corporation duly
organized, existing, and in good standing under the laws of the State of Texas
and is duly qualified and in good standing in every other state where to nature
of its properties or the conduct of its business requires such qualification,
except where the failure to be so qualified would not have a material adverse
effect on the Lessee's business or financial condition.
7.2 The Lessee represents and warrants that the execution, delivery, and
performance of and under this Agreement are within the Lessee's corporate
powers, have been duly authorized, and are not in contravention of law or the
terms of the Lessee's charter, bylaws, or other incorporation papers, or of any
indenture, agreement, or undertaking to which it is a party or by which it is
bound.
7.3 The Lessee represents and warrants that it is the legal and equitable
owner of the Cash Collateral and holds same free and clear of all liens,
charges, encumbrances, and security interests of every kind and nature
whatsoever, and the Lessee covenants that it will not assign this Agreement or
any interest herein or in the Cash Collateral or any part thereof, or otherwise
pledge, encumber, or grant any option with respect to the Cash Collateral or any
part thereof, except with the prior written consent of the Lessor.
7.4 The Lessee represents and warrants that it has good right and legal
authority to assign, deliver, and/or create a security interest in the Cash
Collateral in the manner hereby provided or contemplated, and the Lessee
covenants that it will defend its title to the Cash Collateral against all
claims of all persons or entities.
7.5 The Lessee covenants that it shall not make or allow to be made any
withdrawals of cash constituting Cash Collateral, or any part thereof, including
the income and proceeds therefrom other than as expressly set forth in this
Agreement.
7.6 The Lessee covenants that it shall at all reasonable times and from time
to time, following reasonable notice given to the Lessee by Lessor, allow the
Lessor, by or through any of its officer, agents, attorneys, or accountants, to
examine, inspect, or make copies or extracts from the Lessee's books and records
at Lessor's sole expense.
7.7 The Lessee covenants that it shall at all times do, make, execute, and
deliver all such additional and further acts and instruments as the Lessor may
at any time reasonably request in connection with the administration and
enforcement of this Agreement or relative to the Cash Collateral, in order to
vest more completely in and assure or make available to the Lessor any of the
Cash Collateral and rights herewith or hereafter granted, assigned, or
transferred to the Lessor, and to carry into effect the provisions and intent of
this Agreement.
8. Attorney-in-Fact. The Lessor is hereby irrevocably appointed by the
----------------
Lessee as the Lessee's attorney-in-fact for the purposes of carrying out the
provisions of this Agreement and taking any action and executing any
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instrument which the Lessor may deem necessary or advisable to accomplish the
purposes hereof upon the Lessee's failure to take such action or execute such
instrument as and when required by this Agreement.
9. Default. An event of default ("Event of Default") shall exist
-------
hereunder if:
(a) the Lessee breaches any of the foregoing warranties and covenants and
such breach continues for ten (10) days following receipt of notice
from Lessor;
(b) the Lessee from and after the date hereof does or attempts to
encumber, sell, transfer, or otherwise dispose of any of the Cash
Collateral or any interest therein without the prior written consent
of the Lessor;
(c) any of the Cash Collateral is attached or levied upon or seized in any
legal proceeding or is held by virtue of any lien or distress, and
such attachment, levy or seizure continues from ten (10) days
following receipt of notice from Lessor to remove same;
(d) the Lessee or any maker, endorser, guarantor, or surety of or for any
of the Obligations makes or has made any representation or warranty
herein, or in the Master Agreement, or in any financial statement
delivered pursuant to the Master Agreement, which is or was false or
materially misleading when made;
(e) the Lessee fails to pay or perform when due any of the Obligations and
such failure is not cured within the applicable grace period; and/or
(f) any of the following occurs: the death, dissolution, termination of
existence, insolvency, business failure, appointment of a receiver for
any part of the property, assignment for the benefit of creditors, or
the commencement of any proceeding under any bankruptcy or insolvency
laws, of, by, or against the Lessee or nay maker, endorser, guarantor,
or surety of or for any of the Obligations.
10. Waivers. The Lessee waives presentment, notice, protest, notice of
-------
acceptance of this agreement, notice of any leasing or other financial
accommodations extended, extensions granted, collateral received or delivered,
or any other action taken in reliance thereon, all demands and notices in
connection with the delivery, acceptance, performance, or enforcement of any
Obligation as to which any of the Cash Collateral is pledged, and all other
demands and notices of any description (other than notice of default), and
assents to any extension or postponement of the time of payment or any other
such indulgence, or any substitution, exchange, or release of collateral, and to
the addition or re Master Agreement of any party or person primarily or
secondarily liable for any of the Obligations.
11. Rights and Remedies of the Lessor. Upon the occurrence of an Event of
---------------------------------
Default, or at any time thereafter, without further notice or demand, the Lessor
may declare this Agreement to be in default and shall thereafter have, in
addition to all other rights and remedies, the rights and remedies of a secured
party under the Uniform Commercial Code of Massachusetts and of any and all
other applicable jurisdictions. Right is expressly granted to the Lessor to
apply the Cash Collateral to the Obligations in such order and manner as the
Lessor may determine and all at the Lessor's sole discretion.
12. Miscellaneous
-------------
12.1 No delay or omission on the part of the Lessor in exercising any
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right, power, privilege, or remedy hereunder shall operate as a waiver thereof,
nor shall any single or partial exercise of any such right, power, privilege, or
remedy by the Lessor preclude any other or further exercise thereof or the
exercise of any other right, power or remedy.
12.2 No waiver of any right, power, privilege, or remedy shall be
effective unless in writing and signed by the Lessor, and such waiver on one
occasion shall not be construed as a bar to or waiver of any right, power,
privilege, or remedy on any other occasion.
12.3 All remedies of the Lessor are cumulative and are not exclusive
of any other remedy provided in law or equity.
12.4 This Agreement shall not be amended or modified, nor shall any of the
Collateral be released nor shall the pledge or security interest created hereby
be extended, except by a writing signed by the Lessee and the Lessor.
12.5 Any notice required to be given by the Lessee, Lessor/Agent
hereunder shall be deemed adequately given if hand delivered or if sent
(returned receipt requested) by overnight mail or by certified U.S. mail to any
other parts at its address stated herein or at such other place as such party
may designate in writing to the other parties. Notice shall be effective on the
earlier of (i) actual receipt or (ii) the day after deposit in overnight mail or
the third day-after deposit in U.S. mail.
12.6 All terms not defined herein shall have the meanings set forth in the
Master Agreement.
13. Termination. This Agreement shall terminate when all the Obligations
-----------
secured hereby have been fully paid and performed. At such time, the Collateral
shall be distributed as provided in Section 5 above.
14. Severability. The provisions of this Agreement are severable, and if
------------
any clause or provision shall be held invalid and unenforceable in whole or in
part in any jurisdiction, then such invalidity or inenforceability shall affect
only such clause or provision or part hereof in such jurisdiction and shall not
in any manner affect such clause or provision in any other jurisdiction or any
other clause or provision of this Agreement in any jurisdiction.
15. Successors and Assigns. This Agreement and the terms, covenants, and
----------------------
conditions hereof shall inure to the benefit of the successors and assigns of
the Lessor. The Lessee shall not assign any of its rights or obligations
herein.
16. Law and Jurisdiction. The validity and interpretation of this
--------------------
Agreement and the rights and obligations of the parties shall be governed by the
laws of the Commonwealth of Massachusetts (without reference to the choice of
law doctrine thereof), and the Lessee irrevocably consents to the jurisdiction
of the courts of the Commonwealth of Massachusetts and of nay federal court
located therein in connection with any action or proceeding arising out of or
related to this agreement.
IN WITNESS WHEREOF, the Lessee has caused this Agreement to be duly
executed as an instrument under seal as of the day and year first written above.
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MASTER LEASE AGREEMENT
This MASTER AGREEMENT, dated as of the 4/th/ day of December, 1998,
which together with all riders and amendments now or hereafter executed and made
a part hereof (the "Master Agreement"), is made at Boston, Massachusetts by and
between BANCBOSTON LEASING INC. ("Lessor"), a Massachusetts corporation with its
principal place of business at 100 Federal Street, Boston, Massachusetts 02110
and American Telesource International, Inc. ("Lessee"), a Texas corporation with
its principal place of business at 12500 Network Blvd., San Antonio, TX 78249.
Section 1. LEASE. In consideration of the premises, the Lessee hereby leases
from the Lessor the Equipment described in the Lease Schedule attached hereto
and agrees to pay rent and perform the terms and conditions set forth herein.
Throughout this Lease, "rent" means (a) the amounts set forth in the Lease
Schedule as "Monthly Rent", (b) all taxes set forth in Section 8 below, and (c)
all other monetary amounts due hereunder.
Section 2. TERM AND PURCHASE OPTION. Lessee shall signify its acceptance of
the Equipment by promptly executing and delivering to Lessor a Certificate of
Acceptance. This Lease will start on the day Lessee accepts physical possession
of the Equipment from the vendor of the equipment as set forth in the Lease
Schedule ("Vendor"), provided, Lessor is not bound hereunder until Lessor's
authorized officer signs this Lease. Once the Lease begins it will continue for
the Term, which shall be the number of full months shown on the Lease Schedule
(initial term) plus the interim term (the number of days from the starting date
through the last day of the month in which such start occurs). At the end of
the Term, Lessee shall purchase the Equipment for the amount set forth in the
Lease Schedule.
Section 3. RENT. Lessee agrees to pay Lessor rent throughout the Term monthly
in advance for the initial term at the Monthly Rent as set forth in the Lease
Schedule, and monthly in arrears at 1/30 of the Monthly Rent for each day of the
interim term. Rent is due on the 1/st/ of each month. If all or any part of a
payment is not received within ten (10) days of its due date, Lessor will charge
Lessee 1.5% per month interest on such amount beginning with such due date (or,
if less in either case, the maximum amount permitted by law). Lessor intends
that the rents, fees and charges to be paid by Lessee hereunder conform to all
provisions of law; however, should any such amounts be in excess of the
applicable amounts allowed by law, upon notice thereof Lessor will promptly
refund such excess to Lessee.
Section 4. DELIVERY, SELECTION AND PURCHASE OF EQUIPMENT. Lessee agrees that
Lessor is not responsible for delivery or installation of the Equipment. Lessee
will not have any claim against Lessor if the manufacturer, supplier or Vender
delays in delivery or installation. Lessee agrees that LESSOR DID NOT SELECT,
MANUFACTURE, SUPPLY OR INSPECT THE EQUIPMENT AND HAS NO EXPERTISE REGARDING THE
EQUIPMENT. LESSEE SELECTED THE EQUIPMENT BASED ON LESSEE'S OWN JUDGEMENT.
LESSOR IS BUYING THE EQUIPMENT AT LESSEE'S REQUEST ONLY FOR THE PURPOSE OF
LEASING IT TO LESSEE. Lessee represents that before signing this Lease (i) it
approved the supply contract (if any) between Lessor and Vendor and (ii) it has
been advised in writing that Lessee may have rights against the Vender under a
supply contract and that Lessee may contact the Vendor to determine the extent
of these rights. To the extent transferable, Lessor hereby transfers all
warranties of Vendor or manufacturer to Lessee.
Section 5. NO WARRANTIES. Lessee agrees that: (A) LESSOR IS LEASING THE
EQUIPMENT TO LESSEE "WHERE IS, AS IS AND "WITH ALL FAULTS". LESSOR DISCLAIMS
ANY REPRESENTATION, GUARANTY OR WARRANTY, EXPRESS OR IMPLIED, INCLUDING ANY
IMPLIED WARRANTY OF MERCHANTIBILITY OR FITNESS FOR A PARTICULAR PURPOSE
REGARDING THE EQUIPMENT; (B) Lessor will not be liable for any loss or injury
caused to Lessee or any other person or property (including lost profits and
consequential, incidental or special damages) caused by the Equipment or its
failure to operate properly;
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(C) IF THE EQUIPMENT DOES NOT WORK AS REPRESENTED BY THE VENDOR, OR IF THE
VENDOR OR ANY OTHER PERSON FAILS TO PROVIDE ANY SERVICE OR IF THE EQUIPMENT IS
UNSATISFACTORY FOR ANY OTHER REASON, LESSEE WILL MAKE ANY CLAIM SOLELY AGAINST
THE VENDOR OR OTHER PERSON AND WILL MAKE NO CLAIM AGAINST LESSOR; and (D) Lessor
makes no representation and disclaims any warranty that the Equipment is "Year
2000 Compliant", that is, that any computer application or other systems, if
any, which may be contained or included in the Equipment will be able to
recognize and perform properly, date sensitive functions involving certain dates
prior to and any date after, December 31, 1999.
Lessee shall not assert any defenses against Lessor or its assignees arising
from the condition of the Equipment, or the use or intended use of the
Equipment.
Section 6. USE, REPAIRS AND SERVICE. LESSEE CERTIFIES THAT THE EQUIPMENT WILL
BE USED SOLELY FOR BUSINESS OF COMMERCIAL PURPOSES AND NOT FOR PERSONAL, FAMILY
OR HOUSEHOLD PURPOSES. The Equipment shall be located at the address set forth
in the Lease Schedule, which shall be located in the continental U.S., or such
other location consented to in writing by the Lessor. Lessee will not make any
alterations to the Equipment and will not allow it to be used by anyone except
Lessee or Lessee's employees. Lessee will keep the equipment in good working
order and in accordance with its manufacturer's service standards, ordinary wear
and tear excepted, will service the Equipment as recommended by its
manufacturer, will enter into any maintenance contract required by the
manufacturer or supplier at its own cost and expense, and will permit its
possession, use and operation only in accordance with the law, applicable
regulations, and the terms of Lessee's insurance policies. All replacement
parts and additions will automatically become Lessor's property, but will be
transferred to Lessee, together with the Equipment, at the end of the Term for
the purchase price set forth in the Lease Schedule.
Section 7. LOSS; DAMAGE; INSURANCE. Lessee assumes all risk of loss of the
Equipment. Lessee will keep the Equipment insured against all risks of loss in
an amount not less than its replacement cost (listing Lessor as loss payee and
additional insured) and against public liability in an amount satisfactory to
Lessor (listing Lessor as additional insured). Lessee will provide upon the
acceptance of each item of Equipment, and as requested subsequently, a
certificate of insurance or such other evidence of coverage. In the event of
loss, theft, destruction, damage, condemnation or other taking of the Equipment,
Lessee shall at Lessor's option (i) replace the Equipment with like equipment in
good repair and condition or (ii) pay to the Lessor (1) past due rent, (2) all
future rent to become due during the unexpired Term discounted to present value
at 5%, and (3) all other amounts due under this Agreement.
Section 8. TAXES AND OTHER FEES. Lessee agrees this is a "net" lease and will
pay when due (or reimburse Lessor upon demand), and on a net after-tax basis
shall indemnify and defend Lessor against (a) all filing, services,
administrative and user fees, all taxes, assessments, levies, excises, fees and
all other governmental charges that are at anytime imposed or levied upon or
assessed against (i) the Equipment, (ii) any rent or other sum payable hereunder
(other than any net income tax measured solely by the net income of the Lessor)
or (iii) this Lease or the leasehold created herein, or which arise in respect
of any use, operation or possession of the Equipment and (b) all penalties and
similar charges, whether penal or administrative; and all other fees of any kind
which may be charged regarding the leasing, use or ownership of the Equipment
with respect to the Term. Lessee shall also reimburse Lessor for any and all
costs (including reasonable attorney's fees) incurred in connection with any tax
or fee described in this Section 8. Lessee's obligations set forth in this
Section 8 will survive and continue after the end of the Term.
Section 9. INDEMNIFICATION. Lessee agrees to defend Lessor against,
indemnify, and reimburse Lessor for (on an after-tax basis) all claims, actions,
suits, proceedings, costs, expenses and damages and liabilities in any way
relating to or arising out of this Agreement or any Schedule, including, but not
limited to, any claim or demand
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based upon STRICT OR ABSOLUTE LIABILITY IN TORT, any violation of environmental
regulations or patent, trademark or other comparable infringements. Lessee shall
also reimburse Lessor for all attorney's fees and expenses (whether or not
litigation is commenced) incurred in connection with such claims or demands.
Lessee's obligations set forth in this Section 9 will survive and continue after
the end of the Term.
Section 10. TITLE. The Equipment will remain at all times, sole and exclusive
property of Lessor and, if requested by Lessor, Lessee agrees to affix
identifying marks to the Equipment designating the ownership by Lessor. The
Equipment is considered personal property, and Lessee will not permit it to
become affixed to real estate. If Lessor requests, Lessee will provide
recordable waivers of any landlord's or mortgagee's interest in the Equipment.
Lessee shall keep the Equipment at all times free and clear from all liens,
security interests or encumbrances of any nature except those created hereunder
or those arising under operation of law incurred in the ordinary course of
business which are not delinquent or are being contested in good faith. Upon
request of Lessor, Lessee shall execute any documents or instruments which may
be necessary or appropriate to confirm, to record or to give notice of ownership
including financing statements under the Uniform Commercial Code.
Section 11. SURRENDER TO LESSOR. Immediately upon the expiration of the
Initial Term or any Extended Term or at any other termination of this Master
Agreement, Lessee shall surrender the Equipment to Lessor in good repair and
working order, reasonable wear and tear excepted, by assembling and delivering
the Equipment, ready for shipment, to a place or carrier, as Lessor may
designate, within the state in which the Equipment was originally delivered to
Lessee or to which the Equipment was thereafter moved with the written consent
of Lessor. All costs of removal, assembly, packing, and delivery of such
equipment to the place designated by Lessor shall be borne by Lessee.
Section 12. DEFAULT AND REMEDIES. Lessee agrees that Lessee will be in
default if (a) Lessee fails to pay rent as required hereunder and such failure
continues after Lessor gives Lessee five (5) days written notice; (b) Lessee
fails to maintain insurance as required herein and such failure continues for
ten (10) days following written notice from Lessor; (c) Lessee does not comply
with any other term of this Lease or any Schedule and such failure to comply
continues after Lessor has given Lessee thirty 930) days written notice; (d) the
Equipment is taken or encumbered by any security interest, encumbrance, lien or
charge, choate or inchoate; (e) Lessee dies, sells all or substantially all of
its assets, or goes out of business; (f) Lessee becomes insolvent, makes or
consents to an assignment for the benefit of creditors or to the appointment of
a receiver or trustee; (g) a petition is filed by or against Lessee under the
Bankruptcy Code; (h) any information supplied to Lessor directly or indirectly
by Lessee or Lessee's agents, including all financial information, is not true,
correct and complete; (i) Lessee breaches any term of any loan, credit agreement
or other material obligation; or (j) any party to any guaranty, letter of
credit, subordination or credit agreement or other undertaking ("Undertaking"),
given for the benefit of Lessor and obtained in connection with this Master
Agreement or Lease Schedule, breaches, fails to continue, contests, or purports
to terminate or to disclaim the Undertaking; or such the Undertaking becomes
unenforceable; or a guarantor of this Master Agreement or any Lease Schedule
shall die, cease to exist or terminate its independent operations; or any event
or condition set forth in subsections (f), (g), (h), or (i) of this Section 12
shall occur with respect to any guarantor or other person responsible, in whole
or n part, for payment or performance of this Master Agreement or any Lease
Schedule.
If any of these defaults occurs, Lessee agrees that Lessor may take one or more
of the following actions, in addition to other actions available under law or
equity (including without limitation all remedies available under the Uniform
Commercial Code): (A) Lessor may cancel this Lease and/or recover damages
against Lessee, not as a penalty but as a liquidation for all purposes of what
is due to Lessor, including: (1) past due rent, (2) all future rent to become
due during the unexpired term discounted to present value at 5%, (3) all late
fees and any other charges, reimbursements or payments due and to become due,
(4) reasonable attorney's fees and all costs and expenses incurred in
repossessing, storing, repairing, refurbishing, leasing or selling the
equipment; and (5) the amounts indemnified in Section 8 (provided, no amount
shall be duplicated); and/or (B) Lessor may obtain a court order permitting
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repossession. Lessee will be liable for any deficiency following repossession
and sale. If notice of sale is required to be given to Lessee, Lessee agrees
ten (10) days prior to notice is sufficient. Lessor may also sue for the
amounts listed in clause "A" above without first remarketing the Equipment, and
Lessee waives any rights under any law that provides otherwise.
Section 13. ASSIGNMENT. Lessor may assign any or all of its interest under
this Lease and/or the Equipment to a new owner or secured party at any time
without prior notice to Lessee, and such new owner or secured party may also
assign its rights. Lessee agrees that the new owner or secured party will have
the same rights Lessor had under this Lease but will not have to perform any of
Lessor's obligations 9in which case Lessor will retain those obligations).
Lessee also agrees that the rights of the new owner or secured party will not be
subject to any claims, defenses or set-offs that lessee may have against Lessor
or any other person and that any assignment by Lessor would not materially
change Lessee's obligations under this Lease or substantially increase Lessee's
burdens or risks or constitute a delegation of material performance. LESSEE MAY
NOT ASSIGN (TRANSFER) ANY OF ITS INTERESTS UNDER THE LEASE TO ANY OTHER PERSON
OR SUBLEASE ANY OF THE EQUIPMENT WITHOUT THE PRIOR WRITTEN CONSENT OF LESSOR,
ANY ATTEMPTED SUBLEASE OR ASSIGNMENT WILL BE VOID AND IS A DEFAULT HEREUNDER.
Section 14. REPRESENTATIONS AND WARRANTIES. Lessee represents and warrants
that (i) Lessee is duly organized, validly existing and in good standing in the
jurisdiction of its organization and each jurisdiction in which it conducts
business, (ii) this Agreement and each Schedule have been and will be duly
authorized and upon execution by Lessee shall constitute the legal, valid and
binding obligation of Lessee enforceable against Lessee in accordance with its
terms, (iii) there are no pending or threatened actions or proceedings before
any court, arbitrator or administrative agency that would have a material
adverse effect on Lessee's business, (iv) Lessee is not in default under any
obligation for borrowed money or for the deferred purchase price of property,
any lease agreement or any other agreement; (v) the financial and other
information that Lessee has submitted, or will submit, is or will at the time of
the submission be accurate and true; and (vi) Lessee has reviewed the relevant
areas within its business and has developed or is developing a program to become
on a timely basis "Year 2000 Compliant", and from time to time, at the request
of Lessor, Lessee shall provide to Lessor such updated information or
documentation as is requested regarding the status of its efforts to become year
2000 Compliant.
Section 15. FINANCIAL STATEMENTS. Lessee shall annually, within ninety (90)
days after the close of its fiscal year, furnish to Lessor financial statements
of Lessee, including a balance sheet as of the close of such year and statements
of income and retained earnings for such year, prepared in accordance with
generally accepted accounting principles, consistently applied from year to
year, and certified by independent public accountants for Lessee reasonably
acceptable to Lessor. If requested by Lessor, Lessee shall also provide
quarterly financial statements of Lessee, similarly prepared for each of the
first three quarters of each fiscal year, certified (subject to normal year-end
audit adjustments) by the chief financial officer of Lessee and furnished to
Lessor within forty-five (45) days following the end of each quarter, and such
other financial information as may be reasonably requested by Lessor.
Section 16. NON-CANCELABLE AGREEMENT: NO OFFSET. NEITHER THIS AGREEMENT NOR
ANY SCHEDULE MAY BE CANCELED FOR ANY REASON WHATSOEVER. LESSEE SHALL NOT BE
ENTITLED TO ANY ABATEMENT OF ANY PAYMENT DUE HEREUNDER OR ANY SCHEDULE, NOR TO
ANY DEFENSE, REDUCTION, OFFSET, COUTERCLAIM, RECOUPMENT OR DEDUCTION FOR ANY
REASON WHATSOEVER NOR TO ANY EXCUSE FROM THE PERFORMANCE OF ANY OF ITS
OBLIGATIONS UNDER THIS LEASE OR ANY SCHEDULE. LESSEE'S OBLIGATIONS HEREUNDER
ARE ABSOLUTE AND UNCONDITIONAL.
Section 17. LESSOR'S PAYMENT; POWER OF ATTORNEY. If Lessee fails to perform
any obligation hereunder, Lessor may at its option (but without any obligation
to anyone to do so) perform such obligation, and
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Lessee shall reimburse Lessor on demand for any costs incurred plus interest at
the rate of 18% per annum or, if lower, the maximum rate allowable by law from
the date of any such payment by Lessor. Lessee irrevocably appoints Lessor as
Lessee's attorney-in-fact to do any act that Lessee is obligated to do under
this Agreement and to exercise any and all rights and powers as Lessee might
exercise with respect to the Equipment.
Section 18. PLACE FOR SUIT; JURY WAIVER. Lessee agrees that: this Lease will
be governed by the internal laws of the Commonwealth of Massachusetts, LESSEE
WAIVES TRAIL BY JURY AND CONSENTS TO PERSONAL JURISDICTION IN THE STATE AND
FEDERAL COURTS IN MASSACHUSETTS; ANY LEGAL PAPERS FOR ANY LAW SUIT WILL BE
PROPERLY SERVED IF MAILED BY CERTIFIED MAIL, RETURN RECEIPT REQUESTED, WITH
DELIVERY TO LESSEE; and ANY LAWSUIT ARISING OUT OF THIS LEASE, REGARDLESS OF WHO
FILES THE SUIT, MUST BE BROUGHT ONLY IN THE STATE OR FEDERAL COURTS IN
MASSACHUSETTS AND NOT ELSEWHERE, UNLESS LESSOR AGREES IN WRITING OR ELECTS
OTHERWISE.
Section 19. GENERAL. Any notice to Lessor under this Lease shall be in writing
and shall be deemed given if mailed by registered or certified mail, return
receipt requested, or by overnight courier via a nationally recognized provider
of such services, to Lessor at the address listed on the front page of this
Lease, Attention: Contract Manager, Angela Petrone, Vendor Finance, or if to
Lessee, mailed first class to the address similarly shown unless changed in
writing. Notice to Lessee of a Lessor assignment constitutes such change of
address. Notices shall be effective upon receipt. This Lease constitutes the
entire agreement between Lessor and Lessee and supersedes any prior oral or
written agreements. This Lease shall be binding upon and inure to the benefit
of the parties hereto and their permitted successors and assigns. This Lease
nay not be modified, amended or terminated except by a writing signed by Lessee
and an Executive Officer of Lessor. For the purposes of any arbitration, court
proceeding, audit, accounting or otherwise, Lessee agree that any copy,
reproduction or image (electronic or otherwise) kept of this Lease by Lessor in
the ordinary course of business shall be conclusive, final and binding upon the
parties hereto and evidence for all purposes.
Section 20. NON-WAIVER. Lessor's failure to require performance by Lessee of
any of the provisions of the Lease shall not be a waiver thereof.
Section 21. CAPTIONS. Captions in this Lease are for convenience only. Lessee
certifies that Lessee has read ALL TWENTY-ONE (21) Sections of this Lease and
all applicable Schedules and agrees to all terms herein.
LESSEE: AMERICAN TELESOURCE Accepted At Boston, Massachusetts
INTERNATIONAL, INC. LESSOR: BANCBOSTON LEASING INC.
Printed Name: H. Douglas Saathoff
By:/s/ H. Douglas Saathoff By:__________________________________
Title:VP Finance Title:_______________________________
Date: 12/7/98 Date:________________________________
46
<PAGE>
Exhibit 10.12
EXECUTIVE EMPLOYMENT AGREEMENT
Agreement made as of September 24, 1998, between AMERICAN TELESOURCE
INTERNATIONAL, Inc., a Delaware corporation (the "Company"), and Arthur L. Smith
("Executive").
The Company and the Executive desire to enter into certain agreements
providing for Executive's employment with the Company.
The parties hereto agree as follows:
1. Employment. The Company agrees to employ Executive and Executive
----------
accepts such employment for the period beginning August 1, 1998 (the "Start
Date") and ending upon termination pursuant to paragraph 1 (D) hereof (the
---------------
"Employment Period").
(A) Services. During the Employment Period, Executive will be the Chief
--------
Executive Officer of the Company, and in connection therewith will render such
services of an executive and administrative character to the Company and its
affiliates as are customarily rendered by persons holding such position with
similarly situated companies, as the Board of Directors of American TeleSource
International Inc., a Delaware, U.S.A. corporation (the "Board") may from time
to time direct. Executive will devote his best efforts and substantially all of
his business time and attention (except as otherwise specifically permitted
herein and except for vacation periods and reasonable periods of illness or
other incapacity) to the business of the Company and its affiliates and will
faithfully and diligently carry out such duties and have such responsibilities
as are customary among persons employed in substantially similar capacities for
similar companies. Executive will report to the Board and shall faithfully and
diligently comply with all of its reasonable and lawful directives. For
purposes of this Agreement, the term "affiliates" means any corporation, limited
partnership, limited liability company or other entity engaged in the same
business as the Company or a related business, which controls, is controlled by
or is under common control with the Company.
(B) Salary. During the Employment Period and thereafter as provided in
------
paragraph (D) below, the Company will pay Executive a base salary at the rate of
- -------------
not less than $130,000 per annum (or such higher amount as the Board may
establish from time to time), and will be payable in accordance with the
Company's regular payroll practices.
(C) Benefits. In addition to the compensation described above in this
--------
paragraph 1, Executive will be entitled during the Employment Period to the
- ------------
following benefits:
(1) such bonus as the Board in its sole discretion may from time to time
authorize, but in no event shall bonuses paid during a year exceed 50% of
Executive's base salary for such year;
(2) such health insurance and other benefits as are available from time to
time to the Company's salaried employees generally;
(3) in accordance with the Company's vacation and absence paid as in
effect from time to time, sick leave, personal time provided that Executive
shall have no less than three weeks vacation each year, with salary;
(4) reimbursement, upon submission of documentation in accordance with the
Company's regular expense policies, for reasonable business expenses incurred on
the Company's behalf by Executive;
47
<PAGE>
(5) participation in any savings plan, 401(k) plan, profit sharing plan or
pension plan as is available from time to time to the Company's salaried
employees generally; and
(6) opportunity to participate in any and all employee benefit plans from
time to time in effect for executives or salaried employees of the Company
generally (subject to any contribution therefore generally required by such
employees and except to the extent such plans are in a category of benefit
otherwise provided to Executive).
(D) Termination. Unless earlier terminated by termination of Executive's
-----------
employment pursuant to any of the provisions immediately below, Executive's
employment with the Company will continue until the third anniversary of the
Start Date, and Executive's employment shall be renewed automatically for one-
year periods thereafter unless either party hereto gives written notice to the
other party, at least 120 days prior to the next anniversary date, that such
employment shall not be renewed:
(1) Death. In the event of Executive's death during the term hereof,
-----
Executive's employment hereunder shall immediately and automatically terminate.
Notwithstanding such event, the Company shall pay to Executive's designated
beneficiary or, if no beneficiary has been designated by Executive, to his
estate, the base salary at the rate in effect on the date of death for a period
of 6 months. The Company shall also pay to Executive's designated beneficiary
or, if no beneficiary has been designated by Executive, to his estate, any
incentive compensation that is earned but unpaid, based on the operations of the
Company for the whole year, prorated through the date of death.
(2) Disability.
----------
(a) The Company may terminate Executive's employment hereunder,
upon notice to Executive, in the event that Executive becomes disabled during
his employment hereunder through any illness, injury, accident or condition of
either a physical or psychological nature and, as a result, is unable to perform
substantially all of his duties and responsibilities hereunder for 90 days
during any period of 365 consecutive calendar days. In the event of such
termination, until the earliest of (i) the conclusion of the then-current term
of this Agreement and (ii) the conclusion of a period of 6 months following the
date of termination, the Company shall continue to pay Executive the base salary
at the Rate in effect on the date of termination and shall continue to
contribute to the cost of Executive's participation in the Company's group
medical and dental insurance plan, if any, provided that Executive is entitled
to continue such participation under applicable law and plan terms. The Company
will also pay Executive, in the case of such termination, any incentive
compensation that is earned but unpaid, based on the operations of the Company
for the whole year, prorated through the date of such termination;
(b) While receiving disability income payments under the
Company's disability income plan, if any, Executive shall be entitled to receive
the excess, if any, of base salary under paragraph I (B) hereof over such
--------------
disability income payments, and shall be entitled to receive such bonus and
other benefits as are described in paragraph 1(C), until the termination of his
-------------
employment and except to the extent a longer period is specified in paragraph
---------
1(D)(2)(a).
- ---------
(3) Termination by the Company without Cause. The Company may at any time
----------------------------------------
terminate Executive's employment without Cause (as defined below) by giving
Executive written notice of the effective date of termination. In the event of
such termination, the Company shall have the continuing obligation to make
payments of base salary in accordance with paragraph (B) above at the rate in
-------------
effect on the effective date of such termination until the third anniversary of
the Start Date or until 24 months after the effective date of such termination,
whichever period is longer. Additionally, during such period following
termination as the Company shall have the continuing obligation to make payments
of base salary, the Company shall continue to contribute to the cost of
Executive's participation in the Company's group medical and insurance plans, if
any, provided that Executive is entitled to continue such participation under
applicable law and plan. The Company will also pay Executive, in the event of
48
<PAGE>
such termination, any incentive compensation that is earned but unpaid, based on
operations of the Company for the whole year, prorated through the date of his
termination.
(4) Termination by the Company for Cause. The Company shall have the right
------------------------------------
to terminate the Executive's employment at any time for any of the following
reasons (each of which is referred to herein as "Cause") by giving Executive
written notice of the effective date of termination (which effective date may be
the date of such notice):
(a) the willful breach of any provision of paragraphs 1(A), 2,
------------------
3, 4 or 5 (including, but not limited to, a refusal to follow reasonable and
- ---------
lawful directives of the Board; provided, however, that to the extent that such
breach is curable, the Board will give Executive written notice of such breach
and Executive will have 30 days from the receipt of such notice to cure such
breach;
(b) any act of fraud, embezzlement or other material dishonesty
with respect to any aspect of the Company's business;
(c) continued use of illegal drugs;
(d) substantial failure of performance, repeated or continued
after written notice of such failure and explanation of such failure of
performance, which is reasonably determined by the Board of Directors to be
materially injurious to the business or interests of the Company; or
(e) conviction of a felony or of a crime involving moral
turpitude.
If the Company terminates Executive's employment for any of the
reasons set forth above in this paragraph 1(D)4, the Company shall have no
---------------
other obligations hereunder (including the obligation to continue to make
base salary as provided in paragraph 1(D)3 from and after the effective date of
---------------
payments of termination and shall have all other rights and remedies available
under this or any other agreement and at law or in equity.
(5) By the Executive for Good Reason. Executive may terminate his
--------------------------------
employment hereunder for Good Reason, upon written notice to the Company setting
forth the nature of such Good Reason in reasonable detail. "Good Reason" shall
mean:
(a) the material failure of the Company to provide Executive the
base salary and incentive compensation and benefits in accordance with the terms
of paragraph 1 and paragraph 6 hereof;
---------------------------
(b) the material diminution in the nature or scope of
Executive's responsibilities, duties or authority; or
(c) the occurrence of a Change in Control (as defined herein).
In the event of termination in accordance with this paragraph 1(D)(5), the
-----------------
Company shall continue to pay Executive the base salary at the rate in effect on
the effective date of such termination until the third anniversary of the Start
Date or until 24 months after the effective date of such termination, whichever
period is longer. Additionally, during such period following termination as the
Company shall have the continuing obligation to make payments of base salary,
the Company shall continue to contribute to the cost of Executive's
participation in the Company's group medical and insurance plans, if any,
provided that Executive is entitled to continue such participation under
applicable law and plan. The Company will also pay Executive, in the event of
such termination, any incentive compensation that is earned but unpaid, based on
operations of the Company for the whole year, prorated through the date of his
termination.
49
<PAGE>
A "Change in Control" shall be deemed to have occurred if (i) any "person"
(as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act
of 1934, as amended), becomes the "beneficial owner" (as such term is defined in
Rule 13d-3 under the Act), directly or indirectly, of outstanding securities of
the Company representing 40% or more of the combined voting power of the
outstanding securities of the Company, or (ii) during any period of two
consecutive years, individuals who at the beginning of such period constitute
the Board of Directors of the Company and any new director whose election by the
Board of Directors or nomination for election by the shareholders of the Company
was approved by a vote of at least two-thirds (2/3) of the directors then still
in office who either were directors at the beginning of the period or whose
election or nomination for election was previously so approved, cease for any
reason to constitute a majority thereof, or (iii) the shareholders of the
Company approve (A) a merger or consolidation of the Company with any other
entity (other than a merger or consolidation which would result in the voting
securities of the Company outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted into voting
securities of the surviving entity) at least 60% of the combined voting power of
the voting securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation), (B) a plan of complete
liquidation of the Company or (C) an agreement or agreements for the sale or
disposition, in a single transaction or series of related transactions, by the
Company of all or substantially all of the property and assets of the Company.
Notwithstanding the foregoing, events otherwise constituting a Change in Control
in accordance with the foregoing shall not constitute a Change in Control if
such events are solicited by the Company and are, if Executive is then a member
of the Board, approved, recommended or supported by Executive in his capacity as
a member of the Board of the Company in actions taken prior to, and with respect
to, such events.
(6) Voluntary Termination by Executive. Except as provided in paragraph
---------------------------------- ---------
1(D)(5), in the event that Executive's employment with the Company is terminated
- -------
by Executive, such termination shall be a breach of this Agreement and the
Company shall have no further obligations hereunder from and after the date of
such termination.
2. Nondisclosure. Executive acknowledges that during the course of his
-------------
performance of services for the Company he has acquired and will acquire
technical knowledge with respect to the Company's business operations,
including, by way of illustration, the Company's existing and contemplated
services, trade secrets, patents and selling techniques and information,
customer lists, supplier lists, and confidential information relating to the
Company's policy and/or business strategy (all of such information herein
referenced to as the "Confidential Information"); provided, however, that the
term "Confidential Information" shall not include (a) any information which is
or becomes publicly available otherwise than through breach of this Agreement,
or (b) any information which is or becomes known or available to Executive on a
non-confidential basis and not in contravention of applicable law from a source
which is entitled to disclose such information to Executive. Executive agrees
that he will not, while he is employed by the Company, divulge to any person,
directly or indirectly, except to the Company or its officers and agents or as
reasonably required in connection with his duties on behalf of the Company, or
use, except on behalf of the Company, any Confidential Information acquired by
Executive during the term of his employment. Executive agrees that he will not,
at any time after his employment with the Company has ended, divulge to any
person directly or indirectly any Confidential Information. Executive further
agrees that if his relationship with the Company is terminated (for whatever
reason) he shall not take with him but will leave with the Company all records,
papers and computer data and any copies thereof relating to the Confidential
Information (or if such papers, records, computer data or copies are not on the
premises of the Company, Executive agrees to return such papers, records and
computer data immediately upon his termination). Executive acknowledges that
all such papers, records, computer data or copies thereof are and remain the
property of the Company.
3. Inventions and Patents. Executive agrees that all inventions,
----------------------
innovations or improvements relating to the Company's business or method of
conducting business (including new contributions, improvements, ideas and
discoveries, whether patentable or not) conceived or made by him during his
employment with the Company belong
50
<PAGE>
to the Company. Executive will promptly disclose such inventions, innovations or
improvements to the Board and perform all actions reasonably requested by the
Board to establish and confirm such ownership.
4. Other Businesses. During the Employment Period, Executive agrees
----------------
that he will not, directly or indirectly except with the express written consent
of the Board, become engaged in, render material services for, or permit his
name to be used in connection with, or directly or indirectly counsel or consult
with, any business other than the business of the Company and its affiliates;
provided, however, that Executive may be a passive investor in any such business
(subject to the limitations set forth in paragraph 5 below).
-----------
5. Noncompetition. Executive agrees that:
--------------
(A) During the term he performs services for the Company and
during the Post-Employment Period (as defined below), Executive will not
interfere with the relationship between the Company or any affiliate and any
employee, agent or representative of the Company or any such affiliate.
(B) During the term he performs services for the Company and
during the Post-Employment Period, Executive will not directly or indirectly
divert or attempt to divert from the Company or any affiliate any business which
provides telecommunications services in the United States or Latin America,
including, without limitation, domestic and international call services or
domestic and international telecommunications networks for voice, data, fax
and/or video transmission between the United States and Latin America or within
Latin America, or any related business in which the Company has been actively
engaged during the term Executive performed services for the Company, nor
interfere with the relationships of the Company with customers, dealers,
distributors, franchisees or sources of supply.
51
<PAGE>
(C) During the term he performs services for the Company and during
the Post-Employment Period, Executive will not directly or indirectly own,
manage, operate control, be employed by, participate in, or be connected in any
manner with the ownership, management, operation or control of, any business or
enterprise which provides telecommunications services in the United States or
Latin America, including, without limitation, domestic and international call
services or domestic and international telecommunication networks for voice,
data, fax and/or video transmission between the United States and Latin America
or within Latin America, or any related business in which the Company has been
actively engaged during the then Executive performed services for the Company.
(D) For purposes hereof, the "Post-Employment Period" shall mean: (i)
in the event Executive's employment with the Company is terminated for Cause
pursuant to paragraph 1(D)(4), the 12-month period following Executive's
-----------------
termination of employment with the Company, or (ii) in the event Executive's
employment with the Company is terminated for any reason other reason, the
period during which the Company continues to make payments of base salary.
6. Stock Option. Effective as of the date hereof (the "Effective
------------
Date"), under the terms of the American TeleSource International, Inc. (ATSI)
1998 Stock Option Plan (the "Plan"), ATSI, a Delaware corporation ("ATSI"),
hereby grants to Executive the option (the "Option") to purchase shares (the
"Option Shares") of Common Stock, no par value per share, of ATSI, subject to
the requisite approval of the Plan by ATSI's Board of Directors and ATSI's
shareholders. The number of Option Shares, the purchase price per Option Share
and the installments and dates in which the Executive shall have the right to
exercise the Option are attached to this Agreement as Exhibit "B". The Plan is
attached to this Agreement as Exhibit "A". Beginning on the Effective Date,
such installments shall be cumulative (i.e. once the right to purchase the
number of shares of an installment has accrued, such shares may be purchased at
any time thereafter, or in part from time to time, until the business day
immediately preceding the tenth anniversary of the Effective Date (the
"Expiration Date") or until such earlier date as set forth in the following
paragraph. Notwithstanding the preceding sentence, upon the occurrence of a
Change in Control, Executive's right to exercise the Option shall become fully
vested (i.e., all unissued Option Shares may be purchased at any time
thereafter, or in part from time to time, until the Expiration Date or until
such earlier date as set forth in the following paragraph).
Upon termination of Executive's employment pursuant to Paragraph 1(D)(4)
-----------------
(Termination by the Company for Cause) or paragraph 1(D)(6) (Voluntary
-----------------
Termination by Executive), the Option shall remain exercisable for the four
month period following such termination, but only to the extent such option was
exercisable at termination. Upon termination of Executive's employment pursuant
to paragraph 1(D)(1) (Death) or paragraph 1(D)(2) (Disability), the Option, to
----------------- -----------------
the extent then exercisable, shall remain exercisable for the one-year period
following such termination. Upon termination of Executive's employment
pursuant to paragraph (D)(3) (Termination by the Company without Cause) or
-----------------
paragraph 1(D)(5) (By the Executive for Good Reason), Executive's right to
- -----------------
exercise the Option shall become fully vested and the Option shall remain
exercisable for the four-month period following such termination.
7. General Provisions.
------------------
(A) Notices. Any notice provided for in this Agreement must be in
-------
writing and must be either personally delivered, or mailed by first class mail
(postage prepaid and return receipt requested) or sent by reputable overnight
courier service, to the recipient at the address below indicated:
To the Company: Attn.: Board of Directors
12500 Network Boulevard, Suite 407
San Antonio, Texas 78249
To Executive: At Executive's last known address as listed
52
<PAGE>
with the Company
or such other address or to the attention of such other person as the recipient
party shall have specified by prior written notice to the sending party. Any
notice under this Agreement will be deemed to have been given when so delivered
or sent or if mailed, five days after so mailed.
(B) Severability. Whenever possible, each provision of this
------------
Agreement will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to he invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision in such jurisdiction or any other jurisdiction, or the
legality or enforceability of such provision in any other jurisdiction, but this
Agreement will be reformed, construed and enforced in such jurisdiction as if
such invalid, illegal or unenforceable provision had never been contained herein
except that any court having jurisdiction shall have the power to reduce the
duration, area or scope of such invalid, illegal or unenforceable provision and,
in its reduced form it shall be enforceable.
(C) Complete Agreement. This Agreement embodies the complete
------------------
agreement and understanding between the parties and supersedes and preempts any
prior understandings, agreements or representations by or between the parties,
written or oral, which may have been related to the subject matter hereof in any
way.
(D) Successors and Assigns. This Agreement is a personal service
----------------------
contract and is not assignable by the Executive. Subject to the Executive's
rights under paragraph 1(D)(5)(d), this Agreement may be assigned from time to
--------------------
time by the Company. This Agreement shall be binding on and inure to the
benefit of the parties hereto and such parties' respective successors, personal
representatives and permitted assigns.
(E) Choice of Law. All questions concerning the construction,
-------------
validity and interpretation of this Agreement will be governed by the internal
law, and not the law of conflicts, of the State of Texas.
(F) Remedies. Each of the parties to this Agreement will be
--------
entitled to enforce his or its rights under this Agreement specifically, to
recover damages (including, without limitation, reasonable fees and expenses of
counsel) by reason of any breach of any provision of this Agreement and to
exercise all other rights existing in his or its favor. The parties hereto
agree and acknowledge that money damages may not be an adequate remedy for any
breach or threatened breach of the provisions of this Agreement and that any
party may in his or its sole discretion apply to any court of law or equity of
competent jurisdiction for specific performance and/or injunctive relief in
order to enforce or prevent any violations of the provisions of this Agreement.
Such injunction or decree shall be available without the posting of any bond or
other security.
(G) Amendments and Waivers. Any provision of this Agreement may be
----------------------
amended or waived only with the prior written consent of Executive and a
majority of the Board.
(H) Absence of Conflicting Agreements. Executive hereby warrants
---------------------------------
and covenants that his employment by the Company does not result in a breach of
the terms, conditions or provisions of any agreement to which Executive is
subject.
(I) Survival. No termination of Executive's employment by either or
--------
both parties shall reduce or terminate Executive's covenants and agreements in
paragraphs 2, 3 and 5.
- ---------------------
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered on the day and year first above written.
53
<PAGE>
"Company" AMERICAN TELESOURCE INTERNATIONAL, INC.
By: _______________________________________________
Name: _____________________________________________
Title: ____________________________________________
"Executive"
_____________________________________________________
Arthur L. Smith
54
<PAGE>
EXHIBIT 10.14
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement"), executed this _______ day of
September, 1999 to be effective as of January 1, 2000, is between AMERICAN
TELESOURCE INTERNATIONAL, INC., a Delaware corporation (the "Employer"), and
Craig K. Clement ("Employee").
R E C I T A L S:
A. The Employer and Employee entered into an Executive Employment
Agreement dated effective January 1, 1997 for a period of three years.
B. The Employer decided not to renew the Executive Employment Agreement,
and has given notice to Employee that the Executive Employment
Agreement will not renew and will therefore terminate effective
December 31, 1999.
C. The Employer and Employee agreed to enter into new employment
agreement for a one year term on the terms and conditions herein
provided.
D. The Employer considers the maintenance of a sound management team,
including Employee, essential to protecting and enhancing its best
interests and those of its stockholders.
E. Employee will be an officer of the Employer and Employee will be a
member of Employer's management team.
NOW, THEREFORE, in consideration of Employee's future employment with
Employer and other good and valuable consideration, the parties agree as
follows:
Section 1. Employment. The Employer hereby employs Employee, and Employee
hereby accepts employment, upon the terms and subject to the conditions stated
in this Agreement.
Section 2. Duties. Employee shall be employed as Senior Vice President,
Corporate Development of the Employer, or such other positions with Employer to
which he may be appointed by the Board of Directors of the Employer (the
"Board"). It is understood that Employee may be requested from time to time to
provide assistance or services to, or act as an officer or director of the
Employer or any of its subsidiaries or other affiliates. Employee shall
perform such services and, if elected as a director or officer of any such
company, shall hold such office (and discharge its duties) without additional
compensation other than the compensation set forth in this Agreement; provided,
---------
however, that this Agreement does not prohibit (or require) the affiliates of
- -------
Employer from offering additional compensation. Employee agrees to devote his
full work time and best efforts to the performance of the duties as an Employee
of Employer and to the performance of such other duties as assigned him from
time to time by the Board or the Chairman.
Section 3. Term. The initial term of employment of Employee hereunder
shall continue for one year, from January 1, 2000 ("Employment Date") until
December 31, 2000, unless earlier terminated pursuant to Section 6 herein.
