<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the Fiscal Year Ended December 31, 1997
[_] 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: 0-21225
U.S. DIGITAL COMMUNICATIONS, INC.
(Exact Name of Registrant as Specified in Its Charter)
Nevada 88-0101953
(State of Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
2 Wisconsin Circle, Suite 700, Chevy Chase, Maryland 20815
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (301) 961-1540
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
$0.01 par value
(Title of Class)
Indicate by check mark whether the registrant: (1) has filed all reports
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 No X
------------------- -------------------
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, 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. [_]
As of October 6, 1998, the aggregate market value of the voting and non-
voting common equity held by non-affiliates of the registrant was approximately
$46,091,672 based on the average of the bid and asked prices. As of October 6,
1998, the number of shares outstanding of the registrant's class of common stock
was 15,526,800.
DOCUMENTS INCORPORATED BY REFERENCE: None
1
<PAGE>
PART I
ITEM 1. BUSINESS
Unless the context otherwise requires, all references to the "Company"
herein refer to U.S. Digital Communications, Inc. ("U.S. Digital") and its
wholly-owned subsidiary U.S. Digital Satellite, Inc. ("Insat") and Insat's two
wholly-owned subsidiaries, Skysite Communications Corp. ("Skysite") and Project
77 Corp. ("Project 77"). On October 24, 1997, U.S. Digital changed its name
from Viscorp.
BACKGROUND
U.S. Digital Communications, Inc. is a telecommunications industry company
based in Chevy Chase, Maryland. The Company is primarily a global satellite
communications firm that specializes in corporate applications. Specifically,
the Company is a provider of satellite telephone subscriber equipment and
services.
Visual Information Services Corp. was originally incorporated in Illinois
in May 1990, and was founded to develop an electronic device capable of adding
modem, video data and telephone features to an ordinary television receiver over
a telephone line. On November 28, 1995, shareholders of Visual Information
Services Corp. acquired the outstanding shares of Global Telephone and
Communications, Inc., a Nevada corporation ("GTCI"), in exchange for their
shares of Visual Information Services Corp. (the "Transaction"). GTCI was
incorporated in May 1984 to provide consulting services for the public and
private sectors. To the Company's knowledge, GTCI never operated as a consultant
nor carried on any type of business at any time prior to the Transaction. The
Transaction was consummated because the common stock of GTCI traded on the
Nasdaq Bulletin Board, and thus, the Transaction provided the Company an entity
with an existing public presence. Pursuant to the Transaction, each share of
Common Stock of Visual Information Services Corp. was exchanged for four shares
of common stock of GTCI. Following the Transaction, GTCI changed its name to
Viscorp.
Between November 1995 and August 1997, the Company developed two products:
the Universal Internet Television Interface Device ("UITI") and the Electronic
Device ("ED"). UITI is a technology designed to give the home television
viewer access to the Internet, World Wide Web and other on-line services. ED is
a device which, in addition to on-line services, was designed to feature such
capabilities as telephone reception and dial-up, facsimile, pay-per-view options
and electronic mail. The Company has decided not to take any further steps to
develop this technology or to market these products. For the year ended
December 31, 1997, there was no revenue from the sale of these products. The
Company is not aware of any market for this technology, and does not expect to
realize any revenue therefrom. On September 1, 1998, pursuant to a settlement
agreement with Raquel Velasco, the Company granted Ms. Velasco an option to
purchase the ED and UITI technologies, in addition to certain other property,
for a total consideration of $50,000. See "--Legal Proceedings."
In May 1997, U.S. Digital became involved in operating Skysite
Communications Corporation. Skysite was initially created to market a new
satellite-based telecommunications system called Mobilesat, or MSAT (MSAT is a
trademark term used as an abbreviation by the American Mobile Satellite
Corporation in the United States).
On June 20, 1997, the Company entered into an Agreement and Plan of
Reorganization with Intercontinental Technologies Group, Tom D. Soumas, Jr.,
Cochran Ranch Golf and Tennis Resort, Sinai Administrative Trust, Carol
Anderson, Howard Garber, George Straayer (the "Selling Shareholders") and
Skysite. Under the Agreement, the Company was to issue 750,000 shares of its
common stock to the shareholders of Skysite, as well as options to purchase an
additional 500,000 shares of its common stock at an exercise price of $.40 per
share, in exchange for 100% of the outstanding shares of common stock of
Skysite.
The stock of Skysite was transferred to the Company on August 26, 1997.
Subsequent to the acquisition, disputes arose between the Company and the former
President of Skysite, Tom D. Soumas, related to the value of Skysite at the time
of the acquisition. As a result of the dispute, the Company withheld its
shares. On May 28, 1998, the Company entered into an amended agreement with the
Selling Shareholders, except for Tom D. Soumas. Under the terms of the amended
agreement, the other shareholders' shares and options will be placed in an
escrow account. The shareholders will have all rights attributable to these
escrowed shares, however, they have agreed that at such time when they elect to
sell these shares, the first $200,000 of related proceeds will be paid to the
Company, and the remaining shares and options will be released to the other
Shareholders. The 240,000 shares due to Mr. Soumas under the original agreement
remain unissued, and the Company does not intend to issue such shares. No
shares or options for the other Selling Shareholders have been issued or placed
in escrow as of October 6, 1998.
2
<PAGE>
On October 24, 1997, Viscorp changed its name to U.S. Digital
Communications, Inc. In connection with the acquisition of Skysite, the sellers
of Skysite incurred an obligation to pay a broker's commission of options to
purchase 200,000 shares of U.S. Digital at $0.40 per share to be paid from
the 500,000 options issued to them by the Company. In July 1998, the Company
created Insat to oversee its satellite communications operations and transferred
the common stock of Skysite to Insat and incorporated Project 77 as Insat's
other wholly-owned subsidiary.
GENERAL
In addition to its corporate offices in Chevy Chase, Maryland, the Company
has operations in Burbank, California, and Washington, D.C. The Company,
through Insat, markets satellite and wireless digital communications equipment
and services. Skysite operates as the marketer of satellite telephone products
and services and Project 77 specializes in Iridium satellite personal
communications technology. The Company, through its subsidiaries, works closely
with satellite telephone manufacturers and systems operators to provide
solutions to communications needs of international business travelers and
companies with global, emergency and/or remote operations.
While the Company has developed a revenue stream from satellite telephone
customers over the past two years, it is still in a development stage and has
not been profitable. The satellite telephony industry is still in its infancy
and the eventual profitability of the Company will be dependent on the
acceptance of the new communications technologies it will provide. The Company
is preparing to expand its current product offerings upon the proposed
commercialization of the Iridium global satellite system prior to the end of
1998. See "Risk Factors--Dependence on Certain Suppliers."
Domestically, the Company is exploring opportunities to acquire companies
with existing corporate and customer bases within its niche markets, which
include the media, government, oil exploration, transportation and disaster
recovery. The Company also seeks to increase its global presence through the
acquisition of suitable companies located in other major markets outside of the
United States. On April 8, 1998, the Company entered into a non-binding
memorandum of understanding with Eurotelecom Communications, Inc., a Delaware
corporation, to purchase all of the issued and outstanding shares of Eurotelecom
("Eurotelecom") in exchange for approximately 1.7 million shares of the
Company's common stock. As a part thereof, the Company agreed to provide up to
$1.0 million to Eurotelecom for operating expenditures. Eurotelecom owns 100%
of Eurotelecom Corporation Limited, incorporated in England and Wales, which, in
turn, owns 100% of the stock of Eurotelecom Secure Networks Limited, also
incorporated in England and Wales. The memorandum of understanding also
provided for employment agreements with key employees which were to include
shares of the Company's common stock as part of the compensation terms. A
condition to the closing was the acquisition by Eurotelecom of Optilan (UK)
Limited, Easy-IP Limited and Intelligent Networks, Limited, all incorporated in
England and Wales. It was also the parties' intention that Eurotelecom be
represented on the Company's Board of Directors. In May 1998 and in August
1998, the Company loaned $260,000 and $250,000, respectively, for a total of
$510,000, to Eurotelecom for operating expenses.
On August 4, 1998, the Company terminated the memorandum of understanding
with Eurotelecom due to a change in the proposed structure of the acquisitions.
The Company is negotiating with EuroTelecom Corporation Limited, the wholly-
owned subsidiary of Eurotelecom, to purchase all of the issued and outstanding
shares of Eurotelecom Secure Networks Limited, Optilan Limited, Easy IP Limited
and Intelligent Networks Limited. However, such negotiations have stalled, and
the Company does not know whether the acquisitions will take place. EuroTelecom
Corporation Limited has agreed to repay the outstanding loans in accordance with
their terms. The Company and EuroTelecom Corporation Limited have not entered
into an agreement and there can be no assurance that such acquisition will take
place.
3
<PAGE>
RISK FACTORS
The Company may from time to time make written or oral forward-looking
statements. Written forward-looking statements may appear in documents filed
with the Securities and Exchange Commission (the "Commission"), in press
releases, and in reports to shareholders. The Private Securities Litigation
Reform Act of 1995 contains a safe harbor for forward-looking statements on
which the Company relies in making such disclosures. Forward-looking statements
can be identified by the use of words such as "believes," "anticipates,"
"plans," "expects," "may," "will," "intends," "estimates" and the negatives
thereof and similar expressions. In connection with this "safe harbor," the
Company is hereby identifying important factors that could cause actual results
to differ materially from those contained in any forward-looking statements made
by or on behalf of the Company. Any such statement is qualified by reference to
the following cautionary statements.
DEVELOPMENT STAGE COMPANY; HISTORY OF OPERATING LOSSES; FUTURE CAPITAL NEEDS
The Company is a development stage company. The Company has incurred
significant operating losses in every fiscal period since inception. In August
1997, in connection with the acquisition of Skysite, the Company terminated its
production of the UITI and ED technologies and concentrated its business on the
global satellite communications market. Skysite was incorporated in August 1995
and has only limited operating history. The Company is thus subject to the
risks inherent in the establishment and growth of a new business enterprise.
The likelihood of success of the Company must be considered in light of the
problems, expenses, difficulties and delays frequently encountered in connection
with a new business, including, but not limited to, a continually evolving
industry subject to rapid technological and price changes, acceptance of the
products that Skysite markets and an increasing number of market competitors.
For the year ended December 31, 1997, the Company's operating loss was
$5,144,888. The Company expects to incur substantial quarterly operating losses
through 1998 and possibly longer.
In order to become profitable, the Company must successfully market and
sell its satellite telephone products and services, sell evolving products for
new and existing markets, increase gross margins through higher sales volumes,
expand its distribution capability and manage its operating expenses. There can
be no assurance that the Company will ever achieve those objectives or
profitability. The Company's actual working capital needs depend upon numerous
factors, including the extent and timing of acceptance of the Company's products
in the market, the Company's operating results, the cost of increasing the
Company's sales and marketing activities and the status of competitive products,
none of which can be predicted with certainty. As a result, there can be no
assurance that the Company will not require additional funding. There can be no
assurance that any additional financing will be available to the Company on
acceptable terms, or at all, when required by the Company. The inability to
obtain such financing would have a material adverse effect on the Company's
business, financial condition and results of operations. The Company could be
required to significantly reduce or suspend its operations, seek a merger
partner or sell additional securities on terms that are highly dilutive to
shareholders. The type, timing and terms of financing amounts selected by the
Company will be dependent upon the Company's cash needs, the availability of
other financing sources and the prevailing conditions in the financial markets.
For the year ended December 31, 1997, the Company raised $4,306,944 million in
equity offerings. See "--Significant Dilutive Effects of Shares Eligible for
Future Sale on Market Price of Common Stock," "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and Capital
Resources" and Financial Statements.
RAPID TECHNOLOGICAL CHANGE; DEPENDENCE ON PRODUCT DEVELOPMENT
The market for satellite telephone products is characterized by rapidly
changing technology, frequent new product introductions and other changes.
Accordingly, the Company's success will be substantially dependent on a number
of factors, including its ability to identify emerging standards in the
satellite telephone markets, to differentiate the products it sells from those
of its competitors, and to bring those products to market quickly. Given the
emerging nature of the satellite telephone market, there can be no assurance
that the Company's products or technology will not be rendered obsolete by
alternative technologies. Furthermore, short product life cycles expose the
Company's products to the risk of obsolescence and require frequent new product
introductions. The satellite telephone market is extremely competitive and is
characterized by rapidly advancing technology, frequent changes in user
preferences and frequent product introductions. The future success of the
Company will depend in large part on its ability, and that of its product
suppliers, to keep pace with advances in technologies for the satellite
telephone market. There can be no assurance that the Company will be able to
identify, market or support such products successfully or that it will be able
to respond effectively to technological changes or product announcements by
competitors. The Company is unable to predict which of the many possible future
products and services will meet evolving industry standards and consumer
demands. Delays in response by the Company could have a material adverse effect
on the Company's business, financial condition and results of operations.
4
<PAGE>
COMPETITION
The wireless communications industry is highly competitive and is
characterized by frequent technological innovation. The industry includes major
domestic and international companies, many of which have financial, technical,
marketing, sales, distribution and other resources substantially greater than
those of the Company and which provide, or plan to provide, a wider range of
services. The Company's products and services compete with a number of
communications services, including existing satellite services, terrestrial air-
to-ground services, and terrestrial land-mobile and fixed services, and may
compete with new technologies in the future. In addition, the Federal
Communications Commission ("FCC") has recently allocated large amounts of
additional spectrum for communications uses or potential uses that could compete
with the Company, and additional allocations of spectrum for such uses may occur
in the future. There can be no assurance that the Company will be able to
compete successfully with such companies. See "Business-Competition."