Section 4. Compensation and Benefits. In consideration for the services
of Employee hereunder, the Employer shall compensate Employee as follows:
55
<PAGE>
(a) Base Salary. Until the termination of Employee's employment hereunder,
Employer shall pay Employee a base salary at the rate of at least $1950.46 per
week ("Base Salary"), payable in accordance with the regular payroll practices
of the Employer for executives, less such deductions or amounts as are required
to be deducted or withheld by applicable laws or regulations and less such other
deductions or amounts, if any, as are authorized by Employee. The Base Salary
may not be decreased at any time during the term of Employee's employment
hereunder Any increase in Base Salary shall be in the sole discretion of the
Compensation Committee of the Board.
(b) Executive Bonus Plan. Employee shall be eligible to receive from the
Employer such management incentive bonuses as may be provided in management
incentive bonus plans adopted from time to time by Employer.
(b) Vacation. Employee shall be entitled time off in accordance with the
Employee's vacation and absence policy, as it may be modified from time to time
during Employee's employment hereunder, provided that Employee will have no less
than three (3) weeks of paid vacation during the initial term of this Agreement,
and each subsequent year if the initial term is extended.
(c) Life Insurance Benefits. Employer shall pay the premiums allocable to
a term life insurance policy in the face amount of $50,000 covering Employee as
the named insured, subject to Employee's passing a standard physical examination
in order to permit issuance of the policy at standard (non-rated) premiums and
satisfaction of any other standard underwriting requirements. Employee shall be
the owner of such policy and shall have the right to designate the beneficiary
of the policy proceeds. Employee shall be liable for income taxes with respect
to premium amounts includable in Employee's taxable income.
(d) Group Insurance Benefits. Employee shall be entitled to participate in
the Employer's group health and disability programs as are made available to the
Employer's other executives and officers and the Employee's participation in
such programs shall be at the same rates which are available to the Employer's
other executives and officers.
(e) Savings Plans. Employee shall be entitled to participate in Employer's
401(k) plan, or other retirement or savings plans as are made available to the
Employer's other executives and officers on the same terms which are available
to the Employer's other executives and officers.
(f) Health Club Membership. Employer shall pay for or reimburse Employee
for a family membership at a health and fitness club of Employee's choosing,
provided that the total cost of the membership does not exceed $75 per month.
Section 5. Expenses. The parties anticipate that in connection with the
services to be performed by Employee pursuant to the terms of this Agreement,
Employee will be required to make payments for travel, entertainment of business
associates and similar expenses. Employer shall reimburse Employee for all
appropriate and reasonable expenses authorized by Employer and incurred by
Employee in the performance of his duties hereunder. Employee shall comply with
such budget limitations and approval and reporting requirements with respect to
expenses as Employer may establish from time to time.
Section 6. Termination.
(a) General. Employee's employment hereunder shall commence on the
Employment Date and continue until the end of the term specified in Section 3,
except that the employment of Employee hereunder shall terminate prior to such
time in accordance with the following:
56
<PAGE>
(i) Death or Disability. Upon the death of Employee during the term
of his employment hereunder or, at the option of Employer, in the event of
Employee's Disability, upon 30 days' notice to Employee. "Disability" with
respect to an Employee shall be deemed to exist if the Employee meets the
definition of either "disabled" or "disability" under the terms of the
Employer's long-term disability benefit program (including the definitions
for total or partial disability). Any refusal by Employee to submit to a
reasonable medical examination to determine whether Employee is so disabled
shall be deemed to constitute conclusive evidence of Employee's
disability.
(ii) For Cause. For "Cause" immediately upon written notice by
Employer to Employee. A termination shall be for "Cause" if:
(1) Employee commits fraud, bribery, embezzlement or other
material dishonesty with the respect to the business of Employer,
or Employer discovers that Employee has committed any such act in
the past with respect to a previous employer; or
(2) Employee commits a felony or any criminal act involving
moral turpitude or Employer discovers that Employee has committed
any such act in the past; or
(3) Employee commits a material breach of any of the covenants,
representations, terms or provisions hereof; or
(4) Employee violates any instructions or policies of Employer
with respect to the operation of its business or affairs or
Employee fails to obey written directions delivered to Employee
by the Employer's Board or Chairman of the Board; or
(5) Employee commits or omits to perform any act the performance
of which or the omission of which constitutes substantial failure
of Employee to diligently and effectively perform his duties to
Employer or adversely affects or could adversely affect the
Employer's business reputation; or
(6) Employee uses illegal drugs.
(iii) Without Cause. Without Cause immediately upon notice by
Employer to Employee.
(b) Severance Pay.
(i) Termination Upon Death or Disability or For Cause. Employee shall
not be entitled to any severance pay or other compensation upon termination
of his employment pursuant to Section 6(a)(i) or (ii) except for his Base
Salary accrued but unpaid as of the date of termination, unpaid expense
reimbursements under Section 5 for expenses incurred in accordance with the
terms hereof prior to termination, compensation for accrued, unused
vacation as of the date of termination ("Accrued Amounts"), and in the
event of termination pursuant to Section 6(a)(i) for Disability, an amount
equal to twenty-six (26) times the difference between the Base Salary in
effect at the time of termination and twenty-six weeks worth of the benefit
to be paid under the Employer's long term disability plan. This amount
shall be paid in a lump sum no later than ten (10) business days following
the date of Employee's termination.
(ii) Termination Without Cause. In the event Employee's employment
hereunder is terminated pursuant to Section 6(a)(iii) prior to the
expiration of the initial term of this Agreement (as such initial term may
have been extended), Employer shall pay Employee, as consideration for the
execution of
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a separation and release agreement and in lieu of any further compensation
payable hereunder other than Accrued Amounts, a cash amount equal to
twenty-six (26) times Employee's then current Base Salary. Such separation
payment shall be Employee's sole remedy in connection with such
termination. The separation payment shall be made as specified above
without regard to the number of months remaining in the term of this
Agreement, and shall be paid in a lump sum within ten (10) business days of
the Employee's execution of a separation and release agreement.
(c) Change in Control. If a "Change in Control" occurs during Employee's
employment under this Agreement, and if Employee's employment is terminated
"Without Cause" pursuant to Section 6(a)(iii) above prior to the end of a period
of twenty-four (24) months beyond the month in which a "Change in Control"
occurs, or if Employee voluntarily terminates his employment prior to the end of
a period three (3) months beyond the month in which a Change in Control of the
Employer occurs, Employee shall receive the amount determined pursuant to
Section 6(b)(ii) above. A "Change in Control" of Employer shall be deemed to
have occurred if (i) any "person" or "group" (as such terms are used in Sections
13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Act")),
becomes the "beneficial owner" (as such term is defined in Rule 13d-3 under the
Act), directly or indirectly, of outstanding securities of Employer representing
40% of more of the combined voting power of the outstanding securities of the
Employer, or (ii) during any period of two consecutive years, individuals who at
the beginning of such period constitute the Board cease for any reason to
constitute a majority of the Board (except that any new director who is elected
by the Board to fill a vacancy created by the death, resignation or
disqualification of a member of the Board shall not be considered a new member
of the Board for purposes of this definition), or (iii) the shareholders of
Employer approve (A) a merger or consolidation of Employer with any other
entity, other than a merger or consolidation which would result in the voting
securities of Employer outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted into voting
securities of the surviving entity) at least 60% of the combined voting power of
the voting securities of Employer, or (B) a plan of complete liquidation of
Employer, or (C) an agreement or agreements for the sale or disposition, in a
single transaction or series of related transactions, by the Employer of all or
substantially all of the property and assets of Employer.
Section 7. Inventions; Assignment.
(a) Inventions Defined. All rights to discoveries, inventions,
improvements, designs and innovations (including all data and records pertaining
thereto) that relate to the business of Employer, including its affiliates,
whether or not able to be patented, copyrighted or reduced to writing, that
Employee may discover, invent or originate during the term of his employment
hereunder, and for a period of six months thereafter, either alone or with
others and whether or not during working hours or by the use of the facilities
of Employer ("Inventions"), shall be the exclusive property of Employer.
Employee shall promptly disclose all Inventions to Employer, shall execute at
the request of Employer any assignments or other documents Employer may deem
necessary to protect or perfect its rights therein, and shall assist Employer,
at Employer's expense, in obtaining, defending and enforcing Employer's rights
therein. Employee hereby appoints Employer as his attorney-in-fact to execute
on his behalf any assignments or other documents deemed necessary by Employer to
protect or perfect its rights to any Inventions.
(b) Covenant to Assign and Cooperate. Without limiting the generality of
the foregoing, Employee shall assign and transfer to Employer the world-wide
right, title and interest of Employee in the Inventions. Employee agrees that
Employer may apply for and receive patent rights (including Letters Patent in
the United States) for the Inventions in Employer's name in such countries as
may be determined solely by Employer. Employee shall communicate to Employer
all facts known to Employee relating to the Inventions and shall cooperate with
Employer's reasonable requests in connection with vesting title to the
Inventions and related patents exclusively in Employer and in connection with
obtaining, maintaining and protecting Employer's exclusive patent rights in the
Inventions.
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(c) Successors and Assigns. Employee's obligations under this Section 7
shall inure to the benefit of Employer, its affiliates and their
respective successors and assigns and shall survive the expiration of
the term of this Agreement for such time as may be necessary to
protect the proprietary rights of Employer and its affiliates in the
Inventions.
Section 8. Confidential Information.
(a) Acknowledgment of Proprietary Interest. Employee acknowledges the
proprietary interest of Employer and its affiliates in all Confidential
Information (as defined below). Employee agrees that all Confidential
Information learned by Employee during his employment with Employer or
otherwise, whether developed by Employee alone or in conjunction with others or
otherwise, is and shall remain the exclusive property of Employer. Employee
further acknowledges and agrees that his disclosure of any Confidential
Information will result in irreparable injury and damage to Employer.
(b) Confidential Information Defined. "Confidential Information" means all
trade secrets, copyrightable works, confidential or proprietary information of
Employer or its affiliates, including without limitation, (i) information
derived from reports, investigations, experiments, research and work in
progress, (ii) methods of operation, (iii) market data, (iv) proprietary
computer programs and codes, (v) drawings, designs, plans and proposals, (vi)
marketing and sales programs, (vii) the identities of clients or customers ,
(viii) historical financial information and financial projections, (ix) pricing
formulae and policies, (x) all other concepts, ideas, materials and information
prepared or performed for or by Employer and (xi) all information related to the
business, services, products, purchases or sales of Employer or any of its
suppliers and customers, other than information that is publicly available.
(c) Covenant Not To Divulge Confidential Information. Employer is entitled
to prevent the disclosure of Confidential Information. As a portion of the
consideration for the employment of Employee and for the compensation being paid
to Employee by Employer, Employee agrees at all times during the term of his
employment hereunder and thereafter to hold in strict confidence and not to
disclose or allow to be disclosed to any person, firm or corporation, other than
to persons engaged by Employer to further the business of Employer, and not to
use except in the pursuit of the business of Employer, the Confidential
Information, without the prior written consent of Employer.
(d) Return of Materials at Termination. In the event of any termination or
cessation of his employment with Employer for any reason, Employee shall
promptly deliver to Employer all documents, data and other information derived
from or otherwise pertaining to Confidential Information. Employee shall not
take or retain any documents or other information, or any reproduction or
excerpt thereof, containing or pertaining to any Confidential Information.
Section 9. Non-Solicitation.
(a) Solicitation of Employees. During Employee's employment with Employer
and for a period of twelve (12) months after termination of such employment at
any time and for any reason, and regardless of whether any payments are made to
Employee under this Agreement as a result of such termination, Employee shall
not solicit, participate in or promote the solicitation of any person who was
employed by Employer or any of its affiliates at the time of Employee's
termination of employment with Employer to leave the employ of Employer or any
of its affiliates, or, on behalf of himself or any other person, hire, employ or
engage any such person. Employee further agrees that, during such time, if an
employee of Employer or any of its affiliates contacts Employee about
prospective employment, Employee will inform such employee that he or she cannot
discuss the matter further without the consent of Employer (and the applicable
affiliate).
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(b) Solicitation of Clients, Customers, Etc. During Employee's employment
with Employer and for a period of twelve (12) months after termination of
Employee's employment at any time and for any reason, and regardless of whether
any payments are made to Employee under this Agreement as a result of such
termination, Employee shall not, directly or indirectly, solicit any person who,
at the time of termination of Employee's employment with Employer, was a client,
customer, policyholder, vendor, consultant or agent of Employer or its
affiliates to discontinue business, in whole or in part, with Employer or its
affiliates. Employee further agrees that, during such time, if such a client,
customer, policyholder, vendor, or consultant or agent contacts Employee about
discontinuing business with Employer or moving that business elsewhere, Employee
will inform such client, customer, policyholder, vendor, consultant or agent
that he or she cannot discuss the matter further without the consent of Employer
(and the applicable affiliate).
Section 10. No-Compete.
(a) Competition During Employment. Employee agrees that during the term of
his employment with Employer, neither he nor any of his affiliates, will
directly or indirectly compete with Employer or its affiliates in any way, and
that he will not act as an officer, director, employee, consultant, shareholder,
lender, or agent of any entity which is engaged in any business of the same
nature as, or in competition with, the businesses in which Employer and its
affiliates are now engaged or in which Employer or its affiliates become engaged
during the term of employment; provided, however, that this Section 10(a) shall
not prohibit Employee or any of his affiliates from: (i) purchasing or holding
an aggregate equity interest of up to 1%, so long as Employee and his affiliates
combined do not purchase or hold an aggregate equity interest of more than 5%,
in any business in competition with Employer and its affiliates. Furthermore,
Employee agrees that during the term of employment, he will undertake no
planning for the organization of any business activity competitive with the work
he performs as an employee of Employer and Employee will not combine or conspire
with any other employees of Employer and its affiliates for the purpose of the
organization of any such competitive business activity.
(b) Competition Following Employment. In order to protect Employer against
the unauthorized use or the disclosure of any Confidential Information of
Employer and its affiliates presently known or hereinafter obtained by Employee
during his employment under this Agreement, Employee agrees that for a period of
twelve (12) months after the termination or cessation of his employment with
Employer at any time and for any reason, and regardless of whether any payments
are made to Employee under this Agreement as a result of such termination,
neither Employee nor any of his affiliates, shall, directly or indirectly, for
itself or himself or on behalf of any other corporation, person, firm,
partnership, association, or any other entity (whether as an individual, agent,
servant, employee, employer, officer, director, shareholder, investor,
principal, consultant or in any other capacity):
(i) engage or participate in any business which engages in
competition with such businesses being conducted by Employer or any of
its affiliates during the term of employment anywhere in any state in
the United States or in any foreign country where the Employer or any
of its affiliates provides telecommunications services, including,
without limitation, domestic and international call services or
domestic and international telecommunications networks of voice, data,
fax or video transmission to or from the United States and Latin
America or within Latin America, or any other business in which the
Employer or any of its affiliates has been actively engaged during the
term Employee performed services for the Employer; provided, however,
that this provision shall not prohibit Employee or any of his
affiliates from purchasing or holding an aggregate equity interest of
up to 1%, so long as Employee and his affiliates combined do not
purchase or hold an aggregate equity interest of more than 5%, in any
business in competition with Employer;
(ii) assist or finance any person or entity in any manner or in
any way inconsistent with the intents and purposes of this Agreement.
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Section 11. General.
(a) Notices. All notices and other communications hereunder shall be in
writing or by written telecommunication, and shall be deemed to have been duly
given if delivered personally or if mailed by certified mail, return receipt
requested or by written telecommunication, to the relevant address set forth
below, or to such other address as the recipient of such notice or communication
shall have specified to the other party in accordance with this Section 11(a):
If to Employer, to:
American TeleSource International, Inc.
12500 Network Boulevard, Suite 407
San Antonio, Texas, 78249
Attention: Chairman of the Board
(or the subsequent headquarters of Employer as known to Employee)
If to Employee, to the Employee's last known address appearing on
Employer's records
(b) Withholding. All payments required to be made to Employee by
Employer under this Agreement shall be subject to the withholding of such
amounts, if any, relating to federal, state and local taxes as may be required
by law.
(c) Equitable Remedies. Each of the parties hereto acknowledges and
agrees that upon any breach by Employee of his obligations under any of Sections
7, 8, 9, and 10 Employer shall suffer immediate, great and irreparable injury
and shall have no adequate remedy at law. Accordingly, in event of such
breach, Employer shall be entitled, in addition other remedies and without
showing actual damages, to specific performance and other appropriate injunctive
and equitable relief.
(d) Severability. If any provision of this Agreement is held to be
illegal, invalid or unenforceable, such provision shall be fully severable, and
this Agreement shall be construed and enforced as if such illegal, invalid or
unenforceable provision never comprised a part hereof, and the remaining
provisions hereof shall remain in full force and effect and shall not be
affected by the illegal, invalid or unenforceable provision or by its severance.
Furthermore, in lieu of such illegal, invalid or unenforceable provision, there
shall be added automatically as part of this Agreement a provision as similar in
its terms to such illegal, invalid or unenforceable provision as may be possible
and be legal, valid and enforceable.
(e) Waivers. No delay or omission by either party in exercising any
right, power or privilege hereunder shall impair such right, power or privilege,
nor shall any single or partial exercise of any such right, power or privilege
preclude any further exercise thereof or the exercise of any other right, power
or privilege.
(f) Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.
(g) Captions. The captions in this Agreement are for convenience of
reference only and shall not limit or otherwise affect any of the terms or
provisions hereof.
(h) Interpretation of Agreement. This Agreement shall be construed
according to its fair meaning and not for or against either party. Use of the
words "herein," "hereof," "hereto," "hereunder" and the like in this Agreement
refer to this Agreement only as a whole and not to any particular section or
subsection of this
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Agreement, unless otherwise noted. The masculine gender shall be deemed to
denote the feminine or neuter genders, the singular to denote the plural, and
the plural to denote the singular, where the context so permits.
(i) Binding Agreement; Assignment. This Agreement shall be binding upon
and inure to the benefit of the parties and shall be enforceable by the personal
representatives and heirs of Employee and the successors and assigns of
Employer. The affiliates of Employer shall be considered third party
beneficiaries of this Agreement with respect to any services provided by
Employee to them and in connection with Employee's covenants in Sections 7,8,9
and 10 hereof. This Agreement may be assigned by the Employer; provided that in
the event of any such assignment, the Employer shall remain liable for all of
its obligations hereunder and shall be liable for all obligations of all such
assignees hereunder. If Employee dies while any amounts would still be payable
to him hereunder, such amounts shall be paid to Employee's estate. This
Agreement is not otherwise assignable by Employee.
(j) Entire Agreement. This Agreement contains the entire understanding of
the parties, supersedes all prior agreements and understandings relating to the
subject matter hereof and may not be amended except by a written instrument
hereafter signed by each of the parties hereto.
(k) Governing Law. This Agreement and the performance hereof shall be
construed and governed in accordance with the laws of the State of Texas,
without regard to its choice of law principles.
(l) Arbitration. Without limiting Employer's right to seek equitable
remedies under Section 11(c) above, Employer and Employee agree that any
dispute or controversy arising under or in connection with this Agreement shall
be settled by arbitration. Arbitration under this Agreement shall be governed
by the Federal Arbitration Act and proceed in San Antonio, Texas in accordance
with the rules of the American Arbitration Association ("AAA"). Arbitration
will be conducted before a panel of three neutral arbitrators selected from a
AAA list of proposed arbitrators with business law experience. Either party may
take any legal action needed to protect any right pending completion of the
arbitration. The arbitrator will determine whether an issue is arbitrable and
will give effect to applicable statutes of limitation. The arbitrator has the
discretion to decide, upon documents only or with a hearing, any motion to
dismiss for failure to state a claim or any motion for summary judgment.
Discovery shall be governed by the Federal Rules of Civil Procedure and the
Federal Rules of Evidence. All information developed by the arbitration or
litigation shall be held in confidence subject to such protective orders as the
arbitrator deems useful to ensure complete confidentiality. The decision of the
arbitrator shall be final and binding on all parties to this Agreement, and
judgment thereon may be entered in any court having jurisdiction over the
parties. All costs of the arbitration proceeding or litigation to enforce the
arbitration award shall be paid by the party against whom the arbitrator
decides.
(m) Employee Representations. Employee represents and certifies to
Employer that he: (i) has received a copy of this Agreement for review and
study and has had ample time to review it before signing; (ii) has read this
Agreement carefully; (iii) has been given a fair opportunity to discuss and
negotiate the terms of this Agreement; (iv) understands its provisions; (v) has
had the opportunity to consult his attorney; (vi) has determined that it is in
his best interest to enter into his Agreement; (vii) has not been influenced to
sign this Agreement by any statement or representation by Employer or its
counsel not contained in this Agreement; and (viii) enters into this Agreement
knowingly and voluntarily.
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EXECUTED as of the date and year first above written.
AMERICAN TELESOURCE INTERNATIONAL, INC.
By /s/ Arthur L. Smith
-------------------
Chairman of Board of Directors
/s/ Craig K. Clement
--------------------
Craig K. Clement
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EXHIBIT 10.15
CORRECTED AND RESTATED EXECUTIVE EMPLOYMENT AGREEMENT
WHEREAS, GlobalSCAPE, Inc. ("GlobalSCAPE") and Sandra Poole-Christal
("Executive") entered into an Executive Employment Agreement dated effective
January 1, 1998 (the "Original Agreement"); and
WHEREAS the Original Agreement contained various errors;
NOW THEREFORE, the parties have executed this Corrected and Restated
Executive Employment Agreement (the "Agreement") effective as of the date of the
Original Agreement:
The parties hereto agree as follows:
1. Employment. The Company agrees to employ Executive and Executive
----------
accepts such employment for the period beginning January 1, 1998 (the "Start
Date") and ending upon termination pursuant to paragraph 1 (D) hereof (the
---------------
"Employment Period").
(A) Services. During the Employment Period, Executive will be the President of
--------
the Company, and in connection therewith will render such services of an
executive and administrative character to the Company and its affiliates as are
customarily rendered by persons holding such position with similarly situated
companies, as the Board of Directors of the company, (the "Board") may from time
to time direct. Executive will devote her best efforts and substantially all of
her business time and attention (except as otherwise specifically permitted
herein and except for vacation periods and reasonable periods of illness or
other incapacity) to the business of the Company and its affiliates and will
faithfully and diligently carry out such duties and have such responsibilities
as are customary among persons employed in substantially similar capacities for
similar companies. Executive will report to GlobalSCAPE's Board of Directors and
shall faithfully and diligently comply with all of its reasonable and lawful
directives. For purposes of this Agreement, the term "affiliates" means any
corporation, limited partnership, limited liability company or other entity
engaged in the same business as the Company or a related business, which
controls, is controlled by or is under common control with the Company.
(B) Salary. During the Employment Period and thereafter as provided in
------
paragraph (D) below, the Company will pay Executive a base salary at the rate of
- -------------
not less than $80,000 per annum (or such higher amount as the Board may
establish from time to time), and will be payable in accordance with the
Company's regular payroll practices.
(C) Benefits. In addition to the compensation described above in this
--------
paragraph 1, Executive will be entitled during the Employment Period to the
- -----------
following benefits:
(1) such bonus as the Board in its sole discretion may from time to
time authorize, but in no event shall bonuses paid during a year exceed 50% of
Executive's base salary for such year;
(2) such health insurance and other benefits as are available from
time to time to the Company's salaried employees generally;
(3) in accordance with the Company's vacation and absence paid as in
effect from time to time, sick leave, personal time provided that Executive
shall have no less than three weeks vacation each year, with salary;
(4) reimbursement, upon submission of documentation in accordance
with the Company's regular expense policies, for reasonable business expenses
incurred on the Company's behalf by Executive;
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(5) participation in any savings plan, 401(k) plan, profit sharing
plan or pension plan as is available from time to time to the Company's salaried
employees generally; and
(6) opportunity to participate in any and all employee benefit plans
from time to time in effect for executives or salaried employees of the Company
generally (subject to any contribution therefore generally required by such
employees and except to the extent such plans are in a category of benefit
otherwise provided to Executive).
(D) Termination. Unless earlier terminated by termination of Executive's
-----------
employment pursuant to any of the provisions immediately below, Executive's
employment with the Company will continue until the third anniversary of the
Start Date, and Executive's employment shall be renewed automatically for one-
year periods thereafter unless either party hereto gives written notice to the
other party, at least 120 days prior to the next anniversary date, that such
employment shall not be renewed:
(1) Death. In the event of Executive's death during the term hereof,
-----
Executive's employment hereunder shall immediately and automatically terminate.
Notwithstanding such event, the Company shall pay to Executive's designated
beneficiary or, if no beneficiary has been designated by Executive, to her
estate, the base salary at the rate in effect on the date of death for a period
of 6 months. The Company shall also pay to Executive's designated beneficiary
or, if no beneficiary has been designated by Executive, to her estate, any
incentive compensation that is earned but unpaid, based on the operations of the
Company for the whole year, prorated through the date of death.
(2) Disability.
----------
(a) The Company may terminate Executive's employment
hereunder, upon notice to Executive, in the event that Executive becomes
disabled during her employment hereunder through any illness, injury, accident
or condition of either a physical or psychological nature and, as a result, is
unable to perform substantially all of her duties and responsibilities hereunder
for 90 days during any period of 365 consecutive calendar days. In the event of
such termination, until the earliest of (i) the conclusion of the then-current
term of this Agreement and (ii) the conclusion of a period of 6 months following
the date of termination, the Company shall continue to pay Executive the base
salary at the rate in effect on the date of termination and shall continue to
contribute to the cost of Executive's participation in the Company's group
medical and dental insurance plan, if any, provided that Executive is entitled
to continue such participation under applicable law and plan terms. The Company
will also pay Executive, in the case of such termination, any incentive
compensation that is earned but unpaid, based on the operations of the Company
for the whole year, prorated through the date of such termination;
(b) While receiving disability income payments under the
Company's disability income plan, if any, Executive shall be entitled to receive
the excess, if any, of base salary under paragraph I (B) hereof over such
---------------
disability income payments, and shall be entitled to receive such bonus and
other benefits as are described in paragraph 1(C), until the termination of her
--------------
employment and except to the extent a longer period is specified in paragraph
---------
1(D)(2)(a).
- ----------
(3) Termination by the Company without Cause. The Company may at any
----------------------------------------
time terminate Executive's employment without Cause (as defined below) by giving
Executive written notice of the effective date of termination. In the event of
such termination, the Company shall have the continuing obligation to make
payments of base salary in accordance with paragraph (B) above at the rate in
-------------
effect on the effective date of such termination until the third anniversary of
the Start Date or until 12 months after the effective date of such termination,
whichever period is longer. Additionally, during such period following
termination as the Company shall have the continuing obligation to make payments
of base salary, the Company shall continue to contribute to the cost of
Executive's participation in the Company's group medical and insurance plans, if
any, provided that Executive is entitled to continue such participation under
applicable law and plan. The Company will also pay Executive, in the event of
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such termination, any incentive compensation that is earned but unpaid, based on
operations of the Company for the whole year, prorated through the date of her
termination.
(4) Termination by the Company for Cause. The Company shall have the right
------------------------------------
to terminate the Executive's employment at any time for any of the following
reasons (each of which is referred to herein as "Cause") by giving Executive
written notice of the effective date of termination (which effective date may be
the date of such notice):
(a) the willful breach of any provision of paragraphs 1(A), 2, 3, 4
------------------------
or 5 (including, but not limited to, a refusal to follow reasonable and lawful
- ----
directives of the Board; provided, however, that to the extent that such breach
is curable, the Board will give Executive written notice of such breach and
Executive will have 30 days from the receipt of such notice to cure such breach;
(b) any act of fraud, embezzlement or other material dishonesty with
respect to any aspect of the Company's business;
(c) continued use of illegal drugs;
(d) substantial failure of performance, repeated or continued after
written notice of such failure and explanation of such failure of performance,
which is reasonably determined by the Board of Directors to be materially
injurious to the business or interests of the Company; or
(e) conviction of a felony or of a crime involving moral turpitude.
If the Company terminates Executive's employment for any of the
reasons set forth above in this paragraph 1(D)4, the Company shall have no other
---------------
obligations hereunder (including the obligation to continue to make payments of
base salary as provided in paragraph 1(D)3 from and after the effective date of
---------------
termination and shall have all other rights and remedies available under this or
any other agreement and at law or in equity.
(5) By the Executive for Good Reason. Executive may terminate her
--------------------------------
employment hereunder for Good Reason, upon written notice to the Company setting
forth the nature of such Good Reason in reasonable detail. "Good Reason" shall
mean:
(a) the material failure of the Company to provide Executive the base
salary and incentive compensation and benefits in accordance with the terms of
paragraph 1 and paragraph 6 hereof;
- ---------------------------
(b) the material diminution in the nature or scope of Executive's
responsibilities, duties or authority; or
(c) the occurrence of a Change in Control (as defined herein).
In the event of termination in accordance with this paragraph 1(D)(5), the
-----------------
Company shall continue to pay Executive the base salary at the rate in effect on
the effective date of such termination until the third anniversary of the Start
Date or, in the event this Agreement has been automatically extended thereafter
in accordance with paragraph 1(D) hereof, until next anniversary of the Start
--------------
Date. Additionally, during such period following termination as the Company
shall have the continuing obligation to make payments of base salary, the
Company shall continue to contribute to the cost of Executive's participation in
the Company's group medical and insurance plans, if any, provided that Executive
is entitled to continue such participation under applicable law and plan. The
Company will also pay Executive, in the event of such termination, any incentive
compensation that is earned but unpaid, based on operations of the Company for
the whole year, prorated through the date of her termination.
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A "Change in Control" shall be deemed to have occurred if (i) any "person"
(as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act
of 1934, as amended), becomes the "beneficial owner" (as such term is defined in
Rule 13d-3 under the Act), directly or indirectly, of outstanding securities of
the Company representing 75% or more of the combined voting power of the
outstanding securities of the Company, or (ii) during any period of two
consecutive years, individuals who at the beginning of such period constitute
the Board of Directors of the Company and any new director whose election by the
Board of Directors or nomination for election by the shareholders of the Company
was approved by a vote of at least two-thirds (2/3) of the directors then still
in office who either were directors at the beginning of the period or whose
election or nomination for election was previously so approved, cease for any
reason to constitute a majority thereof, or (iii) the shareholders of the
Company approve (A) a merger or consolidation of the Company with any other
entity (other than a merger or consolidation which would result in the voting
securities of the Company outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted into voting
securities of the surviving entity) at least 26% of the combined voting power of
the voting securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation), (B) a plan of complete
liquidation of the Company or (C) an agreement or agreements for the sale or
disposition, in a single transaction or series of related transactions, by the
Company of all or substantially all of the property and assets of the Company.
Notwithstanding the foregoing, events otherwise constituting a Change in Control
in accordance with the foregoing shall not constitute a Change in Control if
such events are solicited by the Company and are, if Executive is then a member
of the Board, approved, recommended or supported by Executive in her capacity as
a member of the Board of the Company in actions taken prior to, and with respect
to, such events.
(6) Voluntary Termination by Executive. Except as provided in paragraph
---------------------------------- ---------
1(D)(5), in the event that Executive's employment with the Company is terminated
- -------
by Executive, such termination shall be a breach of this Agreement and the
Company shall have no further obligations hereunder from and after the date of
such termination.
2. Nondisclosure. Executive acknowledges that during the course of her
-------------
performance of services for the Company she has acquired and will acquire
technical knowledge with respect to the Company's business operations,
including, by way of illustration, the Company's existing and contemplated
services, trade secrets, patents and selling techniques and information,
customer lists, supplier lists, and confidential information relating to the
Company's policy and/or business strategy (all of such information herein
referenced to as the "Confidential Information"); provided, however, that the
term "Confidential Information" shall not include (a) any information which is
or becomes publicly available otherwise than through breach of this Agreement,
or (b) any information which is or becomes known or available to Executive on a
non-confidential basis and not in contravention of applicable law from a source
which is entitled to disclose such information to Executive. Executive agrees
that she will not, while she is employed by the Company, divulge to any person,
directly or indirectly, except to the Company or its officers and agents or as
reasonably required in connection with her duties on behalf of the Company, or
use, except on behalf of the Company, any Confidential Information acquired by
Executive during the term of her employment. Executive agrees that she will
not, at any time after her employment with the Company has ended, divulge to any
person directly or indirectly any Confidential Information. Executive further
agrees that if her relationship with the Company is terminated (for whatever
reason) she shall not take with her but will leave with the Company all records,
papers and computer data and any copies thereof relating to the Confidential
Information (or if such papers, records, computer data or copies are not on the
premises of the Company, Executive agrees to return such papers, records and
computer data immediately upon her termination). Executive acknowledges that
all such papers, records, computer data or copies thereof are and remain the
property of the Company.
3. Inventions and Patents. Executive agrees that all inventions,
----------------------
innovations or improvements relating to the Company's business or method of
conducting business (including new contributions, improvements, ideas and
discoveries, whether patentable or not) conceived or made by her during her
employment with the Company belong
67
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to the Company. Executive will promptly disclose such inventions, innovations or
improvements to the Board and perform all actions reasonably requested by the
Board to establish and confirm such ownership.
4. Other Businesses. During the Employment Period, Executive agrees that
----------------
she will not, directly or indirectly except with the express written consent of
the Board, become engaged in, render material services for, or permit her name
to be used in connection with, or directly or indirectly counsel or consult
with, any business other than the business of the Company and its affiliates;
provided, however, that Executive may be a passive investor in any such business
(subject to the limitations set forth in paragraph 5 below).
-----------
5. Noncompetition. Executive agrees that:
--------------
(A) During the term she performs services for the Company and during
the Post-Employment Period (as defined below), Executive will not interfere with
the relationship between the Company or any affiliate and any employee, agent or
representative of the Company or any such affiliate.
(B) During the term she performs services for the Company and during
the Post-Employment Period, Executive will not directly or indirectly divert or
attempt to divert from the Company or any affiliate any business which provides
related services in which the Company has been actively engaged during the term
Executive performed services for the Company, nor interfere with the
relationships of the Company with customers, dealers, distributors, franchisees
or sources of supply.
(C) During the term she performs services for the Company and during
the Post-Employment Period, Executive will not directly or indirectly own,
manage, operate control, be employed by, participate in, or be connected in any
manner with the ownership, management, operation or control of, any business or
enterprise which provides software development or related services in which the
Company has been actively engaged during the then Executive performed services
for the Company.
(D) For purposes hereof, the "Post-Employment Period" shall mean: (i)
in the event Executive's employment with the Company is terminated for Cause
pursuant to paragraph 1(D)(4), the 12-month period following Executive's
-----------------
termination of employment with the Company, or (ii) in the event Executive's
employment with the Company is terminated for any other reason, the period
during which the Company continues to make payments of base salary.
6. Stock Option. Effective as of the date hereof (the "Effective
------------
Date"), under the terms of the GLOBALSCAPE 1998 Stock Option Plan (the "Plan"),
GLOBALSCAPE, a Delaware corporation ("Global"), hereby grants to Executive the
option (the "Option") to purchase shares (the "Option Shares") of Common Stock,
$.001 par value per share, of GLOBALSCAPE. The number of Option Shares, the
purchase price per Option Share and the installments and dates in which the
Executive shall have the right to exercise the Option are attached to this
Agreement as Exhibit "B". The Plan is attached to this Agreement as Exhibit
"A". Beginning on the Effective Date, such installments shall be cumulative
(i.e. once the right to purchase the number of shares of an installment has
accrued, such shares may be purchased at any time thereafter, or in part from
time to time, until the business day immediately preceding the tenth anniversary
of the Effective Date (the "Expiration Date") or until such earlier date as set
forth in the following paragraph. Notwithstanding the preceding sentence, upon
the occurrence of a Change in Control, Executive's right to exercise the Option
shall become fully vested (i.e., all unissued Option Shares may be purchased at
any time thereafter, or in part from time to time, until the Expiration Date or
until such earlier date as set forth in the following paragraph).
Upon termination of Executive's employment pursuant to Paragraph 1(D)(4)
-----------------
(Termination by the Company for Cause) or paragraph 1(D)(6) (Voluntary
-----------------
Termination by Executive), the Option shall remain exercisable for the four
month period following such termination, but only to the extent such option was
exercisable at termination.
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<PAGE>
Upon termination of Executive's employment pursuant to paragraph 1(D)(1) (Death)
-----------------
or paragraph 1(D)(2) (Disability), the Option, to the extent then exercisable,
-----------------
shall remain exercisable for the one-year period following such termination.
Upon termination of Executive's employment pursuant to paragraph (D)(3)
----------------
(Termination by the Company without Cause) or paragraph 1(D)(5) (By the
-----------------
Executive for Good Reason), Executive's right to exercise the Option shall
become fully vested and the Option shall remain exercisable for the four-month
period following such termination.
7. General Provisions.
------------------
(A) Notices. Any notice provided for in this Agreement must be in
-------
writing and must be either personally delivered, or mailed by first class mail
(postage prepaid and return receipt requested) or sent by reputable overnight
courier service, to the recipient at the address below indicated:
To the Company: Attn.: Arthur L. Smith
Chairman, GLOBALSCAPE Board of Directors
12500 Network Boulevard, Suite 407
San Antonio, Texas 78249
To Executive: Attn.: Sandra Poole-Christal
Executive's last known address
on records of Company
or such other address or to the attention of such other person as the recipient
party shall have specified by prior written notice to the sending party. Any
notice under this Agreement will be deemed to have been given when so delivered
or sent or if mailed, five days after so mailed.
(B) Severability. Whenever possible, each provision of this
------------
Agreement will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to he invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision in such jurisdiction or any other jurisdiction, or the
legality or enforceability of such provision in any other jurisdiction, but this
Agreement will be reformed, construed and enforced in such jurisdiction as if
such invalid, illegal or unenforceable provision had never been contained herein
except that any court having jurisdiction shall have the power to reduce the
duration, area or scope of such invalid, illegal or unenforceable provision and,
in its reduced form it shall be enforceable.
(C) Complete Agreement. This Agreement embodies the complete
------------------
agreement and understanding between the parties and supersedes and preempts any
prior understandings, agreements or representations by or between the parties,
written or oral, which may have been related to the subject matter hereof in any
way.
(D) Successors and Assigns. This Agreement is a personal service
----------------------
contract and is not assignable by the Executive. Subject to the Executive's
rights under paragraph 1(D)(5)(c), this Agreement may be assigned from time to
--------------------
time by the Company. This Agreement shall be binding on and inure to the
benefit of the parties hereto and such parties' respective successors, personal
representatives and permitted assigns.
(E) Choice of Law. All questions concerning the construction,
-------------
validity and interpretation of this Agreement will be governed by the internal
law, and not the law of conflicts, of the State of Texas.
(F) Remedies. Each of the parties to this Agreement will be
--------
entitled to enforce her or its rights under this Agreement specifically, to
recover damages (including, without limitation, reasonable fees and expenses
69
<PAGE>
of counsel) by reason of any breach of any provision of this Agreement and to
exercise all other rights existing in her or its favor. The parties hereto agree
and acknowledge that money damages may not be an adequate remedy for any breach
or threatened breach of the provisions of this Agreement and that any party may
in her or its sole discretion apply to any court of law or equity of competent
jurisdiction for specific performance and/or injunctive relief in order to
enforce or prevent any violations of the provisions of this Agreement. Such
injunction or decree shall be available without the posting of any bond or other
security.
(G) Amendments and Waivers. Any provision of this Agreement may be
----------------------
amended or waived only with the prior written consent of
Executive and a majority of the Board.
(H) Absence of Conflicting Agreements. Executive hereby warrants and
---------------------------------
covenants that her employment by the Company does not result in a
breach of the terms, conditions or provisions of any agreement to
which Executive is subject.
(I) Survival. No termination of Executive's employment by either or
--------
both parties shall reduce or terminate Executive's covenants and
agreements in paragraphs 2,3 and 5.
--------------------
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered on the day and year first above written.
"Company" GLOBALSCAPE, Inc.
By: /s/ Arthur L. Smith
-------------------
Name: Arthur L. Smith
---------------
Title: Chairman of the Board of Directors
----------------------------------
"Executive"
By: /s/ Sandra Poole-Christal
-------------------------
Name: Sandra Poole-Christal
---------------------
Exhibit B
Number of Option Shares: 291,429
Purchase Price: $0.00
Vesting Schedule: 97,143 January 1, 1999
(dates Options may be 97,143 January 1, 2000
exercised) 97,143 January 1, 2001
Exercise Price $0.10 per Option Share
Options Expire January 1, 2008
Subject to other terms and conditions stated in attached letter agreement.
70
<PAGE>
Exhibit 10.17
EXECUTIVE EMPLOYMENT AGREEMENT
Agreement made as of September 24, 1998, between AMERICAN TELESOURCE
INTERNATIONAL., Inc., a Delaware corporation (the "Company"), and Charles R.
Poole ("Executive").
The Company and the Executive desire to enter into certain agreements
providing for Executive's employment with the Company.
The parties hereto agree as follows:
1. Employment. The Company agrees to employ Executive and Executive
----------
accepts such employment for the period beginning August 1, 1998 (the "Start
Date") and ending upon termination pursuant to paragraph 1 (D) hereof (the
---------------
"Employment Period").
(A) Services. During the Employment Period, Executive will be the President of
--------
the Company, and in connection therewith will render such services of an
executive and administrative character to the Company and its affiliates as are
customarily rendered by persons holding such position with similarly situated
companies, as the Board of Directors of American TeleSource International Inc.,
a Delaware, U.S.A. corporation (the "Board") may from time to time direct.
Executive will devote his best efforts and substantially all of his business
time and attention (except as otherwise specifically permitted herein and except
for vacation periods and reasonable periods of illness or other incapacity) to
the business of the Company and its affiliates and will faithfully and
diligently carry out such duties and have such responsibilities as are customary
among persons employed in substantially similar capacities for similar
companies. Executive will report to the President and shall faithfully and
diligently comply with all of its reasonable and lawful directives. For
purposes of this Agreement, the term "affiliates" means any corporation, limited
partnership, limited liability company or other entity engaged in the same
business as the Company or a related business, which controls, is controlled by
or is under common control with the Company.
(B) Salary. During the Employment Period and thereafter as provided in
------
paragraph (D) below, the Company will pay Executive a base salary at the rate of
- -------------
not less than $127,000 per annum (or such higher amount as the Board may
establish from time to time), and will be payable in accordance with the
Company's regular payroll practices.
(C) Benefits. In addition to the compensation described above in this
--------
paragraph 1, Executive will be entitled during the Employment Period to the
- -----------
following benefits:
(1) such bonus as the Board in its sole discretion may from time to
time authorize, but in no event shall bonuses paid during a year exceed 50% of
Executive's base salary for such year;
(2) such health insurance and other benefits as are available from
time to time to the Company's salaried employees generally;
(3) in accordance with the Company's vacation and absence paid as in
effect from time to time, sick leave, personal time provided that Executive
shall have no less than three weeks vacation each year, with salary;
(4) reimbursement, upon submission of documentation in accordance
with the Company's regular expense policies, for reasonable business expenses
incurred on the Company's behalf by Executive;
71
<PAGE>
(5) participation in any savings plan, 401(k) plan, profit sharing
plan or pension plan as is available from time to time to the Company's salaried
employees generally; and
(6) opportunity to participate in any and all employee benefit plans
from time to time in effect for executives or salaried employees of the Company
generally (subject to any contribution therefore generally required by such
employees and except to the extent such plans are in a category of benefit
otherwise provided to Executive).
(D) Termination. Unless earlier terminated by termination of Executive's
-----------
employment pursuant to any of the provisions immediately below, Executive's
employment with the Company will continue until the third anniversary of the
Start Date, and Executive's employment shall be renewed automatically for one-
year periods thereafter unless either party hereto gives written notice to the
other party, at least 120 days prior to the next anniversary date, that such
employment shall not be renewed:
(1) Death. In the event of Executive's death during the term hereof,
-----
Executive's employment hereunder shall immediately and automatically terminate.
Notwithstanding such event, the Company shall pay to Executive's designated
beneficiary or, if no beneficiary has been designated by Executive, to his
estate, the base salary at the rate in effect on the date of death for a period
of 6 months. The Company shall also pay to Executive's designated beneficiary
or, if no beneficiary has been designated by Executive, to his estate, any
incentive compensation that is earned but unpaid, based on the operations of the
Company for the whole year, prorated through the date of death.
(2) Disability.
----------
(a) The Company may terminate Executive's employment
hereunder, upon notice to Executive, in the event that Executive becomes
disabled during his employment hereunder through any illness, injury, accident
or condition of either a physical or psychological nature and, as a result, is
unable to perform substantially all of his duties and responsibilities hereunder
for 90 days during any period of 365 consecutive calendar days. In the event of
such termination, until the earliest of (i) the conclusion of the then-current
term of this Agreement and (ii) the conclusion of a period of 6 months following
the date of termination, the Company shall continue to pay Executive the base
salary at the Rate in effect on the date of termination and shall continue to
contribute to the cost of Executive's participation in the Company's group
medical and dental insurance plan, if any, provided that Executive is entitled
to continue such participation under applicable law and plan terms. The Company
will also pay Executive, in the case of such termination, any incentive
compensation that is earned but unpaid, based on the operations of the Company
for the whole year, prorated through the date of such termination;
(b) While receiving disability income payments under the
Company's disability income plan, if any, Executive shall be entitled to receive
the excess, if any, of base salary under paragraph I (B) hereof over such
---------------
disability income payments, and shall be entitled to receive such bonus and
other benefits as are described in paragraph 1(C), until the termination of his
--------------
employment and except to the extent a longer period is specified in paragraph
1(D)(2)(a).
- ----------
(3) Termination by the Company without Cause. The Company may at any
----------------------------------------
time terminate Executive's employment without Cause (as defined below) by giving
Executive written notice of the effective date of termination. In the event of
such termination, the Company shall have the continuing obligation to make
payments of base salary in accordance with paragraph (B) above at the rate in
-------------
effect on the effective date of such termination until the third anniversary of
the Start Date or until 24 months after the effective date of such termination,
whichever period is longer. Additionally, during such period following
termination as the Company shall have the continuing obligation to make payments
of base salary, the Company shall continue to contribute to the cost of
Executive's participation in the Company's group medical and insurance plans, if
any, provided that Executive is entitled to continue such participation under
applicable law and plan. The Company will also pay Executive, in the event of
72
<PAGE>
such termination, any incentive compensation that is earned but unpaid, based on
operations of the Company for the whole year, prorated through the date of his
termination.
(4) Termination by the Company for Cause. The Company shall have the
------------------------------------
right to terminate the Executive's employment at any time for any of the
following reasons (each of which is referred to herein as "Cause") by giving
Executive written notice of the effective date of termination (which effective
date may be the date of such notice):
(a) the willful breach of any provision of paragraphs 1(A), 2, 3, 4
------------------------
or 5 (including, but not limited to, a refusal to follow reasonable and lawful
- ----
directives of the President; provided, however, that to the extent that such
breach is curable, the President will give Executive written notice of such
breach and Executive will have 30 days from the receipt of such notice to cure
such breach;
(b) any act of fraud, embezzlement or other material dishonesty with
respect to any aspect of the Company's business;
(c) continued use of illegal drugs;
(d) substantial failure of performance, repeated or continued after
written notice of such failure and explanation of such failure of performance,
which is reasonably determined by the Board of Directors to be materially
injurious to the business or interests of the Company; or
(e) conviction of a felony or of a crime involving moral turpitude.
If the Company terminates Executive's employment for any of the
reasons set forth above in this paragraph 1(D)4 , the Company shall have no
---------------
other obligations hereunder (including the obligation to continue to make
payments of base salary as provided in paragraph 1(D)3 from and after the
---------------
effective date of termination and shall have all other rights and remedies
available under this or any other agreement and at law or in equity.
(5) By the Executive for Good Reason. Executive may terminate his
--------------------------------
employment hereunder for Good Reason, upon written notice to the Company setting
forth the nature of such Good Reason in reasonable detail. "Good Reason" shall
mean:
(a) the material failure of the Company to provide Executive the base
salary and incentive compensation and benefits in accordance with the terms of
paragraph 1 and paragraph 6 hereof;
- ---------------------------
(b) the material diminution in the nature or scope of Executive's
responsibilities, duties or authority; or
(c) the occurrence of a Change in Control (as defined herein).
In the event of termination in accordance with this paragraph 1(D)(5), the
-----------------
Company shall continue to pay Executive the base salary at the rate in effect on
the effective date of such termination until the third anniversary of the Start
Date or until 24 months after the effective date of such termination, whichever
period is longer. Additionally, during such period following termination as the
Company shall have the continuing obligation to make payments of base salary,
the Company shall continue to contribute to the cost of Executive's
participation in the Company's group medical and insurance plans, if any,
provided that Executive is entitled to continue such participation under
applicable law and plan. The Company will also pay Executive, in the event of
such termination, any incentive compensation that is earned but unpaid, based on
operations of the Company for the whole year, prorated through the date of his
termination.
73
<PAGE>
A "Change in Control" shall be deemed to have occurred if (i) any
"person" (as such term is used in Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended), becomes the "beneficial owner" (as such term
is defined in Rule 13d-3 under the Act), directly or indirectly, of outstanding
securities of the Company representing 40% or more of the combined voting power
of the outstanding securities of the Company, or (ii) during any period of two
consecutive years, individuals who at the beginning of such period constitute
the Board of Directors of the Company and any new director whose election by the
Board of Directors or nomination for election by the shareholders of the Company
was approved by a vote of at least two-thirds (2/3) of the directors then still
in office who either were directors at the beginning of the period or whose
election or nomination for election was previously so approved, cease for any
reason to constitute a majority thereof, or (iii) the shareholders of the
Company approve (A) a merger or consolidation of the Company with any other
entity (other than a merger or consolidation which would result in the voting
securities of the Company outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted into voting
securities of the surviving entity) at least 60% of the combined voting power of
the voting securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation), (B) a plan of complete
liquidation of the Company or (C) an agreement or agreements for the sale or
disposition, in a single transaction or series of related transactions, by the
Company of all or substantially all of the property and assets of the Company.
Notwithstanding the foregoing, events otherwise constituting a Change in Control
in accordance with the foregoing shall not constitute a Change in Control if
such events are solicited by the Company and are, if Executive is then a member
of the Board, approved, recommended or supported by Executive in his capacity as
a member of the Board of the Company in actions taken prior to, and with respect
to, such events.
(6) Voluntary Termination by Executive. Except as provided in
----------------------------------
paragraph 1(D)(5), in the event that Executive's employment with the Company is
- -----------------
terminated by Executive, such termination shall be a breach of this Agreement
and the Company shall have no further obligations hereunder from and after the
date of such termination.
2. Nondisclosure. Executive acknowledges that during the course of his
-------------
performance of services for the Company he has acquired and will acquire
technical knowledge with respect to the Company's business operations,
including, by way of illustration, the Company's existing and contemplated
services, trade secrets, patents and selling techniques and information,
customer lists, supplier lists, and confidential information relating to the
Company's policy and/or business strategy (all of such information herein
referenced to as the "Confidential Information"); provided, however, that the
term "Confidential Information" shall not include (a) any information which is
or becomes publicly available otherwise than through breach of this Agreement,
or (b) any information which is or becomes known or available to Executive on a
non-confidential basis and not in contravention of applicable law from a source
which is entitled to disclose such information to Executive. Executive agrees
that he will not, while he is employed by the Company, divulge to any person,
directly or indirectly, except to the Company or its officers and agents or as
reasonably required in connection with his duties on behalf of the Company, or
use, except on behalf of the Company, any Confidential Information acquired by
Executive during the term of his employment. Executive agrees that he will not,
at any time after his employment with the Company has ended, divulge to any
person directly or indirectly any Confidential Information. Executive further
agrees that if his relationship with the Company is terminated (for whatever
reason) he shall not take with him but will leave with the Company all records,
papers and computer data and any copies thereof relating to the Confidential
Information (or if such papers, records, computer data or copies are not on the
premises of the Company, Executive agrees to return such papers, records and
computer data immediately upon his termination). Executive acknowledges that
all such papers, records, computer data or copies thereof are and remain the
property of the Company.
3. Inventions and Patents. Executive agrees that all inventions,
----------------------
innovations or improvements relating to the Company's business or method of
conducting business (including new contributions, improvements, ideas and
discoveries, whether patentable or not) conceived or made by him during his
employment with the Company belong
74
<PAGE>
to the Company. Executive will promptly disclose such inventions, innovations or
improvements to the Board and perform all actions reasonably requested by the
Board to establish and confirm such ownership.
4. Other Businesses. During the Employment Period, Executive agrees
----------------
that he will not, directly or indirectly except with the express written consent
of the Board, become engaged in, render material services for, or permit his
name to be used in connection with, or directly or indirectly counsel or consult
with, any business other than the business of the Company and its affiliates;
provided, however, that Executive may be a passive investor in any such business
(subject to the limitations set forth in paragraph 5 below).
-----------
5. Noncompetition. Executive agrees that:
--------------
(A) During the term he performs services for the Company and during
the Post-Employment Period (as defined below), Executive will not interfere with
the relationship between the Company or any affiliate and any employee, agent or
representative of the Company or any such affiliate.
(B) During the term he performs services for the Company and during
the Post-Employment Period, Executive will not directly or indirectly divert or
attempt to divert from the Company or any affiliate any business which provides
telecommunications services in the United States or Latin America, including,
without limitation, domestic and international call services or domestic and
international telecommunications networks for voice, data, fax and/or video
transmission between the United States and Latin America or within Latin
America, or any related business in which the Company has been actively engaged
during the term Executive performed services for the Company, nor interfere with
the relationships of the Company with customers, dealers, distributors,
franchisees or sources of supply.
75
<PAGE>
(C) During the term he performs services for the Company and during
the Post-Employment Period, Executive will not directly or indirectly own,
manage, operate control, be employed by, participate in, or be connected in any
manner with the ownership, management, operation or control of, any business or
enterprise which provides telecommunications services in the United States or
Latin America, including, without limitation, domestic and international call
services or domestic and international telecommunication networks for voice,
data, fax and/or video transmission between the United States and Latin America
or within Latin America, or any related business in which the Company has been
actively engaged during the then Executive performed services for the Company.
(D) For purposes hereof, the "Post-Employment Period" shall mean:
(i) in the event Executive's employment with the Company is terminated for Cause
pursuant to paragraph 1(D)(4), the 12-month period following Executive's
-----------------
termination of employment with the Company, or (ii) in the event Executive's
employment with the Company is terminated for any reason other reason, the
period during which the Company continues to make payments of base salary.
6. Stock Option. Effective as of the date hereof (the "Effective Date"),
------------
under the terms of the American TeleSource International, Inc. (ATSI) 1998 Stock
Option Plan (the "Plan"), ATSI, a Delaware corporation ("ATSI"), hereby grants
to Executive the option (the "Option") to purchase shares (the "Option Shares")
of Common Stock, no par value per share, of ATSI, subject to the requisite
approval of the Plan by ATSI's Board of Directors and ATSI's shareholders. The
number of Option Shares, the purchase price per Option Share and the
installments and dates in which the Executive shall have the right to exercise
the Option are attached to this Agreement as Exhibit "B". The Plan is attached
to this Agreement as Exhibit "A". Beginning on the Effective Date, such
installments shall be cumulative (i.e. once the right to purchase the number of
shares of an installment has accrued, such shares may be purchased at any time
thereafter, or in part from time to time, until the business day immediately
preceding the tenth anniversary of the Effective Date (the "Expiration Date") or
until such earlier date as set forth in the following paragraph. Notwithstanding
the preceding sentence, upon the occurrence of a Change in Control, Executive's
right to exercise the Option shall become fully vested (i.e., all unissued
Option Shares may be purchased at any time thereafter, or in part from time to
time, until the Expiration Date or until such earlier date as set forth in the
following paragraph).
Upon termination of Executive's employment pursuant to Paragraph 1(D)(4)
-----------------
(Termination by the Company for Cause) or paragraph 1(D)(6) (Voluntary
-----------------
Termination by Executive), the Option shall remain exercisable for the four
month period following such termination, but only to the extent such option was
exercisable at termination. Upon termination of Executive's employment pursuant
to paragraph 1(D)(1) (Death) or paragraph 1(D)(2) (Disability), the Option, to
----------------- -----------------
the extent then exercisable, shall remain exercisable for the one-year period
following such termination. Upon termination of Executive's employment
pursuant to paragraph (D)(3) (Termination by the Company without Cause) or
-----------------
paragraph 1(D)(5) (By the Executive for Good Reason), Executive's right to
- -----------------
exercise the Option shall become fully vested and the Option shall remain
exercisable for the four-month period following such termination.
7. General Provisions.
------------------
(A) Notices. Any notice provided for in this Agreement must be in
-------
writing and must be either personally delivered, or mailed by first class mail
(postage prepaid and return receipt requested) or sent by reputable overnight
courier service, to the recipient at the address below indicated:
To the Company: Attn.: Board of Directors
12500 Network Boulevard, Suite 407
San Antonio, Texas 78249
To Executive: At Executive's last known address as listed
with the Company
or such other address or to the attention of such other person as the recipient
party shall have specified by prior written notice to the sending party. Any
notice under this Agreement will be deemed to have been given when so delivered
or sent or if mailed, five days after so mailed.
<PAGE>
(B) Severability. Whenever possible, each provision of this
------------
Agreement will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to he invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision in such jurisdiction or any other jurisdiction, or the
legality or enforceability of such provision in any other jurisdiction, but this
Agreement will be reformed, construed and enforced in such jurisdiction as if
such invalid, illegal or unenforceable provision had never been contained herein
except that any court having jurisdiction shall have the power to reduce the
duration, area or scope of such invalid, illegal or unenforceable provision and,
in its reduced form it shall be enforceable.
(C) Complete Agreement. This Agreement embodies the complete
------------------
agreement and understanding between the parties and supersedes and preempts any
prior understandings, agreements or representations by or between the parties,
written or oral, which may have been related to the subject matter hereof in any
way.
(D) Successors and Assigns. This Agreement is a personal service
----------------------
contract and is not assignable by the Executive. Subject to the Executive's
rights under paragraph 1(D)(5)(d), this Agreement may be assigned from time to
--------------------
time by the Company. This Agreement shall be binding on and inure to the
benefit of the parties hereto and such parties' respective successors, personal
representatives and permitted assigns.
(E) Choice of Law. All questions concerning the construction,
-------------
validity and interpretation of this Agreement will be governed by the internal
law, and not the law of conflicts, of the State of Texas.
(F) Remedies. Each of the parties to this Agreement will be entitled
--------
to enforce his or its rights under this Agreement specifically, to recover
damages (including, without limitation, reasonable fees and expenses of counsel)
by reason of any breach of any provision of this Agreement and to exercise all
other rights existing in his or its favor. The parties hereto agree and
acknowledge that money damages may not be an adequate remedy for any breach or
threatened breach of the provisions of this Agreement and that any party may in
his or its sole discretion apply to any court of law or equity of competent
jurisdiction for specific performance and/or injunctive relief in order to
enforce or prevent any violations of the provisions of this Agreement. Such
injunction or decree shall be available without the posting of any bond or other
security.
(G) Amendments and Waivers. Any provision of this Agreement may be
----------------------
amended or waived only with the prior written consent of Executive and a
majority of the Board.
(H) Absence of Conflicting Agreements. Executive hereby warrants
---------------------------------
and covenants that his employment by the Company does not result in a breach of
the terms, conditions or provisions of any agreement to which Executive is
subject.
(I) Survival. No termination of Executive's employment by either or
--------
both parties shall reduce or terminate Executive's covenants and agreements in
paragraphs 2, 3 and 5.
- ---------------------
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered on the day and year first above written.
"Company" AMERICAN TELESOURCE INTERNATIONAL, INC.
BY:____________________________________
Name:__________________________________
Title:_________________________________
"Executive"
_______________________________________
Charles R. Poole
<PAGE>
EXHIBIT 10.19
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement"), executed this _______ day of
_______ 1999 to be effective as of January 1, 2000, is between AMERICAN
TELESOURCE INTERNATIONAL, INC., a Delaware corporation (the "Employer"), and H.
Douglas Saathoff ("Employee").
R E C I T A L S:
F. The Employer and Employee entered into an Executive Employment
Agreement dated effective January 1, 1997 for a period of three years.
G. The Employer decided not to renew the Executive Employment Agreement,
and has given notice to Employee that the Executive Employment
Agreement will not renew and will therefore terminate effective
December 31, 1999.
H. The Employer and Employee agreed to enter into a new employment
agreement for a one year term on the terms and conditions herein
provided.
I. The Employer considers the maintenance of a sound management team,
including Employee, essential to protecting and enhancing its best
interests and those of its stockholders.
J. Employee will be an officer of the Employer and Employee will be a
member of Employer's management team.
NOW, THEREFORE, in consideration of the Employer's agreement to employ
Employee pursuant to the terms of this Agreement and Employee's future
employment with Employer, and other good and valuable consideration, the parties
agree as follows:
Section 1. Employment. The Employer hereby employs Employee, and Employee
hereby accepts employment, upon the terms and subject to the conditions stated
in this Agreement.
Section 2. Duties. Employee shall be employed as Chief Financial Officer
of the Employer, or such other positions with Employer to which he may be
appointed by the Board of Directors of the Employer (the "Board"). It is
understood that Employee may be requested from time to time to provide
assistance or services to, or act as an officer or director of the Employer or
any of its subsidiaries or other affiliates. Employee shall perform such
services and, if elected as a director or officer of any such company, shall
hold such office (and discharge its duties) without additional compensation
other than the compensation set forth in this Agreement; provided, however, that
this Agreement does not prohibit (or require) the affiliates of Employer from
offering additional compensation. Employee agrees to devote his full work time
and best efforts to the performance of the duties as an Employee of Employer and
to the performance of such other duties as assigned him from time to time by the
Board or the Chairman of the Board.
Section 3. Term. The initial term of employment of Employee hereunder
shall continue for one year, from January 1, 2000 ("Employment Date") until
December 31, 2000, unless earlier terminated pursuant to Section 6 herein.
Section 4. Compensation and Benefits. In consideration for the services
of Employee hereunder, the Employer shall compensate Employee as follows:
(a) Base Salary. Until the termination of Employee's employment
hereunder, Employer shall pay Employee a base salary at the rate of at least
$2014.15 per week ("Base Salary"), payable in accordance with the regular
payroll practices of the Employer for executives, less such deductions or
amounts as are required to be deducted or withheld by applicable laws or
regulations and less such other deductions or amounts, if any, as are authorized
by Employee. The Base Salary may not be decreased at any time during the term of
Employee's employment hereunder Any increase in Base Salary shall be in the sole
discretion of the Compensation Committee of the Board.
<PAGE>
(b) Executive Bonus Plan. Employee shall be eligible to receive from the
Employer such management incentive bonuses as may be provided in management
incentive bonus plans adopted from time to time by Employer.
(c) Vacation. Employee shall be entitled time off in accordance with the
Employee's vacation and absence policy, as it may be modified from time to time
during Employee's employment hereunder, provided that Employee will have no less
than four (4) weeks of paid vacation during the initial term of this Agreement,
and each subsequent year if the initial term is extended.
(d) Life Insurance Benefits. Employer shall pay the premiums allocable to
a term life insurance policy in the face amount of $150,000 covering Employee as
the named insured, subject to Employee's passing a standard physical examination
in order to permit issuance of the policy at standard (non-rated) premiums and
satisfaction of any other standard underwriting requirements. Employee shall be
the owner of such policy and shall have the right to designate the beneficiary
of the policy proceeds. Employee shall be liable for income taxes with respect
to premium amounts includable in Employee's taxable income.
(e) Group Insurance Benefits. Employee shall be entitled to participate
in the Employer's group health and disability programs as are made available to
the Employer's other executives and officers and the Employee's participation in
such programs shall be at the same rates which are available to the Employer's
other executives and officers.
(f) Savings Plans. Employee shall be entitled to participate in
Employer's 401(k) plan, or other retirement or savings plans as are made
available to the Employer's other executives and officers on the same terms
which are available to the Employer's other executives and officers;
(g) Health Club Membership. Employer shall pay for or reimburse Employee
for a family membership at a health and fitness club of Employee's choosing,
provided that the total cost of the membership does not exceed $75 per month.
Section 5. Expenses. The parties anticipate that in connection with the
services to be performed by Employee pursuant to the terms of this Agreement,
Employee will be required to make payments for travel, entertainment of business
associates and similar expenses. Employer shall reimburse Employee for all
appropriate and reasonable expenses authorized by Employer and incurred by
Employee in the performance of his duties hereunder. Employee shall comply with
such budget limitations and approval and reporting requirements with respect to
expenses as Employer may establish from time to time.
Section 6. Termination.
(a) General. Employee's employment hereunder shall commence on the
Employment Date and continue until the end of the term specified in Section 3,
except that the employment of Employee hereunder shall terminate prior to such
time in accordance with the following:
(i) Death or Disability. Upon the death of Employee during the term
of his employment hereunder or, at the option of Employer, in the event of
Employee's Disability, upon 30 days' notice to Employee. "Disability" with
respect to an Employee shall be deemed to exist if the Employee meets the
definition of either "disabled" or "disability" under the terms of the
Employer's long-term disability benefit program (including the definitions
for total or partial disability). Any refusal by Employee to submit to a
reasonable medical examination to determine whether Employee is so disabled
shall be deemed to constitute conclusive evidence of Employee's
disability.
(ii) For Cause. For "Cause" immediately upon written notice by
Employer to Employee. A termination shall be for "Cause" if:
(7) Employee commits fraud, bribery, embezzlement or other
material dishonesty with the respect to the business of Employer,
or Employer discovers that Employee has committed any such act in
the past with respect to a previous employer; or
<PAGE>
(8) Employee commits a felony or any criminal act involving
moral turpitude or Employer discovers that Employee has
committed any such act in the past; or
(9) Employee commits a material breach of any of the covenants,
representations, terms or provisions hereof; or
(10) Employee violates any instructions or policies of Employer
with respect to the operation of its business or affairs or
Employee fails to obey written directions delivered to Employee
by the Employer's Board or Chairman of the Board; or
(11) Employee commits or omits to perform any act the performance
of which or the omission of which constitutes substantial
failure of Employee to diligently and effectively perform his
duties to Employer or adversely affects or could adversely
affect the Employer's business reputation; or
(12) Employee uses illegal drugs.
(iii) Without Cause. Without Cause immediately upon notice by
Employer to Employee.
(b) Severance Pay.
(i) Termination Upon Death or Disability or For Cause. Employee
shall not be entitled to any severance pay or other compensation upon
termination of his employment pursuant to Section 6(a)(i) or (ii) except
for his Base Salary accrued but unpaid as of the date of termination,
unpaid expense reimbursements under Section 5 for expenses incurred in
accordance with the terms hereof prior to termination, compensation for
accrued, unused vacation as of the date of termination ("Accrued Amounts"),
and in the event of termination pursuant to Section 6(a)(i) for Disability,
an amount equal to twenty-six times the difference between the Base Salary
in effect at the time of termination and twenty-six weeks' worth of
benefits to be paid under the Employer's long term disability plan. This
amount shall be paid in a lump sum no later than ten (10) business days
following the date of Employee's termination.
(ii) Termination Without Cause. In the event Employee's employment
hereunder is terminated pursuant to Section 6(a)(iii) prior to the
expiration of the initial term of this Agreement (as such initial term may
have been extended), Employer shall pay Employee, as consideration for the
execution of a separation and release agreement and in lieu of any further
compensation payable hereunder other than Accrued Amounts, a cash amount
equal to twenty-six (26) times Employee's then current Base Salary. Such
separation payment shall be Employee's sole remedy in connection with such
termination. The Separation payment shall be made as specified above
without regard to the number of months remaining in the term of this
Agreement, and shall be paid within ten (10) business days of the
Employee's execution of a separation and release agreement.
(c) Change in Control. If a "Change in Control" occurs during Employee's
employment under this Agreement, and if Employee's employment is terminated
"Without Cause" pursuant to Section 6(a)(iii) above prior to the end of a period
of twenty-four (24) months beyond the month in which a "Change in Control" of
the Employer occurs, or if Employee voluntarily terminates his employment prior
to the end of a period three (3) months beyond the month in which a Change in
Control of the Employer occurs, Employee shall receive the amount determined
pursuant to Section 6(b)(ii) above. A "Change in Control" of Employer shall be
deemed to have occurred if (i) any "person" or "group" (as such terms are used
in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended
(the "Act")), becomes the "beneficial owner" (as such term is defined in Rule
13d-3 under the Act), directly or indirectly, of outstanding securities of
Employer representing 40% of more of the combined voting power of the
outstanding securities of the Employer, or (ii) during any period of two
consecutive years, individuals who at the beginning of such period constitute
the Board cease for any reason to constitute a majority of the Board (except
that any new director who is elected by the Board to fill a vacancy created by
the death, resignation or disqualification of a member of the Board shall not be
considered a new member of the Board for purposes of this definition), or (iii)
the shareholders of Employer approve (A) a merger or consolidation of Employer
with any other entity, other than a merger or consolidation which would result
in the voting securities of
<PAGE>
Employer outstanding immediately prior thereto continuing to represent (either
by remaining outstanding or by being converted into voting securities of the
surviving entity) at least 60% of the combined voting power of the voting
securities of Employer, or (B) a plan of complete liquidation of Employer, or
(C) an agreement or agreements for the sale or disposition, in a single
transaction or series of related transactions, by the Employer of all or
substantially all of the property and assets of Employer.
Section 7. Inventions; Assignment.
(a) Inventions Defined. All rights to discoveries, inventions,
improvements, designs and innovations (including all data and records pertaining
thereto) that relate to the business of Employer, including its affiliates,
whether or not able to be patented, copyrighted or reduced to writing, that
Employee may discover, invent or originate during the term of his employment
hereunder, and for a period of six months thereafter, either alone or with
others and whether or not during working hours or by the use of the facilities
of Employer ("Inventions"), shall be the exclusive property of Employer.
Employee shall promptly disclose all Inventions to Employer, shall execute at
the request of Employer any assignments or other documents Employer may deem
necessary to protect or perfect its rights therein, and shall assist Employer,
at Employer's expense, in obtaining, defending and enforcing Employer's rights
therein. Employee hereby appoints Employer as his attorney-in-fact to execute
on his behalf any assignments or other documents deemed necessary by Employer to
protect or perfect its rights to any Inventions.
(b) Covenant to Assign and Cooperate. Without limiting the generality of
the foregoing, Employee shall assign and transfer to Employer the world-wide
right, title and interest of Employee in the Inventions. Employee agrees that
Employer may apply for and receive patent rights (including Letters Patent in
the United States) for the Inventions in Employer's name in such countries as
may be determined solely by Employer. Employee shall communicate to Employer
all facts known to Employee relating to the Inventions and shall cooperate with
Employer's reasonable requests in connection with vesting title to the
Inventions and related patents exclusively in Employer and in connection with
obtaining, maintaining and protecting Employer's exclusive patent rights in the
Inventions.
(c) Successors and Assigns. Employee's obligations under this Section 7
shall inure to the benefit of Employer, its affiliates and their respective
successors and assigns and shall survive the expiration of the term of this
Agreement for such time as may be necessary to protect the proprietary rights of
Employer and its affiliates in the Inventions.
Section 8. Confidential Information.
(a) Acknowledgment of Proprietary Interest. Employee acknowledges the
proprietary interest of Employer and its affiliates in all Confidential
Information (as defined below). Employee agrees that all Confidential
Information learned by Employee during his employment with Employer or
otherwise, whether developed by Employee alone or in conjunction with others or
otherwise, is and shall remain the exclusive property of Employer. Employee
further acknowledges and agrees that his disclosure of any Confidential
Information will result in irreparable injury and damage to Employer.
(b) Confidential Information Defined. "Confidential Information" means all
trade secrets, copyrightable works, confidential or proprietary information of
Employer or its affiliates, including without limitation, (i) information
derived from reports, investigations, experiments, research and work in
progress, (ii) methods of operation, (iii) market data, (iv) proprietary
computer programs and codes, (v) drawings, designs, plans and proposals, (vi)
marketing and sales programs, (vii) the identities of clients or customers ,
(viii) historical financial information and financial projections, (ix) pricing
formulae and policies, (x) all other concepts, ideas, materials and information
prepared or performed for or by Employer and (xi) all information related to the
business, services, products, purchases or sales of Employer or any of its
suppliers and customers, other than information that is publicly available.
<PAGE>
(c) Covenant Not To Divulge Confidential Information. Employer is entitled
to prevent the disclosure of Confidential Information. As a portion of the
consideration for the employment of Employee and for the compensation being paid
to Employee by Employer, Employee agrees at all times during the term of his
employment hereunder and thereafter to hold in strict confidence and not to
disclose or allow to be disclosed to any person, firm or corporation, other than
to persons engaged by Employer to further the business of Employer, and not to
use except in the pursuit of the business of Employer, the Confidential
Information, without the prior written consent of Employer.
(d) Return of Materials at Termination. In the event of any termination or
cessation of his employment with Employer for any reason, Employee shall
promptly deliver to Employer all documents, data and other information derived
from or otherwise pertaining to Confidential Information. Employee shall not
take or retain any documents or other information, or any reproduction or
excerpt thereof, containing or pertaining to any Confidential Information.
Section 9. Non-Solicitation.
(a) Solicitation of Employees. During Employee's employment with Employer
and for a period of twelve (12) months after termination of such employment at
any time and for any reason, and regardless of whether any payments are made to
Employee under this Agreement as a result of such termination, Employee shall
not solicit, participate in or promote the solicitation of any person who was
employed by Employer or any of its affiliates at the time of Employee's
termination of employment with Employer to leave the employ of Employer or any
of its affiliates, or, on behalf of himself or any other person, hire, employ or
engage any such person. Employee further agrees that, during such time, if an
employee of Employer or any of its affiliates contacts Employee about
prospective employment, Employee will inform such employee that he or she cannot
discuss the matter further without the consent of Employer (and the applicable
affiliate).
(b) Solicitation of Clients, Customers, Etc. During Employee's employment
with Employer and for a period of twelve (12) months after termination of
Employee's employment at any time and for any reason, and regardless of whether
any payments are made to Employee under this Agreement as a result of such
termination, Employee shall not, directly or indirectly, solicit any person who,
at the time of termination of Employee's employment with Employer, was a client,
customer, policyholder, vendor, consultant or agent of Employer or its
affiliates to discontinue business, in whole or in part, with Employer or its
affiliates. Employee further agrees that, during such time, if such a client,
customer, policyholder, vendor, or consultant or agent contacts Employee about
discontinuing business with Employer or moving that business elsewhere, Employee
will inform such client, customer, policyholder, vendor, consultant or agent
that he or she cannot discuss the matter further without the consent of Employer
(and the applicable affiliate).
Section 10. No-Compete.
(a) Competition During Employment. Employee agrees that during the term of
his employment with Employer, neither he nor any of his affiliates, will
directly or indirectly compete with Employer or its affiliates in any way, and
that he will not act as an officer, director, employee, consultant, shareholder,
lender, or agent of any entity which is engaged in any business of the same
nature as, or in competition with, the businesses in which Employer and its
affiliates are now engaged or in which Employer or its affiliates become engaged
during the term of employment; provided, however, that this Section 10(a) shall
not prohibit Employee or any of his affiliates from: (i) purchasing or holding
an aggregate equity interest of up to 1%, so long as Employee and his affiliates
combined do not purchase or hold an aggregate equity interest of more than 5%,
in any business in competition with Employer and its affiliates. Furthermore,
Employee agrees that during the term of employment, he will undertake no
planning for the organization of any business activity competitive with the work
he performs as an employee of Employer and Employee will not combine or conspire
with any other employees of Employer and its affiliates for the purpose of the
organization of any such competitive business activity.
(b) Competition Following Employment. In order to protect Employer against
the unauthorized use or the disclosure of any Confidential Information of
Employer and its affiliates presently known or hereinafter obtained by Employee
during his employment under this Agreement, Employee agrees that for a period of
twelve (12) months after the termination or cessation of his employment with
Employer at any time and for any reason, and regardless of whether any payments
are made to Employee under this Agreement as a result of such termination,
<PAGE>
neither Employee nor any of his affiliates, shall, directly or indirectly, for
itself or himself or on behalf of any other corporation, person, firm,
partnership, association, or any other entity (whether as an individual, agent,
servant, employee, employer, officer, director, shareholder, investor,
principal, consultant or in any other capacity):
(i) engage or participate in any business which engages in
competition with such businesses being conducted by Employer or any of
its affiliates during the term of employment anywhere in any state in
the United States or in any foreign country where the Employer or any
of its affiliates provides telecommunications services, including,
without limitation, domestic and international call services or
domestic and international telecommunications networks of voice, data,
fax or video transmission to or from the United States and Latin
America or within Latin America, or any other business in which the
Employer or any of its affiliates has been actively engaged during the
term Employee performed services for the Employer; provided, however,
that this provision shall not prohibit Employee or any of his
affiliates from purchasing or holding an aggregate equity interest of
up to 1%, so long as Employee and his affiliates combined do not
purchase or hold an aggregate equity interest of more than 5%, in any
business in competition with Employer;
(ii) assist or finance any person or entity in any manner or in
any way inconsistent with the intents and purposes of this Agreement.
Section 11. General.
(a) Notices. All notices and other communications hereunder shall be in
writing or by written telecommunication, and shall be deemed to have been duly
given if delivered personally or if mailed by certified mail, return receipt
requested or by written telecommunication, to the relevant address set forth
below, or to such other address as the recipient of such notice or communication
shall have specified to the other party in accordance with this Section 11(a):
If to Employer, to:
American TeleSource International, Inc.
12500 Network Boulevard, Suite 407
San Antonio, Texas, 78249
Attention: Chairman of the Board
(or the subsequent headquarters of Employer as known to Employee)
If to Employee, to the Employee's last known address appearing on
Employer's records
(b) Withholding. All payments required to be made to Employee by
Employer under this Agreement shall be subject to the withholding of such
amounts, if any, relating to federal, state and local taxes as may be required
by law.
(c) Equitable Remedies. Each of the parties hereto acknowledges and
agrees that upon any breach by Employee of his obligations under any of Sections
7, 8, 9, and 10 Employer shall suffer immediate, great and irreparable injury
and shall have no adequate remedy at law. Accordingly, in event of such
breach, Employer shall be entitled, in addition to other remedies and without
showing actual damages, to specific performance and other appropriate injunctive
and equitable relief.
(d) Severability. If any provision of this Agreement is held to be
illegal, invalid or unenforceable, such provision shall be fully severable, and
this Agreement shall be construed and enforced as if such illegal, invalid or
unenforceable provision never comprised a part hereof, and the remaining
provisions hereof shall remain in full force and effect and shall not be
affected by the illegal, invalid or unenforceable provision or by its severance.
Furthermore, in lieu of such illegal, invalid or unenforceable provision, there
shall be added automatically as part of this Agreement a provision as similar in
its terms to such illegal, invalid or unenforceable provision as may be possible
and be legal, valid and enforceable.
<PAGE>
(e) Waivers. No delay or omission by either party in exercising any right,
power or privilege hereunder shall impair such right, power or privilege, nor
shall any single or partial exercise of any such right, power or privilege
preclude any further exercise thereof or the exercise of any other right, power
or privilege.
(f) Counterparts. This Agreement may be executed in multiple counterparts,
each of which shall be deemed an original, and all of which together shall
constitute one and the same instrument.
(g) Captions. The captions in this Agreement are for convenience of
reference only and shall not limit or otherwise affect any of the terms or
provisions hereof.
(h) Interpretation of Agreement. This Agreement shall be construed
according to its fair meaning and not for or against either party. Use of the
words "herein," "hereof," "hereto," "hereunder" and the like in this Agreement
refer to this Agreement only as a whole and not to any particular section or
subsection of this Agreement, unless otherwise noted. The masculine gender
shall be deemed to denote the feminine or neuter genders, the singular to denote
the plural, and the plural to denote the singular, where the context so permits.
(i) Binding Agreement; Assignment. This Agreement shall be binding upon
and inure to the benefit of the parties and shall be enforceable by the personal
representatives and heirs of Employee and the successors and assigns of
Employer. The affiliates of Employer shall be considered third party
beneficiaries of this Agreement with respect to any services provided by
Employee to them and in connection with Employee's covenants in Sections 7,8,9
and 10 hereof. This Agreement may be assigned by the Employer; provided that in
the event of any such assignment, the Employer shall remain liable for all of
its obligations hereunder and shall be liable for all obligations of all such
assignees hereunder. If Employee dies while any amounts would still be payable
to him hereunder, such amounts shall be paid to Employee's estate. This
Agreement is not otherwise assignable by Employee.
(j) Entire Agreement. This Agreement contains the entire understanding of
the parties, supersedes all prior agreements and understandings relating to the
subject matter hereof and may not be amended except by a written instrument
hereafter signed by each of the parties hereto.
(k) Governing Law. This Agreement and the performance hereof shall be
construed and governed in accordance with the laws of the State of Texas,
without regard to its choice of law principles.
(l) Arbitration. Without limiting Employer's right to seek equitable
remedies under Section 11(c) above, Employer and Employee agree that any
dispute or controversy arising under or in connection with this Agreement shall
be settled by arbitration. Arbitration under this Agreement shall be governed
by the Federal Arbitration Act and proceed in San Antonio, Texas in accordance
with the rules of the American Arbitration Association ("AAA"). Arbitration
will be conducted before a panel of three neutral arbitrators selected from a
AAA list of proposed arbitrators with business law experience. Either party may
take any legal action needed to protect any right pending completion of the
arbitration. The arbitrator will determine whether an issue is arbitrable and
will give effect to applicable statutes of limitation. The arbitrator has the
discretion to decide, upon documents only or with a hearing, any motion to
dismiss for failure to state a claim or any motion for summary judgment.
Discovery shall be governed by the Federal Rules of Civil Procedure and the
Federal Rules of Evidence. All information developed by the arbitration or
litigation shall be held in confidence subject to such protective orders as the
arbitrator deems useful to ensure complete confidentiality. The decision of the
arbitrator shall be final and binding on all parties to this Agreement, and
judgment thereon may be entered in any court having jurisdiction over the
parties. All costs of the arbitration proceeding or litigation to enforce the
arbitration award shall be paid by the party against whom the arbitrator
decides.
(m) Employee Representations. Employee represents and certifies to
Employer that he: (i) has received a copy of this Agreement for review and
study and has had ample time to review it before signing; (ii) has read this
Agreement carefully; (iii) has been given a fair opportunity to discuss and
negotiate the terms of this Agreement; (iv) understands its provisions; (v) has
had the opportunity to consult his attorney; (vi) has determined that it is in
his best interest to enter into his Agreement; (vii) has not been influenced to
sign this Agreement by any statement or representation by Employer or its
counsel not contained in this Agreement; and (viii) enters into this Agreement
knowingly and voluntarily.
<PAGE>
EXECUTED as of the date and year first above written.
AMERICAN TELESOURCE INTERNATIONAL, INC.
By /s/ Arthur L. Smith
-------------------
Chairman of Board of Directors
/s/ H. Douglas Saathoff
---------------------------
H. Douglas Saathoff
<PAGE>
Exhibit 10.23
COMMERCIAL LEASE
ARTICLE 1.00 - BASIC LEASE TERMS
1.01 Parties. This lease agreement ("Lease") is entered into by and
between the following Lessor and Lessee:
ACLP University Park SA, L.P., a Texas limited partnership ("Lessor"), and
American TeleSource International, Inc., a Texas corporation ("Lessee").
1.02 Leased Premises. In consideration of the rents, terms, provisions and
covenants of this Lease, Lessor hereby leases, lets and demises to the Lessee
the following described premises ("Leased Premises"): The area shown on the
attached Exhibit "A" consisting of approximately 26,250 rentable square feet at
the western end of the building to be constructed and called University Park
Tech Center II in San Antonio, Texas 78249, which consists of 84,525 square
feet, and which is located on the land shown on Exhibit "B" attached hereto and
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incorporated herein for all purposes.
Lessor and Lessee agree that final square footage for the purpose of rent
calculations will be determined by Lessee's architect, using then-current BOMA
standards (except that the space shall be measured from the edge of the roof for
the exterior space adjacent to the exterior doorways) based on Lessee
Improvements Final Plans and Specifications, subject to Lessor's approval, which
may not be unreasonably refused or delayed.
1.03 Term. Subject to and upon the conditions set forth herein, the term
(the "Term") of this Lease commences on December 15, 1999 (the "Commencement
Date") and terminates one hundred and two (102) months thereafter (the
"Termination Date"). Except as provided in Addendum 1 attached hereto and
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incorporated herein for all purposes, Lessee agrees that Lessor will not be
liable to Lessee if Lessor does not deliver possession of the Leased Premises to
Lessee on the Commencement Date, and Lessor's non-delivery of the Leased
Premises to Lessee on the Commencement Date will not change the terms of this
Lease or the obligations of Lessee hereunder. If delivery of the Leased Premises
is delayed for any reason other than Lessee Delay (as hereinafter defined),
Lessor and Lessee agree that the Commencement Date will be delayed until
Substantial Completion (as hereinafter defined) of the Leased Premises, in which
event the Term will be automatically extended for a period of time equal to the
delay in Substantial Completion of the Leased Premises. If the Commencement Date
is delayed, Lessor and Lessee shall, upon such delivery, execute an amendment to
this Lease setting forth the actual Commencement Date and Termination Date. If
Lessee enters the Leased Premises prior to Substantial Completion, Lessee shall
execute and deliver to Lessor an Early Occupancy Agreement in a reasonable form
provided by Lessor whereby Lessee releases Lessor from all liabilities, claims
and causes of action arising out of any construction or other work performed at
the Leased Premises and agrees to pay utility charges incurred by Lessee during
such early occupancy. If the Termination Date falls on a day other than the last
day of a month, the parties agree that the Term is automatically extended by the
number of days necessary to cause the Term to end on the last day of a month.
1.04 Base Rent, Security Deposit. Base Rent is $25,987.50 net per month
based upon an assumed 26,250 rentable square footage in the Leased Premises and
shall be adjusted by $11.88 per rentable square foot per year based on the
recalculation under Section 1.02 above. Security Deposit is $ 12,993.75.
1.05 Addresses.
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Lessor's Address: Lessee's Address:
ACLP University Park SA, L.P. American TeleSource International,
17400 Dallas Parkway Inc.
Suite 216 12500 Network Blvd.
Dallas, Texas 75287 Suite 407
FAX (972) 407-9068 San Antonio, Texas 78249
FAX (210) 558-6095
With a copy to:
CMC Commercial Realty Group, Inc.
5400 LBJ Freeway
Suite 1450
Dallas, Texas 75240
FAX (972) 770-2805
1.06 Permitted Use. The Leased Premises may be used for office space and
operation of telecommunications equipment.
1.07 Leasing Term Limitation on Adjacent Space and Right of First Refusal.
Lessor agrees that Lessee may lease the First Bay shown on Exhibit "A" or the
Second Bay shown on Exhibit "A" at any time prior to Lessor leasing the First
Bay or the Second Bay to another person. Lessor agrees that it will notify
Lessee at least thirty (30) days prior to entering into a lease of the First Bay
or Second Bay, and will not enter into a lease for the First Bay for a term that
continues longer than thirty-six (36) months or the Second Bay for a term that
continues longer than sixty (60) months. Lessor further agrees that it will
notify Lessee ninety (90) days prior to the expiration of any lease of the First
Bay or Second Bay (or immediately upon learning that the First Bay or Second Bay
are to become available prior to the expiration of their respective lease) and
Lessee will have fifteen (15) days following receipt of notice to notify Lessor
that it elects to lease the First Bay or Second Bay. If Lessee does not notify
Lessor that it elects to lease the First Bay or Second Bay within fifteen (15)
days, Lessor may re-let the First Bay or Second Bay for a term of up to thirty-
six (36) months and the Second Bay for a term of up to sixty (60) months. If
Lessee elects to lease the First Bay or Second Bay pursuant to this Section,
then Lessor and Lessee will execute a modification of this Lease such that the
First Bay or Second Bay become part of the Leased Premises and are leased on the
same terms and conditions as provided in this Lease for the initial Leased
Premises, including renewal options, but not including the rental per square
foot, finish out allowance, and refurbishment allowance, with an additional
security deposit to be calculated in the same manner as the security deposit for
the Leased Premises, and with the term of the lease for the First Bay or Second
Bay to expire on the Termination Date. If Lessee elects to lease the First Bay
or Second Bay prior to the time that Lessor completes the Lessee Improvements,
then the First Bay and Second Bay will be leased on all of the same terms and
conditions as the initial Leased Premises, including rental per square foot,
renewal options, finish out allowance, and refurbishment allowance. The date for
completion of Lessee Improvements in the First Bay or Second Bay will be
established consistently with the time frames for completion of Lessee
Improvements for the initial Leased Premises.
1.08 Lessee's Future Expansion Needs. Lessor acknowledges that Lessee
expects its business to grow significantly and that Lessee may require space in
addition to the Leased Premises, First Bay and Second Bay. Lessor will keep
Lessee informed of the status of the remaining space in the Building and give
Lessee a reasonable opportunity to lease additional space that becomes available
on reasonable terms and conditions.
1.09 Renewal Terms. Lessor agrees that Lessee may renew the Lease for two
successive sixty (60) month renewal terms (each a "Renewal Term") by giving
Lessor written notice of renewal at least one hundred eighty (180) days prior to
the expiration of the Term or the first Renewal Term, respectively. The Lease
will continue on the same terms and conditions during any Renewal Term, except
that the rental rate per square foot shall be adjusted to ninety five percent
(95%) of the prevailing market rate for comparable buildings in San Antonio at
the time of renewal (taking into consideration the age and quality of the
structure, type of building, location of the space in the building, definition
of the leased area, estimated lease-up time, credit standing and financial
status of the Lessee, term, extent of services provided by landlord, brokerage
fees, leasehold improvement allowances, moving allowances, rental abatements and
other incentive being offered). If there is a difference in opinion between
Lessor and Lessee regarding the prevailing market rate of rental at the time of
Renewal, Lessor and Lessee will negotiate in
<PAGE>
good faith to resolve the difference. Lessor and Lessee will also negotiate in
good faith to establish a refurbishment allowance for the Leased Premises, which
shall be administered by Lessor on the same terms and conditions as the
Improvement Allowance for the Initial Lessee Improvements. Lessee may withdraw
its notice of renewal if agreement on the prevailing market rate of rental is
not reached within sixty (60) days of the beginning of the proposed Renewal
Term.
1.10 Contingencies. Lessor agrees that if by May 1, 1999, Lessor has
failed to acquire title to the land on which the Building is to be
constructed, or if by June 1, 1999 it has not commenced construction
of the Building, Lessee may terminate this Lease on one (1) day's
advance written notice. Lessor agrees that Lessee's security deposit
and seventh months' rent is due upon execution of the Lease; however
Lessor and Lessee further agree that such payment will not be
deposited until such time as Lessor has acquired title to the land on
which the Building is to be constructed.
ARTICLE 2.00 - RENT
2.01 Base Rent. Lessee agrees to pay monthly as base rent during the term
of this Lease without notice, demand, counter-claim, set-off or abatement,
except as otherwise set forth herein, the sum of money set forth in Section 1.04
of this Lease, which amount is payable to Lessor at the address shown above,
except that Lessee shall not pay any base rent for the first six full calendar
months following the Commencement Date. One monthly installment of rent is due
and payable on the date of execution of this Lease by Lessee for the seventh
month's rent and a like monthly installment is due and payable on or before the
first day of each succeeding calendar month during the term of this Lease;
provided, if the Commencement Date should be a date other than the first day of
a calendar month, the free rental period set forth above will begin on the
Commencement Date and the rental for the remainder of the calendar month in
which the free rental period ends will be prorated and will due on the first day
of the calendar month first following the end of the free rental period. Lessee
shall pay, as additional rent, all other sums due under this Lease.
2.02 Additional Rent. Lessee agrees to pay as additional rent, without
deduction or set-off of any kind except as otherwise set forth herein, Lessee's
pro rata share of all ad valorem taxes and installments of special assessments
(including dues and assessments by means of deed restrictions and/or owner's
associations) lawfully levied or assessed against the Building (as hereinafter
defined) of which the Leased Premises are a part and any and all insurance
required herein or which is standard for similar projects (specifically
including fire and casualty, commercial general liability and rent loss
insurance). Said ad valorem taxes, assessments and insurance shall be prorated
and paid on or before the first day of every month commencing on the
Commencement Date, in advance, as additional rent. The proration shall be based
upon Lessor's estimate of ad valorem taxes, assessments and insurance for the
current calendar year, provided, that in the event Lessor is required under a
mortgage, deed of trust, underlying lease or loan agreement covering the
Building to escrow ad valorem taxes, assessments or insurance, Lessor may but
shall not be obligated, to use the amount required to be escrowed as a basis for
its estimate. There will be an annual accounting as to actual ad valorem taxes,
assessments and insurance and appropriate payment or credits made. To the extent
the Commencement Date or Termination Date of the Lease is not on the first day
of the calendar year or last day of the calendar year respectively, Lessee's
liability for ad valorem taxes, assessments and insurance shall be subject to a
pro rata adjustment based on the number of days of any such year during which
the Term is in effect. Lessee shall have the right at its expense to contest or
appeal by appropriate proceedings any value assessment rendered by applicable
taxing authorities and Lessor shall cooperate to the extent reasonably necessary
in such contest or appeal. To the extent the Leased Premises are part of a
multi-occupancy building, Lessee shall pay a pro rata share of such ad valorem
taxes, assessments and insurance, such pro rata share to be equal to the product
obtained by multiplying the total of such real property taxes assessments and
insurance by a fraction, the numerator of which shall be the number of square
feet of floor area of the Leased Premises and the denominator of which shall be
the number of square feet of floor area in the Building of which the Leased
Premises are a part.
2.03 Operating Expenses. Lessee agrees to pay, as additional rent,
Lessee's pro rata share (as determined by the formula set forth in Section 2.02
above) of Lessor's Operating Expenses for the Building without deduction or set-
off of any kind except as otherwise set forth herein. Lessor may invoice Lessee
monthly for Lessee's pro rata share of the estimated Operating Expenses for each
calendar year, which amount shall be adjusted from time-to-time based upon
anticipated Operating Expenses. As of the date hereof, it is estimated that the
Operating Expenses, taxes and insurance for calendar year 2000 will be
<PAGE>
approximately $2.20 per rentable square foot. Lessor agrees that the Lessee's
portion of the Operating Expenses for common area maintenance, less costs of
utilities, costs required to meet applicable laws, and capitalized costs of
capital improvements and operating efficiency devices, will not exceed seventy-
eight cents ($.78) per rentable square foot during the first year of the Term
(the "Base Amount"), and will not increase for any year by more than five
percent (5%) per year (cumulative) over the Base Amount. Within four months
following the close of each calendar year, Lessor shall provide Lessee an
accounting showing in reasonable detail all computations of additional rent due
under this Section. In the event the accounting shows that the total of the
monthly payments made by Lessee exceeds the amount of additional rent due by
Lessee under this Section, such amount shall be credited against the next
required payment of base rent. In the event the accounting shows that the total
of the monthly payments made by Lessee is less than the amount of additional
rent due by Lessee under this Section, the account shall be accompanied by an
invoice for the additional rent. If this Lease shall terminate on a day other
than the last day of a calendar year, the amount of any additional rent payable
by Lessee applicable to the year in which such termination shall occur shall be
prorated on the ratio that the number of days from the commencement of the
calendar year to and including the termination date bears to 365. Provided
Lessee is not in default of any terms of this Lease, Lessee shall have the
right, at its own expense, to audit Lessor's books relevant to the additional
rent payable under this Section. With respect to such audit, Lessee 1) may
review Lessor's books during office hours, 2) must perform such audit at the
location of Lessor's books, 3) must request such audit within six (6) months of
receipt of its annual reconciliation of Operating Expenses, 4) must deliver to
Lessor a copy of the results of such audit, 5) may not audit the same calendar
year more than one time. If, as a result of such audit, it is determined that
the Operating Expenses have been overstated by 3% or more, Lessor shall be
required to reimburse Lessee for the costs of such audit. Assignees of Lessee
may only audit periods for which they occupy the Leased Premises and subtenants
of Lessee shall have no audit rights. Lessee agrees to pay any additional rent
due under this Section within ten (10) days following receipt of the invoice or
accounting showing additional rent due.
2.04 Definition of Operating Expenses. The term "Operating Expenses"
includes all expenses incurred by Lessor with respect to the maintenance and
operation of the Building (except for items described below) and includes, but
is not limited to, the following: maintenance, repair and replacement costs;
security; wages and benefits payable to employees of Lessor to the extent their
duties are directly connected with the operation and maintenance of the
Building; management fees, all services, utilities for common areas, supplies,
repairs, replacement or other expenses for maintaining and operating the common
parking and plaza areas; the cost, amortized over its useful life, of any
expense required to be capitalized under GAAP principles other than capital
improvements; the cost, amortized over its useful life, of any capital
improvement made to the Building by Lessor after the date of this Lease, if
required under any governmental law or regulation other than improvements made
to the Building to effect compliance with the Americans With Disabilities Act
(the "ADA") or as otherwise set forth herein, which capital improvements must be
of mutual benefit to all tenants of the Building; and the cost, amortized over
its useful life, of installation of any device or other equipment to the extent
it improves the operating efficiency of any system within the Leased Premises
and thereby reduces Operating Expenses, provided that, prior to installing any
such device or equipment, Lessor will inform Lessee of such installation and the
estimated cost savings and Lessor and Lessee must reasonably agree upon the
estimated cost savings before agreeing to such installation. The term Operating
Expenses does not include the following: expenses incurred to maintain the roof,
foundation and structural soundness of the exterior walls of the Building;
expenses incurred should the entire roof the Building need to be replaced;
expenses to bring the Building into compliance with applicable law such as the
ADA and Environmental Laws, expenses incurred to abate or remove any Hazardous
Substance in the Building that was placed there by Lessor, income and franchise
taxes of Lessor; expenses incurred in leasing to or procuring of lessees,
leasing commissions, advertising expenses and expenses for the renovating of
space for new lessees; interest or principal payments on any mortgage or other
indebtedness of lessor; compensation paid to any employee of Lessor other than
maintenance and property management personnel to the extent these services are
directly associated with the operation and maintenance of the Building; any
depreciation allowance or expense (except for depreciation of capital
improvements and equipment specifically included within the definition of
Operating Expenses); or operating expenses which are the responsibility of
Lessee or any other lessee of the Building; or expenses (herein called "Defect
Expenses") incurred as a result of or caused by latent defects, punch list
items, or Lessor's failure to construct the Shell Building Improvements or
Lessee Improvements in accordance with the requirements of this Lease and
substantially in accordance with the Final Shell Plans and Specifications and
Lessee Improvements Final Plans and Specifications as provided herein (such
items being herein called "Defects"); and/or operating expenses otherwise caused
by or resulting from Lessor's breach of its obligations under the Lease.