DEPENDENCE ON CERTAIN SUPPLIERS
The Company is supplied satellite services pursuant to an agreement with
American Mobile Satellite Corporation and intends to be supplied satellite
services prior to the end of 1998 pursuant to an agreement with Iridium U.S.,
L.P. ("Iridium"). Currently, the Company is supplied satellite services
primarily by American Mobile Satellite Corporation. The Company is a
nonexclusive dealer for manufacturers of satellite telephones, which include
Westinghouse Electric ("Westinghouse") and Mitsubishi Electronics America, Inc.
("Mitsubishi"). For the year ended December 31, 1997, retail sales by the
Company of Westinghouse products and services accounted for approximately 56% of
the Company's revenues. Since a material amount of the Company's revenues are
derived from selling air time, the unavailability of products would have a
material adverse effect on the Company's business and prospects. The limited
number of manufacturers is a risk of the Company's business. The loss of any
supplier could have a material adverse affect on the Company's business,
financial condition and results of operations. Furthermore, there can be no
assurance that current suppliers will continue to provide products to the
Company at attractive prices, or at all, or that the Company will be able to
obtain such products in the future from these or other providers on the scale
and within the time frames required by the Company. Also, there can be no
assurance that Iridium will begin to supply satellite services to the Company
within the time frame currently projected. Further, there can be no assurance
that any of the Company's suppliers will not enter into exclusive arrangements
with the Company's competitors, or cease selling these components to the Company
at commercially reasonable prices, or at all. Any failure to obtain such
products on a timely basis at an affordable cost, or any significant delays or
interruptions of supply, would have a material adverse effect on the Company's
business, financial condition or results of operations.
DEPENDENCE ON KEY CUSTOMERS
During the year ended December 31, 1997, the Company's net sales to its
five largest customers accounted for approximately 40% of total net sales. For
the year ended December 31, 1997, the Royal Bahamas Police Force represented 22%
of the Company's net sales. Other than the foregoing, no one customer accounted
for 10.0% or more of net sales for the period. In addition, the satellite
telephone market experiences rapidly changing technology and frequent new
product introduction which may result in loss of customers or uncollectiblity of
accounts receivables of any major customer. As of December 31, 1997, HMS Marine
Services represented 11% of trade receivables. Other than the foregoing, no one
customer accounted for 10.0% or more of trade receivables. The loss of or
significant decrease in sales to any one of the Company's major customers or
uncollectability of any accounts receivable of any major customer could have a
material adverse effect on the Company's business, financial condition and
results of operations.
DEPENDENCE ON KEY PERSONNEL
The Company is dependent upon its executive officers and certain key
employees, the loss of any one of whom could have a material adverse effect on
the Company's business, financial condition and results of operations. The
Company's future success will depend in significant part upon the continued
service of certain key personnel, and the Company's continuing ability to
attract, assimilate and retain highly qualified managerial and sales and
marketing personnel. There can be no assurance that the Company can retain its
existing key managerial or sales and marketing personnel or that it can attract,
assimilate and retain such employees in the future. The loss of key personnel or
the inability to hire, assimilate or retain qualified personnel in the future
could have a material adverse effect upon the Company's business, financial
condition or results of operations. The Company does not have employment
contracts with its officers and key employees. Moreover, the Company does not
have key-man life or disability insurance on any of its officers or key
employees. In the event of their death or disability or in the event they are
otherwise unable to render services to the Company, there can be no assurance
that the Company will be able to recruit and retain replacements. See
"Management--Directors and Executive Officers."
5
<PAGE>
MANAGEMENT OF GROWTH
Depending on the extent of its future growth, the Company may experience a
significant strain on its management, operational and financial resources. The
Company's ability to manage its growth effectively may require it to continue to
implement and improve its operational and financial systems and may require the
addition of new management personnel. The failure of the Company's management
team to effectively manage growth, should it occur, could have a material
adverse impact on the Company's business, financial condition or results of
operations. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations," "Business--Employees" and "Management."
UNCERTAINTY OF ACQUISITION OPPORTUNITIES
The Company believes that it will achieve significant competitive
advantages by expanding its geographic and products markets through
acquisitions. The availability of suitable companies on economically acceptable
terms is uncertain. The Company's growth could be affected unfavorably if it
cannot implement its acquisition strategy.
VOLATILITY OF STOCK PRICE
There can be no assurance that a public market for the Company's Common
Stock will be sustained. In the absence of such a market, purchasers of the
Common Stock may experience substantial difficulty in selling their securities.
The trading price of the Company's Common Stock may be, and has been, subject to
significant fluctuations in response to variations in quarterly operating
results, announcements of technological innovations by the Company or its
competitors, general conditions in the satellite telephone market and other
factors. In addition, the stock market is subject to price and volume
fluctuations that affect the market prices for companies in general, and small
capitalization companies in particular. See "Market For Registrant's Common
Equity and Related Shareholder Matters."
ILLIQUIDITY OF TRADING MARKET; RISK OF PENNY STOCK STATUS
The Company's Common Stock is traded on the OTC Bulletin Board.
Consequently, the liquidity of the Common Stock has been in the past, and could
be in the future, impaired, not only in the number of shares of Common Stock
which could be bought and sold, but also through delays in the timing of the
transactions, reductions in security analysts' and the news media's coverage of
the Company, and lower prices for the Common Stock than might otherwise be
attained. The Company will be subject to the Commission's "penny stock" rules.
Securities are exempt from this rule if, among other things, the market price is
at least $5.00 per share. Consequently, an investor will find it more difficult
to dispose of, or to obtain accurate quotations as to the price of, the
Company's securities. The "penny stock" rules under the Securities Exchange Act
of 1934, as amended, impose additional sales practice and market-making
requirements on broker-dealers who sell and/or make a market in such securities.
For transactions covered by the penny stock rules, a broker-dealer must make
special suitability determinations for purchasers other than established
customers and must have received the purchasers' written consent to the
transactions prior to sale. In addition, prior to any transaction involving a
penny stock, unless exempted, the rules require delivery of a disclosure
schedule to the Commission relating to the penny stock. Disclosure is also
required to be made about commissions payable to both the broker-dealer and the
registered representative and current quotations for the securities. Finally,
monthly statements are required to be sent disclosing recent price information
for the penny stock held in the account and information on the limited market in
penny stocks. The rules on penny stocks could affect the ability or willingness
of broker-dealers to sell and/or make a market in the Company's securities and
therefore could severely adversely affect the market liquidity for the Company's
securities. See "Market for Registrant's Common Equity and Related Shareholder
Matters."
INDICTMENT OF WS MARKETING AND FINANCIAL SERVICES, INC.
In September 1998, the Company became aware that persons associated with WS
Marketing and Financial Services, Inc., the placement agent for the Company's
Series B and Series C Preferred Stock, are currently under Federal indictment
concerning matters unrelated to WS Marketing and Financial Services, Inc.'s
relationship with the Company. The criminal indictment, filed in the United
States District Court, Southern District of Texas, Houston Division, Criminal
No. H-97-262-SS, includes allegations of conspiracy, wire fraud and money
laundering. There can be no assurance that the foregoing indictment will not
affect the Company's liquidity or capital resources. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources."
SIGNIFICANT DILUTIVE EFFECT OF SHARES ELIGIBLE FOR FUTURE SALE ON MARKET PRICE
OF COMMON STOCK
6
<PAGE>
As of October 6, 1998, there were 735,000 shares of Common Stock issuable
upon the exercise of options under the Company's 1996 Non-Employee Directors'
Stock Option Plan and the 1998 Stock Option, Deferred Stock and Restricted Stock
Plan. In addition, as of October 6, 1998, there were 1,910,200 shares of Common
Stock issuable upon the exercise of options under the stock option plan adopted
by the Company in 1995. See "Executive Compensation-Stock Option Plans."
Finally, as of October 6, 1998, there were 3,560,400 shares of Common Stock
issuable upon the exercise of options granted outside any of the Company's stock
option plans. Of these options, 2,380,000 options were granted to a placement
agent in connection with the Series A Preferred Stock. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources." In addition, the Company has issued 4,338,832
shares of Series A Preferred Stock, 3,000 shares of Series B Preferred Stock,
and 3,000 shares of Series C Preferred Stock, which are all convertible into
shares of Common Stock. Each share of Series A Preferred Stock is convertible
into one share of Common Stock, whereas each share of Series B and Series C
Preferred Stock is convertible into a number of shares as determined by the
Series B and Series C conversion formula. Holders of Series A Preferred Stock
may convert up to 25% of their shares 90 days following the date the shares were
issued, and up to 25% of their shares at the end of each of the three
consecutive 90-day periods thereafter. Holders of Series A Preferred Stock also
possess conversion rights exercisable upon acquisition of the Company by another
entity. Further, the Series A Preferred Stock is automatically converted into
Common Stock upon the consummation of the Company's sale of its Common Stock in
a firm commitment underwritten public offering, or upon acquisition of the
Company, if, in connection with such acquisition, the holders of Series A
Preferred Stock receive an amount per share greater than $1.50. Holders of
Series B Preferred Stock may convert 50% of their shares into Common Stock on
the effective date of registration of the underlying Common Stock and the
remaining 50% 45 days thereafter. Holders of Series C Preferred Stock have the
right to convert 50% of their shares into Common Stock upon the earlier of the
effective date of registration of the underlying Common Stock, or 120 days after
issuance of the Series C Preferred Stock and the remaining 50% upon the earlier
of 45 days following the effective date of registration of the underlying Common
Stock, or 165 days after issuance of the Preferred Stock. In connection with the
sale of the Series A, Series B and Series C Preferred Stock, the Company issued
2,169,416, 500,000 and 495,000 warrants, respectively, convertible into an
aggregate of 3,164,416 shares of Common Stock. Lastly, in connection with each
of the offerings of the Series B and Series C Preferred Stock, the Company
issued 250,000 warrants, for a total of 500,000 warrants, to the placement agent
thereof. The warrants include certain dilution adjustments resulting from the
subsequent issuance of Common Stock or securities converting into Common Stock.
All of the common shares, to the extent that they are eligible or appear to be
eligible for sale in the public market, could have a material adverse effect on
the market price of the Common Stock and therefore make it more difficult for
the Company to sell equity securities or equity-related securities in the future
at a time and price that the Company deems appropriate.
The Series B Preferred Stock subscription agreements contain a "put"
provision for Common Stock which allows the Company to raise an additional
$3,000,000. The provision specifies that 75 days after the effective date of
the registration of additional common shares to be used under this provision,
the Company may sell Common Stock (the "Put Stock") to the Series B subscribers.
The price of the Put Stock is determined by taking the lower of (1) 80 percent
of the lowest closing bid price for the previous 20 trading days prior to
funding or (2) 80 percent of the closing bid price on the day of funding. The
minimum draw is $250,000 and the maximum draw is $750,000. If the price of the
Company's Common Stock for the 20 trading days prior to the funding is less than
$1.25 and the average trading volume is less than $300,000 per day for the
previous 20 trading days, the Series B shareholders have the option not to fund
the requested draw. These minimums increase as the amount of the funds
requested by the Company increase from $250,000 to $750,000.
The Company has issued in the past, and intends to issue in the future,
additional equity securities in order to fund working capital requirements. To
the extent the Company does so, existing shareholders of the Company will
experience substantial dilution, particularly if the terms of such issuance
include discounts to market prices or the issuance of warrants. In addition, to
the extent the Company issues securities at a discount to the then current
market price, the Company will be required to record a stock compensation
expense of such issuances in its financial statements, which will adversely
affect the Company's operating results for the period in which such stock is
issued. For the year ended December 31, 1997, the Company recorded a stock
compensation expense of $1,349,587 in connection with the issuance of Common
Stock and securities convertible into Common Stock.
In addition, the holders of Series B and Series C Convertible Preferred
Stock and related warrants are entitled to registration rights with respect to
the shares of Common Stock underlying their respective securities. Pursuant to
the registration rights agreement between the Company and the holders of Series
B and Series C Preferred Stock, the Company is required to file a registration
statement covering the resale of the shares of the Company's Common Stock,
together with any capital shares issued in replacement of or in exchange for
such Common Shares, issuable or issued upon conversion of the Series B or Series
C Preferred Stock and warrants, pursuant to each offering. The registration
rights agreements also grant holders piggyback and demand registration rights.
To the extent that such holders convert their existing securities into Common
Stock, following the effective date of the Registration Statement related
thereto,
7
<PAGE>
such shares will be immediately eligible to be sold in the public market without
restriction under Rule 144 under the Securities Act of 1933, as amended (the
"Act"), which, given the relatively low trading volumes for the Company's Common
Stock, would likely have a significant depressant effect of the per share market
price of the Company's Common Stock.
YEAR 2000 COMPLIANCE
The Company is assessing the internal readiness of its computer systems for
handling the year 2000 issue. The Company expects to implement the systems and
programming changes necessary to address year 2000 issues with respect to its
internal systems and does not believe that the costs of such actions will have a
material adverse effect on its business, financial condition and results of
operations. Although the Company is not aware of any material operational
issues or costs associated with preparing its internal systems for the year
2000, there can be no assurance that there will not be a delay in, or increased
costs associated with, the implementation of the necessary systems and changes
to address the year 2000 issues, and the Company's inability to implement such
systems and changes in a timely manner could have a material adverse effect on
the Company's business, financial condition and results of operations.
The Company also relies, directly and indirectly, on external systems of
business enterprises such as brokers, sub-servicers, customers, financial
organizations and governmental entities for accurate exchange of data. Even if
the internal systems of the Company are not materially affected by the year 2000
issue, the Company could be affected by disruptions in the operation of the
enterprises with which the Company interacts. Despite the Company's efforts to
address the year 2000 issues' impact on its internal systems and business
operations, there can be no assurance that such impact will not result in a
material disruption of its business or have a material adverse effect on the
Company's business, financial condition or results of operations.