<PAGE>
2.05 Late Payment Charge. Other remedies for nonpayment of rent
notwithstanding, if the monthly rental payment is not received by Lessor on or
before the fifth day of the month for which the rent is due, or if any other
payment due Lessor by Lessee is not received by Lessor on or before the fifth
day of the month next following the month in which Lessee was invoiced, Lessee
agrees to pay a late payment charge of five percent (5%) of such past due amount
in addition to such amounts owed under this Lease, provided, however, that
Lessee is hereby granted a waiver of this late payment charge once every twelve
(12) months during the term of this Lease. In addition, Lessor is entitled to
charge one-hundred dollars ($100.00) for each check or payment which is not
honored by Lessee's bank. Said charge is in addition to any other amounts owed
under this Lease.
2.06 Security Deposit. The security deposit set forth above will be held
by Lessor for the performance of Lessee's covenants and obligations under this
Lease, it being expressly understood that the deposit is not an advance payment
of rental or a measure of Lessor's damage in case of default by Lessee. Upon the
occurrence of any event of default by Lessee or breach by Lessee of Lessee's
covenants under this Lease, Lessor may, from time to time, without prejudice to
any other remedy, use the security deposit to the extent necessary to make good
any arrears of rent, or to repair any damage or injury, or pay any expense or
liability incurred by Lessor as a result of the event of default or breach of
covenant, and any remaining balance of the security deposit will be returned by
Lessor to Lessee within a reasonable period of time following termination of
this Lease. If any portion of the security deposit is so used or applied, Lessee
shall upon ten days written notice from Lessor, deposit with Lessor by cash or
cashier's check an amount sufficient to restore the security deposit to its
original amount.
2.07 Holding Over. In no event may Lessee remain in the Leased Premises
following the expiration or termination of this Lease without Lessor's prior
written consent. If Lessee does not vacate the Leased Premises upon the
expiration or termination of this Lease, Lessee agrees that it will be a tenant
at will for the holdover period and that all of the terms and provisions of this
Lease are applicable during that period, except that Lessee shall pay Lessor as
base rental for the period of such holdover an amount equal to 1.50 times the
base rent being paid by Lessee immediately prior to the expiration or
termination of the Lease. Lessee agrees to vacate and deliver the Leased
Premises to Lessor immediately upon Lessee's receipt of notice from Lessor to
vacate. Such notice may be given pursuant to the notice provisions of Section
14.07 herein. Lessee agrees to pay the rental payable during the holdover period
to Lessor on demand. No holding over by Lessee, whether with or without the
consent of Lessor and notwithstanding receipt by Lessee of an invoice from
Lessor for holdover rent, will extend the term of this Lease. Additionally,
Lessee shall pay to Lessor all damages sustained by Lessor as a result of such
holding over by Lessee.
ARTICLE 3.00 - OCCUPANCY AND USE
3.01 Use. Lessee warrants and represents to Lessor that the Leased
Premises may be used and occupied only for the purpose as set forth in Section
1.06. Lessee shall occupy the Leased Premises, conduct its business and control
its agents, employees, invitees and visitors in such a manner as is lawful,
reputable, will not create a nuisance, interfere with standard Building
operations, or affect the structural integrity or design capabilities of the
Building. Lessee shall not permit any operation which emits any odor or matter
which intrudes outside the Leased Premises, attracts rodents, use any apparatus
or machine which makes undue noise or causes vibration in any portion of the
Building or otherwise interfere with, annoy or disturb any other party outside
the Leased Premises, including without limitation, any other tenant in the
Building. Lessee shall neither permit any waste on the Leased Premises nor allow
the Leased Premises to be used in any way which would, in the reasonable opinion
of Lessor, be extra hazardous on account of fire or which would in any way
increase or render void the fire insurance on the Building. If at any time
during the Term the State Board of Insurance or other insurance authority
disallows any of Lessor's sprinkler credits or imposes an additional penalty or
surcharge in Lessor's insurance premiums because of Lessee's original or
subsequent placement or use of storage racks or bins, method of storage or
nature of Lessee's inventory or any other act of Lessee, Lessee agrees to pay as
additional rent the increase in Lessor's insurance premiums. Notwithstanding
anything set forth in this Section 3.01, in no way does Lessor warrant or
represent, either expressly or impliedly, that Lessee's use of the Leased
Premises is in accordance with applicable codes or ordinances of the
municipality within which the Building is located. Lessee agrees to indemnify
and hold Lessor harmless from all claims, demands, actions, liabilities, costs,
expenses, damages and obligations of any nature arising from or as a result of
the use of the Leased Premises by Lessee in violation of applicable codes or
ordinances of the municipalities or any other government bodies within which the
building is located. The foregoing indemnification and the responsibilities of
Lessee survive the termination or expiration of this Lease.
<PAGE>
3.02 Signs. No sign of any type or description may be erected, placed or
painted in or about the Leased Premises of Building, including those advertising
the Leased Premises for sublease, except (i) those signs which are in
conformance with Lessor's sign criteria attached as Exhibit "C" and, (ii) at
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Lessee's option and expense, a free-standing "monument" sign consistent in
quality and appearance with the architectural standards of the Building, and as
approved in advance by Lessor. All signs must be in conformance with applicable
governmental requirements and limitations (including any applicable restrictive
covenants). Such permitted signs must be removed by Lessee upon expiration or
termination of the Lease at Lessee's sole cost and expense. Any damage or
discoloration from such removal will be repaired at Lessee's sole cost and
expense.
3.03 Compliance with Laws, Rules and Regulations. Lessee, at Lessee's sole
cost and expense (except as provided in Section 2.04 hereof), shall comply with
all laws, ordinances, orders, rules and regulations now in effect or enacted
subsequent to the date hereof by state, federal, municipal or other agencies or
bodies having jurisdiction over Lessee or the use, condition and occupancy of
the Leased Premises except that Lessor shall be responsible for construction of
the Lessee Improvements in compliance therewith as of the Commencement Date,
including, but not limited to, compliance with the ADA as to the Building, but
excluding the interior of the Leased Premises which is Lessee's responsibility.
Lessee will comply with the rules and regulations of the Building adopted by
Lessor which are set forth on a schedule attached to this Lease. At any time,
Lessor may change and amend the rules and regulations in any reasonable manner
not inconsistent with the terms of this Lease as may be deemed advisable for the
safety, care, cleanliness, preservation of good order and operation or use of
the Building or the Leased Premises. All changes and amendments to the rules and
regulations of the Building will be sent by Lessor to Lessee in writing and must
thereafter be carried out and observed by Lessee.
3.04 Warranty of Possession and Enjoyment. Lessor warrants that it has the
right and authority to execute this Lease, and Lessee, upon payment of the
required rents and subject to the terms, conditions, covenants and agreements
contained in this Lease, is entitled to possession and quiet enjoyment of the
Leased Premises during the full term of this Lease as well as any extension or
renewal thereof. Lessor is not responsible for the acts or omissions of any
other lessee or third party that may interfere with Lessee's use and enjoyment
of the Leased Premises.
3.05 Inspection. Lessor or its authorized agents may at any and all
reasonable times enter the Leased Premises to inspect the same, conduct tests,
environmental audits or other procedures to determine Lessee's compliance with
the terms hereof; to supply any other service to be provided by Lessor; to show
the Leased Premises to prospective purchasers, lessees, (within six months prior
to termination of this Lease), or mortgagees; to alter, improve or repair the
Leased Premises or any other portion of the Building or for any other purpose
Lessor deems reasonably necessary. LESSEE HEREBY WAIVES ANY CLAIM FOR DAMAGES
FOR INJURY OR INCONVENIENCE TO OR INTERFERENCE WITH LESSEE'S BUSINESS, ANY LOSS
OF OCCUPANCY OR USE OF THE LEASED PREMISES, AND ANY OTHER LOSS OCCASIONED BY
INSPECTIONS MADE UNDER THIS SECTION INCLUDING CLAIMS RESULTING FROM THE
NEGLIGENCE OF LESSOR BUT EXCLUDING ANY CLAIMS RESULTING FROM THE GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT OF LESSOR. Lessee shall not change Lessor's
lock system or in any other manner prohibit Lessor from entering the Leased
Premises. Lessor is entitled to use any and all means which Lessor may deem
proper to open any door in an emergency without liability therefor. During the
final one-hundred eighty days of the Lease term, Lessor or its authorized agents
have the right to erect or maintain on or about the Leased Premises or the
Building customary signs advertising the Leased Premises for lease or sale.
3.06 Hazardous Waste. The term "Hazardous Substances," as used in this
Lease means pollutants, contaminants, toxic or hazardous wastes, or any other
substances, the use and/or the removal of which is required or the use of which
is regulated, restricted, prohibited or penalized by any "Environmental Law,"
which term means any federal, state or local law, ordinance or other statute of
a governmental or quasi-governmental authority relating to pollution or
protection of the environment. Lessee hereby agrees that (i) no activity will be
conducted on the Leased Premises that will produce any Hazardous Substance,
except for such activities that are part of the ordinary course of Lessee's
business activities (the "Permitted Activities"), provided said Permitted
Activities are conducted in accordance with all Environmental Laws and have been
approved in advance in writing by Lessor; Lessee shall obtain all required
permits and pay all fees and conduct any testing required by any governmental
agency; (ii) the Leased Premises will not be used in any manner for the storage
of any Hazardous Substances except for the temporary storage of such materials
that are used in the ordinary course of Lessee's business (the "Permitted
Materials") provided such Permitted Materials are properly stored in a manner
and location meeting all
<PAGE>
Environmental Laws and approved in advance in writing by Lessor; Lessee shall
obtain all required permits and pay all fees and conduct any testing required by
any governmental agency in connection with the Permitted Materials; (iii) no
portion of the Leased Premises or Building will be used as a landfill or a dump;
(iv) Lessee will not install any underground or above ground tanks of any type;
(v) Lessee will not allow any surface or subsurface conditions to exist or come
into existence that constitute, or with the passage of time may constitute a
public or private nuisance; (vi) Lessee will not permit any Hazardous Substances
to be brought onto the Leased Premises or Building, except for the Permitted
Materials, and if so brought or found located thereon (except for pre-existing
conditions or matters caused by the Lessor), the same must be immediately
removed, with proper disposal, and all required cleanup procedures must be
diligently undertaken pursuant to all Environmental Laws. Lessor or Lessor's
representative's may, but are not required to, enter the Leased Premises for the
purpose of inspecting the storage, use and disposal of Permitted Materials to
ensure compliance with all Environmental Laws. Should it be determined, in
Lessor's sole opinion, that said Permitted Materials are being improperly
stored, used, or disposed of, then Lessee shall immediately take such corrective
action as requested by Lessor. Should Lessee fail to take such corrective action
within twenty-four (24) hours, Lessor has the right to perform such work and
Lessee shall promptly reimburse Lessor for any and all costs associated with
said work. If at any time during or after the term of the Lease, the Leased
Premises or Building are found to be so contaminated or subject to said
conditions as a result of Lessees breach of the terms of this Lease, Lessee
shall diligently institute proper and thorough cleanup procedures at Lessee's
sole cost. Before taking any action to comply with Environmental Laws or to
clean up Hazardous Substances contaminating the Leased Premises or Building,
Lessee shall submit to Lessor a plan of action, including any and all plans and
documents required by any Environmental Law to be submitted to a governmental
authority (collectively a "plan of action"). Such plan of action must be
implemented by a licensed environmental contractor. Before Lessee begins the
actions necessary to comply with Environmental Laws or to clean up contamination
from Hazardous Substances, Lessor must have (1) approved the nature, scope and
timing of the plan of action, and (2) approved any and all covenants and
agreements to effect the plan of action. Lessee agrees to indemnify and hold
Lessor harmless from all claims, demands, actions, liabilities, costs, expenses,
damages and obligations of any nature arising from or as a result of the use of
the Leased Premises or Building by Lessee in violation of this Section 3.06 but
excluding pre-existing conditions or matters resulting from the negligence or
willful misconduct of Lessor. The foregoing indemnification and the
responsibilities of Lessee survive the termination or expiration of this Lease.
Lessee represents that it has not been previously cited for any
environmental violations by any applicable governmental agency and that there
are no Permitted Materials to be stored in or upon the Leased Premises. In no
event will any Permitted Materials be stored in or upon the Leased Premises
without Lessor's prior written consent.
3.07 Parking and Road Use. Except as the number of spaces may be reduced
pursuant to Section 3.08, Lessor will ensure that Lessee will have available to
use, for the benefit of Lessee, its employees, customers, invitees and
licensees, six (6) parking spaces for each 1000 rentable square feet of Leased
Premises in the parking areas adjacent to the Building of which the Leased
Premises are a part on an unassigned, unreserved basis, subject to reasonable
regulation by Lessor. Lessor may use additional parking spaces if available, on
a first come, first serve basis unless such use interferes with another tenant's
rights. Lessor reserves the right in its sole discretion to designate specific
areas within the parking areas for the exclusive use of visitors and invitees to
the Building and others. Included in the aggregate allowance of parking spaces
shall be fifteen (15) designated, reserve parking spaces for the exclusive use
of Lessee, location of such spaces to be agreed upon by Lessor and Lessee and to
be shown on the site plan attached hereto as Exhibit "A", provided that Lessor
shall not be responsible for monitoring use of such spaces. Should Lessee
increase the square footage of the Leased Premises at any time, Lessee shall be
allowed additional parking spaces according to the ratio set forth herein. Any
parking permitted by Lessor on any common drive areas by Lessee or any of
Lessee's employees, customers, invitees or licensees will be permitted upon the
express condition that all such drives must be kept clear for through traffic of
all vehicles, including tractor-trailers. No driving or parking of any vehicles
on non-paved areas adjoining the Building or within the Project of which the
Building is a part is permitted. Lessee's failure to use all of the parking
spaces allocated to it under this Section will not constitute a waiver by Lessee
of the right to use those parking spaces at a later time.
3.08 Satellite Dishes. Lessor agrees that Lessee may locate up to three
(3) satellite dishes in the rear parking lot (i.e., southern side of the
Building), provided that each dish may not exceed thirty feet in diameter and
thirty feet in height. Lessor agrees that Lessee may locate the dishes in any
portion of the rear parking lot in a fenced area, said fence to be provided and
maintained at the sole cost and expense of Lessee, not to exceed thirty five
feet by two hundred feet, but that the number of parking spaces available to
Lessee pursuant to Section 3.07 will
<PAGE>
be reduced by the actual number of parking spaces eliminated by the placement of
the dishes on the location shown on Exhibit "A", provided that no satellite dish
exceeds 30 feet in diameter and 30 feet in height.
ARTICLE 4.00 - UTILITIES, SERVICE, SIGNAGE
4.01 Security Lighting. Lessor shall install security lighting at all
entrances to the Leased Premises and in the parking lots adjacent to the Leased
Premises at its expense; provided, however, the Lessor shall make no
representation or warranty as to the sufficiency or adequacy of such lighting or
the effectiveness thereof for security.
4.02 Building Services. Lessor shall provide the normal utility service
connections to the Building. Lessee shall pay directly to the appropriate
supplier the cost of all utility services to the Leased Premises, including, but
not limited to, any required security deposits and initial connection charge,
all charges for gas, electricity, telephone, water, sanitary and storm sewer
service and security systems. If any services are jointly metered with other
Leased Premises or property (for example, exterior lighting), Lessor shall make
a reasonable determination of Lessee's proportionate share of the cost of such
services and Lessee shall pay such share to Lessor within ten (10) days of
receipt of any invoice thereof. Lessee shall pay all costs caused by Lessee
introducing excessive pollutants or solids other than ordinary human waste into
the sanitary sewer system, including permits, fees and charges levied by any
governmental subdivision for any such pollutants or solids. Lessee shall be
responsible for the installation and maintenance of any dilution tanks, holding
tanks, settling tanks, sewer sampling devices, sand traps, grease traps or
similar devices as may be required by any governmental subdivision for Lessee's
use of the sanitary sewer system. If the Leased Premises are in a multi-
occupancy Building, Lessee shall pay all surcharges levied due to Lessee's use
of sanitary sewer or waste removal services insofar as such surcharges affect
Lessor or other Lessees in the Building. Except as set forth herein, Lessor
shall not be required to pay for any utility service, supplies or upkeep in
connection with the Leased Premises or Building. Utility services for the common
areas shall be part of Operating Expenses.
Lessee agrees that Lessor is not liable to Lessee in any respect for
damages to either person, property or business on account of any interruption or
failure of utilities or services furnished by Lessor provided that Lessor uses
reasonable diligence to repair the same promptly. No such interruption or
failure may be construed as an eviction of Lessee or entitle Lessee to (i) any
abatement of rent, (ii) terminate the Lease, or (iii) be relieved from
fulfilling any covenant or agreement contained herein. Should any malfunction of
the improvements or facilities to the Leased Premises or Building (which by
definition do not include any improvements or facilities of Lessee above
Building standard improvements) occur for any reason, Lessor shall use
reasonable diligence to repair same promptly, but Lessee will not be entitled to
any claim for rebate or abatement of rent or damages on account of such
malfunction or of any interruptions in service occasioned thereby or resulting
therefrom.
4.03 Theft or Burglary. Lessee expressly acknowledges that whether or not
Lessor, from time to time, elects to provide security services, Lessor has not,
nor will Lessor be deemed to have, warranted the efficiency of any security
personnel, service, procedures or equipment and Lessor is not liable in any
manner for the failure of any of the foregoing to prevent or control or
apprehend anyone suspected of theft, personal injury, property damage or any
criminal conduct in, on or around the Building. Lessee agrees that Lessor is not
liable to Lessee for losses to Lessee's property or personal injury caused by
criminal acts or entry by unauthorized persons into the Leased Premises. Lessee
is responsible for the cost of repairs of damage and restoration of the Leased
Premises following any such act.
ARTICLE 5.00 - REPAIRS AND MAINTENANCE
5.01 Existing Conditions. On the Commencement Date, Lessee shall be deemed
to have accepted the Leased Premises in their then existing condition, subject
to all recorded matters, laws, ordinances, and governmental regulations and
orders.; provided that, Lessee's acceptance of the Leased Premises shall not
relieve Lessor from any maintenance and repair obligations under this Lease.
Lessee acknowledges that neither Lessor nor any agent of Lessor has made any
warranty or representation of any kind, either express or implied as to the
condition of the Leased Premises or the suitability of the Leased Premises for
Lessee's intended use other than that the Leased Premises will be constructed in
accordance with the Lessee Improvements Final Plans and Specifications and will
be free from Hazardous Materials. The taking of the possession of the Leased
Premises by Lessee is intended by the
<PAGE>
parties to be conclusive evidence that Lessee accepts the Leased Premises and
Lessor has complied with its obligations of Section 6.01 herein except for
Defects (as defined in Section 2.04 hereof), the presence of Hazardous
Materials, and punch list items. Prior to taking occupancy of the Leased
Premises, Lessee shall sign a copy of the space plan of the Leased Premises
acknowledging its condition on the date thereof (unless Lessor waives such
requirement) and execute the Certificate of Acceptance form attached as Exhibit
"D" accepting such condition of the Premises except for Defects, the presence of
Hazardous Materials and punch list items.
5.02 Lessor Repairs And Maintenance. Lessor shall manage the Building in
accordance with property management standards customary to the area and will
keep the Building in compliance with all legal and regulatory requirements
(including Environmental Laws, Americans with Disabilities Act, and municipal
codes and ordinances). Lessor agrees to indemnify and hold Lessee harmless from
all claims, demands, actions, liabilities, costs, expenses, damages and
obligations of any nature arising from or as a result of the failure of the
building to be in compliance with applicable laws and regulation. Lessor is not
required to make any improvements, replacements or repairs of any kind or
character to the Leased Premises during the Term. Lessor shall maintain the
roof, foundation and structural soundness of exterior walls of the Building,
mechanical, electrical and plumbing systems serving the Building and common
areas, in good repair and condition except for reasonable wear and tear. Lessor
shall also perform all ground maintenance, landscaping, pest control, and
removal of debris from outside receptacles. Lessee agrees that Lessor is not
liable to Lessee, except as expressly provided in this Lease, for any damage or
inconvenience, and Lessee is not entitled to any abatement or reduction of rent
by reason of any repairs, reasonable alterations or additions made by Lessor
under this Lease. Should Lessor not repair or maintain the Building or the
Leased Premises as required hereunder, after providing written notice to Lessor
and after a thirty (30) day opportunity to cure by Lessor, or such longer period
as shall be necessary, provided that Lessor has not commenced such repair within
such 30 day period and has not diligently pursued same thereafter, Lessee may
make such repairs or perform such maintenance and Lessor shall promptly
reimburse Lessee for any reasonable expenses incurred by Lessee in performing
such work, or if the Leased Premises are untenantable, Lessee may terminate this
Lease.
5.03 Lessee Repairs And Maintenance. Lessee shall, at its sole cost and
expense, maintain and repair the Leased Premises in good repair and condition,
including, but not limited to carpet or other floor covering, interior
partitions, doors, interior side of demising walls, telephone and computer
cabling that serves Lessee's equipment exclusively, any supplemental air
conditioning, interior water closets, kitchens and plumbing in connection
therewith and any alterations, additions or improvements made by or on behalf of
Lessee. Lessee shall take good care of all personal property and fixtures
located within the Leased Premises. Lessee shall repair and pay for any damage
caused by any act or omission of Lessee or Lessee's agents, employees, invitees,
licensees or visitors to the Leased Premises, the Building, or the project. If
Lessee fails to maintain, repair or replace promptly as required herein, Lessor
may, at its option, and following at least thirty (30) days' advance written
notice to Lessee, perform on Lessee's behalf and charge the cost of such
performance to Lessee as additional rent which is due and payable by Lessee
within ten (10) days from receipt of Lessor's invoice. Costs incurred under this
section are the total responsibility of Lessee.
5.04 Request for Repairs. All requests for repairs or maintenance that are
the responsibility of Lessor pursuant to any provision of this Lease must be
made in writing to Lessor at the address in Section 1.05 and delivered pursuant
to Section 14.07. After receipt of written notice, Lessor is entitled to a
reasonable time within which to perform such repairs or maintenance.
5.05 Lessee Damages. Lessee shall not allow any damage to be committed on
any portion of the Leased Premises or Building, and at the termination of this
Lease, by lapse of time or otherwise, Lessee shall deliver the Leased Premises
to Lessor in as good condition as existed at the Commencement Date of this
Lease, ordinary wear and tear and casualty loss excepted. Lessor's standard
move-out checklist will be followed by Lessee to ensure compliance with this
provision. The cost and expense of any repairs necessary to restore the
condition of the Leased Premises must be borne by Lessee. Should Lessor be
required to expend any sums to ensure compliance with this Section 5.05, Lessee
shall reimburse Lessor within ten (10) days of receipt of notice from Lessor.
5.06 Maintenance Contract. Lessor may, as an Operating Expenses, during
the term of this Lease maintain a regularly scheduled preventative
maintenance/service contract on an annual basis with a maintenance contractor
for the servicing of all general sprinkler systems, hot water, heating and air
conditioning systems and equipment within or servicing the Building. Lessee
shall maintain, at Lessee's sole cost and expense, a regularly
<PAGE>
scheduled preventative maintenance/service contract on an annual basis with a
maintenance contractor for the servicing of all hot water, heating and air
conditioning systems within or exclusively servicing the Leased Premises.
ARTICLE 6.00 - ALTERATIONS AND IMPROVEMENTS
6.01 Initial Lessee Improvements.
A. Lessee Improvements. Lessee shall prepare final plans and
-------------------
specifications for construction of the Lessee Improvements desired
by Lessee and shall deliver to Lessor by July 1, 1999, two (2)
copies of such plans and specifications and the names of two
proposed contractors to construct the Lessee Improvements for
Lessor approval. Lessor will promptly either approve of the plans
and specifications and the contractors, or communicate its
objections, and if Lessor has objections, the Lessor will work
diligently with Lessee to resolve any objections such that approval
of the plans and specifications and names of contractors is given
within fifteen (15) days of receipt. Lessor shall be deemed to have
approved the plans and specifications and the contractors unless
Lessor shall have provided written notice to Lessee of Lessor's
objections thereto within fourteen (14) days following the delivery
thereof by Lessee to Lessor. The Lessor approved final plans and
specifications for the Lessee Improvements are herein called the
"Lessee Improvements Final Plans and Specifications". All
reasonable costs involved in approving, drafting and preparing the
Lessee Improvements Final Plans and Specifications shall be charged
against the Improvement Allowance described below. Lessor shall
apply for building permits to construct the Lessee Improvements and
will submit bid requests to the two contractors selected by Lessee
and the contractor for the Shell Building Improvements no later
than two (2) days following approval of the Lessee Improvements
Final Plans and Specifications. Contractors will be required to
submit their bids no later than thirty (30) days following receipt
of the bid request. Lessee shall have fifteen (15) days from
receipt of all bids to select the contractor for the Lessee
Improvements. Except for immaterial field changes, modifications to
the Lessee Improvements Final Plans and Specifications must be made
and accepted only by written change order or agreement signed by
Lessor and Lessee and will constitute an amendment to this Lease.
Lessee shall be responsible for payment in advance of all work and
construction resulting from changes in the Lessee Improvements
Final Plans and Specifications requested by Lessee if the
additional cost attributable to the changes exceed the Improvement
Allowance by more than $3.00 as described in subparagraph (c)
below. The Lessee Improvements Final Plans and Specifications (when
approved by Lessor and Lessee) are incorporated in this Lease by
reference. For the purpose of this Section, an "immaterial field
change" shall mean such field changes which are required by any
governmental authority or changes which (i) do not affect the size,
configuration, structural integrity, quality, character,
architectural appearance and standard of workmanship contemplated
in the Lessee Improvements Final Plans and Specifications, (ii)
will not result in any default in any obligation to any person or
violation of any governmental requirements, and (iii) the cost of
or reduction resulting from any single field change or extra does
not exceed $5,000.00.
B. Subject to the Lessee's payment obligations under (c) below,
Lessor shall cause the Lessee Improvements to be completed in a
good and workmanlike manner, in accordance with all applicable laws
and regulations, and in accordance with the Lessee Improvements
Final Plans and Specifications. Lessor shall coordinate
construction of Lessee Improvements, keeping Lessee informed on the
progress of the work and of any expenditures made to perform such
work and for such services shall be paid a construction management
fee of five percent (5%) of the Hard Costs of such Lessee
Improvements, which fee shall be paid out of the Improvement
Allowance (as hereinafter defined). "Hard Costs" are the costs of
labor, material and permits and licenses necessary to construct the
Lessee Improvements, and do not include any legal, architectural,
management or engineering expenses. Lessor agrees that all
construction contracts and architectural contracts shall provide
that the general contractor and architect for the project shall
provide status reports and other reports relating to the
construction of the Lessee Improvements to Lessee as well as to
Lessor, and Lessee shall have the right at any and all times to
inspect the Lessee Improvements at all stages of construction.
Lessor agrees to cooperate with Lessee on any changes to the Lessee
Improvements and agrees to provide to Lessee copies of all draw
requests and the underlying documentation relating to the draw
requests to Lessee. Lessor agrees to keep
<PAGE>
the Leased Premises free from any and all mechanic's or
materialman's liens and to pay promptly for all work to be
performed relative to the construction project. In the event any
such lien attaches to the Leased Premises as a result of Lessor's
actions, and if Lessor does not contest the lien diligently and in
good faith or does not proceed in its effort to remove the lien,
then, in addition to any other right or remedy of Lessee, Lessee
may, but is not obligated to, obtain the release or otherwise
discharge the same or to obtain a bond in satisfaction of same. Any
amount paid by Lessee in order to release or discharge any such
lien must be paid by Lessor to Lessee on demand.
C. Lessor shall provide Lessee with an improvement allowance of
$22.00 per rentable square foot of the Leased Premises (the
"Improvement Allowance"). The Improvement Allowance shall be paid
out from time to time to pay for costs incurred by Lessor in
connection with the Lessee Improvements, including costs of
Lessee's architect and/or space planner, the construction
management fee of five percent (5%) of the Hard Costs of
construction, and third party contractors as the Lessee
Improvements progress. Lessee shall pay those costs of construction
of the Lessee Improvements in excess of the Improvement Allowance,
if any, and such amounts shall be paid by Lessee to Lessor within
thirty (30) days following receipt by Lessee of a written request
therefor from Lessor. In the event the costs and expenses of the
Lessee Improvements shall exceed the Improvement Allowance, then at
the option of Lessee and upon written request by Lessee and
approval by Lessor's mortgagee/lender, the Lessor shall fund up to
$3.00 per rentable square foot within the Leased Premises of such
excess amounts and such excess amounts so funded by Lessor shall be
paid by Lessee to Lessor as additional monthly rent. The amount to
be added on a monthly basis to Base Rent shall be that monthly
amount necessary to fully amortize, on a straight line basis, the
excess amount over the term of this Lease at a ten percent (10%)
interest rate.
6.02 Additional Lessee Improvements. Except as provided in Section 6.01
above, Lessee shall not make or allow to be made any material alterations or
physical additions in or to the Leased Premises without complying with all
local, state and federal ordinances, laws, statutes and without first obtaining
the written consent of Lessor, which consent may not be unreasonably withheld.
In any event, Lessee shall provide Lessor with a copy of the plans and
specifications for any such alterations or improvements. Any alterations,
physical additions or improvements to the Leased Premises (including Lessee
Improvements) made by Lessor or Lessee become the property of Lessor and must be
surrendered to Lessor upon the termination of this Lease without credit to
Lessee. This clause does not apply to moveable equipment, trade fixtures,
personal property or furniture owned by Lessee, which may be removed by Lessee
at the end of the term of this Lease if Lessee is not then in default, if such
equipment and furniture are not then subject to any other rights, liens and
interest of Lessor and such removal can be accomplished without material damage
to the Leased Premises and, if there shall exist any damage caused by such
removal, such damage shall be repaired by Lessee. Upon completion of any such
work by Lessee, Lessee shall provide Lessor with "as built plans", copies of all
construction contracts and proof of payment for all labor and materials.
Notwithstanding the above, Lessee shall be allowed, without prior approval of
Lessor, to make $5,000.00 in non-structural alterations in any one calendar
year, not to exceed an aggregate of $25,000.00 over the initial term of the
Lease.
6.03 Mechanic's Lien. Lessee will not permit any mechanic's or
materialman's lien(s) or other lien to be placed upon the Leased Premises or the
Building and nothing in the Lease is intended in any way to constitute the
consent by (or request of) Lessor, express or implied, by inference or
otherwise, to any person for the performance of any labor or the furnishing of
any materials to the Leased Premises, or any part that would give the rise to
any mechanic's or materialman's or other lien against the Leased Premises. In
the event any such lien attaches to the Leased Premises as a result of Lessee's
actions, and if Lessee does not contest the lien diligently and in good faith or
does not succeed in its effort to remove the lien, then, in addition to any
other right or remedy of Lessor, Lessor may, but is not obligated to, obtain the
release or otherwise discharge the same or to obtain a bond in satisfaction of
same. Any amount paid by Lessor in order to release or discharge any such lien
must be paid by Lessee to Lessor on demand as additional rent.
<PAGE>
ARTICLE 7.00 - CASUALTY AND INSURANCE
7.01 Substantial Destruction. If the Leased Premises or any part
thereof are damaged by fire or other casualty, Lessee shall give prompt written
notice thereof to Lessor. 1) If the Leased Premises are totally destroyed by
fire or other casualty, 2) if the Leased Premises are damaged so that rebuilding
cannot reasonably be completed within one hundred eighty (180) days after the
date of written notification by Lessee to Lessor of the destruction, 3) if the
Leased Premises are part of a Building which is substantially destroyed (even
though the Leased Premises are not totally or substantially destroyed), 4) if
the Leased Premises or Building is damaged by fire or other casualty and
applicable law would prevent rebuilding to substantially the condition prior to
such fire or casualty, 5) if any mortgagee requires the insurance proceeds
payable as a result of such casualty to be applied to the payment of the
mortgage debt or 6) the Leased Premises are materially damaged and less than two
(2) years remain on the Term on the date of such casualty, Lessor or Lessee may
at their option terminate this Lease by providing the other written notice
thereof within sixty (60) days of such casualty and all obligations under the
Lease shall terminate as of the date of the casualty; provided, however, Lessee
shall not have the right to terminate this Lease if Lessor has theretofore
commenced and is diligently pursuing rebuilding.
7.02 Partial Destruction. If this Lease is not terminated under Section
7.01, Lessor shall at its sole risk and expense proceed with reasonable
diligence to rebuild or repair the Building or other improvements to
substantially the same condition in which they existed prior to the damage,
provided, Lessor has no obligation to repair or rebuild Lessee's furniture,
fixtures or personal property. If the destruction was caused by an act or
omission of Lessee, its employees, agents, or invitees, Lessee shall pay Lessor
the difference between the actual cost of rebuilding or repairing the Leased
Premises and any insurance proceeds received by Lessor. If the Leased Premises
are to be rebuilt or repaired and are untenantable in whole or in part following
the damage, either because of the damage or the rebuilding or repairing, and the
damage or destruction was not caused or substantially contributed to by any act
or negligence of Lessee, its agents, employees, invitees or those for whom
Lessee is responsible, the rent payable under this Lease during the period for
which the Leased Premises are untenantable will be adjusted to such an extent as
may be fair and reasonable under the circumstances. If Lessor fails to complete
the necessary repairs or rebuilding within one hundred fifty days from the date
of the destruction, Lessee may at its option terminate this Lease by delivering
written notice of termination to Lessor, whereupon all rights and obligations
under this Lease cease to exist. If any damage or destruction occurs to the
Leased Premises during the last twenty-four (24) months of the Lease term,
Lessor may elect to terminate this Lease as of the date Lessee notifies Lessor
of such damage. Lessor and Lessee hereby waive the provisions of any law from
time to time in effect during the Term relating to the effect upon leases of
partial or total destruction of Leased property and agree that their respective
rights in the event of damage or destruction are those specifically set forth
herein.
7.03 Property Insurance. Lessor shall at all times during the term of this
Lease maintain a policy or policies of insurance with the premiums paid in
advance, issued by and binding upon some solvent insurance company having an "A"
rating or better, insuring the Building against all risk of direct physical loss
in an amount equal to the full replacement cost of the Building structure and
its improvements as of the date of the loss, providing protection against all
perils, including, without limitations fire, extended coverage, vandalism,
malicious mischief, a standard mortgagee clause and rental coverage; provided,
Lessor is not obligated in any way or manner to insure any personal property
(including, but not limited to, any furniture, machinery, goods or supplies) of
Lessee upon or within the Leased Premises, any fixtures installed or paid for by
Lessee upon or within the Leased Premises, or any improvements which Lessee may
construct on the Leased Premises. The rental insurance policy will be for the
full rental value for a period of one year, which insurance also covers real
estate taxes, insurance and other amounts which might be due Lessor from Lessee
pursuant to the terms of this Lease. Lessee agrees that it is not entitled to
the proceeds of any policy of insurance maintained by Lessor even if the cost of
such insurance is borne by Lessee as set forth in Article 2.00. Notwithstanding
the foregoing, in the event Lessor has a net worth in excess of $50,000,000, it
shall be entitled to self insure against all risk provided for in this paragraph
in lieu of obtaining the insurance set forth herein.
7.04 Waiver of Subrogation. ANYTHING IN THIS LEASE TO THE CONTRARY NOT
WITHSTANDING, LESSOR AND LESSEE HEREBY WAIVE AND RELEASE EACH OTHER OF AND FROM
ANY AND ALL RIGHT OF RECOVERY, CLAIM, ACTION OR CAUSE OF ACTION, AGAINST EACH
OTHER, THEIR AGENTS, OFFICERS AND EMPLOYEES, FOR ANY LOSS OR DAMAGE THAT MAY
OCCUR TO THE LEASED PREMISES, IMPROVEMENTS TO THE BUILDING OF WHICH THE LEASED
PREMISES ARE A PART, OR PERSONAL PROPERTY WITHIN THE
<PAGE>
BUILDING, BY REASON OF FIRE, EXPLOSION, OR ANY OTHER OCCURRENCE, REGARDLESS OF
CAUSE OR ORIGIN, INCLUDING NEGLIGENCE OF LESSOR OR LESSEE AND THEIR AGENTS,
OFFICERS AND EMPLOYEES. LESSOR AND LESSEE AGREE IMMEDIATELY TO GIVE THEIR
RESPECTIVE INSURANCE COMPANIES WHICH HAVE ISSUED POLICIES OF INSURANCE COVERING
ALL RISK OF DIRECT PHYSICAL LOSS, WRITTEN NOTICE OF THE TERMS OF THE MUTUAL
WAIVERS CONTAINED IN THIS SECTION AND TO HAVE THE INSURANCE POLICIES PROPERLY
ENDORSED, IF NECESSARY, TO PREVENT THE INVALIDATION OF THE INSURANCE COVERAGE BY
REASON OF THE MUTUAL WAIVERS.
7.05 Hold Harmless. Lessor will not be liable to Lessee's employees,
agents, invitees, licensees or visitors, or to any other person, for an injury
to person or damage to property on or about the Leased Premises caused by any
act or omission of Lessee, its agents, servants or employees, any tenant in the
Building of which the Leased Premises are a part, or of any other person
entering upon the Leased Premises under express or implied invitation by Lessee,
the failure or cessation of any service provided by Lessor (including security
service and devices or caused by leakage of gas, oil, water or steam or by
electricity emanating from the Leased Premises) except as provided in this
Lease. Lessee agrees to indemnify and hold harmless Lessor of and from any loss,
attorney's fees, expenses or claims arising out of any such damage or injury
except for damages or injury caused by Lessor's negligence, recklessness or
willful misconduct.
7.06 A. At all times commencing on and after the earlier of the
Commencement Date and the date Lessee or its agents, employees or
contractors enters the Leased Premises for any purpose, Lessee shall
carry and maintain, at its sole cost and expense:
1. Commercial General Liability Insurance applicable to the
Leased Premises and its appurtenances providing, on an occurrence
basis, a minimum combined single limit of Two Million Dollars
($2,000,000.00), with a contractual liability endorsement
covering Lessee's indemnity obligations under this Lease;
2. All Risks of Physical Loss Insurance written at replacement
cost value and with a replacement cost endorsement covering all
of Lessee's personal property and improvements in the Leased
Premises;
3. Workers' Compensation Insurance as required by the state in
which the Leased Premises is located and in amounts as may be
required by applicable statute;
4. Business interruption or loss of income insurance in amounts
satisfactory to Lessor; and
5. Whenever good business practice, in Lessor's reasonable
judgment, indicates the need of additional insurance coverage or
different types of insurance in connection with the Leased
Premises or Lessee's use and occupancy thereof, Lessee shall,
upon request, obtain such insurance at Lessee's expense and
provide Lessor with evidence thereof.
B. Before any repairs, alterations, additions, improvements, or
construction are undertaken by or on behalf of Lessee, Lessee shall
carry and maintain, at its expense, or Lessee shall require any
contractor performing work on the Leased Premises to carry and
maintain, at no expense to Lessor, in addition to Workers'
Compensation Insurance as required by the jurisdiction in which the
Building is located, All Risk Builder's Risk Insurance in the amount
of the replacement cost of any alterations, additions or improvements
(or such other amount reasonably required by Lessor) and Commercial
General Liability Insurance (including, without limitation,
Contractor's Liability coverage, Contractual Liability coverage and
Completed Operations coverage,) written on an occurrence basis with a
minimum combined single limit of Two Million Dollars ($2,000,000.00)
and adding "the named Lessor hereunder (or any successor thereto),
and its respective members, principals, beneficiaries, partners,
officers, directors, employees, agents and any Mortgagee(s)", and
other designees of Lessor as the interest of such designees appear,
as additional insureds (collectively referred to as the "Additional
Insureds").
<PAGE>
C. Any company writing any insurance which Lessee is required to
maintain or cause to be maintained pursuant to the terms of this
Lease (all such insurance as well as any other insurance pertaining
to the Leased Premises or the operation of Lessee's business therein
being referred to as "Lessee's Insurance"), as well as the form of
such insurance, are at all times subject to Lessor's reasonable
approval, and each such insurance company must have an A.M. Best
rating of "A-" or better and be licensed and qualified to do business
in the state in which the Leased Premises are located. All policies
evidencing Lessee's Insurance (except for Workers' Compensation
Insurance) must specify Lessee as named insured and the Additional
Insureds as additional insureds. Provided that the coverage afforded
Lessor and any designees of Lessor is not reduced or otherwise
adversely affected, all of Lessee's Insurance may be carried under a
blanket policy covering the Leased Premises and any other of Lessee's
locations. All policies of Lessee's Insurance must contain
endorsements requiring that the insurer(s) give Lessor and its
designees at least thirty (30) days' advance written notice of any
change, cancellation, termination or lapse of said insurance. Lessee
shall be solely responsible for payment of premiums for all of
Lessee's Insurance. Lessee shall deliver to Lessor at least fifteen
(15) days prior to the time Lessee's Insurance is first required to
be carried by Lessee, and upon renewals at least fifteen (15) days
prior to the expiration of any such insurance coverage, certified
copies of all policies procured by Lessee in compliance with its
obligations under this Lease. The limits of Lessee's Insurance do not
in any manner limit Lessee's liability under this Lease.
D. Lessee shall not do or fail to do anything in, upon or about the
Leased Premises which will (1) violate the terms of any of Lessor's
insurance policies; (2) prevent Lessor from obtaining policies of
insurance acceptable to Lessor or any Mortgagees; or (3) result in an
increase in the rate of any insurance on the Leased Premises, the
Building, any other property of Lessor or of others within the
Building. In the event of the occurrence of any of the events set
forth in this Section, Lessee shall pay Lessor upon demand, as
additional rent, the cost of the amount of any increase in any such
insurance premium, provided that the acceptance by Lessor of such
payment may not be construed to be a waiver of any rights by Lessor
in connection with a default by Lessee under the Lease. If Lessee
fails to obtain the insurance coverage required by this Lease, Lessor
may, at its option, obtain such insurance for Lessee, and Lessee
shall pay, as additional rent, the cost of all premiums thereon and
all of Lessor's costs associated therewith.
ARTICLE 8.00 - CONDEMNATION
8.01 Substantial Taking. If all or a substantial portion of the Leased
Premises or a substantial portion of the Building of which the Leased Premises
are a part (even though the Leased Premises are not taken) are taken for any
public or quasi-public use under any governmental law, ordinance or regulation,
or by right of eminent domain or by purchase in lieu thereof, and the taking
would prevent or materially interfere with the use of the Leased Premises or the
Building of which the Leased Premises are a part for the purpose for which it is
then being used, then Lessor and Lessee have the option to terminate this Lease
and to abate the rent during the unexpired portion of this Lease effective on
the date title or physical possession is taken by the condemning authority,
whichever occurs first. All proceeds of any taking are the sole property of
Lessor and Lessee agrees that Lessee is not entitled to any condemnation award
or proceeds in lieu thereof.
8.02 Partial Taking. If a portion of the Leased Premises or a portion of
the Building of which the Leased Premises are a part are taken for any public or
quasi-public use under any governmental law, ordinance or regulation, or by
right of eminent domain or by purchase in lieu thereof, and this Lease is not
terminated as provided in Section 8.01 above, Lessor shall at Lessor's sole risk
and expense, restore and reconstruct the Building and other improvements on the
Leased Premises to the extent necessary to make it reasonably tenantable;
provided, if the damages received by Lessor are insufficient to cover the costs
of restoration, Lessor may terminate this Lease. The rent payable under this
Lease during the unexpired portion of the term will be adjusted to such an
extent as may be fair and reasonable under the circumstances. All proceeds of
any taking are the sole property of Lessor and Lessee agrees that Lessee is not
entitled to any condemnation award or proceeds in lieu thereof.
<PAGE>
ARTICLE 9.00 - ASSIGNMENT OR SUBLEASE
9.01 Lessor Assignment. Lessor may sell, transfer or assign, in whole or
in part, its rights and obligations under this Lease and in the Leased Premises.
Any such sale, transfer or assignment will release Lessor from any and all
liabilities under this Lease arising after the date of such sale, assignment or
transfer, so long as such transferee or assignee assumes the obligations of
Lessor hereunder.
9.02 Lessee Assignment. Except for an assignment to an affiliate and
except in the case of a merger or consolidation by Lessee with or into another
entity, Lessee shall not assign, in whole or in part, this Lease, or allow it to
be assigned, in whole or in part, or mortgage or pledge the same or sublet the
Leased Premises, in whole or in part, without the prior written consent of
Lessor which consent may not be unreasonably withheld, and in no event will any
such assignment or sublease ever release Lessee or any guarantor from any
obligation or liability hereunder unless consented to by Lessor. No assignee or
sublessee of the Leased Premises or any portion thereof may assign or sublet the
Leased Premises or any portion thereof.
9.03 Conditions of Assignment. If Lessee desires to assign or sublet all
or any part of the Leased Premises or grant any license, concession or other
right of occupancy of any portion of the Leased Premises, it must so notify
Lessor at least thirty days in advance of the date on which Lessee desires to
make such assignment or sublease. Lessee must provide Lessor with a copy of the
proposed assignment or sublease and such information as Lessor might reasonably
request concerning the proposed sublessee or assignee to allow Lessor to make
informed judgments as to the financial condition, reputation, operations and
general desirability of the proposed sublessee or assignee. Within fifteen days
after Lessor's receipt of Lessee's proposed assignment or sublease and all
required information concerning the proposed sublessee or assignee, Lessor may,
in its reasonable discretion, either: (1) consent to the proposed assignment or
sublease, or (2) refuse to consent to the proposed assignment or sublease, which
refusal is deemed to have been exercised unless Lessor gives Lessee written
notice providing otherwise. Upon the occurrence of an event of default, if all
or any part of the Leased Premises are then assigned or sublet, Lessor, in
addition to any other remedies provided by this Lease or provided by law, may,
at its option, collect directly from the assignee or sublessee all rents
becoming due to Lessee by reason of the assignment or sublease, and Lessor will
be entitled to a security interest in all properties on the Leased Premises to
secure payment of such sums. Lessee agrees that any collection directly by
Lessor from the assignee or sublessee is not intended to constitute a novation
or a release of Lessee or any guarantor from the further performance of its
obligations under this Lease.
9.04 Subordination. Lessee accepts this Lease subject and subordinate to
any recorded mortgage or deed of trust lien presently existing or hereafter
created upon the Building or project of which the Leased Premises are a part
(provided, however, that any such mortgagee may, at any time, subordinate such
mortgage, deed of trust or other lien to this Lease) and to all existing
recorded restrictions, covenants, easements and agreements with respect to the
Building and to any renewals thereof. Lessee agrees that this clause is self-
operative and no further instrument of subordination is required to effect such
subordination. Lessor is hereby irrevocably vested with full power and authority
to subordinate Lessee's interest under this Lease to any first mortgage or deed
of trust lien hereafter placed on the Leased Premises, and Lessee agrees upon
demand to execute additional reasonable instruments subordinating this Lease as
Lessor may require. If the interests of Lessor under this Lease are transferred
by reason of foreclosure or other proceedings for enforcement of any first
mortgage or deed of trust lien on the Leased Premises, Lessee is bound to the
transferee (sometimes called the "Purchaser") at the option of the Purchaser,
under the terms, covenants and conditions of this Lease for the balance of the
term remaining, including any extensions or renewals, with the same force and
effect as if the Purchaser were Lessor under this Lease, and, if requested by
the Purchaser, Lessee agrees to attorn to the Purchaser, including the first
mortgagee under any such mortgage if it be the Purchaser, as its Lessor. Lessee
will not be entitled to any credits as against Purchaser any prepaid rents or
offsets against or credits due from Lessor, except as provided under the terms
of any non-disturbance agreement provided pursuant to Section 13.14 of this
Lease.
9.05 Estoppel Certificates. Lessee agrees to furnish, from time to time,
within ten (10) days after receipt of a request from Lessor, Lessor's mortgagee
or any potential purchaser of the Building, a statement certifying, if
applicable, the following: Lessee is in possession of the Leased Premises; the
Leased Premises are acceptable; the Lease is in full force and effect; the Lease
is unmodified; Lessee claims no present charge, lien, or claim of offset against
rent; the rent is paid for the current month, but is not prepaid for more than
one month and will not be prepaid for more than one month in advance; there is
no existing default by reason of some act or
<PAGE>
omission by Lessor; and such other matters as may be reasonably required by
Lessor, Lessor's mortgagee or any potential purchaser. Lessee's failure to
deliver such statement, in addition to being a default under this Lease, may be
deemed to establish conclusively that this Lease is in full force and effect
except as declared by Lessor, that Lessor is not in default of any of its
obligations under this Lease and that Lessor has not received more than one
month's rent in advance. Any notice and cure provisions set forth in any other
part of this Lease does not apply to a default of this Section 9.05.
ARTICLE 10 - LIENS
10.01 Landlord's Lien. As security for payment of rent, damages and all
other payments required to be made by this Lease, Lessee hereby grants to Lessor
a lien upon all property of Lessee now or subsequently located upon the Leased
Premises and Lessee agrees not remove such property from the Leased Premises
except in the ordinary course of business, provided at the time of such removal
Lessee is not in default. If Lessee abandons or vacates any substantial portion
of the Leased Premises or is in default in the payment of any rentals, damages
or other payments required to be made by this Lease or is in default of any
other provision of this Lease, Lessor may enter upon the Leased Premises, by
picking or changing locks if necessary, and take possession of all or any part
of the personal property, and may sell all or any part of the personal property
at a public or private sale, in one or successive sales, with or without notice,
to the highest bidder for cash, and, on behalf of Lessee, sell and convey all or
part of the personal property to the highest bidder, delivering to the highest
bidder all of Lessee's title and interest in the personal property sold. The
proceeds of the sale of the personal property shall be applied by Lessor toward
the reasonable costs and expenses of the sale, including attorney's fees, and
then toward the payment of all sums then due by Lessee to Lessor under the terms
of this Lease. Any excess remaining will be paid to Lessee or any other person
entitled thereto by law.
10.02 Uniform Commercial Code. This Lease is intended as and constitutes a
security agreement within the meaning of the Uniform Commercial Code of the
state in which the Leased Premises are situated. Lessor, in addition to the
rights prescribed in this Lease, has all of the rights, titles, liens and
interests in and to Lessee's property, now or hereafter located upon the Leased
Premises, which may be granted a secured party, as that term is defined, under
the Uniform Commercial Code to secure to Lessor payment of all sums due and the
full performance of all Lessee's covenants under this Lease. Lessee will on
request execute and deliver to Lessor a financing statement for the purpose of
perfecting Lessor's security interest under this Lease or Lessor may file this
Lease or a copy thereof as a financing statement. Unless otherwise provided by
law and for the purpose of exercising any right pursuant to this Section, Lessor
and Lessee agree that reasonable notice has been given if such notice is given
by ten days written notice, certified mail, return receipt requested, to Lessor
or Lessee at the addresses specified herein.
10.03 Landlord's Lien Waiver. Upon request by Lessee, Lessor will execute
a lien waiver in favor of Lessee's lender in the form prescribed by Lessee's
lender.
ARTICLE 11 - DEFAULT AND REMEDIES
11.01 Default by Lessee. The following are events of default by Lessee
under this Lease:
A. Lessee fails to pay, within ten (10) days of when due, any
installment of rent or any other payment required pursuant to this
Lease, and such failure shall be continuing five (5) days following
written notice (which notice may include the cancellation notice
described in Section 11.02(E) hereof) thereof from Lessor to Lessee;
provided, however, in no event shall Lessee have the right to
receive or Lessor have the obligation to provide, as a prerequisite
to an event of default, more than two (2) written notices within any
twelve (12) month period;
B. Lessee fails to comply with any term, provision or covenant of
this Lease, other than the payment of rent and fails to cure the
failure within thirty (30) days of receipt of written notice (which
notice may include the cancellation notice described in Section
11.02(E) hereof) from Lessor;
C. Lessee or any guarantor of Lessee's obligations hereunder files
a petition or is adjudged bankrupt or insolvent under any applicable
federal or state bankruptcy or insolvency law, or
<PAGE>
admits that it cannot meet its financial obligations as they become
due; or a receiver or trustee is appointed for all or substantially
all of the assets of Lessee or such guarantor; or Lessee or any
guarantor of Lessee's obligations hereunder makes a transfer in
fraud of creditors or makes an assignment for the benefit of
creditors; or
D. Lessee does or permits to be done any act which results in a
lien being filed against the Leased Premises or the Building and
Lessee fails to contest the lien diligently and in good faith or
does not prevail, within sixty (60) days of the date the lien is
filed, in its efforts to remove the lien.
11.02 Remedies for Lessee's Default. Upon the occurrence of any event of
default set forth in this Lease, Lessor is entitled to pursue any one or more of
the remedies set forth herein without any notice or demand.
A. Without declaring the Lease terminated, Lessor may enter upon
and take possession of the Leased Premises, by picking or changing
locks if necessary, and lock out, expel or remove Lessee and any
other person who may be occupying all or any part of the Leased
Premises without being liable for any claim for damages, and relet
the Leased Premises on behalf of Lessee and receive the rent
directly by reason of the reletting; provided however, that Lessor
has no obligation to relet the Leased Premises so as to mitigate the
amount for which Lessee is liable. Lessee agrees to pay Lessor on
demand any deficiency that may arise by reason of any reletting of
the Leased Premises; further, Lessee agrees to reimburse Lessor for
any reasonably expenditures made by it in order to relet the Leased
Premises, including, but not limited to, leasing commissions, lease
incentives, remodeling and repair costs.
B. Without declaring the Lease terminated, Lessor may enter upon
the Leased Premises, by picking or changing locks if necessary,
without being liable for any claim for damages, except for damages
arising from Lessor's negligence, recklessness or willful
misconduct, and do whatever Lessee is obligated to do under the
terms of this Lease. Lessee agrees to reimburse Lessor on demand for
any expenses which Lessor may incur in effecting compliance with
Lessee's obligations under this Lease.
C. Lessor may terminate this Lease, in which event Lessee shall
immediately surrender the Leased Premises to Lessor, and if Lessee
fails to surrender the Leased Premises, Lessor may, without
prejudice to any other remedy which it may have for possession or
arrearages in rent, enter upon and take possession of the Leased
Premises, by picking or changing locks if necessary, and lock out,
expel or remove Lessee and any other person who may be occupying all
or any part of the Leased Premises without being liable for any
claim for damages. Lessee agrees to pay on demand the amount of all
loss and damage which Lessor may suffer by reason of the termination
of this Lease under this Section, including without limitation, loss
and damage due to the failure of Lessee to maintain and or repair
the Leased Premises as required hereunder and/or due to the
inability to relet the Leased Premises on terms satisfactory to
Lessor or otherwise, and any reasonable expenditures made by Lessor
in order to relet the Leased Premises, including, but not limited
to, leasing commissions, lease incentives, and remodeling and repair
costs; provided however, that Lessor will have no obligation to
relet the Leased Premises so as to mitigate the amount for which
Lessee is liable. In addition, upon termination Lessor may collect
from Lessee the value of all future rentals required to be paid
under this Lease from the date Lessor terminates the Lease until the
original termination date in accordance with applicable law less
amounts collected as rent by Lessor if the Leased Premises are re-
let. Notwithstanding anything contained in this Lease to the
contrary, this Lease may be terminated under this section by Lessor
only by mailing or delivering written notice of such termination to
Lessee, and no other act or omission of Lessor constitutes a
termination of this Lease.
D. In the event that Lessor exercises its remedy to lock out Lessee
in accordance with any provision of this Lease, Lessee agrees that
no notice is required to be posted by Lessor on any door to the
Leased Premises (or elsewhere) disclosing the reason for such action
or any other information, and that Lessor is not obligated to
provide a key to the changed lock to Lessee unless Lessee has first:
<PAGE>
1. brought current all payments due to Lessor under this
Lease (unless Lessor has terminated this Lease, in which event
payment of all past due amounts do not obligate Lessor to
provide a key);
2. fully cured and remedied to Lessor's reasonable
satisfaction all other defaults of Lessee under this Lease
(unless Lessee has abandoned or vacated the Leased Premises,
in which event Lessor is not obligated to provide the new key
to Lessee under any circumstances); and
3. provided Lessor with additional security deposit and
assurances reasonably satisfactory to Lessor that Lessee
intends to and is able to meet and comply with its future
obligations under this Lease, both monetary and nonmonetary.
Lessor may, upon written request by Lessee, at Lessor's
convenience, upon receipt by Lessor of an amount necessary to
reimburse itself for time and expense in providing such
service, and upon Lessee's execution and delivery of such
waivers and indemnities as Lessor may require at Lessor's
option either:
a. escort Lessee or its specifically authorized
employees or agents to the Leased Premises to retrieve
personal belongings of Lessee's employees and property
of Lessee that is not subject to a Security Interest
provided in this Lease; or
b. obtain from Lessee a list of such property and
arrange for such items to be removed from the Leased
Premises and made available to Lessee at such place at
such time as Lessor may designate, provided however,
that if Lessor elects option (ii), then Lessee shall pay
Lessor in cash in advance, the estimated costs that
Lessor may incur upon moving and storage charges
theretofore incurred by Lessor with respect to such
property. THE PROVISIONS OF THIS ARTICLE ARE INTENDED TO
OVERRIDE AND SUPERSEDE ANY CONFLICTING PROVISIONS OF THE
TEXAS PROPERTY CODE AND ANY AMENDMENTS OR SUCCESSOR
STATUTES THERETO, AND OF ANY OTHER LAW, TO THE MAXIMUM
EXTENT PERMITTED BY THE LAW.
E. Notwithstanding any other remedy set forth in this Lease, if
Lessor has made rent concessions of any type or character, or
waived any base rent (i.e. given free rent), and Lessee fails to
take possession of the Leased Premises on the Commencement Date or
there occurs a Lessee event of default at any time during the term
of this Lease, the rent concessions, including any waived base
rent, are canceled and the amount of the base rent or other rent
concessions are due and payable immediately as if no rent
concessions or waiver of any base rent had ever been granted;
provided, however, in the event of a default under 11.01(A) or
11.02(B) hereof, that in order for such cancellation of rent
concessions to be effective, Lessor must give Lessee express
notice of the free rent cancellation in the written notice
described in Section11.01(A) and 11.01(B). A rent concession or
waiver of the base rent will not relieve Lessee of any obligation
to pay any other charge due and payable under this Lease including
without limitation any sums due under Section 2.02 herein.
F. If Lessor exercises any of its rights provided in this Article
11 and Lessee subsequently cures such default, Lessor is entitled
to receive a service charge of $500.00 from Lessee for its time
and expense, in addition to any other amounts owed hereunder,
prior to allowing the Lessee to reenter and reoccupy the Leased
Premises.
G. Lessee hereby expressly waives any and all rights of
redemption granted by or under any present or future laws in the
event of Lessee being evicted or dispossessed for any cause, or in
the event of Lessor obtaining possession of the Leased Premises by
reason of the violation by Lessee of any of the covenants and
conditions of this Lease or otherwise. The rights given to Lessor
herein are in addition to any rights that may be given to Lessor
by any statute or otherwise.
<PAGE>
H. Lessor's pursuit of any remedy specified in this Lease will
not constitute an election to pursue that remedy only, nor
preclude Lessor from pursuing any other remedy available at law or
in equity, nor constitute a forfeiture or waiver of any rent or
other amount due to Lessor as described herein.
I. If Lessee or any guarantor of Lessee's obligations hereunder
is the subject of any insolvency, bankruptcy, receivership,
dissolution, reorganization or similar proceeding, federal or
state, voluntary or involuntary, under any present or future law
or act, Lessor is entitled to the automatic and absolute lifting
of any automatic stay as to the enforcement of its remedies under
this Lease, including specifically the stay imposed by Section 362
of the United States Federal Bankruptcy Code, as amended. Lessee
hereby consents to the immediate lifting of any such automatic
stay, and may not contest any motion by Lessor to lift such stay.
Lessee expressly acknowledges that the Leased Premises is not now
and will never be necessary to any plan or reorganization of any
type.
11.03 Lessor's Liability. The liability of Lessor to Lessee for any
default by Lessor under the terms of this Lease is limited to Lessee's actual
direct, but not consequential, damages therefor and is recoverable only from the
interest of Lessor in the Building, and Lessor is not personally liable for any
deficiency.
ARTICLE 12.00 - DEFINITIONS
12.01 Abandon. "Abandon" means the vacating of all or a substantial
portion of the Leased Premises by Lessee or any approved sublessee, whether or
not Lessee or any approved sublessee is in default of the rental payments due
under this Lease;
12.02 Building. "Building" as used in this Lease means the building
described in Section 1.02, including the Leased Premises and the land upon which
the Building is situated.
12.03 Commencement Date. "Commencement Date" is the date set forth in
Section 1.03. The Commencement Date constitutes the commencement of the term of
this Lease for all purposes, whether or not Lessee has actually taken
possession.
ARTICLE 13.00 - MISCELLANEOUS
13.01 Waiver. Failure of Lessor to declare an event of default
immediately upon its occurrence, or delay in taking any action in connection
with an event of default, will not constitute a waiver of the default, but
Lessor has the right to declare the default at any time and take such action as
is lawful or authorized under this Lease. Pursuit of any one or more of the
remedies set forth in Article 11.00 or Article 12.00 above will not preclude
pursuit of any one or more of the other remedies provided elsewhere in this
Lease or provided at law or in equity, nor will pursuit of any remedy constitute
forfeiture or waiver of any rent or damages accruing to Lessor by reason of the
violation of any of the terms, provisions or covenants of this Lease. Lessee
agrees that failure by Lessor to enforce one or more of the remedies provided
upon an event of default will not constitute a waiver of the default or of any
other violation or breach of any of the terms, provisions and covenants
contained in this Lease.
No act or thing done by Lessor or its agents during the Lease Term may be
deemed an acceptance of an attempted surrender of the Leased Premises, and no
agreement to accept a surrender of the Leased Premises will be valid unless made
in writing and signed by Lessor. No reentry or taking possession of the Leased
Premises by Lessor may be construed as an election on its part to terminate this
Lease, unless a written notice of such intention, signed by Lessor, is given by
Lessor to Lessee. Notwithstanding any such reletting or reentry or taking
possession, Lessor may at any time thereafter elect to terminate this Lease for
a previous event of default. Lessee and Lessor agree that Lessor's acceptance of
rent following an event of default hereunder will not constitute Lessor's waiver
of such event of default. The failure of Lessor to enforce any of the Rules and
Regulations described in Section 3.03 against Lessee or any other Lessee in the
Building will not constitute a waiver of any such Rules and Regulations. No
waiver of any provision of this Lease is effective unless such waiver is in
writing and signed by Lessor. All rights granted to Lessor in this Lease are
cumulative of every other right or remedy which Lessor may otherwise
<PAGE>
have at law or in equity, and the exercise of one or more rights or remedies
does not prejudice or impair the concurrent or subsequent exercise of other
rights or remedies.
13.02 Act of God. Lessor or Lessee is not required to perform any covenant
or obligation in this Lease, or be liable in damages to the other, so long as
the performance or non-performance of the covenant or obligation is delayed,
caused or prevented by Force Majeure or by the other party.
13.03 Attorney's Fees. If either party defaults in the performance of any
of the terms, covenants, agreements or conditions contained in this Lease and
the other party places in the hands of an attorney the enforcement of all or any
part of this Lease, the collection of any rent due or to become due or recovery
of the possession of the Leased Premises, agrees to pay the non-defaulting
party's costs of collection, including reasonable attorney's fees for the
services of the attorney, whether suit is actually filed or not.
13.04 Successors. This Lease is binding upon and inures to the benefit of
Lessor and Lessee and their respective heirs, personal representatives,
successors and assigns. It is hereby covenanted and agreed that should Lessor's
interest in the Leased Premises cease to exist for any reason during the term of
this Lease, then notwithstanding the happening of such event this Lease
nevertheless will remain unimpaired and in full force and effect, and Lessee
hereunder agrees to attorn to the then owner of the Leased Premises.
13.05 Rent Tax. If applicable in the jurisdiction where the Leased
Premises are situated, Lessee shall pay and be liable for all rental, sales and
use taxes or other similar taxes, if any, levied or imposed by any city, state,
county or other governmental body having authority, such payments to be in
addition to all other payments required to be paid to Lessor by Lessee under the
terms of this Lease. Any such payment must be paid concurrently with the payment
of the rent, additional rent, operating expenses or other charge upon which the
tax is based as set forth above.
13.06 Captions. The captions appearing in this Lease are inserted only as
a matter of convenience and in no way define, limit, construe or describe the
scope or intent of any Section.
13.07 Notice. All rent and other payments required to be made by Lessee
must be paid to Lessor at the address set forth in Section 1.05. All payments
required to be made by Lessor to Lessee are payable to Lessee at the address set
forth in Section 1.05 or at any other address within the United States as Lessee
may specify from time to time by written notice. For purposes hereof, any notice
or document required or permitted to be delivered by the terms of this Lease
(other than delivery of rental payments) will be deemed to be delivered upon the
earlier of actual receipt, or (whether or not actually received) three days
after being deposited in the United States Mail, postage prepaid, certified
mail, return receipt requested, addressed to the parties at the respective
addresses set forth in Section 1.05, or transmission by facsimile and receipt of
confirmation of successful transmission by the transmitting facsimile; provided,
however, any notice given by facsimile must be followed up by notice in one of
the other manners set forth herein within five (5) days thereafter. Rental
payments will be deemed received upon actual receipt only. Except as
specifically set forth herein, in no event will notice by facsimile transmission
be proper notice under the terms of this Lease.
13.08 Submission of Lease. Submission of this Lease to Lessee for
signature does not constitute a reservation of space or an option or offer to
lease. This Lease is not deemed effective until execution by and delivery to
both Lessor and Lessee.
13.09 Representations, Warranties and Covenants of Lessee and Lessor.
Lessee represents, warrants and covenants that it is now in a solvent condition;
that no bankruptcy or insolvency proceedings are pending or contemplated by or
against Lessee or any guarantor of Lessee's obligations under this Lease; that
all reports, statements and other data furnished by Lessee to Lessor in
connection with this Lease are true and correct in all material respects; that
the execution and delivery of this Lease by Lessee does not contravene, result
in a breach of, or constitute a default under any contract or agreement to which
Lessee is a party or by which Lessee may be bound and does not violate or
contravene any law, order, decree, rule or regulation to which Lessee is
subject; and that there are no judicial or administrative actions, suits, or
proceedings pending or threatened against or affecting Lessee or any guarantor
of Lessee's obligations under this lease.
<PAGE>
Lessor represents, warrants and covenants that it is now in a solvent condition;
that no bankruptcy or insolvency proceedings are pending or contemplated by or
against Lessor or any guarantor of Lessor's obligations under this Lease; that
all reports, statements and other data furnished by Lessor to Lessee in
connection with this Lease are true and correct in all material respects; that
the execution and delivery of this Lease by Lessor does not contravene, result
in a breach of, or constitute a default under any contract or agreement to which
Lessee is a party or by which Lessee may be bound and does not violate or
contravene any law, order, decree, rule or regulation to which Lessor is
subject; and that there are no judicial or administrative actions, suits, or
proceedings pending or threatened against or affecting Lessor or any guarantor
of Lessor's obligations under this lease.
13.10 Corporate Authority. If Lessee executes this Lease as a corporation,
Lessee represents and warrants that Lessee is a duly authorized and existing
corporation, that Lessee is qualified to do business in the state in which the
Leased Premises are located, that the corporation has full right and authority
to enter into this Lease, and that each person signing on behalf of the
corporation is authorized to do so. Lessee shall additionally deliver (1) a
corporate resolution authorizing execution of this Lease and confirming the
authority of those persons executing the Lease, 2) certified Articles of
Incorporation and 3) a certificate of existence and good standing from the State
of Texas or if Lessee is not incorporated in Texas, a certificate of existence
and good standing from Lessee's state of incorporation and a certificate
evidencing Lessee's authority to do business in the State of Texas.
If Lessor executes this Lease as a corporation, Lessor represents and warrants
that Lessor is a duly authorized and existing corporation, that Lessor is
qualified to do business in the state in which the Leased Premises are located,
that the corporation has full right and authority to enter into this Lease, and
that each person signing on behalf of the corporation is authorized to do so.
Lessor shall additionally deliver (1) a corporate resolution authorizing
execution of this Lease and confirming the authority of those persons executing
the Lease, 2) certified Articles of Incorporation and 3) a certificate of
existence and good standing from the State of Texas or if Lessee is not
incorporated in Texas, a certificate of existence and good standing from
Lessee's state of incorporation and a certificate evidencing Lessee's authority
to do business in the State of Texas.
13.11 Partnership Authority. If Lessee executes this Lease as a general or
limited partnership, Lessee represents and warrants that Lessee is a duly
authorized and existing partnership, that, if applicable, Lessee is qualified to
do business in the state where the Leased Premises are located, that the
partnership has full right and authority to enter into this Lease, and that each
person signing on behalf of the partnership is authorized to do so. Lessee, must
additionally deliver a copy of its partnership agreement, and if a limited
partnership, a copy of its certificate of limited partnership. The party
executing the Lease on behalf of Lessee, if a corporate managing general partner
or general partner, must additionally deliver 1) a corporate resolution
authorizing execution of this Lease and confirming the authority of those
executing this Lease, 2) certified Articles of Incorporation, 3) a certificate
of existence and good standing from the State of Texas or if such party is not
incorporated in Texas, a certificate of existence and good standing from such
party's state of incorporation and a certificate evidencing such party's
authority to do business in the State of Texas.
If Lessor executes this Lease as a general or limited partnership, Lessor
represents and warrants that Lessor is a duly authorized and existing
partnership, that, if applicable, Lessor is qualified to do business in the
state where the Leased Premises are located, that the partnership has full right
and authority to enter into this Lease, and that each person signing on behalf
of the partnership is authorized to do so. Lessor, must additionally deliver a
copy of its partnership agreement, and if a limited partnership, a copy of its
certificate of limited partnership. The party executing the Lease on behalf of
Lessee, if a corporate managing general partner or general partner, must
additionally deliver 1) a corporate resolution authorizing execution of this
Lease and confirming the authority of those executing this Lease, 2) certified
Articles of Incorporation, 3) a certificate of existence and good standing from
the State of Texas or if such party is not incorporated in Texas, a certificate
of existence and good standing from such party's state of incorporation and a
certificate evidencing such party's authority to do business in the State of
Texas.
13.12 Severability. If any provision of this Lease or the application
thereof to any person or circumstance is ever determined by a court of competent
jurisdiction to be invalid or unenforceable to any extent, Lessor and Lessee
agree that the remainder of this Lease and the application of such provisions to
other persons or circumstances will not be affected thereby and will be enforced
to the greatest extent permitted by law.
<PAGE>
13.13 Lessor's Liability. If Lessor is in default under this Lease and, if
as a consequence of such default, Lessee recovers a money judgment against
Lessor, such judgment may be satisfied only out of the right, title and interest
of Lessor in the Leased Premises as the same may then be encumbered and neither
Lessor nor any person or entity comprising Lessor has any liability for any
deficiency. In no event does Lessee have the right to levy execution against any
property of Lessor nor any person or entity comprising Lessor other than its
interest in the Leased Premises as herein expressly provided.
13.14 Non Disturbance Agreement. Lessor shall deliver a non-disturbance
agreement from each of Lessors mortgagees within sixty (60) days of the
execution of this Lease in form satisfactory to Lessee in its reasonable
judgment. If any new lien or mortgage is placed on the Building or Leased
Premises during the term of this Lease, Landlord will deliver additional non-
disturbance agreements as soon as practical in form satisfactory to Lessee in
its reasonable judgment.
13.15 Notice to Mortgagees. Provided that Lessee has received prior
written notice of the name and address of such lender, Lessee shall serve
written notice of any claimed default or breach by Lessor under this Lease upon
any lender which is a beneficiary under any deed of trust or mortgage against
the Leased Premises, and no notice to Lessor is effective against Lessor unless
such notice is served upon said lender; notwithstanding anything to the contrary
contained herein, Lessee shall allow such lender the same period following
lender's receipt of such notice to cure such default or breach as is afforded
Lessor.
13.16 No Recordation. Lessee may not record this Lease.
13.17 Counterparts. This Lease may be executed in two or more
counterparts, and it is not necessary that any one of the counterparts be
executed by all of the parties hereto. Each fully or partially executed
counterpart may be deemed an original, but all such counterparts taken together
constitute but one and the same instrument.
13.18 Governing Law. THIS LEASE IS INTENDED BY THE PARTIES TO BE GOVERNED
BY, AND CONSTRUED UNDER AND IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS
AND THE LAWS OF THE UNITED STATES OF AMERICA AS APPLICABLE TO TRANSACTIONS
WITHIN THE STATE OF TEXAS.
13.19 Broker. Lessee represents and warrants that Lessee has dealt with no
broker except Providence Commercial Real Estate Services, Inc., for Lessee, and
Pruitt Realty, for Lessor, the brokers which has been identified to Lessor and
Lessee, and that, insofar as Lessee and Lessor know, no other broker negotiated
this Lease or is entitled to any commission in connection herewith. Lessor
agrees to indemnify and hold harmless Lessee from and against any liability or
claim, whether meritorious or not, arising with respect to any broker whose
claim arises by, through or on behalf of Lessor. Lessee agrees to indemnify and
hold harmless Lessor from and against any liability or claim, whether
meritorious or not, arising with respect to any broker whose claim arises by,
through or on behalf of Lessee.
13.20 Publication. Each party hereby agrees that the other has the right,
but not the obligation, at its own expense to publicize and/or advertise the
execution of this Lease and the related transaction.
13.21 DTPA Waiver. LESSEE WAIVES ITS RIGHTS UNDER THE DECEPTIVE TRADE
PRACTICES - CONSUMER PROTECTION ACT, SECTION 17.41 ET SEQ., BUSINESS & COMMERCE
CODE, A LAW THAT GIVES CONSUMERS SPECIAL RIGHTS AND PROTECTIONS. AFTER
CONSULTATION WITH AN ATTORNEY OF LESSEE'S OWN SELECTION, LESSEE VOLUNTARILY
CONSENTS TO THIS WAIVER.
13.22 Construction of Lease. Lessee declares that Lessee has read and
understands all parts of this Lease, including all printed parts hereof. It is
agreed that, in the construction and interpretation of the terms of this Lease,
the rule of construction that a document is to be construed most strictly
against the party who prepared the same shall not be applied, it being agreed
that both parties hereto have participated in the preparation of the final form
of this Lease. Wherever in this Lease provision is made for liquidated damages,
it is because the parties hereto acknowledge and agree that the determination of
actual damages (of which such liquidated damages are in lieu) is speculative and
difficult to determine; the parties agree that liquidated damages herein are not
a penalty.
<PAGE>
13.23 Financial Statements. Lessee acknowledges that it has provided
Lessor with its financial statement(s) as a primary inducement to Lessor's
agreement to lease the Leased Premises to Lessee, and that Lessor has relied on
the accuracy of said financial statement(s) in entering into this Lease. Lessee
represents and warrants that the information contained in said financial
statement(s) is true, complete and correct in all material aspects, and agrees
that the foregoing representations are conditions to all of Lessor's obligations
under this Lease.
At the request of Lessor (only upon the sale or refinancing of the
Building, or upon any extension or renewal hereof), Lessee shall, not later than
thirty (30) days following such request, furnish to Lessor a financial statement
of Lessee as of the end of the prior fiscal year accompanied by a statement of
income and expense for the year then ended, together with a certificate of the
chief financial officer, owner or partner of Lessee to the effect that the
financial statements have been prepared in conformity with generally accepted
accounting principles consistently applied and fairly present the financial
condition and results of operations of Lessee as of and for the periods covered.
13.24 Time of Essence. With respect to all required acts of Lessee, time
is of the essence of this Lease.
13.25 Joint and Several Liability. If there is more than one Lessee, the
obligations hereunder imposed upon Lessee are joint and several. If there is a
guarantor(s) of Lessee's obligations hereunder, the obligations of Lessee are
joint and several obligations of Lessee and each such guarantor, and Lessor need
not first proceed against Lessee hereunder before proceeding against each such
guarantor, nor will any such guarantor be released from its guarantee for any
reason whatsoever, including, without limitation, any amendment of this Lease,
any forbearance by Lessor or waiver of any of Lessor's rights, the failure to
give Lessee or any such guarantor any notices, or the release of any party
liable for the payment or performance of any of Lessee's obligations hereunder.
13.26 Taxes and Lessee's Property. Lessee is solely liable for all taxes
levied or assessed against personal property, furniture or fixtures placed by
Lessee in the Premises. If any such taxes for which Lessee is liable are levied
or assessed against Lessor or Lessor's property and if Lessor elects to pay the
same or if the assessed value of Lessor's property is increased by inclusion of
personal property, furniture or fixtures placed by Lessee in the Premises, and
Lessor elects to pay the taxes based on such increase, Lessee shall pay Lessor
upon demand that part of such taxes for which Lessee is primarily liable
hereunder.
13.27 Constructive Eviction. Lessee shall not be entitled to claim a
constructive eviction from the Leased Premises unless Lessee has first notified
Lessor in writing of the condition giving rise thereto, and, if the complaints
are justified, unless Lessor has failed to remedy such conditions with a
reasonable time after receipt of said notice.
ARTICLE 14.00 - AMENDMENT AND LIMITATION OF WARRANTIES
14.01 Entire Agreement. IT IS EXPRESSLY AGREED BY LESSEE, AS A MATERIAL
CONSIDERATION FOR THE EXECUTION OF THIS LEASE, THAT THIS LEASE, WITH THE
SPECIFIC REFERENCES TO WRITTEN EXTRINSIC DOCUMENTS, IS THE ENTIRE AGREEMENT OF
THE PARTIES; THAT THERE ARE, AND WERE, NO VERBAL REPRESENTATIONS, WARRANTIES,
UNDERSTANDINGS, STIPULATIONS, AGREEMENTS OR PROMISES PERTAINING TO THIS LEASE OR
TO THE EXPRESSLY MENTIONED WRITTEN EXTRINSIC DOCUMENTS NOT INCORPORATED IN
WRITING IN THIS LEASE.
14.02 Amendment. THIS LEASE MAY NOT BE ALTERED, WAIVED, AMENDED OR
EXTENDED EXCEPT BY AN INSTRUMENT IN WRITING SIGNED BY LESSOR AND LESSEE.
14.03 Limitation of Warranties. LESSOR AND LESSEE EXPRESSLY AGREE THAT
THERE ARE AND SHALL BE NO IMPLIED WARRANTIES OF MERCHANTABILITY, HABITABILITY,
FITNESS FOR A PARTICULAR PURPOSE OR OF ANY OTHER KIND ARISING OUT OF THIS LEASE,
AND THERE ARE NO WARRANTIES WHICH EXTEND BEYOND THOSE EXPRESSLY SET FORTH IN
THIS LEASE.
<PAGE>
ARTICLE 15.00 - SIGNATURES
SIGNED this _______ day of April, 1999.
LESSOR: LESSEE:
ACLP UNIVERSITY PARK SA, L.P. AMERICAN TELESOURCE
a Texas limited partnership INTERNATIONAL, INC.,
a Texas corporation
BY: ACLP UNIVERSITY PARK SA
GP, INC., a Texas corporation
By: _______________________________
Name: _______________________________
Title: _______________________________
By: ______________________________
Name: Sue Shelton
Title: Executive Vice President
LESSEE ACKNOWLEDGES THAT THIS LEASE
INCLUDES THE INDEMNIFICATION PROVISIONS
SET FORTH IN SECTIONS 3.01, 3.06, 7.05
AND 13.19 HEREOF.
<PAGE>
RULES AND REGULATIONS
1. Lessor agrees to furnish Lessee two keys without charge. Additional keys
will be furnished at a nominal charge. Lessee shall not change locks or
install additional locks on doors without prior written consent of Lessor.
Lessee shall not make or cause to be made duplicates of keys procured from
Lessor without prior approval of Lessor. All keys to Leased Premises shall
be surrendered to Lessor upon termination of this Lease.
2. Lessee will refer all contractors, contractors representatives and
installation technicians rendering any service on or to the Leased Premises
for Lessee to Lessor for Lessor's approval before performance of any
contractual service. Lessee's contractors and installation technicians
shall comply with Lessor's rules and regulations pertaining to construction
and installation. This provision shall apply to all work performed on or
about the Leased Premises or project, including installation of telephones,
telegraph equipment, electrical devices and attachments and installations
of any nature affecting floors, walls, woodwork, trim, windows, ceilings
and equipment or any other physical portion of the Leased Premises or
project.
3. Lessee shall not at any time occupy any part of the Leased Premises or
project as sleeping or lodging quarters.
4. Lessee shall not place, install or operate on the Leased Premises or in any
part of the building any engine, stove or machinery, or conduct mechanical
operations or cook thereon or therein, or place or use in or about the
Leased Premises or project any explosives, gasoline, kerosene, oil, acids,
caustics, or any flammable, explosive or hazardous material without written
consent of Lessor, except that Lessee may provide a kitchen for use by its
employees during normal business hours.
5. Lessor will not be responsible for lost, stolen or damaged personal
property, equipment, money or jewelry from the Leased Premises by a third
party or the project regardless of whether such loss occurs when the area
is locked against entry or not.
6. No dogs, cats, fowl, or other animals shall be brought into or kept in or
about the Leased Premises or project.
7. Employees of Lessor shall not receive or carry messages for or to any
Lessee or other person or contract with or render free or paid services to
any Lessee or to any of Lessee's agents, employees or invitees.
8. None of the parking, plaza, recreation or lawn areas, entries, exits,
passages, doors, elevators, hallways or stairways shall be blocked or
obstructed or any rubbish, litter, trash, or material of any nature placed,
emptied or thrown into these areas or such area used by Lessee's agents,
employees or invitees at any time for purposes inconsistent with their
designation by Lessor.
9. The water closets and other water fixtures shall not be used for any
purpose other than those for which they were constructed, and any damage
resulting to them from misuse, including improper disposal of any
materials, or by the defacing or injury of any part of the Building shall
be borne by the person who shall occasion it. No person shall waste water
by interfering with the faucets or otherwise.
10. No person shall disturb occupants of the Building by the use of any radios,
record players, tape recorders, musical instruments, the making of unseemly
noises or any unreasonable use.
11. Nothing shall be thrown out of the windows of the Building or down the
stairways or other passages.
12. Lessee and its employees, agents and invitees shall park their vehicles
only in those parking areas designated by Lessor. Lessee shall furnish
Lessor with state automobile license numbers of Lessee's vehicles and its
employees' vehicles within five days after taking possession of the Leased
Premises and
<PAGE>
shall notify Lessor of any changes within five days after such change
occurs. Lessee shall not leave any vehicle in a state of disrepair
(including without limitation, flat tires, out of date inspection stickers
or license plates) on the Leased Premises or project. If Lessee or its
employees, agents or invitees park their vehicles in areas other than the
designated parking areas or leave any vehicle in a state of disrepair,
Lessor, after giving written notice to Lessee of such violation, shall have
the right to remove such vehicles at Lessee's expense.
13. Parking in a parking garage or area shall be in compliance with all parking
rules and regulations including any sticker or other identification system
established by Lessor. Failure to observe the rules and regulations shall
terminate Lessee's right to use the parking garage or area and subject the
vehicle in violation of the parking rules and regulations to removal and
impoundment. No termination of parking privileges or removal of impoundment
of a vehicle shall create any liability on Lessor or be deemed to interfere
with Lessee's right to possession of its Leased Premises. Vehicles must be
parked entirely within the stall lines and all directional signs, arrows
and posted speed limits must be observed. Parking is prohibited in areas
not striped for parking, in aisles, where "No Parking" signs are posted, on
ramps, in cross hatched areas, and in other areas as may be designated by
Lessor. Parking stickers or other forms of identification supplied by
Lessor shall remain the property of Lessor and not the property of Lessee
and are not transferable. Every person is required to park and lock his
vehicle. All responsibility for damage to vehicles or persons is assumed by
the owner of the vehicle or its driver.
14. Lessee shall not lay floor covering within the Leased Premises without
written approval of the Lessor. The use of cement or other similar adhesive
materials not easily removed with water is expressly prohibited.
15. Lessee agrees to cooperate and assist Lessor in the prevention of
canvassing, soliciting and peddling within the Building or project.
16. It is Lessor's desire to maintain in the Building or project the highest
standard of dignity and good taste consistent with comfort and convenience
for Lessees. Any action or condition not meeting this high standard should
be reported directly to Lessor. Your cooperation will be mutually
beneficial and sincerely appreciated. As provided in the Lease, Lessor
reserves the right to make such other and further reasonable rules and
regulations as in its judgment may from time to time be necessary, for the
safety, care and cleanliness of the Leased Premises and for the
preservation of good order therein.
17. The parking spaces provided to Lessee shall not be fewer than six spaces
per 1000 rentable square feet of Leased Premises
18. All signage must be approved by Lessor and be within Lessor's
specifications in accordance with Section 3.02 of the Lease.
<PAGE>
ADDENDUM 1 TO COMMERCIAL LEASE AGREEMENT
ARTICLE 16.00
Lessor Improvements
16.01 Lessor Improvements. Prior to Lessee's occupancy, Lessor shall, at
its own cost and expense, construct the Building and improvements (the "Shell
Building Improvements") as generally shown on the site plan and artist's
rendering prepared by Rehler Vaughn & Koone, Inc., and attached hereto as
Exhibit "A". Lessor warrants that the Shell Building Improvements will be
generally consistent in quality with the building shown in the artist's
rendering attached as Exhibit "A" and with other buildings in Dallas, Texas,
which were shown to Lessee's representatives as samples of Lessor's projects.
The Final Shell Plans and Specifications shall be provided to Lessee on or
before June1, 1999. Lessor will begin construction of the Shell Building
Improvements no later than June 1, 1999 and shall have completed the Shell
Building Improvements to the extent to allow construction of the Lessee
Improvements no later than September 15, 1999. Except for immaterial field
changes, modifications to the Final Shell Plans and Specifications must be made
and accepted only by written change order or agreement signed by Lessor and
Lessee and will constitute an amendment to this Lease. Lessee shall be
responsible for payment in advance of all work and construction resulting from
changes in the Final Shell Plans and Specifications requested by Lessee. The
Final Shell Plans and Specifications (when approved by Lessor and Lessee) are
incorporated in this Lease by reference. For the purpose of this Section, an
"immaterial field change" shall mean such field changes which are required by
any governmental authority or changes which (i) do not affect the size,
configuration, structural integrity, quality, character, architectural
appearance and standard of workmanship contemplated in the Final Shell Plans and
Specifications, (ii) will not result in any default in any obligation to any
person or violation of any governmental requirements, and (iii) the cost of or
reduction resulting from any single field change or extra does not exceed
$20,000 and the aggregate amount of all such changes and extras does not exceed
$100,000. Lessor agrees to construct the improvements substantially in
accordance with the Final Shell Plans and Specifications, in a good and
workmanlike manner and in full compliance with all provisions of federal, state
and local authorities having jurisdiction over the Leased Premises.
ARTICLE 17.00 - Completion
17.01 Completion Date.
---------------
(b) If (i) this Lease is executed and delivered by Lessee by April
9, 1999, (ii) the Lessee Improvement Final Plans and Specifications are approved
by Lessor by July 15, 1999 (iii) Lessee has selected by September 1, 1999, the
contractor who will construct the Lessee Improvements, and (iv) the building
permit for the Lessee Improvements is issued by September 15, 1999, then Lessor
shall cause Substantial Completion (as defined in Section 17.04 hereof) to occur
no later than December 15, 1999 (such date being extended by the longest number
of days that the satisfaction of any of the above conditions is delayed, Force
Majeure and Lessee Delays with the date, as extended, being hereinafter referred
to as the "Threshold Date"). In the event that the foregoing conditions are
satisfied and Substantial Completion does not occur by the Threshold Date, then
Lessee, as Lessee's sole and exclusive remedy and measure of damages for or
related to the delay in Substantial Completion, shall have the right to receive
one day of free rent, in addition to the free rent described in Section 3.01,
for each day of unexcused delay beyond the Threshold Date, up to a maximum of
sixty (60) days, and in the event of unexcused delay beyond sixty (60) days
after the Threshold Date, the Lessee shall have the right to receive two (2)
days of free rent, in addition to the free rent described in Section 3.01, for
each day of unexercised delay beyond sixty days after the Threshold Date, and in
the event of unexcused delay beyond one hundred twenty (120) days after the
Threshold Date, the Lessee shall have the right to terminate this Lease by
written notice thereof to Lessor within ten (10) days following the one hundred
twentieth day after such Threshold Date; provided, however, in the event Lessee
fails to deliver such termination notice within such ten (10) period, the Lessee
shall be deemed to have waived any right to terminate this Lease for delay
provided in this Section.
17.02 Force Majeure. "Force Majeure" delay shall mean a delay caused by
-------------
reason of fire, acts of God, unreasonable delays in transportation, embargo,
weather, strike, other labor disputes, governmental preemption of priorities or
other controls in connection with a national or other public emergency, or
shortages of fuel, supplies or labor or any similar cause not within the
reasonable control of the party claiming the benefits of any Force Majeure
provisions. The party claiming the benefits of any Force Majeure provisions
shall be required (as a condition to the effectiveness thereof) to provide
written notice of the occurrence of such Force Majeure event within ten (10)
days following such occurrence.
<PAGE>
17.03 Lessor and Lessee Delay.
(a) The terms "Lessor Delays", "Delays caused by Lessor",
"Lessee Delay" or "Delays caused by Lessee" shall mean delay in completion of
construction of the Shell Building Improvements or the Lessee Improvements
caused by:
(1) Unless due to the acts or omissions of the other
party or such party's agents, employees or contractors, the respective
party's failure to perform its design approval obligations or its
construction period obligations by the dates or within the time periods
shown in the Lease or this Addendum 1; and
(2) Any subsequent changes, modifications or
alterations to the final plans and specifications or the Final Tenant
Improvement Plans and specifications which reasonably cause delay in the
completion thereof; and
(b) "Lessee Delay" or "Delays caused by Lessee" shall also mean
delays due to the scope and extent of the Lessee Improvements to be constructed
by Lessor. For purposes of determining Lessee Delay under this Section, the
Lessor must provide notice to Lessee of the existence of excessive Lessee
Improvements, special design or construction considerations or other matters
which will extend the time necessary for the construction of the Lessee
Improvements beyond two (2) days; such notice to be provided by Lessor to Lessee
together with Lessor's delivery of approval and/or objections to Lessee's plans
and specifications for the Lessee Improvements from time-to-time. Such notice
shall specify the reasons for the delay and the estimated length of delay and,
unless the Lessee's plans and specifications are modified to eliminate such
items, the estimated length of the delay shall be included as a Lessee Delay.
For purposes of determining delay, the terms Lessor and Lessee shall include
their respective contractors, agents and employees. In addition, the party
claiming the benefits of such delay shall be required (as a condition to the
effectiveness thereof) to provide written notice of the occurrence of such delay
within ten (10) days following such occurrence.
17.04 "Substantial Completion" shall mean that time when the
following conditions are satisfied:
(a) Lessor secures and delivers to Lessee the
required temporary or permanent certificate of
occupancy, final inspection report or the substantial
equivalent under applicable state or local law relative
to the Shell Building Improvements and the Lessee
Improvements; and
(b) The construction is completed in accordance
with the Final Shell Plans and Specifications and the
Lessee Improvements Final Plans and Specifications as
acknowledged by Lessor's architect in writing to
Lessee, subject to normal punch list items which will
not materially interfere with Lessee's ability to
utilize the Leased Premises for its intended purposes.
<PAGE>
EXHIBIT "D"
-----------
CERTIFICATE OF ACCEPTANCE
Building:__________________________________________________________________
Lessor: __________________________________________________________________
Lessee: __________________________________________________________________
This certificate is being executed pursuant to the Commercial Lease (the
"Lease") for Leased Premises (as defined in the Lease) in the Building named
above, executed on the ___ day of _______ , 1999, between Lessor and Lessee.
Lessee certifies to and agrees with Lessor and Lessor's successors, assigns,
prospective purchasers and prospective lenders that:
1. Lessor has substantially completed all construction work and leasehold
improvements required of Landlord under the terms of the Lease and/or any
other agreement between Lessor and Lessee concerning the Leased Premises,
and the Leased Premises have been delivered to Lessee in the conditional
contemplated by Lessee, except for Defects, the presence of Hazardous
Materials (as those terms are defined in the Lease) and punch list items.
2. Lessee has taken possession of and has accepted the Premises, and the Base
Rent, additional rent, and/or other charges payable under the Lease are
presently accruing in accordance with the terms of the Lease or if not,
will commence to accrue on the ____ day of _______ , 1999.
3. The Lease has not been modified, altered or amended except as noted herein.
4. There are no offsets or credits against rentals, nor have rentals been
prepaid except as may be provided in the Lease, but in no event have
rentals been prepaid more than thirty (30) days in advance, except for the
7th month's rent.
5. The Lease Term will commence on ___ day of ___________ , 1999, and will
expire on the ____ day of _________ , ____ , unless sooner terminated or
extended pursuant to any provision of the Lease.
Certified and Agreed to this ___ day of ________, 1999.
Lessee:_________________________
Name:___________________________
Title:__________________________
<PAGE>
CONDITIONS
1. The registration for the provision of value added services supported by
this certificate have an indefinite term. When the service provider stops
providing the services for its own convenience, the provider must notify
the Ministry of Communications and Transportation.
1. To provide value added services, the provider agrees to solely utilize
homologated equipment and public telecommunications networks authorized by
the Ministry of Communications and Transportation.
1. The Ministry of Communications and Transportation shall have the ability at
any time to make administrative technical inspections at the provider's
facilities and request additional information related with the value added
services registered.
1. The service provider must notify the Ministry of Communications and
Transportation any modification in their address, legal representative,
addition of new services or the transmission means utilized to provide the
services.before any changes are made.
1. Providing false information upon registering the value added services or in
any other request made to the Ministry of Communications and Transportation
will be reason to initiate any sanction proceedings.
1. The value added services provider whose registration certificate is
attached hereto must submit to the Ministry of Communications and
Transportation on an annual basis and within 30 days after the anniversary
date of this certificate, a completed "Annual Report of Value Added
Services" for the purpose of maintaining updated information. By not
submitting in a timely manner the above mentioned report, it shall be
understood as desisting to continue to provide the services and shall
automatically generate cancellation of its registration.
1. The exercise of the rights derived from this registration implies the
unconditional acceptance of all the terms by the service provider.
(Illegible signature)
cc: Lic. Carlos Casasus Lopez Hermosa - Undersecretary of Communications and
Technological Development.
<PAGE>
EXHIBIT 10.24
FIRST AMENDMENT TO COMMERCIAL LEASE
This First Amendment to Commercial Lease (this "Amendment") is made
and entered into as of December 13, 1999, by and between ACLP University Park SA
II, L.P., a Texas limited partnership ("Lessor"), and American Telesource
International, Inc., a Texas corporation ("Lessee") for the purposes more fully
described below.
R E C I T A L S:
---------------
A. Lessor and Lessee are parties to that certain Commercial Lease
(the "Lease") dated as of April 13, 1999, wherein Lessor leased to Lessee the
Premises, as defined in the Lease;
B. Lessee and Lessor desire to amend the Lease as provided herein.
A G R E E M E N T:
-----------------
NOW THEREFORE, in consideration of the mutual covenants and agreements
herein contained and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Lessor and Lessee hereby amend the
Lease and Lessor and Lessee agree as follows:
1. Leased Premises. Lessee and Lessor agree that the Leased Premises
----------------
shall be relocated from the west end of the Building to the east
end of the Building. The relocated space in the east end of the
Building shall be the space to the immediate west of and adjacent
to the space leased by Globalscape, Inc., as shown on Exhibit "A"
-----------
attached hereto and incorporated herein for all purposes.
Additionally, the square footage of the Leased Premises is hereby
reduced from 26,250 rentable square feet to 15,050 rentable
square feet.
2. Commencement Date. The "Commencement Date" of the Lease shall be
------------------
January 15, 2000.
3. Term. The Term of the lease shall remain 102 months from the
----
Commencement Date (i.e., 102 months from January 15, 2000).
4. Base Rent. Section 1.04, Base Rent, Security Deposit, is hereby
----------
deleted from the Lease and replaced in its entirety as provided
below:
"1.04 Base Rent, Security Deposit. Base Rent is $14,899.50 net
per month based upon an assumed 15,050 rentable square footage in
the Leased Premises and shall be adjusted by $11.88 per rentable
square foot per year based on the recalculation under Section
1.02 above. Security Deposit is $7,449.75. Base Rent shall be
payable as follows and in accordance with Section 2.01 herein:
Months 1-6 free
Months 7 - 102 $14,899.50"
<PAGE>
5. Improvement Allowance. As provided in Section 6.01(c) of the
---------------------
Lease, the Improvement Allowance is $22.00 per rentable square
foot, as reduced to 15,050 in paragraph 1 above. Lessee may use
up to an additional $3.00 per rentable square foot for Lessee
Improvements and such additional amount shall be amortized at a
rate of ten percent (10%) per annum as additional rent over the
96 months of the Lease that Base Rent is paid.