RISKS ASSOCIATED WITH STOCK OPTION GRANTS
The Company has adopted three stock option plans under which it has granted
options to purchase an aggregate of 2,645,200 shares of the Company's Common
Stock. See "Executive Compensation--Stock Option Plans." In addition, the
Company has granted additional options to purchase 3,560,400 shares of Common
Stock outside of any stock option plan. To date, the shares underlying the
stock options have not been registered with the Commission, or under the
securities laws of any applicable state. The Company has granted the foregoing
options and permitted the issuance of 670,000 shares of Common Stock upon the
exercise of certain stock options in reliance on the exemption from registration
found in Section 4(2) of the Act or Rules 505 or 506 promulgated thereunder and
similar state securities exemptions. Section 4(2) of the Act exempts from the
registration requirements of Section 5 of the Act those transactions by an
issuer not involving a public offering. If it is determined at a later date
that the grant of the aforementioned stock options or the issuance of Common
Stock pursuant to the exercise thereof involved a public offering for which the
Company cannot find an exemption, then the Company will have committed a Section
5 violation, or a violation of similar state securities laws, and may be subject
to suit by shareholders pursuant to Section 12 of the Act or such other similar
state securities laws. A successful suit under Sections 5 or 12 of the Act or
their state securities law counterparts could have a material adverse effect on
the Company's business, financial condition or results of operations.
8
<PAGE>
BUSINESS DESCRIPTION
INDUSTRY BACKGROUND
The Company operates in the global personal voice, paging and data
communications industry. Potential customers for the products and services
provided by the industry include international corporations, professionals and
others (i) who travel outside their "home" wireless network's roaming area, (ii)
find it important to be able to make or receive calls, or receive pages, at any
time by means of a single phone or pager number, with a single phone or pager
number or (iii) are located where terrestrial landline or wireless services are
not available or do not offer an attractive or convenient option.
Global satellite communications systems are designed to address two broad
trends in the communications market: (i) the worldwide growth in the demand for
portable wireless communications; and (ii) the growing demand for communications
services to and from areas where landline or terrestrial wireless service is not
available or accessible.
TELECOMMUNICATIONS MARKETS
The Company believes that its products and services are applicable to six
distinct market segments:
1. Transportation;
2. Broadcast Media and Motion Picture Industry;
3. Disaster Recovery;
4. Government and Public Safety;
5. Natural Resource Extraction-Petroleum, Mining & Utilities; and
6. Rural, Remote and Mobile Telephony.
The Company currently sells satellite telephone and related products and
services to the markets listed above. Each subgroup has its own applications and
requires different equipment, service and market approach.
PRODUCTS AND SUPPLIERS
The Company is primarily a global satellite communications firm that
specializes in corporate applications. Specifically, the Company is a provider
of satellite telephone subscriber equipment and services, including Low Earth
Orbit and geostationary Digital Satellite Telephone Systems.
Low Earth orbit and geostationary Digital Satellite Telephone Systems are
mobile satellite services for voice, fax and data, that span land-mobile, fixed-
site, transportable and maritime applications. Subscribers on the MSAT System
(i.e., mobile satellite) dial direct, through a communications satellite, using
a variety of satellite terminals. These mobile terminals are built by leaders
in wireless electronic communications, which include Westinghouse Wireless
Solutions Company, Mitsubishi Electronics of America, Cal Corporation, KVH
Maritime Products, Kyocera and Motorola. The Company is a distributor for
Westinghouse mobile terminals.
Pursuant to its agreement with AMSC Subsidiary Corporation ("AMSC"), a
wholly-owned subsidiary of American Mobile Satellite Corporation, the Company
purchases and resells mobile satellite service on a private network basis. This
telephone service provides traditional voice, fax and data service through
satellite terminals that are similar to cellular phones. Telephone calls made
through the Skysite Satellite Telephone System on these mobile satellite
terminals initiate contact with the outside world through one L-Band (1.5Ghz)
GM/Hughes communications satellite in geo-synchronous orbit 22,300 miles above
the equator. The satellite is downlinked into the Public Switched Telephone
Network through a Westinghouse-built Communications Ground Segment ("CGS") earth
station located in Reston, Virginia. Within the satellite coverage area, which
encompasses most of North and Central America, Hawaii, the western Atlantic and
eastern Pacific oceans, the entire Caribbean basin and the northern portion of
Columbia and Venezuela, a subscriber can make or receive direct dial calls
generally to or from anywhere in the world. This is a dial-up-on-demand system
that charges the subscriber for the time actually used.
Satellite telephony customers also have the opportunity to subscribe for
advanced services. These offerings include voice mail, conference circuit
services, and disaster recovery telephone testing and audit services. Unlike
cellular, a satellite telephone cannot be monitored. The Company's services
also include full STU 3 encryption, which scrambles voice communication, when
required. With the special security system unique to the MSAT I satellite, the
telephone cannot be "cloned," which is the number one cause of fraud among
cellular roaming customers.
9
<PAGE>
In addition to dial-up telephone service, the Company also offers a half-
duplex, push-to-talk ("PTT") dispatch system that can be set up on a channeled
basis into talk groups organized along hierarchical, geographical or task-
related lines. When in this mode, users activating their talk group channel are
put directly in contact with each other, without interfacing with the Public
Switched Telephone or Data Networks.
As a complement to its other products and services, the Company also offers
pagers through its non-exclusive distribution agreement with CUE paging network,
covering the U.S. and Canada, and the ARDIS two-way wireless data services.
The Company, pursuant to an agreement with PTT Telecom BV (as represented
by Station 12, the satellite division of PTT Telecom BV), dated September 15,
1997, also offers Inmarsat and other satellite services provided by Station 12,
which services are marketed under the brand name of "Altus."
The Company also plans to offer, on a non-exclusive basis, Iridium services
throughout the world, and subscriber units pursuant to its agreement for a term
of three years with Iridium U.S., L.P. Iridium is a network of low-earth orbit
satellites. The launch of commercial service on the Iridium system is expected
before the end of 1998, but there can be no assurance that this goal will be
achieved. See "Risk Factors--Dependence on Certain Suppliers."
The Company has relationships with companies in both the wireless
communications industry and the Company's selected industry market segments as a
non-exclusive distributor of satellite telephone products. Westinghouse Wireless
Solutions is engaged in a strategic supply/marketing partnership with the
Company. The breadth of this relationship includes distribution of the
Westinghouse mobile satellite terminal equipment (SERIES 1000 Satellite
Telephone Systems), joint advertising and marketing that targets dealer and end-
user prospects. See "--Legal Proceedings" for a description of settlement and
payment with Westinghouse.
PRICING
As a distributor, the Company purchases products and services on a bulk
basis based on agreed upon prices with its suppliers and then resells those
products and services to its customers. The Company has a distinct pricing
strategy for each of its major product lines, equipment and telephone services
("airtime"). Retail pricing for satellite terminal equipment is highly
competitive and is characterized by the low gross margins associated with
commodity products. The Company completes aggressively in this arena, in part,
to establish customer relationships that may result in higher margin airtime
sales. The Company's pricing schedule for airtime is primarily determined by
the charges established for satellite system operators' and any intermediary
distributor's bulk airtime with whom it deals.
The Company offers fixed-site, land-mobile, transportable and maritime
telephone equipment ranging in price from approximately $3,000 to $6,000 per
unit. System price varies depending upon durability, power, battery life and
antenna gain.
The Company's Satellite Telephone Services is a dial-up-on-demand system
that only charges the subscriber for the time actually used. For example, if
there is a three-minute call made or received, the subscriber is charged for
only three minutes. Basic subscriber rates begin at $25.00 per month for voice
telephone service. Fax and data service is available for a small premium.
These rates include an assigned, toll-free 888 number for each subscriber Mobile
Terminal.
The Company's STS fixed-site, land-mobile, transportable and maritime
subscribers pay a non-discounted rate of only $1.45 per minute of use.
Industry-specific enhanced service plans provide bulk minutes and full dispatch
channels at a variety of per minute/channel rates. The Company provides special
"bundled" service packages by industry group to meet the unique needs of the
Company's varied subscriber base. When a Mobile Terminal makes or receives a
call to or from anywhere in the continental United States, there is no
additional long-distance charge. International long-distance calling is charged
as air time plus international toll from Reston, Virginia.
The Company's PTT dispatch system is charged out on either a talk group
channel, virtual or dedicated satellite channel basis.
SALES, MARKETING AND DISTRIBUTION
The Company predominately sells its telephone equipment and airtime
services via a direct-sales force and to a lesser extent via authorized agents.
Prior to August 1998, the direct-sales forces operated from the Company's office
in California. Since August 1998, the Company has hired sales representatives
who operate from their homes and are located across the United States. The
Company now has sales representatives in Los Angeles, New York City,
10
<PAGE>
Washington, DC, Providence, Charlotte, Fort Lauderdale, Saint Louis, Cincinnati,
Kansas City, San Diego and Portland, Oregon. Each sales representative sells the
Company's full line of products. Product managers assist the sales team in the
configuration of the various services and equipment supported by the Company to
meet the needs of individual customers.
The Company's marketing program is focused on identifying corporate
prospects in niche markets via direct mail campaigns, attending industry trade
shows and to a limited extent via trade journal advertising. The Company's web
page has been developed to support the sales and marketing effort. The
Company's marketing program is directed at corporate rather than individual
customers. The Company has an in-house art and editorial team that develop the
Company's promotional materials.
The Company's products are warehoused, tested and shipped to customers from
the Company's California office.
CUSTOMERS
The Company's customers are generally corporations with significant sales
or government entities. The Company has very few individual customers. The
Company's largest customer is the Royal Bahamas Police Force who accounted for
22% of sales during 1997. However, the Company believes 1998 sales to this
customer will drop significantly as approximately half of the Company's revenues
for fiscal 1997 from this customer was from the non-recurring sale of equipment.
COMPETITION
The wireless communications industry is highly competitive and is
characterized by frequent technological innovation. The industry includes major
domestic and international companies, many of which have financial, technical,
marketing, sales, distribution and other resources substantially greater than
those of the Company and which provide or plan to provide, a wider range of
services. The Company's satellite products and services compete with a number
of other communications services including cellular telephone and other wireless
data services, including Qualcomm. In addition, there are a number of planned
satellite systems using new technologies expected to be commercially available
in the next few years, including Globalstar. Furthermore, the FCC is
considering applications for satellite systems that currently operate in Canada
to provide commercial service in the United States.
The Company, as non-exclusive service providers for American Mobile
Satellite (AMSC) and Iridium, competes against other service providers of these
products. For the AMSC products and services, the Company's major competitor is
AMSC's direct sales force. The Company believes that the list of Iridium
service providers will include, among others, Allied Signal, Bearcom,
CellularOne Paging, GST Telecom, IWL Communications, Pagenet and Motorola
Cellular.
GOVERNMENT REGULATION
The Company operates as an indirect, unlicensed international
communications carrier in the wireless communications industry and therefore
falls loosely under the regulation of the FCC. The Company is not the satellite
or equipment licensee, and is not required to maintain manufacturing, service or
operational permits to provide product sales or provision of airtime services.
However, the Company is critically dependent on its equipment and airtime
suppliers who are, in turn, heavily regulated. The allocation and use of the
radio frequency spectrum for the provision of communications services are
subject to international and national regulation. The implementation and
operation of all satellite and wireless systems are dependent upon obtaining
licenses and other approvals. The national administration of each country
decides how the radio frequencies that the International Telecommunications
Union has allocated to particular communications services should be allocated
and assigned domestically to specific radio systems. In addition, the provision
of communications services in most countries is subject to regulatory controls
by the national governments of each country.
The Company is confident that its suppliers will continue to obtain the
approvals and licenses they require to operate globally. There is, however, no
guarantee that the Company's operation and profitability will not be subject,
directly or indirectly, to restrictive national policies or international
regulation or that the Company will not be subject to increased taxation by
federal, state or local agencies in the future.
11
<PAGE>
There is no guarantee that the Company's operation and profitability will
not be subject to restrictive national policies or international regulation or
that the Company will not be subject to increased taxation by federal, state or
local agencies in the future.
PATENTS AND TRADEMARKS
The Company has five granted patents relating to its ED and UITI
technology. The Company also owns trademarks on ED in the United States and
France, and on UITI and UITI TV in the United States. In August 1998, the
Company, pursuant to a settlement agreement, granted Raquel Velasco an option to
purchase the aforementioned intellectual property for $50,000. See "--Legal
Proceedings." Skysite's products are not branded, as Skysite is primarily a
reseller and service provider.
EMPLOYEES
At October 6, 1998, the Company had approximately 29 employees.
ITEM 2. PROPERTIES
The Company's headquarters are located in Chevy Chase, Maryland and
consist of approximately 1,500 square feet. The annual base rent is
approximately $94,032 and the lease expires December 31, 1998. The Company
also leases space in Washington D.C., consisting of 1,835 square feet. The
annual base rent is approximately $58,300, and the lease expires October 31,
1998. The Company also leases space for Skysite in Burbank, California
consisting of 6,157 square feet. The annual base rent is approximately $66,000
and the lease expires January 31, 1999.
ITEM 3. LEGAL PROCEEDINGS
William H. Buck v. Viscorp & Visual Information Services Corp. On or about
--------------------------------------------------------------
June 2, 1997, the Company filed a complaint against William H. Buck , the
Company's former Chief Executive Officer and Director, in the United States
District Court, Northern District of Illinois, Eastern Division, Case No. 97 C
3390, entitled Viscorp and Visual Information Services Corp. v. William H. Buck,
----------------------------------------------------------------
alleging breach of fiduciary duty, breach of employment agreement, accounting as
to severance agreement and conspiracy to defraud arising out of Mr. Buck's
conduct as Chief Executive Officer of the Company. On June 23 1997, Mr. Buck
filed a complaint against Viscorp, et. al., in the United States District Court,
Northern District of Illinois, Eastern Division, Case No. 97 C 4480. Mr. Buck
sought a declaratory judgment permitting him to sell 220,000 shares of Common
Stock of the Company. On September 19, 1997, Mr. Buck filed a counterclaim
against the Company, alleging partial rescission of his severance agreement,
dated January 8, 1997, breach of severance agreement, rescission of lock-up
agreement, breach of lock-up agreement and tortious interference with economic
advantage. On November 12, 1997, Raquel Velasco filed a complaint against the
Company, in the United States District Court, Northern District of Illinois,
Eastern Division, Case Number 97-C-7897, entitled Raquel Velasco v. Viscorp,
-------------------------
seeking $220,000 in damages and expenses from alleged rescission for breach of
written severance agreement, or in the alternative, breach of severance
agreement. On June 9, 1998, the Company filed a counterclaim against Ms.
Velasco relating to her alleged employment agreement with the Company. The
aforementioned matters were consolidated for purposes of discovery. On August
31, 1998, the Company entered into settlement agreements with Mr. Buck and Ms.
Velasco. Pursuant to the Company's settlement agreement with Mr. Buck, Mr. Buck
is permitted to sell 350,000 shares of the Company's common stock that he
already owns, pursuant to a tradeability schedule. Mr. Buck returned all other
shares to the Company for cancellation. Mr. Buck's stock options have been
canceled. Pursuant to the Company's settlement agreement with Ms. Velasco, Ms.
Velasco received 350,000 shares of the Company's common stock, formerly held by
Mr. Buck, also subject to a tradeability schedule. Ms. Velasco has also been
granted an option to purchase certain property from the Company, including the
ED and UITI technologies, for $50,000. See "Business --Background."
Visual Information Service Corp. v. Interactive Video Publishing, Inc. On
----------------------------------------------------------------------
July 25, 1996, the Company filed a lawsuit in the United States District Court
for the Northern District of California, San Jose Division, case number C 96-
20593 RMW (EAI), against Interactive Video Publishing, Inc., David Serlin, Steve
Owens and Kaori Kuwata ("Defendants") for injunctive relief and damages of
approximately $7 million for misappropriation of trade secrets, conversion and
breach of fiduciary duty. Defendants filed counterclaims for declaratory
relief, intentional interference with economic advantage, breach of contract and
unfair competition claiming damages yet to be determined. On November 20, 1996,
David Serlin and Marvin Lerch filed suit against the Company and its former
officer, Jerome Greenberg, in the United States District Court, Northern
District of California, San Jose Division. The case is captioned
12
<PAGE>
Serlin v. Visual Information Service Corp., case number C 96-21073. David Serlin
- -----------------------------------------
and Marvin Lerch claimed damages in excess of $6.5 million in connection with
the alleged breach of their employment contracts, alleging breach of employment
contracts, breach of the implied covenant of good faith and fair dealing, fraud,
deceit and negligent misrepresentation among several causes of action. On June
25, 1997, a settlement conference was held in Visual Information Service Corp.
--------------------------------
v. Interactive Video Publishing, Inc. and Serlin v. Visual Information Service
- ------------------------------------- ------------------------------------
Corp. and a settlement was reached with all parties in both actions. On
- -----
September 26, 1997, Messrs. Serlin and Lerch entered into a settlement agreement
with the Company whereby the Company agreed to pay Messrs. Serlin and Lerch
$25,000 each, and granted each 400,000 stock options with an exercise price of
$1.50. Viscorp is currently unable to comply with terms of the settlement
agreement because the shares underlying the stock options have not yet been
registered.
Donald Gilbreath v. USDI, Viscorp and Corporate Stock Transfer, Inc. On
--------------------------------------------------------------------
December 19, 1997, Donald Gilbreath, a former director of the Company, filed a
complaint against the Company in the United States District Court, District of
Colorado, Case No. 97-WY-2667-CB, alleging a claim against the Company for
failing to remove restrictive legends on shares owned by Mr. Gilbreath. Mr.
Gilbreath requested that the Court hold that he was the lawful owner of
1,000,000 unrestricted shares of Common Stock of the Company, and 237,800
unrestricted options to acquire common shares. On July 2, 1998, the Company
entered into a settlement agreement with Mr. Gilbreath, whereby 500,000 of Mr.
Gilbreath's shares in the Company will be unrestricted, and Mr. Gilbreath will
retain 75,000 options, which must be exercised by January 1, 1999. Pursuant to
the settlement agreement, the remaining 500,000 shares have been canceled.
Further, Mr. Gilbreath is permitted to sell his shares pursuant to a
tradeability schedule.
Roger and Bonnie Remillard v. U.S. Digital Communications, Inc. f/k/a
---------------------------------------------------------------------
Viscorp and Corporate Stock Transfer, Inc. On or about June 1, 1998, Roger and
- ------------------------------------------
Bonnie Remillard filed a complaint in the United States District Court, District
of Colorado, Case No. 98-WY-1217-CH, alleging that the Company failed to remove
restrictive legends from the Remillards' shares in the Company, in violation of
Nevada Revised Statute 104.8401. Pursuant to a settlement agreement, dated July
2, 1998, the Remillards retained 820,000 shares of the Company's Common Stock.
Further, the Remillards retained 200,000 out of 288,000 stock options, which
must be exercised before January 1, 1999. The Remillards are permitted to sell
their shares pursuant to a tradeability schedule.
James Goodnow v. Viscorp. On February 9, 1998, James Goodnow filed a
------------------------
complaint in the Nevada County Superior Court, State of California, against the
Company, alleging breach of contract, fraud, unfair business practices and money
on open book account, based on the alleged breach of a software consulting
agreement dated July 17, 1997. Mr. Goodnow sought damages in the amount of
$20,219.40. In June, 1998, the Company and Mr. Goodnow entered into a
settlement agreement whereby the Company agreed to pay Mr. Goodnow $16,000,
which was subsequently paid.
Cochran Ranch, ITG and Rubin Kitay v. U.S. Digital Communications Inc. and
--------------------------------------------------------------------------
Larry Siegel. In January 1998, plaintiffs, former shareholders of Skysite,
- ------------
filed a request for mediation and demand for arbitration with the American
Arbitration Association in Los Angeles, California, case number 72 174 00098 98
GS, requesting mediation and arbitration in connection with the Company's
alleged breach of the Agreement and Plan of Reorganization, dated June 20, 1997,
whereby the Company acquired Skysite. Plaintiffs alleged that the Company
failed to issue shares in consideration of the acquisition. On May 28, 1998,
plaintiffs and the Company settled this dispute pursuant to the amendment to
agreement and plan of reorganization. See "Business -- Background" for a more
detailed description of the settlement.
Nolan Bushnell v. Viscorp. On December 13, 1994, Nolan Bushnell filed a
-------------------------
complaint against the Company, in San Mateo Superior Court, case number 390474,
alleging breach of fiduciary duties, breach of contract, wrongful termination
and other causes of action in connection with Mr. Bushnell's employment with
Company. On February 3, 1998, the Company and Nolan and Nancy Bushnell entered
into a settlement, the terms of which, by agreement of the parties thereto, are
confidential. The Company believes that the terms of such settlement agreement
would not have a material adverse effect on the Company.
David Rosen v. U.S. Digital Communications, Inc. On July 27, 1998, David
------------------------------------------------
Rosen, a former employee and consultant of the Company, filed a complaint
against the Company in the California Superior Court, County of San Francisco,
case number 996762, in connection with his alleged employment contract and his
employment termination. Mr. Rosen alleged breach of contract, breach of the
covenant of good faith and fair dealing, violation of California Labor Code
Sections 201, 226 and 227, and conversion. Mr. Rosen seeks severance pay and
other damages in excess of $100,000. Discovery has not yet begun.
CBS (formerly Westinghouse) v. Skysite. On April 1, 1998, CBS filed a
--------------------------------------
complaint, in Los Angeles County Superior Court, case number 188569, alleging
that Skysite breached a distribution agreement with CBS dated December 21, 1996,
and a subsequent settlement agreement between CBS and Skysite, dated March 6,
1997, seeking monies
13
<PAGE>
allegedly owed under the distribution agreement. In June 1998, CBS and the
Company entered into a settlement agreement whereby Skysite agreed to pay CBS
$430,000, which was paid soon thereafter.
Witter Publishing v. Skysite. On February 6, 1997, Witter publishing filed
----------------------------
a complaint in Los Angeles Municipal Court, case number 97K02741, alleging open
book account and account stated, and seeking money damages. On December 12,
1997, Witter Publishing and Skysite entered a stipulation for entry of judgment
whereby Skysite agreed to pay Witter Publishing $19,037.96 between December 20,
1997 and November 20, 1998.
PR Newswire Association, Inc. v. Skysite. On November 12, 1997, PR
----------------------------------------
Newswire filed a complaint against Skysite in New Jersey Superior Court, Hudson
County, docket number DC - 10873 - 97, alleging a breach of contract and seeking
damages of $6,589.81. In January 1998, Skysite agreed to pay PR Newswire
payments totaling $5,043.95, and the case has been dismissed.
Tom Soumas v. Skysite. On October 6, 1997, Tom Soumas, a former employee
---------------------
of Skysite, filed a complaint with the Labor Commissioner of the State of
California, seeking damages for vacation pay and wellness days he alleges he was
due upon termination, in the amount of $9,300. A hearing on Mr. Soumas' claim
was held on June 2, 1998, pursuant to which the Labor Commissioner issued a
decision in favor or Mr. Soumas in the amount of $2,500.
Penwell Publishing v. Skysite. On March 5, 1997, plaintiff filed a
-----------------------------
complaint in the Tulsa County, Oklahoma District Court, Case Number CJ 9701105,
alleging actions for open account and breach of contract resulting from the
Company's alleged obligation to place certain advertisements in Penwell
Publications. Plaintiff seeks damages of $36,216.75.
Intelligent Data Systems, Inc. On August 4, 1998, counsel for Intelligent
------------------------------
Date Systems, Inc. ("IDS") made a demand on the Company for (i) rescission of a
technology licensing agreement dated January 1, 1995 and (ii) return of
consideration to IDS, in the amount of $968,750. No complaint has been filed.
Tom Soumas. In a letter dated August 31, 1998, counsel for Tom Soumas made
----------
a demand on the Company in connection with the Company's acquisition of Skysite.
No lawsuit has been filed and no damages have been alleged. The Company is
unable to express an opinion as to the outcome of this matter as no lawsuit has
been filed and the Company has made no independent investigation of potential
claims, defense and counterclaims. If a lawsuit is ever filed, it will be
vigorously defended.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of 1997.
14
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The Company's shares have been traded on a limited basis on the Nasdaq
Bulletin Board under the symbol USDI since October 29, 1997. Prior to October
29, 1997, and subsequent to December 8, 1995, the Company's shares had been
traded on the Nasdaq Bulletin Board under the symbol VICP. The following table
sets forth the range of high and low bid prices as reported on the Nasdaq
Bulletin Board. These prices reflect inter-dealer prices, without retail mark-
up, mark-down or commission and may not represent actual transactions.
<TABLE>
<CAPTION>
HIGH LOW
------- ------
<S> <C> <C>
1996
----
First Quarter $ 8.25 $5.25
Second Quarter $11.38 $8.13
Third Quarter $ 9.75 $8.75
Fourth Quarter $ 9.38 $1.25
1997
----
First Quarter $ 2.06 $1.06
Second Quarter $ 1.59 $0.31
Third Quarter $ 2.44 $0.61
Fourth Quarter $ 2.65 $0.67
1998
----
First Quarter $ 1.61 $0.67
Second Quarter $ 5.25 $0.77
Third Quarter (through October 6) $ 4.82 $3.19
</TABLE>
There were 109 shareholders of record of the Common Stock as of October 6,
1998. As of October 6, 1998, the closing bid price of the Company's Common
Stock was $3.19 as quoted on the Nasdaq Bulletin Board.
DIVIDENDS
Excluding the dividend described below, the Company has never declared or
paid cash dividends on its Common Stock and does not anticipate paying cash
dividends on its Common Stock in the foreseeable future, but intends to retain
future earnings, if any, for reinvestment in the future operation and expansion
of the Company's business and related development activities. Any future
determination to pay cash dividends on its Common Stock will be at the
discretion of the Board of Directors and will be dependent upon the Company's
financial condition, results of operations, capital requirements and such other
factors as the Board of Directors deems relevant, as well as the terms of any
financing arrangements.
Pursuant to the terms of the Company's Series A Preferred Stock, the
Company is required to pay dividends at the rate of 8% per annum quarterly, on
March 31, June 30, September 30 and December 31. The Company is not required to
pay any dividends on the Series B or the Series C Preferred Stock.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected data presented below under the captions "Statement of
Operations Data" and "Balance Sheet Data" for, and as of the end of, each of the
years in the five-year period ended December 31, 1997, are derived from the
financial statements of U.S. Digital Communications, Inc. and its subsidiaries.
The years ended December 31, 1994, 1995 and 1996 have been audited by Blackman
Kallick Bartelstein, LLP, whose report included an explanatory paragraph with
respect to the Company's ability to continue as a going concern. The financial
statements as of December 31, 1996 and 1997, and for each of the years in the
three-year period ended December 31, 1997, are included elsewhere in this
Report.