6. Right of First Refusal. Lessee shall have the right of first
----------------------
refusal for two (2) adjacent bays totaling approximately 8,050
square feet located immediately west of this relocated space, as
shown on Exhibit "A". Accordingly, Section 1.07 of the Lease is
-----------
hereby revised by deleting Exhibit "A" to the lease and replacing
it with Exhibit "A" attached to this Amendment.
-----------
7. Miscellaneous
-------------
a. Capitalized Terms. Terms not otherwise defined herein shall
------------------
have the meanings ascribed thereto in the Lease.
b. Effect of Amendment. Except to the extent the Lease is
-------------------
modified by this Amendment, the remaining terms and provisions
of the Lease shall remain unmodified and in full force and
effect. In the event of a conflict between the terms of the
Lease and the terms of this Amendment, the terms of this
Amendment shall prevail.
c. Entire Agreement. This Amendment, together with the Lease,
----------------
embodies this entire understanding between Lessor and Lessee
with respect to its subject matter and can be changed only by
an instrument in writing signed by Lessor and Lessee.
d. Counterparts. This Amendment may be executed in counterparts,
------------
each of which shall be deemed an original, but all of which,
together, shall constitute one and the same Amendment.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date and year first set forth above.
LESSOR: LESSEE:
ACLP UNIVERSITY PARK SA II, L.P., AMERICAN TELESOURCE
a Texas limited partnership INTERNATIONAL, INC.,
a Texas corporation
By: ACLP University Park SA II, L.P.,
a Texas corporation,
its general partner
By: ___________________________
Name _____________________
Title:_____________________
By: __________________________
Sue Shelton
Executive Vice President
<PAGE>
Exhibit 10.25
COMMERCIAL LEASE
ARTICLE 1.00 - BASIC LEASE TERMS
1.01 Parties. This lease agreement ("Lease") is entered into by and
between the following Lessor and Lessee:
ACLP University Park SA, L.P., a Texas limited partnership ("Lessor"), and
GlobalSCAPE, Inc., a Texas corporation ("Lessee").
1.02 Leased Premises. In consideration of the rents, terms, provisions and
covenants of this Lease, Lessor hereby leases, lets and demises to the Lessee
the following described premises ("Leased Premises"): The area shown on the
attached Exhibit "A" consisting of approximately 7,350 rentable square feet at
the eastern end of the building to be constructed and called University Park
Tech Center II in San Antonio, Texas 78249, which consists of 84,525 square
feet, and which is located on the land shown on Exhibit "B" attached hereto and
-----------
incorporated herein for all purposes, consisting of 7,350 rentable square feet
to be leased by Lessee beginning on the Commencement Date (the "Initial Space"),
and 7,350 additional square feet to be leased by Lessee on or before twelve (12)
calendar months following the Commencement Date (the "Must Take Space").
Lessor and Lessee agree that final square footage for the purpose of rent
calculations will be determined by Lessee's architect, using then-current BOMA
standards (except that the space shall be measured from the edge of the roof for
the exterior space adjacent to the exterior doorways) based on Lessee
Improvements Final Plans and Specifications, subject to Lessor's approval, which
may not be unreasonably refused or delayed.
1.03 Term. Subject to and upon the conditions set forth herein, the term
(the "Term") of this Lease commences on December 15, 1999 (the "Commencement
Date") and terminates one hundred and two (102) months thereafter (the
"Termination Date"). Except as provided in Addendum 1 attached hereto and
----------
incorporated herein for all purposes, Lessee agrees that Lessor will not be
liable to Lessee if Lessor does not deliver possession of the Leased Premises to
Lessee on the Commencement Date, and Lessor's non-delivery of the Leased
Premises to Lessee on the Commencement Date will not change the terms of this
Lease or the obligations of Lessee hereunder. If delivery of the Leased Premises
is delayed for any reason other than Lessee Delay (as hereinafter defined),
Lessor and Lessee agree that the Commencement Date will be delayed until
Substantial Completion (as hereinafter defined) of the Leased Premises, in which
event the Term will be automatically extended for a period of time equal to the
delay in Substantial Completion of the Leased Premises. If the Commencement Date
is delayed, Lessor and Lessee shall, upon such delivery, execute an amendment to
this Lease setting forth the actual Commencement Date and Termination Date. If
Lessee enters the Leased Premises prior to Substantial Completion, Lessee shall
execute and deliver to Lessor an Early Occupancy Agreement in a reasonable form
provided by Lessor whereby Lessee releases Lessor from all liabilities, claims
and causes of action arising out of any construction or other work performed at
the Leased Premises and agrees to pay utility charges incurred by Lessee during
such early occupancy. If the Termination Date falls on a day other than the last
day of a month, the parties agree that the Term is automatically extended by the
number of days necessary to cause the Term to end on the last day of a month.
1.04 Base Rent, Security Deposit. Base Rent is $7,276.50 net per month
based upon an assumed 7,350 rentable square footage in the Leased Premises and
shall be adjusted by $11.88 per rentable square foot per year based on the
recalculation under Section 1.02 above. Security Deposit is $ 3,638.25.
1.05 Addresses.
<PAGE>
Lessor's Address: Lessee's Address:
ACLP University Park SA, L.P. GlobalSCAPE, Inc.
17400 Dallas Parkway ____________________
Suite 216 ____________________
Dallas, Texas 75287 San Antonio, Texas _____
FAX (972) 407-9068 FAX (___) _______
*[use Leased Premises address]
With a copy to:
CMC Commercial Realty Group, Inc.
5400 LBJ Freeway
Suite 1450
Dallas, Texas 75240
FAX (972) 770-2805
1.06 Permitted Use. The Leased Premises may be used for office space, and
assembly, distribution and sales of software.
1.07 Leasing Term Limitation on Adjacent Space and Right of First Refusal.
Lessor agrees that Lessee may lease the Bay shown on Exhibit "A" adjacent to the
Leased Premises at any time prior to Lessor leasing the Bay to another person.
Lessor agrees that it will notify Lessee at least thirty (30) days prior to
entering into a lease of the Bay, and will not enter into a lease for the Bay
for a term that continues longer than sixty (60) months. Lessor further agrees
that it will notify Lessee ninety (90) days prior to the expiration of any lease
of the Bay (or immediately upon learning that the Bay is to become available
prior to the expiration of its lease) and Lessee will have fifteen (15) days
following receipt of notice to notify Lessor that it elects to lease the Bay. If
Lessee does not notify Lessor that it elects to lease the Bay within fifteen
(15) days, Lessor may re-let the Bay for a term of up to sixty (60) months. If
Lessee elects to lease the Bay pursuant to this Section, then Lessor and Lessee
will execute a modification of this Lease such that the Bay becomes part of the
Leased Premises and is leased on the same terms and conditions as provided in
this Lease for the initial Leased Premises, including renewal options, but not
including the rental per square foot, finish out allowance, and refurbishment
allowance, with an additional security deposit to be calculated in the same
manner as the security deposit for the Leased Premises, and with the term of the
lease for the Bay to expire on the Termination Date. If Lessee elects to lease
the Bay prior to the time that Lessor completes the Lessee Improvements, then
the Bay will be leased on all of the same terms and conditions as the initial
Leased Premises, including rental per square foot, renewal options, finish out
allowance, and refurbishment allowance. The date for completion of Lessee
Improvements in the Bay will be established consistently with the time frames
for completion of Lessee Improvements for the initial Leased Premises.
1.08 Lessee's Future Expansion Needs. Lessor acknowledges that Lessee
expects its business to grow significantly and that Lessee may require space in
addition to the Leased Premises and the Bay. Lessor will keep Lessee informed of
the status of the remaining space in the Building and give Lessee a reasonable
opportunity to lease additional space that becomes available on reasonable terms
and conditions.
1.09 Renewal Terms. Lessor agrees that Lessee may renew the Lease for two
successive sixty (60) month renewal terms (each a "Renewal Term") by giving
Lessor written notice of renewal at least one hundred eighty (180) days prior to
the expiration of the Term or the first Renewal Term, respectively. The Lease
will continue on the same terms and conditions during any Renewal Term, except
that the rental rate per square foot shall be adjusted to ninety five percent
(95%) of the prevailing market rate for comparable buildings in San Antonio at
the time of renewal (taking into consideration the age and quality of the
structure, type of building, location of the space in the building, definition
of the leased area, estimated lease-up time, credit standing and financial
status of the Lessee, term, extent of services provided by landlord, brokerage
fees, leasehold improvement allowances, moving allowances, rental abatements and
other incentive being offered). If there is a difference in opinion between
Lessor
<PAGE>
and Lessee regarding the prevailing market rate of rental at the time of
Renewal, Lessor and Lessee will negotiate in good faith to resolve the
difference. Lessor and Lessee will also negotiate in good faith to establish a
refurbishment allowance for the Leased Premises, which shall be administered by
Lessor on the same terms and conditions as the Improvement Allowance for the
Initial Lessee Improvements. Lessee may withdraw its notice of renewal if
agreement on the prevailing market rate of rental is not reached within sixty
(60) days of the beginning of the proposed Renewal Term.
1.10 Contingencies. Lessor agrees that if by May 1, 1999, Lessor has
failed to acquire title to the land on which the Building is to be constructed,
or if by June 1, 1999 it has not commenced construction of the Building, Lessee
may terminate this Lease on one (1) day's advance written notice. Lessor agrees
that Lessee's security deposit and seventh months' rent is due upon execution of
the Lease; however Lessor and Lessee further agree that such payment will not be
deposited until such time as Lessor has acquired title to the land on which the
Building is to be constructed.
1.11 Must Take Space. Lessee will notify Lessor at least three (3)
calendar months prior to the date that Lessee desires to lease the Must Take
Space and will provide Lessor with its preliminary plans and specifications for
Lessee Improvements to the Must Take Space within forty-five (45) days of the
date that it desires to take possession of the Must Take Space. The date for
completion of Lessee Improvements to the Must Take Space will be established
consistently with the time frames for completion of Lessee Improvements for the
Initial Space.
ARTICLE 2.00 - RENT
2.04 Base Rent. Lessee agrees to pay monthly as base rent during the term
of this Lease without notice, demand, counter-claim, set-off or abatement,
except as otherwise set forth herein, the sum of money set forth in Section 1.04
of this Lease, which amount is payable to Lessor at the address shown above,
except that Lessee shall not pay any base rent for the first six full calendar
months following the Commencement Date. One monthly installment of rent is due
and payable on the date of execution of this Lease by Lessee for the seventh
month's rent and a like monthly installment is due and payable on or before the
first day of each succeeding calendar month during the term of this Lease;
provided, if the Commencement Date should be a date other than the first day of
a calendar month, the free rental period set forth above will begin on the
Commencement Date and the rental for the remainder of the calendar month in
which the free rental period ends will be prorated and will due on the first day
of the calendar month first following the end of the free rental period. Lessee
shall pay, as additional rent, all other sums due under this Lease. If Lessee
elects to lease the Must Take Space and the lease of the Must Take Space begins
prior to the end of the free rental period (or would have begun during the free
rental period except for Lessor Delay), Lessee will not be obligated to pay rent
on the Must Take Space for the remainder of the free rental period.
2.05 Additional Rent. Lessee agrees to pay as additional rent, without
deduction or set-off of any kind except as otherwise set forth herein, Lessee's
pro rata share of all ad valorem taxes and installments of special assessments
(including dues and assessments by means of deed restrictions and/or owner's
associations) lawfully levied or assessed against the Building (as hereinafter
defined) of which the Leased Premises are a part and any and all insurance
required herein or which is standard for similar projects (specifically
including fire and casualty, commercial general liability and rent loss
insurance). Said ad valorem taxes, assessments and insurance shall be prorated
and paid on or before the first day of every month commencing on the
Commencement Date, in advance, as additional rent. The proration shall be based
upon Lessor's estimate of ad valorem taxes, assessments and insurance for the
current calendar year, provided, that in the event Lessor is required under a
mortgage, deed of trust, underlying lease or loan agreement covering the
Building to escrow ad valorem taxes, assessments or insurance, Lessor may but
shall not be obligated, to use the amount required to be escrowed as a basis for
its estimate. There will be an annual accounting as to actual ad valorem taxes,
assessments and insurance and appropriate payment or credits made. To the extent
the Commencement Date or Termination Date of the Lease is not on the first day
of the calendar year or last day of the calendar year respectively, Lessee's
liability for ad valorem taxes, assessments and insurance shall be subject to a
pro rata adjustment based on the number of days of any such year during which
the Term is in effect. Lessee shall have the right at its expense to contest or
appeal by
<PAGE>
appropriate proceedings any value assessment rendered by applicable taxing
authorities and Lessor shall cooperate to the extent reasonably necessary in
such contest or appeal. To the extent the Leased Premises are part of a multi-
occupancy building, Lessee shall pay a pro rata share of such ad valorem taxes,
assessments and insurance, such pro rata share to be equal to the product
obtained by multiplying the total of such real property taxes assessments and
insurance by a fraction, the numerator of which shall be the number of square
feet of floor area of the Leased Premises and the denominator of which shall be
the number of square feet of floor area in the Building of which the Leased
Premises are a part.
2.06 Operating Expenses. Lessee agrees to pay, as additional rent,
Lessee's pro rata share (as determined by the formula set forth in Section 2.02
above) of Lessor's Operating Expenses for the Building without deduction or set-
off of any kind except as otherwise set forth herein. Lessor may invoice Lessee
monthly for Lessee's pro rata share of the estimated Operating Expenses for each
calendar year, which amount shall be adjusted from time-to-time based upon
anticipated Operating Expenses. As of the date hereof, it is estimated that the
Operating Expenses, taxes and insurance for calendar year 2000 will be
approximately $2.20 per rentable square foot. Lessor agrees that the Lessee's
portion of the Operating Expenses for common area maintenance, less costs of
utilities, costs required to meet applicable laws, and capitalized costs of
capital improvements and operating efficiency devices, will not exceed seventy-
eight cents ($.78) per rentable square foot during the first year of the Term
(the "Base Amount"), and will not increase for any year by more than five
percent (5%) per year (cumulative) over the Base Amount. Within four months
following the close of each calendar year, Lessor shall provide Lessee an
accounting showing in reasonable detail all computations of additional rent due
under this Section. In the event the accounting shows that the total of the
monthly payments made by Lessee exceeds the amount of additional rent due by
Lessee under this Section, such amount shall be credited against the next
required payment of base rent. In the event the accounting shows that the total
of the monthly payments made by Lessee is less than the amount of additional
rent due by Lessee under this Section, the account shall be accompanied by an
invoice for the additional rent. If this Lease shall terminate on a day other
than the last day of a calendar year, the amount of any additional rent payable
by Lessee applicable to the year in which such termination shall occur shall be
prorated on the ratio that the number of days from the commencement of the
calendar year to and including the termination date bears to 365. Provided
Lessee is not in default of any terms of this Lease, Lessee shall have the
right, at its own expense, to audit Lessor's books relevant to the additional
rent payable under this Section. With respect to such audit, Lessee 1) may
review Lessor's books during office hours, 2) must perform such audit at the
location of Lessor's books, 3) must request such audit within six (6) months of
receipt of its annual reconciliation of Operating Expenses, 4) must deliver to
Lessor a copy of the results of such audit, 5) may not audit the same calendar
year more than one time. If, as a result of such audit, it is determined that
the Operating Expenses have been overstated by 3% or more, Lessor shall be
required to reimburse Lessee for the costs of such audit. Assignees of Lessee
may only audit periods for which they occupy the Leased Premises and subtenants
of Lessee shall have no audit rights. Lessee agrees to pay any additional rent
due under this Section within ten (10) days following receipt of the invoice or
accounting showing additional rent due.
2.04 Definition of Operating Expenses. The term "Operating Expenses"
includes all expenses incurred by Lessor with respect to the maintenance and
operation of the Building (except for items described below) and includes, but
is not limited to, the following: maintenance, repair and replacement costs;
security; wages and benefits payable to employees of Lessor to the extent their
duties are directly connected with the operation and maintenance of the
Building; management fees, all services, utilities for common areas, supplies,
repairs, replacement or other expenses for maintaining and operating the common
parking and plaza areas; the cost, amortized over its useful life, of any
expense required to be capitalized under GAAP principles other than capital
improvements; the cost, amortized over its useful life, of any capital
improvement made to the Building by Lessor after the date of this Lease, if
required under any governmental law or regulation other than improvements made
to the Building to effect compliance with the Americans With Disabilities Act
(the "ADA") or as otherwise set forth herein, which capital improvements must be
of mutual benefit to all tenants of the Building; and the cost, amortized over
its useful life, of installation of any device or other equipment to the extent
it improves the operating efficiency of any system within the Leased Premises
and thereby reduces Operating Expenses, provided that, prior to installing
<PAGE>
any such device or equipment, Lessor will inform Lessee of such installation and
the estimated cost savings and Lessor and Lessee must reasonably agree upon the
estimated cost savings before agreeing to such installation. The term Operating
Expenses does not include the following: expenses incurred to maintain the roof,
foundation and structural soundness of the exterior walls of the Building;
expenses incurred should the entire roof the Building need to be replaced;
expenses to bring the Building into compliance with applicable law such as the
ADA and Environmental Laws, expenses incurred to abate or remove any Hazardous
Substance in the Building that was placed there by Lessor, income and franchise
taxes of Lessor; expenses incurred in leasing to or procuring of lessees,
leasing commissions, advertising expenses and expenses for the renovating of
space for new lessees; interest or principal payments on any mortgage or other
indebtedness of lessor; compensation paid to any employee of Lessor other than
maintenance and property management personnel to the extent these services are
directly associated with the operation and maintenance of the Building; any
depreciation allowance or expense (except for depreciation of capital
improvements and equipment specifically included within the definition of
Operating Expenses); or operating expenses which are the responsibility of
Lessee or any other lessee of the Building; or expenses (herein called "Defect
Expenses") incurred as a result of or caused by latent defects, punch list
items, or Lessor's failure to construct the Shell Building Improvements or
Lessee Improvements in accordance with the requirements of this Lease and
substantially in accordance with the Final Shell Plans and Specifications and
Lessee Improvements Final Plans and Specifications as provided herein (such
items being herein called "Defects"); and/or operating expenses otherwise caused
by or resulting from Lessor's breach of its obligations under the Lease.
2.05 Late Payment Charge. Other remedies for nonpayment of rent
notwithstanding, if the monthly rental payment is not received by Lessor on or
before the fifth day of the month for which the rent is due, or if any other
payment due Lessor by Lessee is not received by Lessor on or before the fifth
day of the month next following the month in which Lessee was invoiced, Lessee
agrees to pay a late payment charge of five percent (5%) of such past due amount
in addition to such amounts owed under this Lease, provided, however, that
Lessee is hereby granted a waiver of this late payment charge once every twelve
(12) months during the term of this Lease. In addition, Lessor is entitled to
charge one-hundred dollars ($100.00) for each check or payment which is not
honored by Lessee's bank. Said charge is in addition to any other amounts owed
under this Lease.
2.06 Security Deposit. The security deposit set forth above will be held
by Lessor for the performance of Lessee's covenants and obligations under this
Lease, it being expressly understood that the deposit is not an advance payment
of rental or a measure of Lessor's damage in case of default by Lessee. Upon the
occurrence of any event of default by Lessee or breach by Lessee of Lessee's
covenants under this Lease, Lessor may, from time to time, without prejudice to
any other remedy, use the security deposit to the extent necessary to make good
any arrears of rent, or to repair any damage or injury, or pay any expense or
liability incurred by Lessor as a result of the event of default or breach of
covenant, and any remaining balance of the security deposit will be returned by
Lessor to Lessee within a reasonable period of time following termination of
this Lease. If any portion of the security deposit is so used or applied, Lessee
shall upon ten days written notice from Lessor, deposit with Lessor by cash or
cashier's check an amount sufficient to restore the security deposit to its
original amount.
2.08 Holding Over. In no event may Lessee remain in the Leased Premises
following the expiration or termination of this Lease without Lessor's prior
written consent. If Lessee does not vacate the Leased Premises upon the
expiration or termination of this Lease, Lessee agrees that it will be a tenant
at will for the holdover period and that all of the terms and provisions of this
Lease are applicable during that period, except that Lessee shall pay Lessor as
base rental for the period of such holdover an amount equal to 1.50 times the
base rent being paid by Lessee immediately prior to the expiration or
termination of the Lease. Lessee agrees to vacate and deliver the Leased
Premises to Lessor immediately upon Lessee's receipt of notice from Lessor to
vacate. Such notice may be given pursuant to the notice provisions of Section
14.07 herein. Lessee agrees to pay the rental payable during the holdover period
to Lessor on demand. No holding over by Lessee, whether with or without the
consent of Lessor and notwithstanding receipt by Lessee of an invoice from
Lessor for holdover rent, will extend the term of this Lease. Additionally,
Lessee shall pay to Lessor all damages sustained by Lessor as a result of such
holding over by Lessee.
<PAGE>
ARTICLE 3.00 - OCCUPANCY AND USE
3.01 Use. Lessee warrants and represents to Lessor that the Leased
Premises may be used and occupied only for the purpose as set forth in Section
1.06. Lessee shall occupy the Leased Premises, conduct its business and control
its agents, employees, invitees and visitors in such a manner as is lawful,
reputable, will not create a nuisance, interfere with standard Building
operations, or affect the structural integrity or design capabilities of the
Building. Lessee shall not permit any operation which emits any odor or matter
which intrudes outside the Leased Premises, attracts rodents, use any apparatus
or machine which makes undue noise or causes vibration in any portion of the
Building or otherwise interfere with, annoy or disturb any other party outside
the Leased Premises, including without limitation, any other tenant in the
Building. Lessee shall neither permit any waste on the Leased Premises nor allow
the Leased Premises to be used in any way which would, in the reasonable opinion
of Lessor, be extra hazardous on account of fire or which would in any way
increase or render void the fire insurance on the Building. If at any time
during the Term the State Board of Insurance or other insurance authority
disallows any of Lessor's sprinkler credits or imposes an additional penalty or
surcharge in Lessor's insurance premiums because of Lessee's original or
subsequent placement or use of storage racks or bins, method of storage or
nature of Lessee's inventory or any other act of Lessee, Lessee agrees to pay as
additional rent the increase in Lessor's insurance premiums. Notwithstanding
anything set forth in this Section 3.01, in no way does Lessor warrant or
represent, either expressly or impliedly, that Lessee's use of the Leased
Premises is in accordance with applicable codes or ordinances of the
municipality within which the Building is located. Lessee agrees to indemnify
and hold Lessor harmless from all claims, demands, actions, liabilities, costs,
expenses, damages and obligations of any nature arising from or as a result of
the use of the Leased Premises by Lessee in violation of applicable codes or
ordinances of the municipalities or any other government bodies within which the
building is located. The foregoing indemnification and the responsibilities of
Lessee survive the termination or expiration of this Lease.
3.09 Signs. No sign of any type or description may be erected, placed or
painted in or about the Leased Premises of Building, including those advertising
the Leased Premises for sublease, except (i) those signs which are in
conformance with Lessor's sign criteria attached as Exhibit "C" and, (ii) at
-----------
Lessee's option and expense, a free-standing "monument" sign consistent in
quality and appearance with the architectural standards of the Building, and as
approved in advance by Lessor. All signs must be in conformance with applicable
governmental requirements and limitations (including any applicable restrictive
covenants). Such permitted signs must be removed by Lessee upon expiration or
termination of the Lease at Lessee's sole cost and expense. Any damage or
discoloration from such removal will be repaired at Lessee's sole cost and
expense.
3.10 Compliance with Laws, Rules and Regulations. Lessee, at Lessee's sole
cost and expense (except as provided in Section 2.04 hereof), shall comply with
all laws, ordinances, orders, rules and regulations now in effect or enacted
subsequent to the date hereof by state, federal, municipal or other agencies or
bodies having jurisdiction over Lessee or the use, condition and occupancy of
the Leased Premises except that Lessor shall be responsible for construction of
the Lessee Improvements in compliance therewith as of the Commencement Date,
including, but not limited to, compliance with the ADA as to the Building, but
excluding the interior of the Leased Premises which is Lessee's responsibility.
Lessee will comply with the rules and regulations of the Building adopted by
Lessor which are set forth on a schedule attached to this Lease. At any time,
Lessor may change and amend the rules and regulations in any reasonable manner
not inconsistent with the terms of this Lease as may be deemed advisable for the
safety, care, cleanliness, preservation of good order and operation or use of
the Building or the Leased Premises. All changes and amendments to the rules and
regulations of the Building will be sent by Lessor to Lessee in writing and must
thereafter be carried out and observed by Lessee.
3.11 Warranty of Possession and Enjoyment. Lessor warrants that it has the
right and authority to execute this Lease, and Lessee, upon payment of the
required rents and subject to the terms, conditions, covenants and agreements
contained in this Lease, is entitled to possession and quiet enjoyment of the
Leased Premises during the full term of this Lease as well as any extension or
renewal thereof. Lessor is not responsible for the acts or omissions of any
other lessee or third party that may interfere with Lessee's use and enjoyment
of the Leased Premises.
<PAGE>
3.12 Inspection. Lessor or its authorized agents may at any and all
reasonable times enter the Leased Premises to inspect the same, conduct tests,
environmental audits or other procedures to determine Lessee's compliance with
the terms hereof; to supply any other service to be provided by Lessor; to show
the Leased Premises to prospective purchasers, lessees, (within six months prior
to termination of this Lease), or mortgagees; to alter, improve or repair the
Leased Premises or any other portion of the Building or for any other purpose
Lessor deems reasonably necessary. LESSEE HEREBY WAIVES ANY CLAIM FOR DAMAGES
FOR INJURY OR INCONVENIENCE TO OR INTERFERENCE WITH LESSEE'S BUSINESS, ANY LOSS
OF OCCUPANCY OR USE OF THE LEASED PREMISES, AND ANY OTHER LOSS OCCASIONED BY
INSPECTIONS MADE UNDER THIS SECTION INCLUDING CLAIMS RESULTING FROM THE
NEGLIGENCE OF LESSOR BUT EXCLUDING ANY CLAIMS RESULTING FROM THE GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT OF LESSOR. Lessee shall not change Lessor's
lock system or in any other manner prohibit Lessor from entering the Leased
Premises. Lessor is entitled to use any and all means which Lessor may deem
proper to open any door in an emergency without liability therefor. During the
final one-hundred eighty days of the Lease term, Lessor or its authorized agents
have the right to erect or maintain on or about the Leased Premises or the
Building customary signs advertising the Leased Premises for lease or sale.
3.13 Hazardous Waste. The term "Hazardous Substances," as used in this
Lease means pollutants, contaminants, toxic or hazardous wastes, or any other
substances, the use and/or the removal of which is required or the use of which
is regulated, restricted, prohibited or penalized by any "Environmental Law,"
which term means any federal, state or local law, ordinance or other statute of
a governmental or quasi-governmental authority relating to pollution or
protection of the environment. Lessee hereby agrees that (i) no activity will be
conducted on the Leased Premises that will produce any Hazardous Substance,
except for such activities that are part of the ordinary course of Lessee's
business activities (the "Permitted Activities"), provided said Permitted
Activities are conducted in accordance with all Environmental Laws and have been
approved in advance in writing by Lessor; Lessee shall obtain all required
permits and pay all fees and conduct any testing required by any governmental
agency; (ii) the Leased Premises will not be used in any manner for the storage
of any Hazardous Substances except for the temporary storage of such materials
that are used in the ordinary course of Lessee's business (the "Permitted
Materials") provided such Permitted Materials are properly stored in a manner
and location meeting all Environmental Laws and approved in advance in writing
by Lessor; Lessee shall obtain all required permits and pay all fees and conduct
any testing required by any governmental agency in connection with the Permitted
Materials; (iii) no portion of the Leased Premises or Building will be used as a
landfill or a dump; (iv) Lessee will not install any underground or above ground
tanks of any type; (v) Lessee will not allow any surface or subsurface
conditions to exist or come into existence that constitute, or with the passage
of time may constitute a public or private nuisance; (vi) Lessee will not permit
any Hazardous Substances to be brought onto the Leased Premises or Building,
except for the Permitted Materials, and if so brought or found located thereon
(except for pre-existing conditions or matters caused by the Lessor), the same
must be immediately removed, with proper disposal, and all required cleanup
procedures must be diligently undertaken pursuant to all Environmental Laws.
Lessor or Lessor's representative's may, but are not required to, enter the
Leased Premises for the purpose of inspecting the storage, use and disposal of
Permitted Materials to ensure compliance with all Environmental Laws. Should it
be determined, in Lessor's sole opinion, that said Permitted Materials are being
improperly stored, used, or disposed of, then Lessee shall immediately take such
corrective action as requested by Lessor. Should Lessee fail to take such
corrective action within twenty-four (24) hours, Lessor has the right to perform
such work and Lessee shall promptly reimburse Lessor for any and all costs
associated with said work. If at any time during or after the term of the Lease,
the Leased Premises or Building are found to be so contaminated or subject to
said conditions as a result of Lessees breach of the terms of this Lease, Lessee
shall diligently institute proper and thorough cleanup procedures at Lessee's
sole cost. Before taking any action to comply with Environmental Laws or to
clean up Hazardous Substances contaminating the Leased Premises or Building,
Lessee shall submit to Lessor a plan of action, including any and all plans and
documents required by any Environmental Law to be submitted to a governmental
authority (collectively a "plan of action"). Such plan of action must be
implemented by a licensed environmental contractor. Before Lessee begins the
actions necessary to comply with Environmental Laws or to clean up contamination
from Hazardous Substances, Lessor must have (1) approved the nature, scope and
timing of the plan of action, and (2) approved any and all covenants and
agreements to effect the plan of action. Lessee agrees to indemnify and hold
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Lessor harmless from all claims, demands, actions, liabilities, costs, expenses,
damages and obligations of any nature arising from or as a result of the use of
the Leased Premises or Building by Lessee in violation of this Section 3.06 but
excluding pre-existing conditions or matters resulting from the negligence or
willful misconduct of Lessor. The foregoing indemnification and the
responsibilities of Lessee survive the termination or expiration of this Lease.
Lessee represents that it has not been previously cited for any
environmental violations by any applicable governmental agency and that there
are no Permitted Materials to be stored in or upon the Leased Premises. In no
event will any Permitted Materials be stored in or upon the Leased Premises
without Lessor's prior written consent.
3.14 Parking and Road Use. Except as the number of spaces may be reduced
pursuant to Section 3.08, Lessor will ensure that Lessee will have available to
use, for the benefit of Lessee, its employees, customers, invitees and
licensees, six (6) parking spaces for each 1000 rentable square feet of Leased
Premises in the parking areas adjacent to the Building of which the Leased
Premises are a part on an unassigned, unreserved basis, subject to reasonable
regulation by Lessor. Lessor may use additional parking spaces if available, on
a first come, first serve basis unless such use interferes with another tenant's
rights. Lessor reserves the right in its sole discretion to designate specific
areas within the parking areas for the exclusive use of visitors and invitees to
the Building and others. Included in the aggregate allowance of parking spaces
shall be five (5) designated, reserve parking spaces for the exclusive use of
Lessee, location of such spaces to be agreed upon by Lessor and Lessee and to be
shown on the site plan attached hereto as Exhibit "A", provided that Lessor
shall not be responsible for monitoring use of such spaces. Should Lessee
increase the square footage of the Leased Premises at any time, Lessee shall be
allowed additional parking spaces according to the ratio set forth herein. Any
parking permitted by Lessor on any common drive areas by Lessee or any of
Lessee's employees, customers, invitees or licensees will be permitted upon the
express condition that all such drives must be kept clear for through traffic of
all vehicles, including tractor-trailers. No driving or parking of any vehicles
on non-paved areas adjoining the Building or within the Project of which the
Building is a part is permitted. Lessee's failure to use all of the parking
spaces allocated to it under this Section will not constitute a waiver by Lessee
of the right to use those parking spaces at a later time.
3.15 Satellite Dishes. Lessor agrees that Lessee may locate one or more
satellite dishes or other telecommunications equipment on the roof of the
Building or on the land on which the Building is constructed, provided the
placement of the satellite dishes or other telecommunications equipment does not
effect the structural integrity of the Building or materially impair the
appearance of the Building or the land on which the Building is constructed and
Lessee obtains Lessor's written approval as to location and size of satellite
prior to the installation of such.
ARTICLE 4.00 - UTILITIES, SERVICE, SIGNAGE
4.03 Security Lighting. Lessor shall install security lighting at all
entrances to the Leased Premises and in the parking lots adjacent to the Leased
Premises at its expense; provided, however, the Lessor shall make no
representation or warranty as to the sufficiency or adequacy of such lighting or
the effectiveness thereof for security.
4.04 Building Services. Lessor shall provide the normal utility service
connections to the Building. Lessee shall pay directly to the appropriate
supplier the cost of all utility services to the Leased Premises, including, but
not limited to, any required security deposits and initial connection charge,
all charges for gas, electricity, telephone, water, sanitary and storm sewer
service and security systems. If any services are jointly metered with other
Leased Premises or property (for example, exterior lighting), Lessor shall make
a reasonable determination of Lessee's proportionate share of the cost of such
services and Lessee shall pay such share to Lessor within ten (10) days of
receipt of any invoice thereof. Lessee shall pay all costs caused by Lessee
introducing excessive pollutants or solids other than ordinary human waste into
the sanitary sewer system, including permits, fees and charges levied by any
governmental subdivision for any such pollutants or solids. Lessee shall be
responsible for the installation and maintenance of any dilution tanks, holding
tanks, settling tanks, sewer sampling devices, sand traps, grease traps or
similar devices as may be required by any governmental subdivision for Lessee's
use of the sanitary sewer system. If the Leased Premises are in a multi-
occupancy Building, Lessee shall pay all surcharges levied due to
<PAGE>
Lessee's use of sanitary sewer or waste removal services insofar as such
surcharges affect Lessor or other Lessees in the Building. Except as set forth
herein, Lessor shall not be required to pay for any utility service, supplies or
upkeep in connection with the Leased Premises or Building. Utility services for
the common areas shall be part of Operating Expenses.
Lessee agrees that Lessor is not liable to Lessee in any respect for
damages to either person, property or business on account of any interruption or
failure of utilities or services furnished by Lessor provided that Lessor uses
reasonable diligence to repair the same promptly. No such interruption or
failure may be construed as an eviction of Lessee or entitle Lessee to (i) any
abatement of rent, (ii) terminate the Lease, or (iii) be relieved from
fulfilling any covenant or agreement contained herein. Should any malfunction of
the improvements or facilities to the Leased Premises or Building (which by
definition do not include any improvements or facilities of Lessee above
Building standard improvements) occur for any reason, Lessor shall use
reasonable diligence to repair same promptly, but Lessee will not be entitled to
any claim for rebate or abatement of rent or damages on account of such
malfunction or of any interruptions in service occasioned thereby or resulting
therefrom.
4.03 Theft or Burglary. Lessee expressly acknowledges that whether or not
Lessor, from time to time, elects to provide security services, Lessor has not,
nor will Lessor be deemed to have, warranted the efficiency of any security
personnel, service, procedures or equipment and Lessor is not liable in any
manner for the failure of any of the foregoing to prevent or control or
apprehend anyone suspected of theft, personal injury, property damage or any
criminal conduct in, on or around the Building. Lessee agrees that Lessor is not
liable to Lessee for losses to Lessee's property or personal injury caused by
criminal acts or entry by unauthorized persons into the Leased Premises. Lessee
is responsible for the cost of repairs of damage and restoration of the Leased
Premises following any such act.
ARTICLE 5.00 - REPAIRS AND MAINTENANCE
5.07 Existing Conditions. On the Commencement Date, Lessee shall be deemed
to have accepted the Leased Premises in their then existing condition, subject
to all recorded matters, laws, ordinances, and governmental regulations and
orders.; provided that, Lessee's acceptance of the Leased Premises shall not
relieve Lessor from any maintenance and repair obligations under this Lease.
Lessee acknowledges that neither Lessor nor any agent of Lessor has made any
warranty or representation of any kind, either express or implied as to the
condition of the Leased Premises or the suitability of the Leased Premises for
Lessee's intended use other than that the Leased Premises will be constructed in
accordance with the Lessee Improvements Final Plans and Specifications and will
be free from Hazardous Materials. The taking of the possession of the Leased
Premises by Lessee is intended by the parties to be conclusive evidence that
Lessee accepts the Leased Premises and Lessor has complied with its obligations
of Section 6.01 herein except for Defects (as defined in Section 2.04 hereof),
the presence of Hazardous Materials, and punch list items. Prior to taking
occupancy of the Leased Premises, Lessee shall sign a copy of the space plan of
the Leased Premises acknowledging its condition on the date thereof (unless
Lessor waives such requirement) and execute the Certificate of Acceptance form
attached as Exhibit "D" accepting such condition of the Premises except for
Defects, the presence of Hazardous Materials and punch list items.
5.08 Lessor Repairs And Maintenance. Lessor shall manage the Building in
accordance with property management standards customary to the area and will
keep the Building in compliance with all legal and regulatory requirements
(including Environmental Laws, Americans with Disabilities Act, and municipal
codes and ordinances). Lessor agrees to indemnify and hold Lessee harmless from
all claims, demands, actions, liabilities, costs, expenses, damages and
obligations of any nature arising from or as a result of the failure of the
building to be in compliance with applicable laws and regulation. Lessor is not
required to make any improvements, replacements or repairs of any kind or
character to the Leased Premises during the Term. Lessor shall maintain the
roof, foundation and structural soundness of exterior walls of the Building,
mechanical, electrical and plumbing systems serving the Building and common
areas, in good repair and condition except for reasonable wear and tear. Lessor
shall also perform all ground maintenance, landscaping, pest control, and
removal of debris from outside receptacles. Lessee agrees that Lessor is not
liable to Lessee, except as expressly provided in this Lease, for any
<PAGE>
damage or inconvenience, and Lessee is not entitled to any abatement or
reduction of rent by reason of any repairs, reasonable alterations or additions
made by Lessor under this Lease. Should Lessor not repair or maintain the
Building or the Leased Premises as required hereunder, after providing written
notice to Lessor and after a thirty (30) day opportunity to cure by Lessor, or
such longer period as shall be necessary, provided that Lessor has not commenced
such repair within such 30 day period and has not diligently pursued same
thereafter, Lessee may make such repairs or perform such maintenance and Lessor
shall promptly reimburse Lessee for any reasonable expenses incurred by Lessee
in performing such work, or if the Leased Premises are untenantable, Lessee may
terminate this Lease.
5.09 Lessee Repairs And Maintenance. Lessee shall, at its sole cost and
expense, maintain and repair the Leased Premises in good repair and condition,
including, but not limited to carpet or other floor covering, interior
partitions, doors, interior side of demising walls, telephone and computer
cabling that serves Lessee's equipment exclusively, any supplemental air
conditioning, interior water closets, kitchens and plumbing in connection
therewith and any alterations, additions or improvements made by or on behalf of
Lessee. Lessee shall take good care of all personal property and fixtures
located within the Leased Premises. Lessee shall repair and pay for any damage
caused by any act or omission of Lessee or Lessee's agents, employees, invitees,
licensees or visitors to the Leased Premises, the Building, or the project. If
Lessee fails to maintain, repair or replace promptly as required herein, Lessor
may, at its option, and following at least thirty (30) days' advance written
notice to Lessee, perform on Lessee's behalf and charge the cost of such
performance to Lessee as additional rent which is due and payable by Lessee
within ten (10) days from receipt of Lessor's invoice. Costs incurred under this
section are the total responsibility of Lessee.
5.10 Request for Repairs. All requests for repairs or maintenance that are
the responsibility of Lessor pursuant to any provision of this Lease must be
made in writing to Lessor at the address in Section 1.05 and delivered pursuant
to Section 14.07. After receipt of written notice, Lessor is entitled to a
reasonable time within which to perform such repairs or maintenance.
5.11 Lessee Damages. Lessee shall not allow any damage to be committed on
any portion of the Leased Premises or Building, and at the termination of this
Lease, by lapse of time or otherwise, Lessee shall deliver the Leased Premises
to Lessor in as good condition as existed at the Commencement Date of this
Lease, ordinary wear and tear and casualty loss excepted. Lessor's standard
move-out checklist will be followed by Lessee to ensure compliance with this
provision. The cost and expense of any repairs necessary to restore the
condition of the Leased Premises must be borne by Lessee. Should Lessor be
required to expend any sums to ensure compliance with this Section 5.05, Lessee
shall reimburse Lessor within ten (10) days of receipt of notice from Lessor.
5.12 Maintenance Contract. Lessor may, as an Operating Expenses, during
the term of this Lease maintain a regularly scheduled preventative
maintenance/service contract on an annual basis with a maintenance contractor
for the servicing of all general sprinkler systems, hot water, heating and air
conditioning systems and equipment within or servicing the Building. Lessee
shall maintain, at Lessee's sole cost and expense, a regularly scheduled
preventative maintenance/service contract on an annual basis with a maintenance
contractor for the servicing of all hot water, heating and air conditioning
systems within or exclusively servicing the Leased Premises.
<PAGE>
ARTICLE 6.00 - ALTERATIONS AND IMPROVEMENTS
6.02 Initial Lessee Improvements.
A. Lessee Improvements. Lessee shall prepare final plans and
-------------------
specifications for construction of the Lessee Improvements desired by
Lessee and shall deliver to Lessor by July 1, 1999, two (2) copies of
such plans and specifications and the names of two proposed
contractors to construct the Lessee Improvements for Lessor approval.
Lessor will promptly either approve of the plans and specifications
and the contractors, or communicate its objections, and if Lessor has
objections, the Lessor will work diligently with Lessee to resolve any
objections such that approval of the plans and specifications and
names of contractors is given within fifteen (15) days of receipt.
Lessor shall be deemed to have approved the plans and specifications
and the contractors unless Lessor shall have provided written notice
to Lessee of Lessor's objections thereto within fourteen (14) days
following the delivery thereof by Lessee to Lessor. The Lessor
approved final plans and specifications for the Lessee Improvements
are herein called the "Lessee Improvements Final Plans and
Specifications". All reasonable costs involved in approving, drafting
and preparing the Lessee Improvements Final Plans and Specifications
shall be charged against the Improvement Allowance described below.
Lessor shall apply for building permits to construct the Lessee
Improvements and will submit bid requests to the two contractors
selected by Lessee and the contractor for the Shell Building
Improvements no later than two (2) days following approval of the
Lessee Improvements Final Plans and Specifications. Contractors will
be required to submit their bids no later than thirty (30) days
following receipt of the bid request. Lessee shall have fifteen (15)
days from receipt of all bids to select the contractor for the Lessee
Improvements. Except for immaterial field changes, modifications to
the Lessee Improvements Final Plans and Specifications must be made
and accepted only by written change order or agreement signed by
Lessor and Lessee and will constitute an amendment to this Lease.
Lessee shall be responsible for payment in advance of all work and
construction resulting from changes in the Lessee Improvements Final
Plans and Specifications requested by Lessee if the additional cost
attributable to the changes exceed the Improvement Allowance by more
than $3.00 as described in subparagraph (c) below. The Lessee
Improvements Final Plans and Specifications (when approved by Lessor
and Lessee) are incorporated in this Lease by reference. For the
purpose of this Section, an "immaterial field change" shall mean such
field changes which are required by any governmental authority or
changes which (i) do not affect the size, configuration, structural
integrity, quality, character, architectural appearance and standard
of workmanship contemplated in the Lessee Improvements Final Plans and
Specifications, (ii) will not result in any default in any obligation
to any person or violation of any governmental requirements, and (iii)
the cost of or reduction resulting from any single field change or
extra does not exceed $5,000.00.
B. Subject to the Lessee's payment obligations under (c) below,
Lessor shall cause the Lessee Improvements to be completed in a good
and workmanlike manner, in accordance with all applicable laws and
regulations, and in accordance with the Lessee Improvements Final
Plans and Specifications. Lessor shall coordinate construction of
Lessee Improvements, keeping Lessee informed on the progress of the
work and of any expenditures made to perform such work and for such
services shall be paid a construction management fee of five percent
(5%) of the Hard Costs of such Lessee Improvements, which fee shall be
paid out of the Improvement Allowance (as hereinafter defined). "Hard
Costs" are the costs of labor, material and permits and licenses
necessary to construct the Lessee Improvements, and do not include any
legal, architectural, management or engineering expenses. Lessor
agrees that all construction contracts and architectural contracts
shall provide that the general contractor and architect for the
project shall provide status reports and other reports relating to the
construction of the Lessee Improvements to Lessee as well as to
Lessor, and Lessee shall have the right at any and all times to
inspect the Lessee Improvements at all stages of construction. Lessor
agrees to cooperate with Lessee on any
<PAGE>
changes to the Lessee Improvements and agrees to provide to Lessee
copies of all draw requests and the underlying documentation relating
to the draw requests to Lessee. Lessor agrees to keep the Leased
Premises free from any and all mechanic's or materialman's liens and
to pay promptly for all work to be performed relative to the
construction project. In the event any such lien attaches to the
Leased Premises as a result of Lessor's actions, and if Lessor does
not contest the lien diligently and in good faith or does not proceed
in its effort to remove the lien, then, in addition to any other right
or remedy of Lessee, Lessee may, but is not obligated to, obtain the
release or otherwise discharge the same or to obtain a bond in
satisfaction of same. Any amount paid by Lessee in order to release or
discharge any such lien must be paid by Lessor to Lessee on demand.
C. Lessor shall provide Lessee with an improvement allowance of
$22.00 per rentable square foot of the Leased Premises (the
"Improvement Allowance"). The Improvement Allowance shall be paid out
from time to time to pay for costs incurred by Lessor in connection
with the Lessee Improvements, including costs of Lessee's architect
and/or space planner, the construction management fee of five percent
(5%) of the Hard Costs of construction, and third party contractors as
the Lessee Improvements progress. Lessee shall pay those costs of
construction of the Lessee Improvements in excess of the Improvement
Allowance, if any, and such amounts shall be paid by Lessee to Lessor
within thirty (30) days following receipt by Lessee of a written
request therefor from Lessor. In the event the costs and expenses of
the Lessee Improvements shall exceed the Improvement Allowance, then
at the option of Lessee and upon written request by Lessee and
approval by Lessor's mortgagee/lender, the Lessor shall fund up to
$3.00 per rentable square foot within the Leased Premises of such
excess amounts and such excess amounts so funded by Lessor shall be
paid by Lessee to Lessor as additional monthly rent. The amount to be
added on a monthly basis to Base Rent shall be that monthly amount
necessary to fully amortize, on a straight line basis, the excess
amount over the term of this Lease at a ten percent (10%) interest
rate.
6.02 Additional Lessee Improvements. Except as provided in Section 6.01
above, Lessee shall not make or allow to be made any material alterations or
physical additions in or to the Leased Premises without complying with all
local, state and federal ordinances, laws, statutes and without first obtaining
the written consent of Lessor, which consent may not be unreasonably withheld.
In any event, Lessee shall provide Lessor with a copy of the plans and
specifications for any such alterations or improvements. Any alterations,
physical additions or improvements to the Leased Premises (including Lessee
Improvements) made by Lessor or Lessee become the property of Lessor and must be
surrendered to Lessor upon the termination of this Lease without credit to
Lessee. This clause does not apply to moveable equipment, trade fixtures,
personal property or furniture owned by Lessee, which may be removed by Lessee
at the end of the term of this Lease if Lessee is not then in default, if such
equipment and furniture are not then subject to any other rights, liens and
interest of Lessor and such removal can be accomplished without material damage
to the Leased Premises and, if there shall exist any damage caused by such
removal, such damage shall be repaired by Lessee. Upon completion of any such
work by Lessee, Lessee shall provide Lessor with "as built plans", copies of all
construction contracts and proof of payment for all labor and materials.
Notwithstanding the above, Lessee shall be allowed, without prior approval of
Lessor, to make $5,000.00 in non-structural alterations in any one calendar
year, not to exceed an aggregate of $25,000.00 over the initial term of the
Lease.
6.03 Mechanic's Lien. Lessee will not permit any mechanic's or
materialman's lien(s) or other lien to be placed upon the Leased Premises or the
Building and nothing in the Lease is intended in any way to constitute the
consent by (or request of) Lessor, express or implied, by inference or
otherwise, to any person for the performance of any labor or the furnishing of
any materials to the Leased Premises, or any part that would give the rise to
any mechanic's or materialman's or other lien against the Leased Premises. In
the event any such lien attaches to the Leased Premises as a result of Lessee's
actions, and if Lessee does not contest the lien diligently and in good faith or
<PAGE>
does not succeed in its effort to remove the lien, then, in addition to any
other right or remedy of Lessor, Lessor may, but is not obligated to, obtain the
release or otherwise discharge the same or to obtain a bond in satisfaction of
same. Any amount paid by Lessor in order to release or discharge any such lien
must be paid by Lessee to Lessor on demand as additional rent.