15
<PAGE>
On April 1, 1998, the Company engaged Arthur Andersen LLP as the Company's
principal accountants to audit the Company's financial statements for the fiscal
year ended December 31, 1997. On September 1, 1998, Arthur Andersen LLP issued
an unqualified report on the consolidated financial statements of the Company
and its subsidiaries as of and for the year ended December 31, 1997. That
report, however, was not released by the Company, and on September 30, 1998,
Arthur Andersen LLP resigned as the Company's independent auditors and withdrew
the report. Arthur Andersen LLP's resignation and withdrawal were not related to
the financial statements. Further, there were no disagreements between the
Company and Arthur Andersen on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope of procedure or reportable
events during such period or through the interim period ended September 30,
1998. See "Changes in and Disagreements with Accountants on Accounting and
Disclosure."
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------
1993 1994 1995 1996 1997
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
License Income $ 0 $ 0 $ 629,688 $ 0 $ 0
Gross Profit 0 0 0 0 0
Total operating expenses (1,248,360) (1,339,364) (3,222,489) (7,885,929) (5,218,763)
Loss from operations (1,248,360) (1,339,364) (2,592,801) (7,885,929) (5,144,888)
Other income (expense), net (112,246) 3,338 4,748 (170,989) (330,063)
Net loss (1,360,606) (1,336,026) (2,588,053) (8,056,918) (5,474,951)
Dividends on preferred stock 0 0 0 0 (1,629,916)
Net loss per common share (0.19) (0.12) (0.15) (0.37) (0.34)
Weighted average shares of 7,104,092 11,775,976 17,190,915 21,914,630 20,676,196
common stock outstanding
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------
1993 1994 1995 1996 1997
------------ ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents $ 0 $ 552,878 $ 739,930 $ 8,654 $ 545,790
Working capital (128,371) 388,875 287,713 (2,936,191) (4,058,089)
Total assets 16,982 664,328 1,258,853 242,302 2,809,451
Notes payable (net 1,494,161 0 0 29,865 17,785
of current portion)
Common stock 800,200 2,566,167 212,080 221,280 222,980
Preferred stock 0 0 0 0 4,105,607
Accumulated deficit (2,405,750) (3,741,776) (6,329,829) (14,386,747) (21,491,614)
Total shareholders' equity (1,605,550) 493,752 706,636 (2,782,886) (2,171,689)
(deficit)
</TABLE>
16
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Company may from time to time make written or oral forward-looking
statements. Written forward-looking statements may appear in documents filed
with the Commission, in press releases, and in reports to shareholders. The
Private Securities Reform Act of 1995 contains a safe harbor for forward-looking
statements on which the Company relies in making such disclosures. Forward-
looking statements can be identified by the use of words such as "believes,"
"anticipates," "plans," "expects," "may," "will," "intends," "estimates" and the
negatives thereof and similar expressions. The Company's actual results could
differ materially from those anticipated in these forward-looking statements as
a result of certain factors, including those set forth in "Risk Factors" and
elsewhere in this report.
GENERAL
The Company has incurred net losses in its last three fiscal years.
Moreover, there can be no assurance that the Company or its subsidiaries will
ever generate significant revenues. Further, there is no guarantee that if the
Company ever achieves a level of profitability, that it can be sustained.
Pursuant to the Agreement and Plan of Reorganization, dated June 20, 1997,
and the amendment thereto, dated May 28, 1998, U.S. Digital Communications,
Inc., acquired Skysite Communications Corporation. See "Business--Background."
During 1997, the Company sold 2,882,282 shares of 8% Cumulative Convertible
Preferred Stock, pursuant to Regulation S promulgated by the United States
Securities and Exchange Commission.
RESULTS OF OPERATIONS
1997 Compared to 1996
The Company had $486,642 in revenue from sales of satellite equipment and
services in fiscal 1997 compared to no such revenue in fiscal 1996. This
increase resulted entirely from the Company's acquisition of Skysite.
Costs of goods sold was $412,767 in fiscal 1997 compared to no cost of
goods sold in fiscal 1996. These costs were associated with the sales generated
by Skysite.
Sales and marketing expense for fiscal 1997 was $286,258 compared to no
such expense in fiscal 1996. These costs were due to the Company's acquisition
of Skysite.
The Company had no research and development expenses for fiscal 1997, as
compared to $955,570 for fiscal 1996. This decrease was due to the Company's
decision to terminate the development of the ED device and related products.
General and administrative expenses, including travel and entertainment
expenses, legal fees and consulting fees, as well as certain other expenses,
increased to $3,582,918 for fiscal 1997, compared to $2,985,039 for fiscal 1996.
This increase of $597,879 was due to the Company's assumption of Skysite's
general and administrative expenses pursuant to the Company's acquisition of
Skysite.
The Company granted stock options to various employees and other
individuals during fiscal 1997. In connection with the granting of these
options, the Company recorded a stock option compensation expense in the amount
of $1,349,587. The amount recorded represents the difference between the
exercise price and the fair market value of the Company's Common Stock, as
determined by reference to the publicly traded value of the stock, as of the
date the options were granted.
1996 Compared to 1995.
The Company had no license income in fiscal 1996 compared to $629,688 in
fiscal 1995. The $629,688 represented the value of the 250,000 shares of
Digital Sciences, Inc. ("Digital") stock received by the Company as an initial
license fee pursuant to an agreement entered into, in 1995, by and between
Digital and the Company, by which the Company licensed its ED technology to
Digital.
Research and development expenses decreased to $955,570 for fiscal 1996
from $1,010,884 for fiscal 1995, a decrease of $55,314. This decrease was due
to the decreased activity relating to the production of a prototype of the ED.
17
<PAGE>
General and administrative expenses increased to $2,985,039 for fiscal 1996
from $2,211,605 for fiscal 1995, an increase of $773,434. This increase was due
to the relocation of the Company into larger office facilities, hiring of
additional employees, increased accounting fees and fees for directors and
officer's insurance, and increased depreciation on the Company's assets. An
amount of $300,000 was set aside for reimbursement of expenses pursuant to a
severance agreement which includes the Company's former president and a
consultant. The severance agreement provides that the Company shall reimburse
these individuals for reasonable expenses associated with the Company's business
incurred by them up to an amount equal to approximately $300,000 upon submission
to the Company of valid documentation. The amount of expenses currently claimed
is $255,350. The Company has recorded a liability of $300,000. This liability
has been reduced by $96,478, which represents amounts loaned to the former
president by the Company.
An amount of $118,237 has been charged to Operating Expenses for fiscal
1996 in connection with failed efforts to raise additional capital in 1996.
An amount of $900,000 has been charged to Operating Expenses for fiscal
1996 in connection with the Company's December, 1995 licensing agreement with a
technology company. In January, 1996, the Company paid an initial royalty
deposit of $450,000. Pursuant to the licensing agreement, the Company may be
obligated to pay an additional royalty fee of $450,000 in December, 1998.
The Company granted stock options to various employees and consultants
during fiscal 1996. In connection with the granting of these options, the
Company recorded compensation and consulting expense, and a related increase to
additional paid-in-capital, in the amount of $2,927,083 during 1996. The amount
recorded represents the difference between the exercise price and the fair
market value of the Company's Common Stock, as determined by reference to the
publicly traded value of the stock, as of the date the options were granted.
LIQUIDITY AND CAPITAL RESOURCES
Pursuant to an agreement with a placement agent, Wincap, Ltd. ("Wincap"),
the Company effected two private offerings of 8% Cumulative Convertible Series A
Preferred Stock. Pursuant to the first offering, the Company sold approximately
2,031,832 shares of Series A Preferred Stock and 1,015,916 warrants to purchase
shares of Common Stock, for a consideration of approximately $3,047,748.
Pursuant to the second offering, the Company sold approximately 2,307,000 shares
of Series A Preferred Stock and 1,153,500 warrants to purchase shares of Common
Stock, for a consideration of approximately $3,460,500, for a total
consideration from both offerings of approximately $6,508,248. Of this amount,
the Company received approximately $5,749,728, which it intends to use for
working capital. In addition, Wincap received the right to acquire 2,380,000
shares of the Company's Common Stock, issuable upon registration.
Pursuant to an agreement with a placement agent, WS Marketing and Financial
Services, Inc., for a private offering of 3,000 shares of Series B Preferred
Stock, as of July 23, 1998 (the date of closing), the Company sold all 3,000
shares for a total consideration of approximately $3,000,000. Of this amount,
the Company received approximately $2,670,000, which it intends to use for
working capital. In addition, WS Marketing and Financial Services, Inc.
received 250,000 warrants to purchase Common Stock as part of its placement fee.
Pursuant to an agreement with a placement agent, WS Marketing and Financial
Services, Inc., for a private offering of 4,000 shares of Series C Preferred
Stock, as of October 6, 1998, the Company sold 3,000 shares for a total
consideration of approximately $3,000,000. Of this amount, the Company received
approximately $2,670,000, which it intends to use for working capital. In
addition, WS Marketing and Financial Services, Inc. received 250,000 warrants to
purchase Common Stock as part of its placement fee.
The Company has generated losses since its inception in May 1990 and cannot
currently generate sufficient revenues and cash flow from operations to meet its
business obligations.
The Company anticipates it will not need to incur material capital
expenditures in the future. In prior years, the Company was able to fund its
operations through the issuance of its Common and Preferred Stock in
transactions exempt under the Securities Act of 1933, and through shareholder
loans. The Company cannot currently generate sufficient revenues and cash flow
from operations to meet its business obligations. Therefore, future operations
are predicated on raising additional capital in debt or equity markets.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
18
<PAGE>
U.S. DIGITAL COMMUNICATIONS, INC.
UNAUDITED CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1996 AND 1997
ASSETS
<TABLE>
<CAPTION>
1996 1997
- ------------------------------------------------------------------------------------------------------------------------------------
(Not reported upon
by Public
Accountants)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 8,654 $ 545,790
Trade accounts receivable, net of allowance for uncollectible accounts of $19,000 - 209,073
Other receivables 20,000 -
Inventory - 107,967
Note receivable - 25,000
Prepaid expenses 30,478 17,436
------------ ------------
Total current assets 59,132 905,266
------------ ------------
Investments (Note 3) - 9,750
Property and equipment, net 90,789 122,500
Intangible assets, net 86,628 1,758,903
Other noncurrent assets 5,753 13,032
------------ ------------
Total assets $ 242,302 $ 2,809,451
============ ============
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
Current liabilities:
Accounts payable and accrued expenses $ 1,572,011 $ 1,770,208
Deferred revenue - 107,267
Dividends payable - 135,931
Stockholder loans (Note 5) 624,386 962,385
Accrued interest on stockholder loans 34,649 144,252
Notes payable (Note 5) 110,755 313,290
Minimum royalty obligation (Note 12) 450,000 450,000
Due to former officers and shareholders (Note 9) 203,522 1,080,022
------------ ------------
Total current liabilities 2,995,323 4,963,355
------------ ------------
Notes payable (net of current portion) (Note 5) 29,865 17,785
------------ ------------
Total liabilities 3,025,188 4,981,140
------------ ------------
Commitments and contingencies (Note 9)
Stockholders' (deficit) (Note 6):
Preferred stock -- $.01 par, 10,000,000 shares authorized; 2,882,232 - 4,105,607
outstanding at December 31, 1997; liquidation preference of $4,459,279
Common stock -- $0.01 par, 50,000,000 shares authorized; 22,128,000 and 221,280 222,980
22,980,000 outstanding at December 31, 1996 and 1997, respectively
Additional paid-in capital 15,096,123 12,422,255
Common stock warrants - 1,581,337
Accumulated unrealized losses on investments - (31,200)
Treasury stock (5,902,200 shares of common stock in 1997, at cost) - (10)
Deferred compensation (Note 10) (3,713,542) (3,744)
Shares to be issued (including additional paid in capital) (Note 1) - 1,222,700
Shareholders' receivable (Note 1) - (200,000)
Accumulated deficit (14,386,747) (21,491,614)
------------ ------------
Total stockholders' (deficit) (2,782,886) (2,171,689)
------------ ------------
Total liabilities and stockholders' (deficit) $ 242,302 $ 2,809,451
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-1
<PAGE>
U.S. DIGITAL COMMUNICATIONS, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996, AND 1997
<TABLE>
<CAPTION>
1995 1996 1997
- --------------------------------------------------------------------------------------------------------------
(Not reported upon by Public Accountants)
<S> <C> <C> <C>
Sales:
Equipment $ - $ - $ 285,047
Services - - 201,595
License fees (Note 11) 629,688 - -
----------- ----------- -----------
Total sales 629,688 - 486,642
Cost of goods sold - - 412,767
----------- ----------- -----------
Gross margin - - 73,875
----------- ----------- -----------
Operating expenses:
Sales and marketing - - 286,258
Research and development 1,010,884 955,570 -
Minimum royalty expense - 900,000 -
Fund-raising fees for failed offering - 118,237 -
General and administrative 2,211,605 2,985,039 3,582,918
Stock option compensation - 2,927,083 1,349,587
----------- ----------- -----------
Total operating expenses 3,222,489 7,885,929 5,218,763
----------- ----------- -----------
Loss from operations (2,592,801) (7,885,929) (5,144,888)
----------- ----------- -----------
Other income (expense):
Interest expense (4,013) (47,618) (183,593)
Interest and other income 8,761 7,385 23,280
Loss on repayment of debt (Note 5) - - (85,700)
Loss on investments - (130,756) (84,050)
----------- ----------- -----------
Total other income (expense), net 4,748 (170,989) (330,063)
----------- ----------- -----------
Net loss (2,588,053) (8,056,918) (5,474,951)
Dividends on preferred stock - - (1,629,916)
----------- ----------- -----------
Net loss available to common stockholders $(2,588,053) $(8,056,918) $(7,104,867)
----------- ----------- -----------
Net loss per common share:
Basic $ (0.15) $ (0.37) $ (0.34)
=========== =========== ===========
Diluted $ (0.15) $ (0.37) $ (0.34)
=========== =========== ===========
Weighted average shares of common stock outstanding 17,190,915 21,914,630 20,676,196
=========== =========== ===========
- --------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE>
U.S. Digital Communications, Inc.
UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996, AND 1997 (NOT REPORTED UPON BY
PUBLIC ACCOUNTANTS)
<TABLE>
<CAPTION>
Common Stock Common Stock
Preferred Stock Par Value No Par Value
------------------------ ---------------------- ------------------------
Shares Amount Shares Amount Shares Amount
--------- ---------- ---------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1994 - $ - - $ 3,722,000 $ 2,566,167
Sale of stock for cash - - - - 1,161,000 3,035,000
Stock issued as compensation - - - - 150,000 375,000
Stock issued for consulting services - - - - 26,500 66,250
Stock issuance costs - - - - - (330,000)
Effect of merger - - 21,208,000 212,080 (5,059,500) (5,712,417)
Change in unrealized loss on investments - - - - - -
Net loss - - - - - -
--------- ---------- ---------- -------- ---------- -----------
BALANCE, DECEMBER 31, 1995 - - 21,208,000 212,080 - -
Sale of stock for cash - - 920,000 9,200 - -
Change in unrealized loss on investments - - - - - -
Stock issuance costs (Note 6) - - - - - -
Options issued to Placement Agent - - - - - -
Deferred compensation related to grant of stock
options (Note 10) - - - - - -
Amortization of deferred compensation - - - - - -
Net loss - - - - - -
--------- ---------- ---------- -------- ---------- -----------
BALANCE, DECEMBER 31, 1996 - - 22,128,000 221,280 - -
Sale of stock and warrants for cash 2,882,232 2,725,607 - - - -
Issuance of stock for noncash transactions
(Notes 5) - - 170,000 1,700 - -
Stock issuance costs (Note 6) - - - - - -
Options issued to Placement Agent - - - - - -
Deferred compensation related to grant of stock
options (Notes 6 and 10) - - - - - -
Cancellation of options - - - - - -
Amortization of deferred compensation (Note 10) - - - - - -
Preferred dividends and beneficial conversion
feature - 1,380,000 - - - -
Change in unrealized loss on investment - - - - - -
Repurchase of common stock - - - - - -
Shareholders' receivable - - - - - -
Shares to be issued (including additional
paid-in capital) - - - - - -
Net loss - - - - - -
--------- ---------- ---------- -------- ---------- -----------
BALANCE, DECEMBER 31, 1997 2,882,232 $4,105,607 22,980,000 $222,980 - $ -
========= ========== ========== ======== ========== ===========
<CAPTION>
Accumulated
Additional Common Unrealized Treasury Stock
Paid-In Stock Loss on ----------------------
Capital Warrants Investment Shares Cost
----------- ----------- ------------- ---------- --------
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1994 $ 1,669,361 $ - $ - - -
Sale of stock for cash - - - - -
Stock issued as compensation - - - - -
Stock issued for consulting services - - - - -
Stock issuance costs - - - - -
Effect of merger 5,500,337 - - - -
Change in unrealized loss on investments - - (345,313) - -
Net loss - - - - -
----------- ---------- ------------ ---------- ----
BALANCE, DECEMBER 31, 1995 7,169,698 - (345,313) - -
Sale of stock for cash 1,290,800 - - - -
Change in unrealized loss on investments - - 345,313 - -
Stock issuance costs (Note 6) (2,805,000) - - - -
Options issued to Placement Agent 2,800,000 - - - -
Deferred compensation related to grant of stock
options (Note 10) 6,640,625 - - - -
Amortization of deferred compensation - - - - -
Net loss - - - - -
----------- ---------- ------------ ---------- ----
BALANCE, DECEMBER 31, 1996 15,096,123 - - - -
Sale of stock and warrants for cash - 1,581,337 - - -
Issuance of stock for noncash transactions
(Notes 5) 193,600 - - - -
Stock issuance costs (Note 6) (5,410,057) - - - -
Options issued to Placement Agent 4,902,800 - - - -
Deferred compensation related to grant of stock
options (Notes 6 and 10) 960,622 - - - -
Cancellation of options (3,320,833) - - - -
Amortization of deferred compensation (Note 10) - - - - -
Preferred dividends and beneficial conversion
feature - - - - -
Change in unrealized loss on investment - - (31,200) - -
Repurchase of common stock - - - (5,902,200) (10)
Shareholders' receivable - - - - -
Shares to be issued (including additional
paid-in capital) - - - - -
Net loss - - - - -
----------- ---------- ------------ ---------- ----
BALANCE, DECEMBER 31, 1997 $12,422,255 $1,581,337 $ (31,200) (5,902,200) $(10)
=========== ========== ============ ========== ====
<CAPTION>
Shares Total
Deferred to be Stockholders' Accumulated Stockholders'
Compensation Issued Receivable Deficit Equity
-------------- ----------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1994 $ - $ - $ - $ (3,741,776) $ 493,752
Sale of stock for cash - - - - 3,035,000
Stock issued as compensation - - - - 375,000
Stock issued for consulting services - - - - 66,250
Stock issuance costs - - - - (330,000)
Effect of merger - - - - -
Change in unrealized loss on investments - - - - (345,313)
Net loss - - - (2,588,053) (2,588,053)
----------- ---------- --------- ------------ -----------
BALANCE, DECEMBER 31, 1995 - - - (6,329,829) 706,636
Sale of stock for cash - - - - 1,300,000
Change in unrealized loss on investments - - - - 345,313
Stock issuance costs (Note 6) - - - - (2,805,000)
Options issued to Placement Agent - - - - 2,800,000
Deferred compensation related to grant of stock
options (Note 10) (6,640,625) - - - -
Amortization of deferred compensation 2,927,083 - - - 2,927,083
Net loss - - - (8,056,918) (8,056,918)
----------- ---------- --------- ------------ -----------
BALANCE, DECEMBER 31, 1996 (3,713,542) - - (14,386,747) (2,782,886)
Sale of stock and warrants for cash - - - - 4,306,944
Issuance of stock for noncash transactions
(Notes 5) - - - - 195,300
Stock issuance costs (Note 6) - - - - (5,410,057)
Options issued to Placement Agent - - - - 4,902,800
Deferred compensation related to grant of stock
options (Notes 6 and 10) (960,622) - - - -
Cancellation of options 3,320,833 - - - -
Amortization of deferred compensation (Note 10) 1,349,587 - - - 1,349,587
Preferred dividends and beneficial conversion
feature - - - (1,629,916) (249,916)
Change in unrealized loss on investment - - - - (31,200)
Repurchase of common stock - - - - (10)
Shareholders' receivable - - (200,000) - (200,000)
Shares to be issued (including additional
paid-in capital) - 1,222,700 - - 1,222,700
Net loss - - - (5,474,951) (5,474,951)
----------- ---------- --------- ------------ -----------
BALANCE, DECEMBER 31, 1997 $ (3,744) $1,222,700 $(200,000) $(21,491,614) $(2,171,689)
=========== ========== ========= ============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
U.S. DIGITAL COMMUNICATIONS, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996, AND 1997
<TABLE>
<CAPTION>
1995 1996 1997
- ------------------------------------------------------------------------------------------------------------------------------
(Not reported upon by Public Accountants)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(2,588,053) $(8,056,918) $(5,474,951)
----------- ----------- -----------
Adjustments to reconcile net loss to net cash used in
operating activities--
Depreciation and amortization 13,136 41,256 250,606
License income received in stock (629,688) - -
Stock option compensation - 2,927,083 1,349,587
Loss on investments - 129,688 84,050
Loss on repayment of debt - - 85,700
Services paid in stock 416,250 - -
Provision for losses on advances 25,000 - -
Loss on disposal of equipment - 1,068 -
Changes in assets and liabilities:
Increase in trade accounts receivable - - (96,380)
Decrease in other receivables - - 20,000
Decrease in inventory - - 43,349
Increase in note receivable - - (25,000)
Decrease (increase) in prepaid expenses (93,247) 69,522 13,042
Increase in other noncurrent assets - - (3,079)
(Decrease) increase in accounts payable and accrued 197,274 1,260,270 (520,463)
expenses
Decrease in deferred revenue - - (70,400)
Increase in accrued interest on stockholder loans 2,910 25,659 109,603
Increase in minimum royalty obligation - 450,000 -
Increase in due to former officers and shareholders - 300,000 876,500
----------- ----------- -----------
Total adjustments (68,572) 5,204,546 2,117,115
----------- ----------- -----------
Net cash used in operating activities (2,656,625) (2,852,372) (3,357,836)
----------- ----------- -----------
Cash flows from investing activities:
Purchase of investments - - (125,000)
Capital expenditures (14,784) (30,518) (62,444)
Advances to Skysite prior to acquisition - - (231,039)
Advances to related company (25,000) - -
Patents and other expenditures (28,023) (13,838) -
Advances to stockholders - (116,478) -
----------- ----------- -----------
Net cash used in investing activities (67,807) (160,834) (418,483)
----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
U.S. DIGITAL COMMUNICATIONS, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996, AND 1997
(CONTINUED)
<TABLE>
<CAPTION>
1995 1996 1997
- -------------------------------------------------------------------------------------------------------------------------
(Not reported upon by Public Accountants)
<S> <C> <C> <C>
Cash flows from financing activities:
Borrowings from nonstockholders $ - $ 100,000 $ 300,000
Borrowings from stockholders 231,484 992,900 388,000
Principal payments under notes payable - (5,970) (10,237)
Proceeds from issuance of common stock 3,035,000 1,300,000 -
Proceeds from issuance of preferred stock and warrants - - 4,306,944
Purchase of treasury stock - - (10)
Payment of dividends on preferred stock - - (113,985)
Payment of stock issuance costs (355,000) (5,000) (507,257)
Repayment of stockholder borrowings - (100,000) (50,000)
---------- ---------- ----------
Net cash provided by financing activities 2,911,484 2,281,930 4,313,455
---------- ---------- ----------
Net change in cash and cash equivalents 187,052 (731,276) 537,136
Cash and cash equivalents, beginning of year 552,878 739,930 8,654
---------- ---------- ----------
Cash and cash equivalents, end of year $ 739,930 $ 8,654 $ 545,790
========== ========== ==========
Supplemental disclosures of cash transactions:
Cash paid for interest $ - $ 7,772 $ 7,639
========== ========== ==========
Supplemental disclosures of non-cash transactions:
Beneficial conversion feature on preferred stock $ - $ - $1,380,000
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
U.S. DIGITAL COMMUNICATIONS, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1995, 1996, AND 1997
1. OPERATIONS:
U.S. Digital Communications, Inc. ("the Company", a Nevada corporation), is a
provider of satellite and wireless digital communications equipment and services
to corporate and other consumers. The Company, through a wholly owned
subsidiary, markets satellite telephone products and services to provide
solutions to communications needs of companies with global operations or remote
installations. Prior to its acquisition of this subsidiary, the Company was a
development stage enterprise founded to develop various internet, modem, video
data and telephone products and devices. In 1997, the Company discontinued
development of these products.
On November 28, 1995, Global Telephone and Communications, Inc. ("GTCI," a
Nevada corporation), and Visual Information Service Corporation ("Viscorp," an
Illinois corporation) entered into an agreement and plan of reorganization under
which every share of Viscorp stock was exchanged for four shares of GTCI stock.
This resulted in the stockholders of Viscorp obtaining voting control over GTCI.
In conjunction with the transaction, GTCI was renamed Viscorp. On October 24,
1997, Viscorp was renamed U.S. Digital Communications, Inc.
ACQUISITION OF SKYSITE
On June 20, 1997, the Company entered into an Agreement and Plan of
Reorganization (the "Agreement") with Skysite Communications Corporation
("Skysite"). Under the Agreement, the Company was to issue 750,000 shares of
its common stock to the shareholders of Skysite, as well as options to purchase
an additional 500,000 shares of its common stock at an exercise price of $.40
per share.
The stock of Skysite was transferred to the Company on August 26, 1997.
Subsequent to the acquisition, disputes arose between the Company and the former
President of Skysite related to the value of Skysite at the time of the
acquisition. As a result of this dispute, the Company withheld its shares. The
Company has entered into an amended agreement with the shareholders of Skysite,
except for the former President (who was allocated 240,000 shares). Under the
terms of this amended agreement, the other shareholders' shares and options will
be placed in an escrow account. The shareholders will have all rights
attributable to these escrowed shares, however, they have agreed that at such
time when they elect to sell these shares, the first $200,000 of related
proceeds will be paid to the Company, and the remaining shares and options will
be released to the shareholders. The 240,000 shares due to the former President
remain unissued, and the Company does not intend to issue such
F-6
<PAGE>
shares. No shares or options for the other shareholders have been issued or
placed in escrow as of September 1, 1998.
At the time of the acquisition, the Company also entered into an agreement with
the former President of Skysite to issue options to purchase 146,961 shares of
the Company's stock at an exercise price of $.40 per share, over the following
36 months in amounts to be determined by the Company. The number of options
granted to the former President of Skysite would be adjusted for any material
breach of the Agreement. In addition, the options to be granted were also based
upon employment services which were to be provided. No options have been
granted to the former President since the Company believes the former President
did breach the Agreement, and no services were performed.