ARTICLE 7.00 - CASUALTY AND INSURANCE
7.01 Substantial Destruction. If the Leased Premises or any part thereof
are damaged by fire or other casualty, Lessee shall give prompt written notice
thereof to Lessor. 1) If the Leased Premises are totally destroyed by fire or
other casualty, 2) if the Leased Premises are damaged so that rebuilding cannot
reasonably be completed within one hundred eighty (180) days after the date of
written notification by Lessee to Lessor of the destruction, 3) if the Leased
Premises are part of a Building which is substantially destroyed (even though
the Leased Premises are not totally or substantially destroyed), 4) if the
Leased Premises or Building is damaged by fire or other casualty and applicable
law would prevent rebuilding to substantially the condition prior to such fire
or casualty, 5) if any mortgagee requires the insurance proceeds payable as a
result of such casualty to be applied to the payment of the mortgage debt or 6)
the Leased Premises are materially damaged and less than two (2) years remain on
the Term on the date of such casualty, Lessor or Lessee may at their option
terminate this Lease by providing the other written notice thereof within sixty
(60) days of such casualty and all obligations under the Lease shall terminate
as of the date of the casualty; provided, however, Lessee shall not have the
right to terminate this Lease if Lessor has theretofore commenced and is
diligently pursuing rebuilding.
7.02 Partial Destruction. If this Lease is not terminated under Section
7.01, Lessor shall at its sole risk and expense proceed with reasonable
diligence to rebuild or repair the Building or other improvements to
substantially the same condition in which they existed prior to the damage,
provided, Lessor has no obligation to repair or rebuild Lessee's furniture,
fixtures or personal property. If the destruction was caused by an act or
omission of Lessee, its employees, agents, or invitees, Lessee shall pay Lessor
the difference between the actual cost of rebuilding or repairing the Leased
Premises and any insurance proceeds received by Lessor. If the Leased Premises
are to be rebuilt or repaired and are untenantable in whole or in part following
the damage, either because of the damage or the rebuilding or repairing, and the
damage or destruction was not caused or substantially contributed to by any act
or negligence of Lessee, its agents, employees, invitees or those for whom
Lessee is responsible, the rent payable under this Lease during the period for
which the Leased Premises are untenantable will be adjusted to such an extent as
may be fair and reasonable under the circumstances. If Lessor fails to complete
the necessary repairs or rebuilding within one hundred fifty days from the date
of the destruction, Lessee may at its option terminate this Lease by delivering
written notice of termination to Lessor, whereupon all rights and obligations
under this Lease cease to exist. If any damage or destruction occurs to the
Leased Premises during the last twenty-four (24) months of the Lease term,
Lessor may elect to terminate this Lease as of the date Lessee notifies Lessor
of such damage. Lessor and Lessee hereby waive the provisions of any law from
time to time in effect during the Term relating to the effect upon leases of
partial or total destruction of Leased property and agree that their respective
rights in the event of damage or destruction are those specifically set forth
herein.
7.03 Property Insurance. Lessor shall at all times during the term of this
Lease maintain a policy or policies of insurance with the premiums paid in
advance, issued by and binding upon some solvent insurance company having an "A"
rating or better, insuring the Building against all risk of direct physical loss
in an amount equal to the full replacement cost of the Building structure and
its improvements as of the date of the loss, providing protection against all
perils, including, without limitations fire, extended coverage, vandalism,
malicious mischief, a standard mortgagee clause and rental coverage; provided,
Lessor is not obligated in any way or manner to insure any personal property
(including, but not limited to, any furniture, machinery, goods or supplies) of
Lessee upon or within the Leased Premises, any fixtures installed or paid for by
Lessee upon or within the Leased Premises, or any improvements which Lessee may
construct on the Leased Premises. The rental insurance policy will be for the
full rental value for a period of one year, which insurance also covers real
estate taxes, insurance and other amounts which might be due Lessor from Lessee
pursuant to the terms of this Lease. Lessee agrees that it is not entitled to
the proceeds of any policy of insurance maintained by Lessor even if the cost of
such insurance is borne by Lessee
<PAGE>
as set forth in Article 2.00. Notwithstanding the foregoing, in the event Lessor
has a net worth in excess of $50,000,000, it shall be entitled to self insure
against all risk provided for in this paragraph in lieu of obtaining the
insurance set forth herein.
7.04 Waiver of Subrogation. ANYTHING IN THIS LEASE TO THE CONTRARY NOT
WITHSTANDING, LESSOR AND LESSEE HEREBY WAIVE AND RELEASE EACH OTHER OF AND FROM
ANY AND ALL RIGHT OF RECOVERY, CLAIM, ACTION OR CAUSE OF ACTION, AGAINST EACH
OTHER, THEIR AGENTS, OFFICERS AND EMPLOYEES, FOR ANY LOSS OR DAMAGE THAT MAY
OCCUR TO THE LEASED PREMISES, IMPROVEMENTS TO THE BUILDING OF WHICH THE LEASED
PREMISES ARE A PART, OR PERSONAL PROPERTY WITHIN THE BUILDING, BY REASON OF
FIRE, EXPLOSION, OR ANY OTHER OCCURRENCE, REGARDLESS OF CAUSE OR ORIGIN,
INCLUDING NEGLIGENCE OF LESSOR OR LESSEE AND THEIR AGENTS, OFFICERS AND
EMPLOYEES. LESSOR AND LESSEE AGREE IMMEDIATELY TO GIVE THEIR RESPECTIVE
INSURANCE COMPANIES WHICH HAVE ISSUED POLICIES OF INSURANCE COVERING ALL RISK OF
DIRECT PHYSICAL LOSS, WRITTEN NOTICE OF THE TERMS OF THE MUTUAL WAIVERS
CONTAINED IN THIS SECTION AND TO HAVE THE INSURANCE POLICIES PROPERLY ENDORSED,
IF NECESSARY, TO PREVENT THE INVALIDATION OF THE INSURANCE COVERAGE BY REASON OF
THE MUTUAL WAIVERS.
7.05 Hold Harmless. Lessor will not be liable to Lessee's employees,
agents, invitees, licensees or visitors, or to any other person, for an injury
to person or damage to property on or about the Leased Premises caused by any
act or omission of Lessee, its agents, servants or employees, any tenant in the
Building of which the Leased Premises are a part, or of any other person
entering upon the Leased Premises under express or implied invitation by Lessee,
the failure or cessation of any service provided by Lessor (including security
service and devices or caused by leakage of gas, oil, water or steam or by
electricity emanating from the Leased Premises) except as provided in this
Lease. Lessee agrees to indemnify and hold harmless Lessor of and from any loss,
attorney's fees, expenses or claims arising out of any such damage or injury
except for damages or injury caused by Lessor's negligence, recklessness or
willful misconduct.
7.06 A. At all times commencing on and after the earlier of the
Commencement Date and the date Lessee or its agents, employees or
contractors enters the Leased Premises for any purpose, Lessee shall
carry and maintain, at its sole cost and expense:
1. Commercial General Liability Insurance applicable to the
Leased Premises and its appurtenances providing, on an
occurrence basis, a minimum combined single limit of Two Million
Dollars ($2,000,000.00), with a contractual liability
endorsement covering Lessee's indemnity obligations under this
Lease;
2. All Risks of Physical Loss Insurance written at replacement
cost value and with a replacement cost endorsement covering all
of Lessee's personal property and improvements in the Leased
Premises;
3. Workers' Compensation Insurance as required by the state in
which the Leased Premises is located and in amounts as may be
required by applicable statute;
4. Business interruption or loss of income insurance in
amounts satisfactory to Lessor; and
5. Whenever good business practice, in Lessor's reasonable
judgment, indicates the need of additional insurance coverage or
different types of insurance in connection with the Leased
Premises or Lessee's use and occupancy thereof, Lessee shall,
upon
<PAGE>
request, obtain such insurance at Lessee's expense and provide
Lessor with evidence thereof.
B. Before any repairs, alterations, additions, improvements, or
construction are undertaken by or on behalf of Lessee, Lessee shall
carry and maintain, at its expense, or Lessee shall require any
contractor performing work on the Leased Premises to carry and
maintain, at no expense to Lessor, in addition to Workers'
Compensation Insurance as required by the jurisdiction in which the
Building is located, All Risk Builder's Risk Insurance in the amount
of the replacement cost of any alterations, additions or improvements
(or such other amount reasonably required by Lessor) and Commercial
General Liability Insurance (including, without limitation,
Contractor's Liability coverage, Contractual Liability coverage and
Completed Operations coverage,) written on an occurrence basis with a
minimum combined single limit of Two Million Dollars ($2,000,000.00)
and adding "the named Lessor hereunder (or any successor thereto),
and its respective members, principals, beneficiaries, partners,
officers, directors, employees, agents and any Mortgagee(s)", and
other designees of Lessor as the interest of such designees appear,
as additional insureds (collectively referred to as the "Additional
Insureds").
C. Any company writing any insurance which Lessee is required to
maintain or cause to be maintained pursuant to the terms of this
Lease (all such insurance as well as any other insurance pertaining
to the Leased Premises or the operation of Lessee's business therein
being referred to as "Lessee's Insurance"), as well as the form of
such insurance, are at all times subject to Lessor's reasonable
approval, and each such insurance company must have an A.M. Best
rating of "A-" or better and be licensed and qualified to do business
in the state in which the Leased Premises are located. All policies
evidencing Lessee's Insurance (except for Workers' Compensation
Insurance) must specify Lessee as named insured and the Additional
Insureds as additional insureds. Provided that the coverage afforded
Lessor and any designees of Lessor is not reduced or otherwise
adversely affected, all of Lessee's Insurance may be carried under a
blanket policy covering the Leased Premises and any other of Lessee's
locations. All policies of Lessee's Insurance must contain
endorsements requiring that the insurer(s) give Lessor and its
designees at least thirty (30) days' advance written notice of any
change, cancellation, termination or lapse of said insurance. Lessee
shall be solely responsible for payment of premiums for all of
Lessee's Insurance. Lessee shall deliver to Lessor at least fifteen
(15) days prior to the time Lessee's Insurance is first required to
be carried by Lessee, and upon renewals at least fifteen (15) days
prior to the expiration of any such insurance coverage, certified
copies of all policies procured by Lessee in compliance with its
obligations under this Lease. The limits of Lessee's Insurance do not
in any manner limit Lessee's liability under this Lease.
D. Lessee shall not do or fail to do anything in, upon or about the
Leased Premises which will (1) violate the terms of any of Lessor's
insurance policies; (2) prevent Lessor from obtaining policies of
insurance acceptable to Lessor or any Mortgagees; or (3) result in an
increase in the rate of any insurance on the Leased Premises, the
Building, any other property of Lessor or of others within the
Building. In the event of the occurrence of any of the events set
forth in this Section, Lessee shall pay Lessor upon demand, as
additional rent, the cost of the amount of any increase in any such
insurance premium, provided that the acceptance by Lessor of such
payment may not be construed to be a waiver of any rights by Lessor
in connection with a default by Lessee under the Lease. If Lessee
fails to obtain the insurance coverage required by this Lease, Lessor
may, at its option, obtain such insurance for Lessee, and Lessee
shall pay, as additional rent, the cost of all premiums thereon and
all of Lessor's costs associated therewith.
<PAGE>
ARTICLE 8.00 - CONDEMNATION
8.01 Substantial Taking. If all or a substantial portion of the Leased
Premises or a substantial portion of the Building of which the Leased Premises
are a part (even though the Leased Premises are not taken) are taken for any
public or quasi-public use under any governmental law, ordinance or regulation,
or by right of eminent domain or by purchase in lieu thereof, and the taking
would prevent or materially interfere with the use of the Leased Premises or the
Building of which the Leased Premises are a part for the purpose for which it is
then being used, then Lessor and Lessee have the option to terminate this Lease
and to abate the rent during the unexpired portion of this Lease effective on
the date title or physical possession is taken by the condemning authority,
whichever occurs first. All proceeds of any taking are the sole property of
Lessor and Lessee agrees that Lessee is not entitled to any condemnation award
or proceeds in lieu thereof.
8.02 Partial Taking. If a portion of the Leased Premises or a portion
of the Building of which the Leased Premises are a part are taken for any public
or quasi-public use under any governmental law, ordinance or regulation, or by
right of eminent domain or by purchase in lieu thereof, and this Lease is not
terminated as provided in Section 8.01 above, Lessor shall at Lessor's sole risk
and expense, restore and reconstruct the Building and other improvements on the
Leased Premises to the extent necessary to make it reasonably tenantable;
provided, if the damages received by Lessor are insufficient to cover the costs
of restoration, Lessor may terminate this Lease. The rent payable under this
Lease during the unexpired portion of the term will be adjusted to such an
extent as may be fair and reasonable under the circumstances. All proceeds of
any taking are the sole property of Lessor and Lessee agrees that Lessee is not
entitled to any condemnation award or proceeds in lieu thereof.
ARTICLE 9.00 - ASSIGNMENT OR SUBLEASE
9.01 Lessor Assignment. Lessor may sell, transfer or assign, in whole
or in part, its rights and obligations under this Lease and in the Leased
Premises. Any such sale, transfer or assignment will release Lessor from any and
all liabilities under this Lease arising after the date of such sale, assignment
or transfer, so long as such transferee or assignee assumes the obligations of
Lessor hereunder.
9.02 Lessee Assignment. Except for an assignment to an affiliate and
except in the case of a merger or consolidation by Lessee with or into another
entity, Lessee shall not assign, in whole or in part, this Lease, or allow it to
be assigned, in whole or in part, or mortgage or pledge the same or sublet the
Leased Premises, in whole or in part, without the prior written consent of
Lessor which consent may not be unreasonably withheld, and in no event will any
such assignment or sublease ever release Lessee or any guarantor from any
obligation or liability hereunder unless consented to by Lessor. No assignee or
sublessee of the Leased Premises or any portion thereof may assign or sublet the
Leased Premises or any portion thereof.
9.03 Conditions of Assignment. If Lessee desires to assign or sublet
all or any part of the Leased Premises or grant any license, concession or other
right of occupancy of any portion of the Leased Premises, it must so notify
Lessor at least thirty days in advance of the date on which Lessee desires to
make such assignment or sublease. Lessee must provide Lessor with a copy of the
proposed assignment or sublease and such information as Lessor might reasonably
request concerning the proposed sublessee or assignee to allow Lessor to make
informed judgments as to the financial condition, reputation, operations and
general desirability of the proposed sublessee or assignee. Within fifteen days
after Lessor's receipt of Lessee's proposed assignment or sublease and all
required information concerning the proposed sublessee or assignee, Lessor may,
in its reasonable discretion, either: (1) consent to the proposed assignment or
sublease, or (2) refuse to consent to the proposed assignment or sublease, which
refusal is deemed to have been exercised unless Lessor gives Lessee written
notice providing otherwise. Upon the occurrence of an event of default, if all
or any part of the Leased Premises are then assigned or sublet, Lessor, in
addition to any other remedies provided by this Lease or provided by law, may,
at its option, collect directly from the assignee or sublessee all rents
becoming due to Lessee by reason of the assignment or sublease, and Lessor will
be entitled to a security interest in all properties on the Leased Premises to
secure payment of such sums. Lessee agrees that any collection directly by
Lessor from the assignee or sublessee is not intended to
<PAGE>
constitute a novation or a release of Lessee or any guarantor from the further
performance of its obligations under this Lease.
9.04 Subordination. Lessee accepts this Lease subject and subordinate
to any recorded mortgage or deed of trust lien presently existing or hereafter
created upon the Building or project of which the Leased Premises are a part
(provided, however, that any such mortgagee may, at any time, subordinate such
mortgage, deed of trust or other lien to this Lease) and to all existing
recorded restrictions, covenants, easements and agreements with respect to the
Building and to any renewals thereof. Lessee agrees that this clause is
self-operative and no further instrument of subordination is required to effect
such subordination. Lessor is hereby irrevocably vested with full power and
authority to subordinate Lessee's interest under this Lease to any first
mortgage or deed of trust lien hereafter placed on the Leased Premises, and
Lessee agrees upon demand to execute additional reasonable instruments
subordinating this Lease as Lessor may require. If the interests of Lessor under
this Lease are transferred by reason of foreclosure or other proceedings for
enforcement of any first mortgage or deed of trust lien on the Leased Premises,
Lessee is bound to the transferee (sometimes called the "Purchaser") at the
option of the Purchaser, under the terms, covenants and conditions of this Lease
for the balance of the term remaining, including any extensions or renewals,
with the same force and effect as if the Purchaser were Lessor under this Lease,
and, if requested by the Purchaser, Lessee agrees to attorn to the Purchaser,
including the first mortgagee under any such mortgage if it be the Purchaser, as
its Lessor. Lessee will not be entitled to any credits as against Purchaser any
prepaid rents or offsets against or credits due from Lessor, except as provided
under the terms of any non-disturbance agreement provided pursuant to Section
13.14 of this Lease.
9.05 Estoppel Certificates. Lessee agrees to furnish, from time to
time, within ten (10) days after receipt of a request from Lessor, Lessor's
mortgagee or any potential purchaser of the Building, a statement certifying, if
applicable, the following: Lessee is in possession of the Leased Premises; the
Leased Premises are acceptable; the Lease is in full force and effect; the Lease
is unmodified; Lessee claims no present charge, lien, or claim of offset against
rent; the rent is paid for the current month, but is not prepaid for more than
one month and will not be prepaid for more than one month in advance; there is
no existing default by reason of some act or omission by Lessor; and such other
matters as may be reasonably required by Lessor, Lessor's mortgagee or any
potential purchaser. Lessee's failure to deliver such statement, in addition to
being a default under this Lease, may be deemed to establish conclusively that
this Lease is in full force and effect except as declared by Lessor, that Lessor
is not in default of any of its obligations under this Lease and that Lessor has
not received more than one month's rent in advance. Any notice and cure
provisions set forth in any other part of this Lease does not apply to a default
of this Section 9.05.
ARTICLE 10 - LIENS
10.01 Landlord's Lien. As security for payment of rent, damages and all
other payments required to be made by this Lease, Lessee hereby grants to Lessor
a lien upon all property of Lessee now or subsequently located upon the Leased
Premises and Lessee agrees not remove such property from the Leased Premises
except in the ordinary course of business, provided at the time of such removal
Lessee is not in default. If Lessee abandons or vacates any substantial portion
of the Leased Premises or is in default in the payment of any rentals, damages
or other payments required to be made by this Lease or is in default of any
other provision of this Lease, Lessor may enter upon the Leased Premises, by
picking or changing locks if necessary, and take possession of all or any part
of the personal property, and may sell all or any part of the personal property
at a public or private sale, in one or successive sales, with or without notice,
to the highest bidder for cash, and, on behalf of Lessee, sell and convey all or
part of the personal property to the highest bidder, delivering to the highest
bidder all of Lessee's title and interest in the personal property sold. The
proceeds of the sale of the personal property shall be applied by Lessor toward
the reasonable costs and expenses of the sale, including attorney's fees, and
then toward the payment of all sums then due by Lessee to Lessor under the terms
of this Lease. Any excess remaining will be paid to Lessee or any other person
entitled thereto by law.
<PAGE>
10.02 Uniform Commercial Code. This Lease is intended as and
constitutes a security agreement within the meaning of the Uniform Commercial
Code of the state in which the Leased Premises are situated. Lessor, in addition
to the rights prescribed in this Lease, has all of the rights, titles, liens and
interests in and to Lessee's property, now or hereafter located upon the Leased
Premises, which may be granted a secured party, as that term is defined, under
the Uniform Commercial Code to secure to Lessor payment of all sums due and the
full performance of all Lessee's covenants under this Lease. Lessee will on
request execute and deliver to Lessor a financing statement for the purpose of
perfecting Lessor's security interest under this Lease or Lessor may file this
Lease or a copy thereof as a financing statement. Unless otherwise provided by
law and for the purpose of exercising any right pursuant to this Section, Lessor
and Lessee agree that reasonable notice has been given if such notice is given
by ten days written notice, certified mail, return receipt requested, to Lessor
or Lessee at the addresses specified herein.
10.03 Landlord's Lien Waiver. Upon request by Lessee, Lessor will
execute a lien waiver in favor of Lessee's lender in the form prescribed by
Lessee's lender.
ARTICLE 11 - DEFAULT AND REMEDIES
11.01 Default by Lessee. The following are events of default by
Lessee under this Lease:
A. Lessee fails to pay, within ten (10) days of when due, any
installment of rent or any other payment required pursuant to
this Lease, and such failure shall be continuing five (5) days
following written notice (which notice may include the
cancellation notice described in Section 11.02(E) hereof)
thereof from Lessor to Lessee; provided, however, in no event
shall Lessee have the right to receive or Lessor have the
obligation to provide, as a prerequisite to an event of
default, more than two (2) written notices within any twelve
(12) month period;
B. Lessee fails to comply with any term, provision or covenant
of this Lease, other than the payment of rent and fails to
cure the failure within thirty (30) days of receipt of written
notice (which notice may include the cancellation notice
described in Section 11.02(E) hereof) from Lessor;
C. Lessee or any guarantor of Lessee's obligations hereunder
files a petition or is adjudged bankrupt or insolvent under
any applicable federal or state bankruptcy or insolvency law,
or admits that it cannot meet its financial obligations as
they become due; or a receiver or trustee is appointed for all
or substantially all of the assets of Lessee or such
guarantor; or Lessee or any guarantor of Lessee's obligations
hereunder makes a transfer in fraud of creditors or makes an
assignment for the benefit of creditors; or
D. Lessee does or permits to be done any act which results in
a lien being filed against the Leased Premises or the Building
and Lessee fails to contest the lien diligently and in good
faith or does not prevail, within sixty (60) days of the date
the lien is filed, in its efforts to remove the lien.
11.02 Remedies for Lessee's Default. Upon the occurrence of any
event of default set forth in this Lease, Lessor is entitled to pursue any one
or more of the remedies set forth herein without any notice or demand.
A. Without declaring the Lease terminated, Lessor may enter
upon and take possession of the Leased Premises, by picking or
changing locks if necessary, and lock out, expel or remove
Lessee and any other person who may be occupying all or any
part of the Leased Premises without being liable for any claim
for damages, and relet the Leased Premises on behalf of Lessee
and receive the rent directly by reason of the reletting;
provided however, that Lessor has no obligation to relet the
Leased Premises so as to mitigate the amount for which Lessee
is liable. Lessee agrees to pay Lessor on demand any
deficiency that may arise by reason of any reletting of the
Leased
<PAGE>
Premises; further, Lessee agrees to reimburse Lessor for any
reasonably expenditures made by it in order to relet the
Leased Premises, including, but not limited to, leasing
commissions, lease incentives, remodeling and repair costs.
B. Without declaring the Lease terminated, Lessor may enter
upon the Leased Premises, by picking or changing locks if
necessary, without being liable for any claim for damages,
except for damages arising from Lessor's negligence,
recklessness or willful misconduct, and do whatever Lessee is
obligated to do under the terms of this Lease. Lessee agrees
to reimburse Lessor on demand for any expenses which Lessor
may incur in effecting compliance with Lessee's obligations
under this Lease.
C. Lessor may terminate this Lease, in which event Lessee
shall immediately surrender the Leased Premises to Lessor, and
if Lessee fails to surrender the Leased Premises, Lessor may,
without prejudice to any other remedy which it may have for
possession or arrearages in rent, enter upon and take
possession of the Leased Premises, by picking or changing
locks if necessary, and lock out, expel or remove Lessee and
any other person who may be occupying all or any part of the
Leased Premises without being liable for any claim for
damages. Lessee agrees to pay on demand the amount of all loss
and damage which Lessor may suffer by reason of the
termination of this Lease under this Section, including
without limitation, loss and damage due to the failure of
Lessee to maintain and or repair the Leased Premises as
required hereunder and/or due to the inability to relet the
Leased Premises on terms satisfactory to Lessor or otherwise,
and any reasonable expenditures made by Lessor in order to
relet the Leased Premises, including, but not limited to,
leasing commissions, lease incentives, and remodeling and
repair costs; provided however, that Lessor will have no
obligation to relet the Leased Premises so as to mitigate the
amount for which Lessee is liable. In addition, upon
termination Lessor may collect from Lessee the value of all
future rentals required to be paid under this Lease from the
date Lessor terminates the Lease until the original
termination date in accordance with applicable law less
amounts collected as rent by Lessor if the Leased Premises are
re-let. Notwithstanding anything contained in this Lease to
the contrary, this Lease may be terminated under this section
by Lessor only by mailing or delivering written notice of such
termination to Lessee, and no other act or omission of Lessor
constitutes a termination of this Lease.
D. In the event that Lessor exercises its remedy to lock out
Lessee in accordance with any provision of this Lease, Lessee
agrees that no notice is required to be posted by Lessor on
any door to the Leased Premises (or elsewhere) disclosing the
reason for such action or any other information, and that
Lessor is not obligated to provide a key to the changed lock
to Lessee unless Lessee has first:
1. brought current all payments due to Lessor under
this Lease (unless Lessor has terminated this Lease,
in which event payment of all past due amounts do not
obligate Lessor to provide a key);
2. fully cured and remedied to Lessor's reasonable
satisfaction all other defaults of Lessee under this
Lease (unless Lessee has abandoned or vacated the
Leased Premises, in which event Lessor is not
obligated to provide the new key to Lessee under any
circumstances); and
3. provided Lessor with additional security deposit
and assurances reasonably satisfactory to Lessor that
Lessee intends to and is able to meet and comply with
its future obligations under this Lease, both
monetary and nonmonetary. Lessor may, upon written
request by Lessee, at Lessor's convenience, upon
receipt by Lessor of an amount necessary to reimburse
itself for time and expense in providing such
service, and upon
<PAGE>
Lessee's execution and delivery of such waivers and
indemnities as Lessor may require at Lessor's option
either:
a. escort Lessee or its specifically
authorized employees or agents to the Leased
Premises to retrieve personal belongings of
Lessee's employees and property of Lessee
that is not subject to a Security Interest
provided in this Lease; or
b. obtain from Lessee a list of such
property and arrange for such items to be
removed from the Leased Premises and made
available to Lessee at such place at such
time as Lessor may designate, provided
however, that if Lessor elects option (ii),
then Lessee shall pay Lessor in cash in
advance, the estimated costs that Lessor may
incur upon moving and storage charges
theretofore incurred by Lessor with respect
to such property. THE PROVISIONS OF THIS
ARTICLE ARE INTENDED TO OVERRIDE AND
SUPERSEDE ANY CONFLICTING PROVISIONS OF THE
TEXAS PROPERTY CODE AND ANY AMENDMENTS OR
SUCCESSOR STATUTES THERETO, AND OF ANY OTHER
LAW, TO THE MAXIMUM EXTENT PERMITTED BY THE
LAW.
E. Notwithstanding any other remedy set forth in this Lease,
if Lessor has made rent concessions of any type or character,
or waived any base rent (i.e. given free rent), and Lessee
fails to take possession of the Leased Premises on the
Commencement Date or there occurs a Lessee event of default at
any time during the term of this Lease, the rent concessions,
including any waived base rent, are canceled and the amount of
the base rent or other rent concessions are due and payable
immediately as if no rent concessions or waiver of any base
rent had ever been granted; provided, however, in the event of
a default under 11.01(A) or 11.02(B) hereof, that in order for
such cancellation of rent concessions to be effective, Lessor
must give Lessee express notice of the free rent cancellation
in the written notice described in Section11.01(A) and
11.01(B). A rent concession or waiver of the base rent will
not relieve Lessee of any obligation to pay any other charge
due and payable under this Lease including without limitation
any sums due under Section 2.02 herein.
F. If Lessor exercises any of its rights provided in this
Article 11 and Lessee subsequently cures such default, Lessor
is entitled to receive a service charge of $500.00 from Lessee
for its time and expense, in addition to any other amounts
owed hereunder, prior to allowing the Lessee to reenter and
reoccupy the Leased Premises.
G. Lessee hereby expressly waives any and all rights of
redemption granted by or under any present or future laws in
the event of Lessee being evicted or dispossessed for any
cause, or in the event of Lessor obtaining possession of the
Leased Premises by reason of the violation by Lessee of any of
the covenants and conditions of this Lease or otherwise. The
rights given to Lessor herein are in addition to any rights
that may be given to Lessor by any statute or otherwise.
H. Lessor's pursuit of any remedy specified in this Lease will
not constitute an election to pursue that remedy only, nor
preclude Lessor from pursuing any other remedy available at
law or in equity, nor constitute a forfeiture or waiver of any
rent or other amount due to Lessor as described herein.
I. If Lessee or any guarantor of Lessee's obligations
hereunder is the subject of any insolvency, bankruptcy,
receivership, dissolution, reorganization or similar
proceeding, federal or state, voluntary or involuntary, under
any present or future law or act, Lessor is entitled to the
<PAGE>
automatic and absolute lifting of any automatic stay as to the
enforcement of its remedies under this Lease, including
specifically the stay imposed by Section 362 of the United
States Federal Bankruptcy Code, as amended. Lessee hereby
consents to the immediate lifting of any such automatic stay,
and may not contest any motion by Lessor to lift such stay.
Lessee expressly acknowledges that the Leased Premises is not
now and will never be necessary to any plan or reorganization
of any type.
11.03 Lessor's Liability. The liability of Lessor to Lessee for any
default by Lessor under the terms of this Lease is limited to Lessee's actual
direct, but not consequential, damages therefor and is recoverable only from the
interest of Lessor in the Building, and Lessor is not personally liable for any
deficiency.
ARTICLE 12.00 - DEFINITIONS
12.01 Abandon. "Abandon" means the vacating of all or a substantial
portion of the Leased Premises by Lessee or any approved sublessee, whether or
not Lessee or any approved sublessee is in default of the rental payments due
under this Lease;
12.02 Building. "Building" as used in this Lease means the building
described in Section 1.02, including the Leased Premises and the land upon which
the Building is situated.
12.03 Commencement Date. "Commencement Date" is the date set forth
in Section 1.03. The Commencement Date constitutes the commencement of the term
of this Lease for all purposes, whether or not Lessee has actually taken
possession.
ARTICLE 13.00 - MISCELLANEOUS
13.01 Waiver. Failure of Lessor to declare an event of default
immediately upon its occurrence, or delay in taking any action in connection
with an event of default, will not constitute a waiver of the default, but
Lessor has the right to declare the default at any time and take such action as
is lawful or authorized under this Lease. Pursuit of any one or more of the
remedies set forth in Article 11.00 or Article 12.00 above will not preclude
pursuit of any one or more of the other remedies provided elsewhere in this
Lease or provided at law or in equity, nor will pursuit of any remedy constitute
forfeiture or waiver of any rent or damages accruing to Lessor by reason of the
violation of any of the terms, provisions or covenants of this Lease. Lessee
agrees that failure by Lessor to enforce one or more of the remedies provided
upon an event of default will not constitute a waiver of the default or of any
other violation or breach of any of the terms, provisions and covenants
contained in this Lease.
No act or thing done by Lessor or its agents during the Lease Term may
be deemed an acceptance of an attempted surrender of the Leased Premises, and no
agreement to accept a surrender of the Leased Premises will be valid unless made
in writing and signed by Lessor. No reentry or taking possession of the Leased
Premises by Lessor may be construed as an election on its part to terminate this
Lease, unless a written notice of such intention, signed by Lessor, is given by
Lessor to Lessee. Notwithstanding any such reletting or reentry or taking
possession, Lessor may at any time thereafter elect to terminate this Lease for
a previous event of default. Lessee and Lessor agree that Lessor's acceptance of
rent following an event of default hereunder will not constitute Lessor's waiver
of such event of default. The failure of Lessor to enforce any of the Rules and
Regulations described in Section 3.03 against Lessee or any other Lessee in the
Building will not constitute a waiver of any such Rules and Regulations. No
waiver of any provision of this Lease is effective unless such waiver is in
writing and signed by Lessor. All rights granted to Lessor in this Lease are
cumulative of every other right or remedy which Lessor may otherwise have at law
or in equity, and the exercise of one or more rights or remedies does not
prejudice or impair the concurrent or subsequent exercise of other rights or
remedies.
<PAGE>
13.02 Act of God. Lessor or Lessee is not required to perform any
covenant or obligation in this Lease, or be liable in damages to the other, so
long as the performance or non-performance of the covenant or obligation is
delayed, caused or prevented by Force Majeure or by the other party.
13.03 Attorney's Fees. If either party defaults in the performance of
any of the terms, covenants, agreements or conditions contained in this Lease
and the other party places in the hands of an attorney the enforcement of all or
any part of this Lease, the collection of any rent due or to become due or
recovery of the possession of the Leased Premises, agrees to pay the
non-defaulting party's costs of collection, including reasonable attorney's fees
for the services of the attorney, whether suit is actually filed or not.
13.04 Successors. This Lease is binding upon and inures to the benefit
of Lessor and Lessee and their respective heirs, personal representatives,
successors and assigns. It is hereby covenanted and agreed that should Lessor's
interest in the Leased Premises cease to exist for any reason during the term of
this Lease, then notwithstanding the happening of such event this Lease
nevertheless will remain unimpaired and in full force and effect, and Lessee
hereunder agrees to attorn to the then owner of the Leased Premises.
13.05 Rent Tax. If applicable in the jurisdiction where the Leased
Premises are situated, Lessee shall pay and be liable for all rental, sales and
use taxes or other similar taxes, if any, levied or imposed by any city, state,
county or other governmental body having authority, such payments to be in
addition to all other payments required to be paid to Lessor by Lessee under the
terms of this Lease. Any such payment must be paid concurrently with the payment
of the rent, additional rent, operating expenses or other charge upon which the
tax is based as set forth above.
13.06 Captions. The captions appearing in this Lease are inserted only
as a matter of convenience and in no way define, limit, construe or describe the
scope or intent of any Section.
13.07 Notice. All rent and other payments required to be made by Lessee
must be paid to Lessor at the address set forth in Section 1.05. All payments
required to be made by Lessor to Lessee are payable to Lessee at the address set
forth in Section 1.05 or at any other address within the United States as Lessee
may specify from time to time by written notice. For purposes hereof, any notice
or document required or permitted to be delivered by the terms of this Lease
(other than delivery of rental payments) will be deemed to be delivered upon the
earlier of actual receipt, or (whether or not actually received) three days
after being deposited in the United States Mail, postage prepaid, certified
mail, return receipt requested, addressed to the parties at the respective
addresses set forth in Section 1.05, or transmission by facsimile and receipt of
confirmation of successful transmission by the transmitting facsimile; provided,
however, any notice given by facsimile must be followed up by notice in one of
the other manners set forth herein within five (5) days thereafter. Rental
payments will be deemed received upon actual receipt only. Except as
specifically set forth herein, in no event will notice by facsimile transmission
be proper notice under the terms of this Lease.
13.08 Submission of Lease. Submission of this Lease to Lessee for
signature does not constitute a reservation of space or an option or offer to
lease. This Lease is not deemed effective until execution by and delivery to
both Lessor and Lessee.
13.09 Representations, Warranties and Covenants of Lessee and Lessor.
Lessee represents, warrants and covenants that it is now in a solvent condition;
that no bankruptcy or insolvency proceedings are pending or contemplated by or
against Lessee or any guarantor of Lessee's obligations under this Lease; that
all reports, statements and other data furnished by Lessee to Lessor in
connection with this Lease are true and correct in all material respects; that
the execution and delivery of this Lease by Lessee does not contravene, result
in a breach of, or constitute a default under any contract or agreement to which
Lessee is a party or by which Lessee may be bound and does not violate or
contravene any law, order, decree, rule or regulation to which Lessee is
subject; and that there are no judicial or administrative actions, suits, or
proceedings pending or threatened against or affecting Lessee or any guarantor
of Lessee's obligations under this lease.
<PAGE>
Lessor represents, warrants and covenants that it is now in a solvent condition;
that no bankruptcy or insolvency proceedings are pending or contemplated by or
against Lessor or any guarantor of Lessor's obligations under this Lease; that
all reports, statements and other data furnished by Lessor to Lessee in
connection with this Lease are true and correct in all material respects; that
the execution and delivery of this Lease by Lessor does not contravene, result
in a breach of, or constitute a default under any contract or agreement to which
Lessee is a party or by which Lessee may be bound and does not violate or
contravene any law, order, decree, rule or regulation to which Lessor is
subject; and that there are no judicial or administrative actions, suits, or
proceedings pending or threatened against or affecting Lessor or any guarantor
of Lessor's obligations under this lease.
13.10 Corporate Authority. If Lessee executes this Lease as a
corporation, Lessee represents and warrants that Lessee is a duly authorized and
existing corporation, that Lessee is qualified to do business in the state in
which the Leased Premises are located, that the corporation has full right and
authority to enter into this Lease, and that each person signing on behalf of
the corporation is authorized to do so. Lessee shall additionally deliver (1) a
corporate resolution authorizing execution of this Lease and confirming the
authority of those persons executing the Lease, 2) certified Articles of
Incorporation and 3) a certificate of existence and good standing from the State
of Texas or if Lessee is not incorporated in Texas, a certificate of existence
and good standing from Lessee's state of incorporation and a certificate
evidencing Lessee's authority to do business in the State of Texas.
If Lessor executes this Lease as a corporation, Lessor represents and warrants
that Lessor is a duly authorized and existing corporation, that Lessor is
qualified to do business in the state in which the Leased Premises are located,
that the corporation has full right and authority to enter into this Lease, and
that each person signing on behalf of the corporation is authorized to do so.
Lessor shall additionally deliver (1) a corporate resolution authorizing
execution of this Lease and confirming the authority of those persons executing
the Lease, 2) certified Articles of Incorporation and 3) a certificate of
existence and good standing from the State of Texas or if Lessee is not
incorporated in Texas, a certificate of existence and good standing from
Lessee's state of incorporation and a certificate evidencing Lessee's authority
to do business in the State of Texas.
13.11 Partnership Authority. If Lessee executes this Lease as a general
or limited partnership, Lessee represents and warrants that Lessee is a duly
authorized and existing partnership, that, if applicable, Lessee is qualified to
do business in the state where the Leased Premises are located, that the
partnership has full right and authority to enter into this Lease, and that each
person signing on behalf of the partnership is authorized to do so. Lessee, must
additionally deliver a copy of its partnership agreement, and if a limited
partnership, a copy of its certificate of limited partnership. The party
executing the Lease on behalf of Lessee, if a corporate managing general partner
or general partner, must additionally deliver 1) a corporate resolution
authorizing execution of this Lease and confirming the authority of those
executing this Lease, 2) certified Articles of Incorporation, 3) a certificate
of existence and good standing from the State of Texas or if such party is not
incorporated in Texas, a certificate of existence and good standing from such
party's state of incorporation and a certificate evidencing such party's
authority to do business in the State of Texas.
If Lessor executes this Lease as a general or limited partnership, Lessor
represents and warrants that Lessor is a duly authorized and existing
partnership, that, if applicable, Lessor is qualified to do business in the
state where the Leased Premises are located, that the partnership has full right
and authority to enter into this Lease, and that each person signing on behalf
of the partnership is authorized to do so. Lessor, must additionally deliver a
copy of its partnership agreement, and if a limited partnership, a copy of its
certificate of limited partnership. The party executing the Lease on behalf of
Lessee, if a corporate managing general partner or general partner, must
additionally deliver 1) a corporate resolution authorizing execution of this
Lease and confirming the authority of those executing this Lease, 2) certified
Articles of Incorporation, 3) a certificate of existence and good standing from
the State of Texas or if such party is not incorporated in Texas, a certificate
of existence and good standing from such party's state of incorporation and a
certificate evidencing such party's authority to do business in the State of
Texas.
<PAGE>
13.12 Severability. If any provision of this Lease or the application
thereof to any person or circumstance is ever determined by a court of competent
jurisdiction to be invalid or unenforceable to any extent, Lessor and Lessee
agree that the remainder of this Lease and the application of such provisions to
other persons or circumstances will not be affected thereby and will be enforced
to the greatest extent permitted by law.
13.13 Lessor's Liability. If Lessor is in default under this Lease and,
if as a consequence of such default, Lessee recovers a money judgment against
Lessor, such judgment may be satisfied only out of the right, title and interest
of Lessor in the Leased Premises as the same may then be encumbered and neither
Lessor nor any person or entity comprising Lessor has any liability for any
deficiency. In no event does Lessee have the right to levy execution against any
property of Lessor nor any person or entity comprising Lessor other than its
interest in the Leased Premises as herein expressly provided.
13.14 Non Disturbance Agreement. Lessor shall deliver a non-disturbance
agreement from each of Lessors mortgagees within sixty (60) days of the
execution of this Lease in form satisfactory to Lessee in its reasonable
judgment. If any new lien or mortgage is placed on the Building or Leased
Premises during the term of this Lease, Landlord will deliver additional
non-disturbance agreements as soon as practical in form satisfactory to Lessee
in its reasonable judgment.
13.15 Notice to Mortgagees. Provided that Lessee has received prior
written notice of the name and address of such lender, Lessee shall serve
written notice of any claimed default or breach by Lessor under this Lease upon
any lender which is a beneficiary under any deed of trust or mortgage against
the Leased Premises, and no notice to Lessor is effective against Lessor unless
such notice is served upon said lender; notwithstanding anything to the contrary
contained herein, Lessee shall allow such lender the same period following
lender's receipt of such notice to cure such default or breach as is afforded
Lessor.
13.16 No Recordation. Lessee may not record this Lease.
13.17 Counterparts. This Lease may be executed in two or more
counterparts, and it is not necessary that any one of the counterparts be
executed by all of the parties hereto. Each fully or partially executed
counterpart may be deemed an original, but all such counterparts taken together
constitute but one and the same instrument.
13.18 Governing Law. THIS LEASE IS INTENDED BY THE PARTIES TO BE
GOVERNED BY, AND CONSTRUED UNDER AND IN ACCORDANCE WITH THE LAWS OF THE STATE OF
TEXAS AND THE LAWS OF THE UNITED STATES OF AMERICA AS APPLICABLE TO TRANSACTIONS
WITHIN THE STATE OF TEXAS.
13.19 Broker. Lessee represents and warrants that Lessee has dealt with
no broker except Providence Commercial Real Estate Services, Inc., for Lessee,
and Pruitt Realty, for Lessor, the brokers which has been identified to Lessor
and Lessee, and that, insofar as Lessee and Lessor know, no other broker
negotiated this Lease or is entitled to any commission in connection herewith.
Lessor agrees to indemnify and hold harmless Lessee from and against any
liability or claim, whether meritorious or not, arising with respect to any
broker whose claim arises by, through or on behalf of Lessor. Lessee agrees to
indemnify and hold harmless Lessor from and against any liability or claim,
whether meritorious or not, arising with respect to any broker whose claim
arises by, through or on behalf of Lessee.
13.20 Publication. Each party hereby agrees that the other has the
right, but not the obligation, at its own expense to publicize and/or advertise
the execution of this Lease and the related transaction.
13.21 DTPA Waiver. LESSEE WAIVES ITS RIGHTS UNDER THE DECEPTIVE TRADE
PRACTICES - CONSUMER PROTECTION ACT, SECTION 17.41 ET SEQ., BUSINESS & COMMERCE
CODE, A LAW THAT GIVES CONSUMERS SPECIAL RIGHTS AND PROTECTIONS. AFTER
<PAGE>
CONSULTATION WITH AN ATTORNEY OF LESSEE'S OWN SELECTION, LESSEE VOLUNTARILY
CONSENTS TO THIS WAIVER.
13.22 Construction of Lease. Lessee declares that Lessee has read and
understands all parts of this Lease, including all printed parts hereof. It is
agreed that, in the construction and interpretation of the terms of this Lease,
the rule of construction that a document is to be construed most strictly
against the party who prepared the same shall not be applied, it being agreed
that both parties hereto have participated in the preparation of the final form
of this Lease. Wherever in this Lease provision is made for liquidated damages,
it is because the parties hereto acknowledge and agree that the determination of
actual damages (of which such liquidated damages are in lieu) is speculative and
difficult to determine; the parties agree that liquidated damages herein are not
a penalty.
13.23 Financial Statements. Lessee acknowledges that it has provided
Lessor with its financial statement(s) as a primary inducement to Lessor's
agreement to lease the Leased Premises to Lessee, and that Lessor has relied on
the accuracy of said financial statement(s) in entering into this Lease. Lessee
represents and warrants that the information contained in said financial
statement(s) is true, complete and correct in all material aspects, and agrees
that the foregoing representations are conditions to all of Lessor's obligations
under this Lease.
At the request of Lessor (only upon the sale or refinancing of the
Building, or upon any extension or renewal hereof), Lessee shall, not later than
thirty (30) days following such request, furnish to Lessor a financial statement
of Lessee as of the end of the prior fiscal year accompanied by a statement of
income and expense for the year then ended, together with a certificate of the
chief financial officer, owner or partner of Lessee to the effect that the
financial statements have been prepared in conformity with generally accepted
accounting principles consistently applied and fairly present the financial
condition and results of operations of Lessee as of and for the periods covered.
13.24 Time of Essence. With respect to all required acts of Lessee,
time is of the essence of this Lease.
13.25 Joint and Several Liability. If there is more than one Lessee,
the obligations hereunder imposed upon Lessee are joint and several. If there is
a guarantor(s) of Lessee's obligations hereunder, the obligations of Lessee are
joint and several obligations of Lessee and each such guarantor, and Lessor need
not first proceed against Lessee hereunder before proceeding against each such
guarantor, nor will any such guarantor be released from its guarantee for any
reason whatsoever, including, without limitation, any amendment of this Lease,
any forbearance by Lessor or waiver of any of Lessor's rights, the failure to
give Lessee or any such guarantor any notices, or the release of any party
liable for the payment or performance of any of Lessee's obligations hereunder.
13.26 Taxes and Lessee's Property. Lessee is solely liable for all
taxes levied or assessed against personal property, furniture or fixtures placed
by Lessee in the Premises. If any such taxes for which Lessee is liable are
levied or assessed against Lessor or Lessor's property and if Lessor elects to
pay the same or if the assessed value of Lessor's property is increased by
inclusion of personal property, furniture or fixtures placed by Lessee in the
Premises, and Lessor elects to pay the taxes based on such increase, Lessee
shall pay Lessor upon demand that part of such taxes for which Lessee is
primarily liable hereunder.
13.27 Constructive Eviction. Lessee shall not be entitled to claim a
constructive eviction from the Leased Premises unless Lessee has first notified
Lessor in writing of the condition giving rise thereto, and, if the complaints
are justified, unless Lessor has failed to remedy such conditions with a
reasonable time after receipt of said notice.
ARTICLE 14.00 - AMENDMENT AND LIMITATION OF WARRANTIES
14.01 Entire Agreement. IT IS EXPRESSLY AGREED BY LESSEE, AS A MATERIAL
CONSIDERATION FOR THE EXECUTION OF THIS LEASE, THAT THIS LEASE, WITH THE
SPECIFIC REFERENCES TO WRITTEN EXTRINSIC DOCUMENTS, IS THE ENTIRE AGREEMENT OF
THE PARTIES;
<PAGE>
THAT THERE ARE, AND WERE, NO VERBAL REPRESENTATIONS, WARRANTIES, UNDERSTANDINGS,
STIPULATIONS, AGREEMENTS OR PROMISES PERTAINING TO THIS LEASE OR TO THE
EXPRESSLY MENTIONED WRITTEN EXTRINSIC DOCUMENTS NOT INCORPORATED IN WRITING IN
THIS LEASE.
14.02 Amendment. THIS LEASE MAY NOT BE ALTERED, WAIVED, AMENDED OR
EXTENDED EXCEPT BY AN INSTRUMENT IN WRITING SIGNED BY LESSOR AND LESSEE.
14.03 Limitation of Warranties. LESSOR AND LESSEE EXPRESSLY AGREE THAT
THERE ARE AND SHALL BE NO IMPLIED WARRANTIES OF MERCHANTABILITY, HABITABILITY,
FITNESS FOR A PARTICULAR PURPOSE OR OF ANY OTHER KIND ARISING OUT OF THIS LEASE,
AND THERE ARE NO WARRANTIES WHICH EXTEND BEYOND THOSE EXPRESSLY SET FORTH IN
THIS LEASE.
ARTICLE 15.00 - SIGNATURES
SIGNED this _______ day of April, 1999.
LESSOR: LESSEE:
ACLP UNIVERSITY PARK SA, L.P. GLOBALSCAPE, INC.,
a Texas limited partnership a Texas corporation
BY: ACLP UNIVERSITY PARK SA
GP, INC., a Texas corporation
By: ___________________________
Name: ___________________________
By: ___________________________ Title: ___________________________
Name: Sue Shelton
Title: Executive Vice President
LESSEE ACKNOWLEDGES THAT THIS LEASE
INCLUDES THE INDEMNIFICATION
PROVISIONS SET FORTH IN SECTIONS
3.01, 3.06, 7.05 AND 13.19 HEREOF.