The Company has recognized the Skysite acquisition as a purchase for accounting
purposes. The Company has valued the consideration to be given to the
shareholders of Skysite using the 510,000 shares to be placed in escrow and the
related options, less the $200,000 to be received from escrow when these shares
are sold. This $200,000 has been recognized by the Company as a reduction of
stockholders' equity. Since the Company does not intend to issue the 240,000
shares to Skysite's former President, the value for these shares ($304,000) has
not been included in the consideration to be given. If the Company is required
to distribute such shares in the future, the equity and related goodwill
accounts will be increased. The following is the valuation at August 26, 1997,
the closing date of the acquisition, of consideration to be given for Skysite.
<TABLE>
<S> <C>
510,000 shares of Company common stock $ 647,700
500,000 options to purchase Company common
stock 575,000
Due from Skysite shareholders (200,000)
Advances made from the Company to Skysite
prior to acquisition 231,039
----------
$1,253,739
==========
</TABLE>
Since the Company has not issued the shares or options due to the other
shareholders, the Company has recorded the value of the consideration to be
given as shares to be issued in stockholders' equity. At such time when these
shares and options are placed in the escrow account, the Company will recognize
an increase to its common stock and additional paid in capital accounts. The
purchase price is $1,884,539 in excess of the fair value of the net tangible
assets acquired. The Company has recognized this as intangible assets.
In accordance with APB Opinion No. 16, the Company allocated the purchase price
based on the fair value of assets acquired and liabilities
F-7
<PAGE>
assumed. The aggregate purchase price of $1,253,739, was allocated as follows:
<TABLE>
<S> <C>
Current assets $ 289,440
Property and equipment 11,474
Other assets 4,200
Intangible assets 1,884,539
Liabilities assumed (935,914)
----------
$1,253,739
==========
</TABLE>
F-8
<PAGE>
The following unaudited pro forma financial information presents the
consolidated results of operations of the Company and Skysite as if the
acquisition had occurred as of January 1, 1996. The pro forma financial
information does not necessarily reflect the results of operations that would
have occurred had the Company and Skysite constituted a single entity during
such periods.
<TABLE>
<CAPTION>
For the Year Ended December 31,
-------------------------------
1996 1997
---- ----
Unaudited
<S> <C> <C>
Pro forma revenues $ 704,179 $ 1,243,961
Pro forma net loss available to common
shareholders (8,898,614) (7,494,961)
Pro forma net income (loss) per share (0.41) (0.36)
</TABLE>
RISKS AND OTHER IMPORTANT FACTORS
For the three years ended December 31, 1997, the Company has experienced
significant losses due to its previous development activities and the acquired
Skysite operations. The success of the Company is dependent on its ability to
generate adequate cash for operations and capital needs. Its ability to
generate adequate cash for such needs is in part dependent on its success in
increasing sales of Skysite's products and services. The Company has developed
a plan to increase revenues through sales of products and services, however, due
to market conditions and other factors beyond its control, there can be no
assurance the Company will be able to adequately increase product sales.
Therefore, the Company may have to generate additional cash through the sale of
debt or equity securities. Although the Company believes it has the ability to
generate additional cash through such sales, such sales may be dilutive and
there can be no assurances that adequate funds will be available or available on
terms that are reasonable or acceptable to the Company. If the Company is
unable to generate adequate cash there could be a material and adverse effect on
the business and financial condition of the Company. Therefore, the Company has
developed a plan to implement certain cost control measures to mitigate its
liquidity risk, and is aggressively seeking other companies to acquire that will
increase cash flow and reduce the risk of reliance on Skysite's products and
services.
Future operating results may be affected by a number of other factors including
the timing of new products in the market place, competitive pricing pressures
and economic conditions. As the market for the Company's product is
characterized by rapidly changing technology, the development and introduction
of competitive products may require a significant investment of financial
resources.
F-9
<PAGE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION AND CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
Skysite, after eliminating intercompany balances and transactions. The amounts
included for Skysite represent all activity from August 26, 1997, the date of
acquisition, to December 31, 1997.
MANAGEMENT'S USE OF ESTIMATES
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 could differ from those estimates.
CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with original
maturities of three months or less to be cash equivalents. As of December 31,
1997, substantially all funds are held at one financial institution. The
Company does not believe it is exposed to any significant credit risk on cash
equivalents.
INVENTORIES
Inventories, which consist primarily of finished goods, are stated at the lower
of cost or market. Cost is determined using the weighted average cost method.
During 1997, the Company's inventory and receivables were pledged as collateral
to a supplier for past due amounts. The inventory and receivable balance on the
date of the agreement was $433,206. The supplier subsequently released their
security interest in 1998 (see Note 9).
PROPERTY AND EQUIPMENT
Property and equipment are recorded at historical cost and are being depreciated
over the estimated useful lives of the assets ranging from 3 to 7 years, using
accelerated methods. For property and equipment under capital lease, the assets
are depreciated over the shorter of the remaining life of the lease or the
useful life of the asset.
INTANGIBLE ASSETS
Intangible assets includes the excess purchase price over net assets received
resulting from the August 26, 1997, acquisition of Skysite. As of December 31,
1997, the unamortized balance was $1,758,903 (net of
F-10
<PAGE>
accumulated amortization of $125,636). The amortization period being used is
five years.
Prior to the Company's acquisition of Skysite, the Company incurred certain
expenses for patents and trademarks related to the development of various
internet, modem, video data, and telephone products. Since the Company has
discontinued development of these devices, the Company has written-off the
unamortized balance related to these items as of December 31, 1997.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company complies with the Statement of Financial Accounting Standard
("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of." SFAS No. 121 requires that long-lived
assets and certain identifiable intangibles held and used by an entity be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. To determine
recoverability of its long-lived assets, the Company evaluates the probability
that future undiscounted net cash flows will be less than the carrying amounts
of net assets. Impairment is measured at fair value.
EARNINGS (LOSS) PER COMMON SHARE
Effective January 1, 1997, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 128, "Earnings Per Share" which requires dual
presentation of basic and diluted earnings per share on the face of the income
statement for all periods presented. Basic earnings per common share are
computed by dividing net loss available to common stockholders by the weighted-
average number of common shares outstanding. Diluted earnings per common share
are computed by dividing net income by the weighted-average number of shares of
common stock outstanding plus other dilutive securities.
Since the Company had net losses from operations, no potential common shares to
be issued are included in the computation of the diluted per share amount as
they would be anti-dilutive. Accordingly, the following common stock
equivalents are not included in the weighted-average shares of common stock
outstanding.
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Common shares to be granted
under option arrangements,
less shares assumed
purchased at average market
price 1,054,786 2,312,122 1,580,562
</TABLE>
F-11
<PAGE>
<TABLE>
<S> <C> <C> <C>
Convertible preferred
securities and related
warrants - - 935,800
--------- --------- ---------
1,054,786 2,312,122 2,516,362
========= ========= =========
</TABLE>
FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents, receivables, and stockholder
loans are a reasonable estimate of their fair value given their short-term
nature. Investment securities are carried at their fair value.
STOCK-BASED COMPENSATION
During 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS No. 123). The Company has adopted the disclosure-only
provisions of SFAS No. 123. Accordingly, when the Company grants stock options
with an exercise price equal to the fair market value of the shares on the date
of grant, no compensation expense is recorded.
RESEARCH AND DEVELOPMENT EXPENSE
The Company expenses research and development costs as they are incurred.
ADVERTISING COSTS
In accordance with the AICPA's Statement of Position 93-7, "Reporting on
Advertising Costs," costs for advertising are expensed as incurred within the
fiscal year. Such costs are included in sales and marketing expenses in the
accompanying statements of operations.
REVENUE RECOGNITION
The Company recognizes equipment sales revenue upon shipment. Airtime services
are recognized in the period in which communications services are rendered.
Deferred revenue consists of customer payments received in advance of services
provided under contractual arrangements.
CONCENTRATIONS OF RISK
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of accounts receivable. Risk
with respect to accounts receivable is generally diversified among a number of
entities comprising the Company's customer base. The Company performs ongoing
credit evaluations of its customers' financial condition and maintains
allowances for potential credit losses. Actual losses and allowances have been
within management's expectations.
F-12
<PAGE>
DEFERRED COMPENSATION
The Company records deferred compensation as the difference between the exercise
price of options granted and the fair value of the Company's common stock on the
date of grant. The amount of deferred compensation recognized in 1996 and 1997
was $6,640,625 and $960,622, respectively. Deferred compensation is amortized
to expense during the vesting period of the related options.
INCOME TAXES
Deferred income taxes are recognized based on the estimated future tax effects
of temporary differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amount used for income tax purposes.
Valuation allowances are established when necessary to reduce deferred tax
assets to the amounts expected to be realized. Income tax expense represents
the current tax provision for the period and the change during the period in
deferred tax asset and liabilities.
RECLASSIFICATIONS
Certain balances from 1995 and 1996 have been reclassified to conform to current
year presentation.
NEW ACCOUNTING PRONOUNCEMENTS
Effective January 1, 1998, the Company will adopt SFAS No. 130, "Reporting
Comprehensive Income," and SFAS 131, "Disclosures about Segments of an
Enterprise and Related Information." Those statements will require the Company
to change the format of its consolidated financial statements presentation and
disclose certain information related to the different segments of its business.
3. INVESTMENTS:
In 1997, the Company loaned $50,000 to EDNET, an unrelated company. Under the
terms of a loan agreement, if EDNET did not repay the loan by June 15, 1997, the
Company would, and did, receive 65,000 shares of EDNET, which were restricted
through June 15, 1998. The value of these shares on June 15, 1997, was $40,950.
Due to the transaction, the Company has recognized a loss of $9,050, which is
included in loss on investments in the accompanying financial statements. As of
December 31, 1997, the fair value of these shares was approximately $0.15 per
share. The Company has classified these shares as available for sale. The
Company has reflected the reduction in the value of this investment by recording
a $31,200 unrealized loss in stockholders' equity in the accompanying
consolidated balance sheet.
4. PROPERTY AND EQUIPMENT:
F-13
<PAGE>
As of December 31, 1996 and 1997, property and equipment consists of the
following:
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Office furniture and equipment $109,482 $176,623
Computer and video equipment 18,040 18,040
Less - Accumulated depreciation (36,733) (72,163)
-------- --------
Property and equipment, net $ 90,789 $122,500
======== ========
</TABLE>
Depreciation expense for 1995, 1996, and 1997, amounted to $10,432, $19,534,
and $35,430, respectively.
5. NOTES PAYABLE:
As of December 31, 1996 and 1997, notes payable consist of the following:
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Note payable to stockholder, interest rate 8%,
payable on demand (Note 6) $ 519,386 $ 857,385
Note payable to stockholder, interest rate 8%,
payable on demand (Note 15) 105,000 105,000
Note payable, interest rate 12%, payable
June 30, 1997 100,000 -
Note payable, interest rate of 10%, payable
March 31, 1998 - 300,000
Capital lease obligation, payable in monthly
installments of $846 through February 6,
1999, including interest at an annual
rate of 36.7% 15,403 9,521
Capital lease obligation, payable in monthly
installments of $211 through May 1, 2001,
including interest at an annual rate of
14.5% 8,143 6,817
Capital lease obligation, payable in monthly
installments of $431 through February 13,
2001, including interest at an annual
rate of 12.3% 17,074 14,737
--------- -----------
Total debt 765,006 1,293,460
Less - Current maturities (735,141) (1,275,675)
--------- -----------
$ 29,865 $ 17,785
========= ===========
</TABLE>
F-14
<PAGE>
On April 15, 1997, the Company issued 160,000 shares of common stock in full
satisfaction of the $100,000 note payable. On this date, the outstanding
balance on this note, including accrued interest was $109,500 and the value of
the shares issued was $195,200. The company recognized a loss on this
transaction of $85,700 which is reflected in loss of repayment of debt within
the accompanying financial statements.
The Company has not made payment on the $300,000 note, which was due March 31,
1998. Under the terms of the agreement, the lender is entitled to collect a
late payment premium of five percent of any past due amount, which will be
accrued for by the Company in 1998.
On August 24, 1998, the Company entered into a settlement related to an amount
owed to a shareholder of the Company. The balance owed to the shareholder,
including interest and unreimbursed expenses totaled $1,033,951 as of December
31, 1997. Under the agreement, the Company will make $250,000 payments on the
following dates: September 1, 1998, January 5, 1999, and February 28, 1999.
Additionally, the Company will issue 200,000 shares of its restricted common
stock to the shareholder. The value of the consideration given in exchange for
the extinguishment of this liability is $1,537,500. This transaction results in
an extraordinary loss of $503,549 in 1998.
Future minimum payments of debt, excluding those amounts payable on demand, are
as follows:
<TABLE>
<CAPTION>
Year Ended
December 31,
------------
<S> <C>
1998 $314,493
1999 7,741
2000 6,969
2001 1,872
--------
Total $331,075
========
</TABLE>
6. STOCKHOLDERS' EQUITY:
COMMON STOCK
In November 1994, the Company entered into an agreement with a placement agent
for a private offering. This private offering resulted in the sale of 2,000,000
units at a purchase price of $0.625 per unit for a total consideration of
$1,250,000. Each unit consisted of one share of common stock, one Class A
warrant and one Class B warrant (no Class A or Class B warrants were exercised
prior to their expiration date). The placement agent received 200,000 shares of
common stock and 48,000 expense units valued at $155,000 as compensation for its
services and costs. Each
F-15
<PAGE>
expense unit was composed of one share of common stock, one Class A warrant and
one Class B warrant (no Class A or Class B warrants were exercised prior to
their expiration date). In addition, attorney and finder's fees totaling
$83,833, paid or to be paid in cash, were incurred and are included as stock
issuance costs. Of the $83,833, $50,000 was payable at December 31, 1994, to
one consultant. In addition, the consultant was granted an option, exercisable
until March 8,1998, for the purchase of 80,000 shares of common stock at the
exercise price of $0.625 per share.