<PAGE>
RULES AND REGULATIONS
19. Lessor agrees to furnish Lessee two keys without charge. Additional
keys will be furnished at a nominal charge. Lessee shall not change
locks or install additional locks on doors without prior written
consent of Lessor. Lessee shall not make or cause to be made duplicates
of keys procured from Lessor without prior approval of Lessor. All keys
to Leased Premises shall be surrendered to Lessor upon termination of
this Lease.
20. Lessee will refer all contractors, contractors representatives and
installation technicians rendering any service on or to the Leased
Premises for Lessee to Lessor for Lessor's approval before performance
of any contractual service. Lessee's contractors and installation
technicians shall comply with Lessor's rules and regulations pertaining
to construction and installation. This provision shall apply to all
work performed on or about the Leased Premises or project, including
installation of telephones, telegraph equipment, electrical devices and
attachments and installations of any nature affecting floors, walls,
woodwork, trim, windows, ceilings and equipment or any other physical
portion of the Leased Premises or project.
21. Lessee shall not at any time occupy any part of the Leased Premises or
project as sleeping or lodging quarters.
22. Lessee shall not place, install or operate on the Leased Premises or in
any part of the building any engine, stove or machinery, or conduct
mechanical operations or cook thereon or therein, or place or use in or
about the Leased Premises or project any explosives, gasoline,
kerosene, oil, acids, caustics, or any flammable, explosive or
hazardous material without written consent of Lessor, except that
Lessee may provide a kitchen for use by its employees during normal
business hours.
23. Lessor will not be responsible for lost, stolen or damaged personal
property, equipment, money or jewelry from the Leased Premises by a
third party or the project regardless of whether such loss occurs when
the area is locked against entry or not.
24. No dogs, cats, fowl, or other animals shall be brought into or kept in
or about the Leased Premises or project.
25. Employees of Lessor shall not receive or carry messages for or to any
Lessee or other person or contract with or render free or paid services
to any Lessee or to any of Lessee's agents, employees or invitees.
26. None of the parking, plaza, recreation or lawn areas, entries, exits,
passages, doors, elevators, hallways or stairways shall be blocked or
obstructed or any rubbish, litter, trash, or material of any nature
placed, emptied or thrown into these areas or such area used by
Lessee's agents, employees or invitees at any time for purposes
inconsistent with their designation by Lessor.
27. The water closets and other water fixtures shall not be used for any
purpose other than those for which they were constructed, and any
damage resulting to them from misuse, including improper disposal of
any materials, or by the defacing or injury of any part of the Building
shall be borne by the person who shall occasion it. No person shall
waste water by interfering with the faucets or otherwise.
28. No person shall disturb occupants of the Building by the use of any
radios, record players, tape recorders, musical instruments, the making
of unseemly noises or any unreasonable use.
<PAGE>
29. Nothing shall be thrown out of the windows of the Building or down the
stairways or other passages.
30. Lessee and its employees, agents and invitees shall park their vehicles
only in those parking areas designated by Lessor. Lessee shall furnish
Lessor with state automobile license numbers of Lessee's vehicles and
its employees' vehicles within five days after taking possession of the
Leased Premises and shall notify Lessor of any changes within five days
after such change occurs. Lessee shall not leave any vehicle in a state
of disrepair (including without limitation, flat tires, out of date
inspection stickers or license plates) on the Leased Premises or
project. If Lessee or its employees, agents or invitees park their
vehicles in areas other than the designated parking areas or leave any
vehicle in a state of disrepair, Lessor, after giving written notice to
Lessee of such violation, shall have the right to remove such vehicles
at Lessee's expense.
31. Parking in a parking garage or area shall be in compliance with all
parking rules and regulations including any sticker or other
identification system established by Lessor. Failure to observe the
rules and regulations shall terminate Lessee's right to use the parking
garage or area and subject the vehicle in violation of the parking
rules and regulations to removal and impoundment. No termination of
parking privileges or removal of impoundment of a vehicle shall create
any liability on Lessor or be deemed to interfere with Lessee's right
to possession of its Leased Premises. Vehicles must be parked entirely
within the stall lines and all directional signs, arrows and posted
speed limits must be observed. Parking is prohibited in areas not
striped for parking, in aisles, where "No Parking" signs are posted, on
ramps, in cross hatched areas, and in other areas as may be designated
by Lessor. Parking stickers or other forms of identification supplied
by Lessor shall remain the property of Lessor and not the property of
Lessee and are not transferable. Every person is required to park and
lock his vehicle. All responsibility for damage to vehicles or persons
is assumed by the owner of the vehicle or its driver.
32. Lessee shall not lay floor covering within the Leased Premises without
written approval of the Lessor. The use of cement or other similar
adhesive materials not easily removed with water is expressly
prohibited.
33. Lessee agrees to cooperate and assist Lessor in the prevention of
canvassing, soliciting and peddling within the Building or project.
34. It is Lessor's desire to maintain in the Building or project the
highest standard of dignity and good taste consistent with comfort and
convenience for Lessees. Any action or condition not meeting this high
standard should be reported directly to Lessor. Your cooperation will
be mutually beneficial and sincerely appreciated. As provided in the
Lease, Lessor reserves the right to make such other and further
reasonable rules and regulations as in its judgment may from time to
time be necessary, for the safety, care and cleanliness of the Leased
Premises and for the preservation of good order therein.
35. The parking spaces provided to Lessee shall not be fewer than six
spaces per 1000 rentable square feet of Leased Premises
36. All signage must be approved by Lessor and be within Lessor's
specifications in accordance with Section 3.02 of the Lease.
<PAGE>
ADDENDUM 1 TO COMMERCIAL LEASE AGREEMENT
ARTICLE 16.00
Lessor Improvements
16.01 Lessor Improvements. Prior to Lessee's occupancy, Lessor shall,
at its own cost and expense, construct the Building and improvements (the "Shell
Building Improvements") as generally shown on the site plan and artist's
rendering prepared by Rehler Vaughn & Koone, Inc., and attached hereto as
Exhibit "A". Lessor warrants that the Shell Building Improvements will be
generally consistent in quality with the building shown in the artist's
rendering attached as Exhibit "A" and with other buildings in Dallas, Texas,
which were shown to Lessee's representatives as samples of Lessor's projects.
The Final Shell Plans and Specifications shall be provided to Lessee on or
before June1, 1999. Lessor will begin construction of the Shell Building
Improvements no later than June 1, 1999 and shall have completed the Shell
Building Improvements to the extent to allow construction of the Lessee
Improvements no later than September 15, 1999. Except for immaterial field
changes, modifications to the Final Shell Plans and Specifications must be made
and accepted only by written change order or agreement signed by Lessor and
Lessee and will constitute an amendment to this Lease. Lessee shall be
responsible for payment in advance of all work and construction resulting from
changes in the Final Shell Plans and Specifications requested by Lessee. The
Final Shell Plans and Specifications (when approved by Lessor and Lessee) are
incorporated in this Lease by reference. For the purpose of this Section, an
"immaterial field change" shall mean such field changes which are required by
any governmental authority or changes which (i) do not affect the size,
configuration, structural integrity, quality, character, architectural
appearance and standard of workmanship contemplated in the Final Shell Plans and
Specifications, (ii) will not result in any default in any obligation to any
person or violation of any governmental requirements, and (iii) the cost of or
reduction resulting from any single field change or extra does not exceed
$20,000 and the aggregate amount of all such changes and extras does not exceed
$100,000. Lessor agrees to construct the improvements substantially in
accordance with the Final Shell Plans and Specifications, in a good and
workmanlike manner and in full compliance with all provisions of federal, state
and local authorities having jurisdiction over the Leased Premises.
ARTICLE 17.00 - Completion
17.01 Completion Date.
---------------
(b) If (i) this Lease is executed and delivered by Lessee by
April 9, 1999, (ii) the Lessee Improvement Final Plans and Specifications are
approved by Lessor by July 15, 1999 (iii) Lessee has selected by September 1,
1999, the contractor who will construct the Lessee Improvements, and (iv) the
building permit for the Lessee Improvements is issued by September 15, 1999,
then Lessor shall cause Substantial Completion (as defined in Section 17.04
hereof) to occur no later than December 15, 1999 (such date being extended by
the longest number of days that the satisfaction of any of the above conditions
is delayed, Force Majeure and Lessee Delays with the date, as extended, being
hereinafter referred to as the "Threshold Date"). In the event that the
foregoing conditions are satisfied and Substantial Completion does not occur by
the Threshold Date, then Lessee, as Lessee's sole and exclusive remedy and
measure of damages for or related to the delay in Substantial Completion, shall
have the right to receive one day of free rent, in addition to the free rent
described in Section 3.01, for each day of unexcused delay beyond the Threshold
Date, up to a maximum of sixty (60) days, and in the event of unexcused delay
beyond sixty (60) days after the Threshold Date, the Lessee shall have the right
to receive two (2) days of free rent, in addition to the free rent described in
Section 3.01, for each day of unexercised delay beyond sixty days after the
Threshold Date, and in the event of unexcused delay beyond one hundred twenty
(120) days after the Threshold Date, the Lessee shall have the right to
terminate this Lease by written notice thereof to Lessor within ten (10) days
following the one hundred twentieth day after such Threshold Date; provided,
however, in the event Lessee fails to deliver such termination notice within
such ten (10) period, the Lessee shall be deemed to have waived any right to
terminate this Lease for delay provided in this Section.
17.02 Force Majeure. "Force Majeure" delay shall mean a delay caused by
-------------
reason of fire, acts of God, unreasonable delays in transportation, embargo,
weather, strike, other labor disputes, governmental preemption of
<PAGE>
priorities or other controls in connection with a national or other public
emergency, or shortages of fuel, supplies or labor or any similar cause not
within the reasonable control of the party claiming the benefits of any Force
Majeure provisions. The party claiming the benefits of any Force Majeure
provisions shall be required (as a condition to the effectiveness thereof) to
provide written notice of the occurrence of such Force Majeure event within ten
(10) days following such occurrence.
17.05 Lessor and Lessee Delay.
(c) The terms "Lessor Delays", "Delays caused by Lessor",
"Lessee Delay" or "Delays caused by Lessee" shall mean delay in completion of
construction of the Shell Building Improvements or the Lessee Improvements
caused by:
(1) Unless due to the acts or omissions of the other party
or such party's agents, employees or contractors, the respective
party's failure to perform its design approval obligations or its
construction period obligations by the dates or within the time periods
shown in the Lease or this Addendum 1; and
(2) Any subsequent changes, modifications or alterations to
the final plans and specifications or the Final Tenant Improvement
Plans and specifications which reasonably cause delay in the completion
thereof; and
(d) "Lessee Delay" or "Delays caused by Lessee" shall also mean
delays due to the scope and extent of the Lessee Improvements to be constructed
by Lessor. For purposes of determining Lessee Delay under this Section, the
Lessor must provide notice to Lessee of the existence of excessive Lessee
Improvements, special design or construction considerations or other matters
which will extend the time necessary for the construction of the Lessee
Improvements beyond two (2) days; such notice to be provided by Lessor to Lessee
together with Lessor's delivery of approval and/or objections to Lessee's plans
and specifications for the Lessee Improvements from time-to-time. Such notice
shall specify the reasons for the delay and the estimated length of delay and,
unless the Lessee's plans and specifications are modified to eliminate such
items, the estimated length of the delay shall be included as a Lessee Delay.
For purposes of determining delay, the terms Lessor and Lessee shall include
their respective contractors, agents and employees. In addition, the party
claiming the benefits of such delay shall be required (as a condition to the
effectiveness thereof) to provide written notice of the occurrence of such delay
within ten (10) days following such occurrence.
17.06 "Substantial Completion" shall mean that time when the following
conditions are satisfied:
(c) Lessor secures and delivers to Lessee the required
temporary or permanent certificate of occupancy, final inspection
report or the substantial equivalent under applicable state or
local law relative to the Shell Building Improvements and the
Lessee Improvements; and
(d) The construction is completed in accordance with the
Final Shell Plans and Specifications and the Lessee Improvements
Final Plans and Specifications as acknowledged by Lessor's
architect in writing to Lessee, subject to normal punch list
items which will not materially interfere with Lessee's ability
to utilize the Leased Premises for its intended purposes.
<PAGE>
EXHIBIT "D"
-----------
CERTIFICATE OF ACCEPTANCE
Building: ______________________________________________________________________
Lessor: ________________________________________________________________________
Lessee: ________________________________________________________________________
This certificate is being executed pursuant to the Commercial Lease (the
"Lease") for Leased Premises (as defined in the Lease) in the Building named
above, executed on the ___ day of _______ , 1999, between Lessor and Lessee.
Lessee certifies to and agrees with Lessor and Lessor's successors, assigns,
prospective purchasers and prospective lenders that:
3. Lessor has substantially completed all construction work and leasehold
improvements required of Landlord under the terms of the Lease and/or
any other agreement between Lessor and Lessee concerning the Leased
Premises, and the Leased Premises have been delivered to Lessee in the
conditional contemplated by Lessee, except for Defects, the presence of
Hazardous Materials (as those terms are defined in the Lease) and punch
list items.
4. Lessee has taken possession of and has accepted the Premises, and the
Base Rent, additional rent, and/or other charges payable under the
Lease are presently accruing in accordance with the terms of the Lease
or if not, will commence to accrue on the ____ day of _______ , 1999.
3. The Lease has not been modified, altered or amended except as noted
herein.
4. There are no offsets or credits against rentals, nor have rentals been
prepaid except as may be provided in the Lease, but in no event have
rentals been prepaid more than thirty (30) days in advance, except for
the 7th month's rent.
5. The Lease Term will commence on ___ day of ___________ , 1999, and will
expire on the ____ day of _________ , ____ , unless sooner terminated
or extended pursuant to any provision of the Lease.
Certified and Agreed to this ___ day of ________, 1999.
Lessee: ____________________
Name: ______________________
Title: _____________________
<PAGE>
EXHIBIT 10.26
FIRST AMENDMENT TO COMMERCIAL LEASE
This First Amendment to Commercial Lease (this "Amendment") is made and
entered into as of December 13, 1999, by and between ACLP University Park SA II,
L.P., a Texas limited partnership ("Lessor"), and Globalscape, Inc., a Texas
corporation ("Lessee") for the purposes more fully described below.
R E C I T A L S:
---------------
A. Lessor and Lessee are parties to that certain Commercial Lease (the
"Lease") dated as of April 13, 1999, wherein Lessor leased to Lessee the
Premises, as defined in the Lease;
B. Lessee and Lessor desire to amend the Lease as provided herein.
A G R E E M E N T:
-----------------
NOW THEREFORE, in consideration of the mutual covenants and agreements
herein contained and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Lessor and Lessee hereby amend the
Lease and Lessor and Lessee agree as follows:
8. Termination of Right of First Refusal Lessor and Lessee agree that
-------------------------------------
Section 1.07, Leasing Term Limitation on Adjacent Space and Right
of First Refusal, of the Lease, is hereby terminated and deleted in
its entirety and that Lessee has no further rights or claim to any
space in the Building other than the Leased Premises.
9. Leased Premises Lessee will take the Initial Space of 7,350 square
---------------
feet and the Must Take Space of 7,350 square feet upon the
Commencement Date of the Lease. The Leased Premises will comprise
14,700 total rentable square feet upon the Commencement Date.
10. Base Rent Section 1.04, Base Rent, Security Deposit, of the Lease
---------
is hereby deleted and replaced in its entirety with the following:
"1.04 Base Rent, Security Deposit. Base Rent is $15,888.25 net per
month based upon an assumed 14,700 rentable square footage in the
Leased Premises and shall be adjusted by $12.97 per rentable square
foot per year based on the recalculation under Section 1.02 above.
Security Deposit is $7,974.13."
11. Improvement Allowance Tenant Improvement Allowance is hereby
---------------------
increased from $22.00 per rentable square foot to $28.00 per
rentable square foot.
12. Amortization of Excess Improvement Allowance.
--------------------------------------------
(A) Lessor has increased Lessee's Improvement Allowance and, as a
result, hereby deletes in its entirety the third to last
sentence in Section 6.01(A) which reads, "Lessee shall be
responsible for payment in advance of all work and
construction resulting from changes in the Lessee
Improvements Final Plans and Specifications requested by
Lessee if the additional cost attributable to the changes
exceed the Improvement Allowance by more than $3.00 as
described in subparagraph (c) below." and replaces it with
the following:
"Lessee shall be solely responsible for payment in
advance of all work and construction resulting from
changes in the Lessee Improvements which exceed the
Improvement Allowance."
<PAGE>
(B) The last two sentences of Section 6.01(C) are hereby
deleted in their entirety.
13. Miscellaneous
-------------
a. Capitalized Terms. Terms not otherwise defined herein shall
-----------------
have the meanings ascribed thereto in the Lease.
b. Effect of Amendment. Except to the extent the Lease is
-------------------
modified by this Amendment, the remaining terms and
provisions of the Lease shall remain unmodified and in full
force and effect. In the event of a conflict between the
terms of the Lease and the terms of this Amendment, the terms
of this Amendment shall prevail.
c. Entire Agreement. This Amendment, together with the Lease,
----------------
embodies this entire understanding between Lessor and Lessee
with respect to its subject matter and can be changed only by
an instrument in writing signed by Lessor and Lessee.
d. Counterparts. This Amendment may be executed in counterparts,
------------
each of which shall be deemed an original, but all of which,
together, shall constitute one and the same Amendment.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date and year first set forth above.
LESSOR: LESSEE:
ACLP UNIVERSITY PARK SA II, L.P., GLOBALSCAPE, INC.,
a Texas limited partnership a Texas corporation
By: ACLP University Park SA II, L.P.,
a Texas corporation,
its general partner By: ___________________________
Name ______________________
Title: ____________________
By: ________________________
Sue Shelton
Executive Vice President
<PAGE>
Exhibit 10.28
KAWA Consultores, S.A. de C.V.
- --------------------------------------------------------------------------------
CONTRACT AGREEMENT FOR TELECOMMUNICATIONS
CONSULTING SERVICES
This contract for Telecommunications Consulting Services is made between KAWA
Consultores of Mexico, D.F. (hereinafter referred to as KAWA) and American
Telesource Inc. (hereinafter referred to as ATSI) of San Antonio, Texas.
1) Background.
1.1) KAWA Consultores is a corporation dully incorporated according to the
laws of Mexico as established in Notary Public Statement N. 9318
dated May 8th, 1996. KAWA wishes to provide specialized consulting
services to ATSI.
1.2) American Telesource Inc. (ATSI) is also a corporation
---------------------------------------------------------------------
ATSI wishes to receive specialized consulting services provided by
KAWA.
2) Articles.
Article ONE.- Starting date.
- -----------
This contract shall become effective on January 1st, 1998 and remain valid for
twelve consecutive months. It can be extended for additional periods by written
notification from ATSI to KAWA.
Article TWO.- Focus and purpose of consulting activity.
- -----------
Assist ATSI in developing and implementing the necessary relations in the
Central and Southamerican regions as a business relations base to expand ATSI's
Network coverage to the Americas.
Article THREE.- Description of the Service.
- -------------
The consulting services to be provided by KAWA will focus on corporate relations
and business development and these activities will be defined according to the
following criteria :
. Collaborating in the development of ATSI's strategy in Mexico and Latin
America.
. Developing high level business relationships and assisting on finding
"country or regional" partners to expand the ATSI Network in Central and
Southamerica.
. Exploring new business segments and opportunities in Central and
Southamerica.
. Lobbying the regulatory authorities in Central and Southamerica for the
necessary support.
. Identifying and evaluating acquisition and or alliance opportunities in the
Central - american region.
Article FOUR. - Obligations.
- ------------
By KAWA:
-------
1.1) Pursue negotiations and reach corporate agreements and contracts
with regional or country associates to establish and implement
partnership and operative interconnection throughout Central and
Southamerica.
1.2) KAWA shall make the best efforts to assure that the "country
partner" in every case will be the most adequate and reliable option
in the country and will pursue the relationship through to its
completion.
1.3) KAWA shall dedicate an average of 90 hours per month of effective
activity in order to expedite the deployment of the Network backbone
for the Americas.
1.4) KAWA shall make intensive follow up and negotiations with
representatives of Telecomm and of the corresponding officials in
the Telecommunications Authorities in Latin American countries.
<PAGE>
1.5) KAWA shall dedicate travel time as required to pursue negotiations
with potential partners and Telecomm officials in the Latin -
american countries. For this purpose a period of 5 travel days per
month shall be made available to ATSI as a minimum.
1.6) KAWA shall participate in the successful implementation and follow
up of partnerships in each country in order to develop the market as
required.
By ATSI:
-------
2.1) ATSI shall continue enhancing corporate support as required in order
to follow up on the successful implementation of operations with
each country or region including negotiations for equipment
provisioning and Interconnection Agreements with "Regional or
country" partners.
2.2) ATSI shall selectively provide assistance with a corporate
representative when visiting countries or seeking country partners
when this is required. This will include facilitating relationships
with existing or potential partners and regulatory authorities with
whom ATSI already has contacts.
2.3) ATSI shall increase local support with the US Carriers and customers
in order to successfully implement products and services included in
the Interconnection Contracts and Agreements.
Article FIVE. - Compensation.
- ------------
The basis for compensation is as follows :
a) 90 hours per month at $100 DLLs. or 9,000 DLLs. per month paid in cash.
b) ATSI agrees to share 50 % of the corporate office expense including :
. Maintenance of the spaces.
. Conservation of furniture and office equipment.
. Assistant and office boy salaries.
. Light and telecommunications and other operative expenses.
These expenses have been estimated at $ 1,000 DLLs/month for the year of 1998
which shall be added to the compensation stated in point a) above.
c) Travel and entertainment expenses. ATSI agrees to reimburse expenses
according to the expense reports provided by KAWA.
Article SIX. - Form of payment.
- -----------
The compensation shall be invoiced and paid in the US according to the
instructions provided by KAWA.
Article SEVEN. -Taxes and other expenses.
- -------------
KAWA will be solely responsible for the payment of its taxes or other operating
expenses related with the consulting services except those specifically agreed
upon according with article THREE above.
Article EIGHT. - Termination.
- -------------
This agreement could be terminated if the following occur:
a) If at the end of twelve months ATSI does not wish to continue receiving the
services of KAWA.
b) Non compliance of the parties with the articles of this contract.
c) Non compliance by ATSI of the committed compensation as per article THREE
above.
d) Regardless of the reason for the termination of this agreement KAWA will not
reimburse any amount to ATSI.
e) In case of anticipated termination prior to January 1st, 1999, ATSI agrees
to pay an extraordinary compensation equivalent to 1 month of services
according to article FIVE above.
f) In case of anticipated termination caused by KAWA, KAWA agrees to notify
of its intention with a minimum anticipation of 60 days.
Article NINE. - Contingencies.
- ------------
<PAGE>
Extraordinary events beyond the control of ATSI such as fire, explosion, major
earthquake, vandalism or similar shall not be considered as anticipated
termination. The affected party shall notify the other as soon as possible. In
this case non of the parties shall be liable to any penalty whatsoever.
Article TEN. - Confidentiality and non disclosure.
- -----------
Both parties agree to treat all information and data regarding the consulting
services with full confidentiality and therefor agree to disclosure only by
written consent of the other party.
Article ELEVEN. - Jurisdiction.
- --------------
For interpretation and arbitration of this agreement both parties agree to
submit to the laws and jurisdiction of Mexico City.
This agreement is signed in Mexico City on the 1st of January of 1998.
For ATSI For KAWA
Mr. Arturo Smith Mr. Carlos Kauachi
Chairman & CEO President
/s/ Arturo Smith /s/ Carlos Kauachi
---------------- ------------------
<PAGE>
Exhibit 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report included in this Form 10-K/A, into the Company's previously filed
Registration Statements (File No. 333-50259; File No. 333-94439 and File No.
333-89683).
/s/ ARTHUR ANDERSEN LLP
- -------------------------
Arthur Andersen LLP
San Antonio, Texas
April 13, 2000
<PAGE>
EXHIBIT 99.7
PERMIT GRANTED BY THE FEDERAL GOVERNMENT THROUGH THE MINISTRY OF COMMUNICATIONS
AND TRANSPORTATION (THE "MINISTRY") TO SERVICIOS DE INFRAESTRUCTURA, S.A. DE
C.V., ("SINFRA") TO INSTALL, OPERATE AND EXPLOIT AN EARTH STATION OR TELEPORT
NETWORK TO PROVIDE DEDICATED DOMESTIC PRIVATE LINE SERVICES THROUGH THE NATIONAL
SATELLITES OR THOSE DETERMINED BY THE FEDERAL GOVERNMENT IN ACCORDANCE WITH THE
FOLLOWING ANTECEDENTS AND CONDITIONS:
ANTECEDENTS
I. The National Plan of Development 1989-1994 establishes the importance of
the modernizing telecommunications for National Development and
emphasizes the need to diversify services, improve quality and expand
coverage with more participation of individuals.
I. The Telecommunications Modernization Program 1989-1994 establishes the
need to promote the development of new services in competition that
utilize the existing capacity of the national satellites and complement
the country's basic telecommunication services
I. As well, such program considers the possibility for telecommunication
entities to install and operate master earth stations or teleports and
very small aperture terminals (VSAT's) located at the customer's
facilities that allow the establishment of circuits and private networks
sharing the satellite's capacity.
I. On March 30, 1994 SINFRA submitted a request to the Ministry for a
permit to install, operate and exploit a network integrated by a master
earth station and remote earth stations in several areas throughout
Mexico, that would use the satellite capacity under the charge of the
Federal Government.
The Ministry acknowledges that SINFRA satisfies the technical and legal
requirements, in accordance with the antecedents mentioned above and with
Article 36 of the Federal Public Administration Law, 6th Section X of the
Internal Regulations of the Ministry, 3rd, 9th, and 11th of the General
Communications Law, 6th, 34th and 58th Section II of the Telecommunications
Regulations, and hereby grants the following:
PERMIT
To install, operate and exploit an earth station network (the "Network") to
provide dedicated services through the national satellites or those determined
by the Federal Government in accordance with the technical parameters specified
in Addendum 1 of this permit. The Network will be designed as follows in its
first phase:
A Master Earth Station located in Mexico City to provide dedicated services and
private networks via national satellites to provide voice, data and
videoconferencing services through VSAT's located at the customer's facilities
that will allow the shared use of the master earth station and satellite
capacity.
CONDITIONS
i. PERMIT SCOPE
1a. APPLICABLE LEGISLATION
The installation, operation and exploitation of the earth stations
mentioned in this permit shall be governed by the Mexican Constitution,
the General Communications Law, National Property Law and Federal
Copyright Law and its regulations, by international agreements,
contracts and treaties executed and any future agreements, contracts and
treaties to be executed and ratified by the Mexican Government in this
matter and by the terms of this permit.
<PAGE>
2a. DEFINITIONS
To determine the scope and specify the services mentioned in this permit
the terms utilized within this permit are defined below.
2a.1 MASTER EARTH STATION
Main Earth Station owned by the permit holder that provides dedicated
circuits and domestic private networks through VSAT's.
2a.2 REMOTE EARTH STATION
Small earth stations that provide links up to 128 Kbps. or its
equivalent in voice, data or videoconferencing channels owned by the
permit holder and/or the customers.
2a.3 DOMESTIC LINK VIA SATELLITE
Link established by the use of a national satellite or between earth
stations located within Mexico through the use of domestic,
international or foreign satellites.
2a.4 DEDICATED DOMESTIC LINK VIA SATELLITE
Point to point and/or point to multi-point telecommunication circuit
using VSAT'S and sharing the use of the master earth station and
satellite capacity contracted by SINFRA with the Ministry or with
Telecomunicaciones de Mexico ("TELECOMM").
2a.5 PRIVATE LINK
Telecommunication circuit that is established and used for customer's
internal communications.
2a.6 INTERNATIONAL LINK
Link that is established between an earth station located in Mexico and
an earth station located in another country through the use of a foreign
satellite.
2a.7 SATELLITE CAPACITY
Satellite capacity that TELECOMM provides to third parties, which is not
extensive to earth stations for domestic links.
II NETWORK OPERATION, EXPANSION AND EXPLOITATION
3a. MASTER EARTH STATION LINKS
SINFRA may install and operate the transmission and switched
infrastructure that it may require to send communication signals,
control and supervise between the master earth station and the
customer's remote earth stations, and between this and the point of
connection with other networks or it can use the networks of other
companies or entities authorized by the Ministry to carry such signals.
4a. NETWORK EXPANSION
SINFRA must present each year to the Ministry an updated configuration
of the Network, including a customer list and the way in which the
customer's are connected to the master earth station and the number of
customer remote earth stations, their location within Mexico and the use
of the assigned frequencies.
<PAGE>
5a. NETWORK MODIFICATIONS
SINFRA shall require previous approval from the Ministry to realize any
substantial modifications to the Network when such modifications could
negatively affect the customer's equipment or the networks with which it
is interconnected.
6a. TECHNICAL STANDARDS
SINFRA must construct and establish the authorized Network with
equipment complying with the homologation conditions established by the
Ministry.
7a. AVAILABILITY OF FREQUENCIES
The services to be provided under this permit will be subject to the
availability and efficient use of the capacity of frequency bands C and
Ku on domestic satellites or other satellites that Telecomunicaciones de
Mexico (TELECOMM) may determine for service needs.
8a. NETWORK IMPLEMENTATION
The system must begin operating within the first twelve months of
receipt of this permit; otherwise, the administrative process to void
this permit will be initiated.
9a. MARKETING, INSTALLATION AND MAINTENANCE SERVICES OF VSAT's
SINFRA can market, install, and maintain the customer's VSAT's through a
separate accounting process and/or through affiliates or agents.
10a. PURCHASE OF EARTH STATIONS BY SINFRA CUSTOMERS
SINFRA customers may use SINFRA's earth stations or may acquire VSAT's
with any vendor of their choice that satisfies the standards established
by the Ministry.
11a. REMOTE STATIONS CONNECTION
SINFRA must provide service to any customer requesting so. SINFRA may
deny providing service only if the customer's equipment is not
compatible with its network or does not satisfy the standards
established by the Ministry.
12a. MARKETING CRITERIA
SINFRA will present to the Ministry within 30 days of issuance of this
permit the marketing criteria it will use with customers for the
services that SINFRA will provide. Modifications to such criteria must
be notified to the Ministry within 30 days of their effective date.
13a. EMERGENCY SERVICES
SINFRA must provide emergency services free of charge to institutions
and organizations providing emergency services, granting them priority
for their communications; security services and those of emergency help
will be provided in accordance with the applicable international
agreements.
14a. SINFRA'S RESPONSIBILITIES
SINFRA shall be the only responsible party before the Ministry for the
provision of services; the Ministry shall not be liable in regards to
SINFRA's customers. In the event SINFRA does not provide the services in
the terms and conditions set forth in this permit, the Ministry will
apply necessary measures.
<PAGE>
II INTERCONNECTION
15a. INTERCONNECTION WITH PUBLIC NETWORKS
SINFRA will negotiate with other telecommunication operators or carriers
authorized by the Ministry, the terms and conditions for interconnection
of the Network with such operators. In the event an agreement is not
reached within two months of the interconnection request, the Ministry
will intervene and determine such terms and conditions.
16a. INTERCONNECTION WITH FOREIGN NETWORKS
In the event it would be necessary to negotiate with any foreign
government any interconnection to the Network, SINFRA will realize
before the Mexican government through the Ministry the necessary terms
for the execution of their respective agreement. Interconnection
agreements that are executed with foreign companies must be previously
approved by the Ministry who can modify them when the Ministry considers
that it will damage the interests of any other network operators,
customers or Mexico.
17a. NETWORK INTERFERENCE
The operation of the services must not affect the quality nor interfere
in any manner whatsoever with any other authorized telecommunication
services that share the frequency bands utilized; otherwise, SINFRA must
make any necessary modifications to the Ministry's satisfaction in order
to avoid or eliminate such interference.
18a. SIGNAL CONDUCTION AGREEMENTS VIA SATELLITE
SINFRA will contract with TELECOMM the satellite capacity that it may
require to provide the services authorized and shall be responsible for
payment of the corresponding tariffs.
IV RATES
19a. APPLICABLE RATES
SINFRA will register with the Ministry the rates for the services
provided through the Network. These rates must be competitive on an
international level. SINFRA will present to the Ministry rate studies
every year and must include productivity improvements and costs for
services.
If the Ministry believes that sufficient competition will be generated
with any of the communication services provided, more flexibility in
rate control may be authorized.
SINFRA may apply promotional rates lower than the maximum rates as long
as these promotional rates do not reflect a direct loss.
20a. COST ACCOUNTING
SINFRA must have a cost and revenue accounting system for the services
offered that identifies the functioning of such services.
21a. REVENUE PARTICIPATION
In accordance with Article 110 of the General Communications Law, SINFRA
must pay on a monthly basis to the Federal Government 2.5% of its
tariffed revenue provided through the earth stations.
III. GENERAL PROVISIONS
<PAGE>
22a. PAYMENT OBLIGATION TO TELECOMUNICACIONES DE MEXICO
SINFRA must pay on a monthly basis 2.5% of its tariffed revenue to
Telecomunicaciones de Mexico for its support, supervision of services,
analysis and carrier assignment or frequency assignment.
23a. FAIR COMPETITION AND PREFERENTIAL TREATMENT
SINFRA shall not be able to apply monopolistic or preferential practices
that may prevent fair competition with other companies providing the
same services.
24a. INSPECTION AND SUPERVISION
At all times the Ministry shall have the authority to supervise and
inspect the installations and services provided by SINFRA. SINFRA shall
give the Ministry all the help it may require. The Ministry will verify
through regular inspections the fulfillment of the technical and
administrative standards, and its coverage commitments, operation, and
service quality.
25a. TECHNICAL AND ADMINISTRATIVE INFORMATION
SINFRA must provide to the Ministry the technical, administrative and
financial information in the form and terms that the Ministry may
determine.
26a. REAL RIGHTS
This permit does not create real rights in favor of SINFRA nor of third
parties regarding public domain property affected by the authorized
services; any hoarding practice regarding such property in the provision
of services by SINFRA will void this permit.
The Ministry reserves the right to grant another or other permits to
third parties, so that they may exploit within the same geographical
area, or in a different area, identical or similar services contained
herein.
27a. ASSIGNMENT
SINFRA shall not assign, transfer, pledge, encumber, or sell in any
manner whatsoever, totally or partially, this permit or the rights
derived from this permit to third parties without previous authorization
from the Ministry.
28a PAYMENT OF RIGHTS.
SINFRA must pay within 30 days from the date of this permit, the fees
established by the Federal Rights Law for technical studies, granting of
the permit, inspection visits, Network changes or modifications and
those that may result hereinafter.
<PAGE>
II TERM, TERMINATION AND CANCELLATION
29a. TERM
This permit will be in effect for 15 years effective from the date this
permit is granted. The Ministry shall review this permit 5 years after
its granting considering the public interest and may include new terms
if necessary.
This present permit may be renewed for an equal term if SINFRA has
satisfied the conditions this permit imposes, requests such renewal 180
days in advance of its expiration and accepts the new conditions that
the Ministry may impose.
30a. CAUSES OF CANCELLATION
This permit will be cancelled for any of the following reasons in
addition to those specified in Article 29 of the General Communications
Law.
I. For not efficiently and regularly providing the services
herein notwithstanding the warning made by the Ministry to
SINFRA.
II. For total or partial service suspension without previous
authorization from the Ministry and without justified cause.
III. Because the facilities authorized are modified, or the
nature or conditions in which the authorized services are
provided are substantially altered, without previous
authorization from the Ministry.
IV. For nonpayment of the amounts stated in Paragraphs 20a and
27a.
V. For any repeated violation of the obligations herein, and
having received a written warning from the Ministry.
VI. For not complying with the assigned technical parameters in
the operation of the services herein.
VII. For not complying with Paragraph 8 of this permit.
The cancellation of this permit will be subject to the process
established in Article 34 of the General Communications Law.
31a. GUARANTEE
To guarantee compliance with the obligations imposed in this permit,
SINFRA shall obtain a bond with an authorized company in the amount of
$1,000,000 (One million pesos) payable to the Federal Treasury. This
guarantee shall remain in effect during the term of this permit.
SINFRA agrees to increase the amount of the bond within ten (10)
business days if the Ministry feels it is necessary.
The bond must contain a statement saying that the bonding institution
accepts the rules contained in Articles 95 and 118 of the Federal
Bonding Institutions Law in effect and waives the benefit of discussion
in accordance with the policy model approved by the Federal Treasury.
This permit will go into effect on the day of its signature.
Granted in Mexico City on the (Illegible Stamp) of the month of one thousand
nine hundred and ninety four.
SUBSECRETARY FOR COMMUNICATION AND TECHNOLOGICAL DEVELOPMENT
Signature
LIC. ANDRES MASSIEU BERLANGA
<PAGE>
EXHIBIT 99.9
GENERAL DIRECTION OF NETWORKS
AND RADIOCOMMUNICATION
119.206 0645
REGISTRATION NUMBER
24--SVA-96
REGISTRATION CERTIFICATE ISSUED BY THE MINISTRY OF COMMUNICATIONS AND
TRANSPORTATION FOR THE PROVISION OF VALUE ADDED SERVICES
Based on Article 33 of the Federal Telecommunications Law the following
registration certificate is granted in accordance with the following terms:
Granted to: American Telesource International de Mexico, S.A. de
C.V,
Address: Torres Adalid 7, Col. Del Valle, C.P. 03100
Legal Representative: Jesus Enriquez Perez
Type of Service(s): Electronic Data Exchange, Electronic Mail and Remote
access to Databases
Applications: Transfer of documents through preestablished formats;
data and facsimile mailboxes; provision of general
interest data stored in databases; Internet access.
Public Network Utilized: Telefonos de Mexico, S.A. de C.V.'s Public Telephone
Network
This registration certificate is governed by the General Communications Law, the
Federal Telecommunications Law, Telecommunications Regulations and all
applicable legislation issued; by the Contracts, Agreements, and Treaties
executed and those in the future to be executed and ratified by the Mexican
Government and by the conditions shown in this certificate.
In Mexico City, D.F. on February 23, 1996.
General Director
Lic. Luis Miguel Alvarez Alonso
<PAGE>
CONDITIONS
1. The registration for the provision of value added services supported by
this certificate have an indefinite term. When the service provider stops
providing the services for its own convenience, the provider must notify
the Ministry of Communications and Transportation.
1. To provide value added services, the provider agrees to solely utilize
homologated equipment and public telecommunications networks authorized by
the Ministry of Communications and Transportation.
1. The Ministry of Communications and Transportation shall have the ability at
any time to make administrative technical inspections at the provider's
facilities and request additional information related with the value added
services registered.
1. The service provider must notify the Ministry of Communications and
Transportation any modification in their address, legal representative,
addition of new services or the transmission means utilized to provide the
services.before any changes are made.
1. Providing false information upon registering the value added services or in
any other request made to the Ministry of Communications and Transportation
will be reason to initiate any sanction proceedings.
1. The value added services provider whose registration certificate is
attached hereto must submit to the Ministry of Communications and
Transportation on an annual basis and within 30 days after the anniversary
date of this certificate, a completed "Annual Report of Value Added
Services" for the purpose of maintaining updated information. By not
submitting in a timely manner the above mentioned report, it shall be
understood as desisting to continue to provide the services and shall
automatically generate cancellation of its registration.
1. The exercise of the rights derived from this registration implies the
unconditional acceptance of all the terms by the service provider.
(Illegible signature)
cc: Lic. Carlos Casasus Lopez Hermosa - Undersecretary of Communications and
Technological Development.
<PAGE>
Exhibit 99.10
Potential Dilution Chart
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Name of Security Amount Term Conversion or Registration Resulting Number of % of Total Current
Exercise Price Status of of Common Outstanding on a
Underlying Fully-Diluted
Common Stock Basis Assuming
Full Conversion
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Series A Preferred 1,141 mandatory 1141 divided by $6.11 Unregistered 18,674 Less than 1%
- - March conversion on times 100 (until March
February 28, 2005 25, 2001)
- ------------------------------------------------------------------------------------------------------------------------------------
Warrant 1 expires March 9, $3.09 per share common Unregistered 40,000 Less than 1%
2002 stock
- ------------------------------------------------------------------------------------------------------------------------------------
Series A Preferred 13,116 mandatory 13,116 divided by $.7078 Unregistered 1,810,681, assuming 2.5%
- - April 23, 1999 conversion on times 100 (until April conversion at 141.283
February 28, 2005 23, 2000) (plus Venbanc)
- ------------------------------------------------------------------------------------------------------------------------------------
Warrant 1 expires July 2, $ 1.25 to be registered, 50,000 Less than 1%
2004 included in
registration
statement filed
with SEC in
October, 1999
- ------------------------------------------------------------------------------------------------------------------------------------
Warrant 1 expires $ 1.19 to be registered, 20,000 Less than 1%
September 24, included in
2004 registration
statement filed
with SEC in
October, 1999
- ------------------------------------------------------------------------------------------------------------------------------------
Series A Preferred 4,370 mandatory 4370 divided by $.8969 unregistered 487,233 Less than 1%
- - December 3, 1999 conversion on times 100 (until
February 28, 2005 December 3, 2000)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
27
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
Series A Preferred - 10,000 mandatory 10,000 divided by $.9430 unregistered 1,060,445 1.48%
December 8, 1999 conversion on times 100 (until
February 28, 2005 December 8, 2000)
- -----------------------------------------------------------------------------------------------------------------------------------
Warrant 1 exercisable $.9430 unregistered 106,045 Less than 1%
after December
8, 2000; expires
December 8, 2004
- -----------------------------------------------------------------------------------------------------------------------------------
Series A Preferred - 10,000 mandatory 10,000 divided by to be registered, 506,329 Less than 1%
February 4, 2000 conversion on $1.975 times 100 (until initial filing
February 28, 2005 February 2, 2001) April 30, 2000
- -----------------------------------------------------------------------------------------------------------------------------------
Series D Preferred 3,000 mandatory lesser of $5.4375 or 83% to be registered, 551,724 assuming Less than 1%
conversion on of the average of the 5 included in conversion price
February 22, 2002 lowest closing bid amendment to of $5.4375
prices of the common registration
stock during the 10 statement filed
trading days preceding with SEC in
conversion, times 1000 October, 1999
per share
- -----------------------------------------------------------------------------------------------------------------------------------
Warrants 2 expires February $ 4.37 to be registered 150,000 Less than 1%
22, 2004
- -----------------------------------------------------------------------------------------------------------------------------------
Series D Redemption 1 expires five $ 4.37 to be registered 150,000 Less than 1%
Warrant years from date
(may be issued if ATSI of issuance
redeems)
- -----------------------------------------------------------------------------------------------------------------------------------
Common stock 19,693 n/a n/a to be registered 19,693 Less than 1%
- -----------------------------------------------------------------------------------------------------------------------------------
Warrants 2 Expire March 31, $ 7.17 Piggyback 175,000 Less than 1%
2003 registration
rights
- -----------------------------------------------------------------------------------------------------------------------------------
Vested options under earlier of 10 n/a registered 283,500 Less than 1%
stock option plans years from date
of grant or four
months
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
28
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
from
termination of
employment
- ----------------------------------------------------------------------------------------------------------------------------------
Unvested options under same as vested n/a registered 1,336,881 1.87%
stock option plans
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL NEW SHARES OF 6,766,205 9.47%
COMMON STOCK
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
29
<PAGE>
Exhibit 99.11
Preferred Stock Features
- ------------------------
<TABLE>
<CAPTION>
Series A Series D
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Shares 37,186 3,000
Outstanding
- -----------------------------------------------------------------------------------------------------------------------------
Amount Paid Per $100 $1000
Share
- -----------------------------------------------------------------------------------------------------------------------------
Dividends 10% per annum payable quarterly in arrears 6% per annum payable quarterly in arrears,
beginning June 1, 1999; payable in shares of ATSI beginning March 31, 2000; payable in cash or
common stock registered shares of ATSI common stock, at ATSI's
election
participate in distributions to common stock
holders as if preferred stock had been converted
into common stock on record date for distribution
- -----------------------------------------------------------------------------------------------------------------------------
Dividend Prior to common stock, ratably with series D Prior to common stock, ratably with Series A
Preference preferred stock preferred stock
- -----------------------------------------------------------------------------------------------------------------------------
Liquidation Prior to common stock, shares ratably with series D Prior to common stock, ratably with Series A
Preference preferred stock; liquidation payment of $100 per preferred stock; liquidation payment of $1300 per
share outstanding plus accrued and unpaid dividends share outstanding plus accrued and unpaid dividends
- -----------------------------------------------------------------------------------------------------------------------------
Voting Rights Votes as if conversion of outstanding shares None, except as required by Delaware law
occurred on record date for vote; majority
approval required for significant corporate events
such as merger or sale
- -----------------------------------------------------------------------------------------------------------------------------
Conversion Price Average of closing sale prices for the 20 trading Lesser of $5.4375 or 83% of the average of the
days preceding issuance times $100 per share, plus lowest 5 closing bid prices for the common stock
accrued and unpaid dividends; reset on each during the 10 trading days prior to conversion
anniversary date to greater of 75% of initial
conversion price or 75% of 20 day trading average
prior to anniversary date
- -----------------------------------------------------------------------------------------------------------------------------
Conversion Time From date of issuance to February 28, 2005; Any time after February 22, 2000, except for a
mandatory conversion on February 28, 2005 single 30 day lock out if common stock price falls
below $2.50; mandatory conversion of any remaining
shares on February 22, 2002
- -----------------------------------------------------------------------------------------------------------------------------
Adjustments to As appropriate in event of stock split, reverse Upon notice of stock split, dividend, or issuance
Conversion Price stock split or stock dividend of additional shares at a discount to market,
holder may elect to convert based on average
closing bid price during five or fewer trading days
preceding conversion;
If common stock becomes ineligible for trading on
OTCBB, AMEX or NASDAQ, conversion price adjusted to
65% of average of five lowest closing bid prices
during ten trading days preceding conversion.
If ATSI issues common stock, common stock warrants
or securities convertible into common stock at a
lower price than conversion price for Series D
preferred, and agrees to register the common stock,
---
holder's conversion price is adjusted to lowest
price for new issuance
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
30
<PAGE>
<TABLE>
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
Change of no special provision holder may elect redemption at 120% of sum of $1300
Control of ATSI per share and accrued and unpaid dividends, or
convert to whatever type of security the common
stockholders received in the change of control;
- -----------------------------------------------------------------------------------------------------------------------------
Mandatory N/A Upon change of control of ATSI, holder may elect
Redemption redemption at 120% of sum of $1300 per share and
accrued and unpaid dividends, or convert to
whatever type of security the common stockholders
received in the change of control;
Holder may elect redemption at $1270 per share plus
accrued and unpaid dividends if ATSI refuses to
honor conversion notice or third party brings suit
challenging conversion
- -----------------------------------------------------------------------------------------------------------------------------
Optional At ATSI's option after first anniversary of issue At ATSI's option if price of common stock falls
Redemption date if market price of common stock is 200% or below price at closing date, for $1270 per share
more of conversion price, for $100 per share plus plus accrued but unpaid dividends plus additional
accrued and unpaid dividends warrant for 150,000 shares of common stock (on
same terms as warrant issued to The Shaar Fund on
February 22, 2000)
- -----------------------------------------------------------------------------------------------------------------------------
Trading/ restricted, common shares issued on conversion Restricted; common shares issued on conversion to
Conversion restricted with exception of common shares be restricted until registration;
Restrictions underlying 10,000 shares of Series A which ATSI has
agreed to register one time 30 day lock out if price of common stock
is $2.50 or less
- -----------------------------------------------------------------------------------------------------------------------------
Registration For 10,000 shares issued February 4, 2000, Registration Statement for underlying common stock
Rights registration statement for underlying common stock to be filed by April 1, 2000 and effective by June
to be filed by April 30, 2000; with agreement that 1, 2000
first third may not be converted into common stock
until April 30, 2000, second third until July 31,
2000 and final third until October 31, 2000.
- -----------------------------------------------------------------------------------------------------------------------------
Liquidated $25,000 for failure to file registration statement $60,000 for failing to file by April 1, 2000 or
Damages for by April 30, 2000 or obtain effectiveness by 90 obtain effectiveness by June 1, 2000; $60,000 for
Failure to Meet days from filing, and $25,000 for each subsequent each subsequent 30 day period
Registration 30 day period that targets are not met
Deadlines
- -----------------------------------------------------------------------------------------------------------------------------
Other N/A Ten day right of first refusal on issuance of
common stock, warrants for common stock, or
securities convertible into common stock for price
less than then-current market price, or debt with
interest greater than 9.9%
No issuances of common stock that would cause
holder to own more than 5% of ATSI's total common
stock at any given time; if 5% limit would be
exceeded on mandatory conversion date ATSI may
redeem excess shares or extend conversion date for
one year
Total issuances of common stock during term of
Series D not to exceed 11,509,944 (20% of
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
31
<PAGE>
<TABLE>
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
ATSI's total shares outstanding at closing date)
ATSI must redeem any excess
May not create new stock having liquidation
preference over Series D
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
32