During 1995, the Company and the consultant revised the fee structure noted in
the previous paragraph. In exchange for the cancellation of the $50,000
obligation and the option to purchase 80,000 shares, the consultant received
$25,000 in cash, 40,000 shares of common stock with a deemed value of $25,000
and 120,000 options. The additional compensation was recorded as general and
administrative expense by the Company.
During 1995, the Company entered into an agreement with an investment advisor to
raise equity financing solely from offshore purchasers and purchasers who may be
deemed "accredited investors" as those terms are generally defined under
Regulation S and Regulation D, respectively, promulgated by the U.S. Securities
and Exchange Commission. A total of 4,400,000 shares of the Company's stock
were issued at a purchase price of $0.625 per share for a total of $2,750,000.
The placement agent received a finder's fee totaling $330,000 which is included
as stock issuance costs and charged against additional paid-in capital.
Prior to signing the agreement with the investment advisor, the Company had
independently raised $285,000 through the issuance of 212,000 shares at a
purchase price of $1.25 per share and $20,000 through the issuance of 32,000
shares at a purchase price of $0.625 per share in separate transactions.
In addition, an officer of the Company and outside consultants received 600,000
and 66,000 shares, respectively, during 1995 as payment for services rendered,
valued at the price of $0.625 per share. The value of the shares issued,
$375,000 and $41,250, were charged to research and development, and general and
administrative, respectively.
In February 1996, the Company raised $50,000 through the issuance of 20,000
shares of common stock. In addition, from March 1 through April 11, 1996, the
Company raised $1,000,000 through the issuance of 500,000 shares of common stock
and $250,000 through the exercise of 400,000 options at a price of $0.625 per
share which were convertible into 400,000 shares. The options were issued to a
placement agent for raising the $1,000,000 noted in the previous sentence, and
were valued at $2,800,000. This amount is included as stock issuance costs and
charged to additional paid-in capital in the statement of stockholders' equity.
F-16
<PAGE>
In 1997, the Company issued 160,000 common shares to a third party for full
settlement of a note payable (see Note 5). In addition, the Company reacquired
5,902,200 common shares from a former director for total consideration of $10.
PREFERRED STOCK
SERIES A
In December 1996 and again in August 1997, the Company entered into an agreement
with a placement agent to raise equity financing solely from non-U.S. persons as
defined in Regulation S promulgated by the U.S. Securities and Exchange
Commission through private offerings of the Company's 8 percent cumulative
convertible preferred stock ("Series A"), $0.01 par value per share. The Series
A preferred stock is nonvoting. For each two shares of Series A Preferred Stock,
an investor also received a warrant to purchase the company's Common Stock.
The 1st offering period, according to the December 1996 offering memorandum, was
to expire on June 30, 1997. However, the Company closed that offering in
February of 1997 after selling 2,031,832 shares of Series A Preferred Stock with
1,015,916 warrants for a total consideration of $3,047,748. In August of 1997,
the Company again offered its Series A Preferred Stock and warrants with the
offering period to expire March 31, 1998. The August 1997 memorandum was
subsequently amended and the offering period was extended to July 31, 1998. The
Company raised $3,460,500 through the issuance of 2,307,000 additional shares of
Series A preferred stock and 1,153,500 warrants. The Company raised a total of
$6,508,248 through the issuance of 4,338,832 total shares of Series A preferred
stock in the two offering.
For every two Series A preferred shares purchased, the stockholder received one
warrant (which shall expire three years after the date of execution of the
subscription agreement) to purchase one share of common stock at an exercise
price of $3.00 per share (the "Preferred Stock Warrants"). The Preferred Stock
Warrants shall become exercisable in the same increments and on the same dates
that the conversion rights with respect to the shares to which they are attached
become vested, as described below. As of December 31, 1997, a total of 1,441,116
warrants had been issued. No warrants were exercised in 1997.
The Company has allocated the equity raised between the preferred stock and the
warrants. Based on the valuation of each on the date of issuance, the Company
has allocated approximately $2,868,000 to the preferred stock and $3,640,000 to
the warrants for the entire proceeds received under Series A through closing at
July 31, 1998. As of December 31, 1997, the allocation amounted to $2,725,607
and $1,581,337 for the preferred stock and warrants, respectively.
F-17
<PAGE>
Series A preferred stockholders have the right to convert each share into one
share of common stock as follows: a) 25 percent of the shares 90 days following
the date the shares were issued (the initial conversion date) and b) 25 percent
of the shares at the end of each of the three consecutive 90-day periods
following the initial conversion date. No conversion of Series A preferred
stock to common stock was made in 1997.
Six months after the date of issuance of the Series A preferred shares, the
Company shall have the option to require the preferred stockholder to convert
each of such shares into one share of common stock. Upon such conversion, all
of the Preferred Stock Warrants attached to such shares shall become fully
exercisable.
Each Series A preferred stockholder is entitled to receive quarterly dividends
on the last day of March, June, September and December in an amount equal to 8
percent per annum of the stated value of the Preferred stock. Dividends
totaling $113,985 were paid in 1997. Additionally, the Company has recognized
dividends payable totaling $135,931.
On the date of issuance of some of the Series A preferred stock, the purchase
price of the shares was less than the quoted market price of the Company's
common stock. Accordingly, the intrinsic value of this beneficial conversion
feature (approximately $1,529,000) is being accreted to preferred stock over the
conversion rights period. Accretion of the beneficial conversion feature as of
December 31, 1997, totaled $1,380,000 and is reflected as an increase in the
carrying value of the preferred stock and a dividend charge against retained
earnings. Subsequent to year-end, additional shares of Series A preferred stock
were issued. The intrinsic value of the beneficial conversion feature for those
shares was approximately $6,100,000.
Upon any voluntary or involuntary liquidation, dissolution or winding up of the
Company, the holders of the Series A preferred stock will be entitled to be
paid, before any distribution or payment is made in respect of any Common Stock
as to distribution on liquidation, dissolution or winding up, an amount in cash
equal to the aggregate Stated Value ($1.50 per share) of all shares outstanding
plus all accrued but unpaid dividends.
Under the terms of the Placement Agent Agreement related to Series A, the
Placement Agent is entitled to (1) a Placement Fee based on a percentage of
capital raised, (2) options to purchase common stock of the Company and (3) five
percent of the proceeds related to exercise of warrants issued with the Series A
preferred shares. The total fees earned and the value of the options granted
through the closing at July 31, 1998, amounted to $5,661,320. In accordance
with the Placement Agent Agreement, on March 6, 1997, the placement agent was
granted 2,800,000 options to purchase common stock of the Company at $.3125 per
share. On December 12, 1997, these options were canceled and the Company
granted the placement agent 2,800,000 new options, for which the placement agent
could exchange each option for .85 share of the
F-18
<PAGE>
Company's stock upon registration. The Company calculated the fair value of the
options granted on March 6, 1997, to be $4,256,000. On December 12, 1997, the
Company valued the new options to be $4,902,800. The Company has recognized the
value of the new options and the percentage fee earned by the placement agent
and recorded this amount, which totaled $5,410,057 for the year ended December
31, 1997, as stock issuance cost, which is reflected as a reduction of
additional paid-in capital. In addition, if all warrants issued in the Series A
offering are exercised, the placement agent's 5 percent fee would increase by
approximately $325,000.
SERIES B
In April 1998, the Company created a Series B issue of Preferred Stock, which it
offered in a Regulation D Private Placement. The Company offered 3,000 shares
of the 10,000,000 authorized shares of Preferred Stock at a purchase price of
$1,000 per share. Each share had a stated value of $1,000 and no par value.
Series B closed on May 28, 1998. The Company issued all 3,000 shares for
$3,000,000, resulting in $2,670,000 net cash proceeds to the Company. (See Note
9 related to the placement agent fee.) The Series B Preferred Stock will not
pay dividends and is nonvoting stock.
Each share of Series B Preferred Stock shall be convertible into shares of the
Company's common stock based upon a Conversion Formula, as defined in the
Offering agreement.
In conjunction with the offering, 500,000 warrants were issued to the Series B
shareholders proportionate to each investor's number of shares purchased to the
total shares offered. Each warrant entitles the holder to purchase shares of
the Company's common stock at a price 110 percent of the closing bid price as of
the closing of the Series B offering. The exercise price is $4.34. The
exercise price and number of shares to be purchased may be adjusted from time to
time based on computations included in the warrant agreement. Such warrants are
exercisable for three years after closing of the Series B offering.
The Company has allocated the equity raised between the preferred stock and the
warrants. Based on the valuation of each on the date of issuance, the Company
will allocate approximately $955,000 to the preferred stock and $2,045,000 to
the warrants.
Each holder of Series B Preferred Stock will have the right to convert their
shares as follows: a) 50 percent of the shares on the effective date of
registration ("Conversion Date") at the Conversion Price (lesser of (i) 25
percent off the five-day average Closing Bid Price for the Company's common
stock immediately before conversion or (ii) 100 percent of Closing Bid Price for
the Company's common stock on the date of closing, but not less than $.50 per
share of the Company's common stock) and b) 50 percent of the shares on the
45/th/ day after the effective date of registration at the
F-19
<PAGE>
Conversion Price. The holder shall be entitled to an additional discount
privilege equal to one percent (1%) per month, or fraction of a month, from the
time of closing until the Conversion Date for any conversion thirty (30) days
after the Conversion Date and one-half percent (2%) per month or fraction of a
month for any conversions thereafter ("Additional Discount"). All shares
outstanding on May 1, 2001, will be automatically converted into common stock in
accordance with the Conversion Formula, at the Conversion Price.
The Company will have the right, in its sole discretion, to redeem in whole or
in part any shares of Series B Preferred Stock submitted for conversion. The
redemption price per share of common stock after conversion of the Series B
Preferred Stock shall be calculated as 133 percent of the face value plus any
accrued Additional Discount.
On the date of issuance of the Series B preferred stock, the conversion price of
certain of the Series B preferred stock was less than the quoted market price of
the Company's common stock. Accordingly, had the shares been converted as of
the issuance date, the intrinsic value of this beneficial conversion feature
would have been approximately $1,288,000. The eventual accretion of the
intrinsic value of the beneficial conversion feature will be recorded as an
increase in the carrying value of the preferred stock and a dividend charge to
retained earnings over the conversion rights period.
In the event of any liquidation, dissolution or winding-up of the Company,
either voluntary or involuntary (a "Liquidation"), the holders of shares of the
Series B Preferred Stock then issued and outstanding shall be entitled to be
paid out of the assets of the Company available for distribution to its
shareholders, whether from capital, surplus or earnings, before any payment
shall be made to the holders of shares of the Common Stock or upon any other
series of Preferred Stock of the Company with a liquidation preference
subordinate to the liquidation preference of the Series A Preferred Stock. The
amount of the pay-out will be an amount per share equal to the Stated Value.
The Series B preferred stock subscription agreements contain a "put" provision
for common stock which allows the Company to raise an additional $3,000,000.
The provision specifies that 75 days after the effective date of the
registration of additional common shares to be used under this provision, the
Company may sell common stock (the "Put Stock") to the Series B subscribers.
The price of the Put Stock is determined by taking the lower of (1) 80 percent
of the lowest closing bid price for the previous 20 trading days prior to
funding or (2) 80 percent of the closing bid price on the day of funding. The
minimum draw is $250,000 and the maximum draw is $750,000. If the price of the
Company's common stock for the 20 trading days prior to the funding is less than
$1.25 and the average trading volume is less than $300,000 per day for the
previous 20 trading days, the Series B shareholders have the option not to fund
the
F-20
<PAGE>
requested draw. These minimums increase as the amount of the funds requested by
the Company increase from $250,000 to $750,000.
On the date of issuance of the Series B Preferred Stock with the put provision,
the conversion price under the put provision was less than the quoted market
price of the Company's common stock. Accordingly, had the put provision been
exercised at the date of issuance of the Series B Preferred Stock, the intrinsic
value of the beneficial conversion feature would have been approximately
$483,000. The put provision will be recorded as an offsetting charge to
shareholders' equity. The stock put rights will be amortized over the period of
the put provision with an offsetting charge to retained earnings. The accretion
of the intrinsic value of the beneficial conversion feature will be recorded
ratably over the term of the put contract (two years from execution of the
subscription agreement) based on the earliest dates the Company may put its
shares.
SERIES C
In August 1998, the Company created a Series C issue of Preferred Stock. The
Company offered 4,000 shares of the 10,000,000 authorized shares of Preferred
Stock at a purchase price of $1,000 and no par value. As of September 1, 1998,
the Company had issued 3,000 out of the 4,000 shares for $3,000,000, resulting
in $2,670,000 net cash proceeds to the Company (see Note 9 for discussion of
placement agent fee). The Company expects to place the remaining 1,000 shares
in the near term. The Series C preferred stock will not pay dividends and is
nonvoting stock.
In conjunction with the offering, 660,000 warrants will be issued to the Series
C shareholders proportionate to each investor's number of shares purchased to
the total shares offered. Each warrant entitles the holder to purchase shares
of the Company's common stock at a price of $4.34. The exercise price and
number of shares to be purchased may be adjusted from time to time based on
computations included in the warrant agreement. Such warrants are exercisable
for three years after closing of the Series C offering.
The Company has allocated the equity raised between the preferred stock and the
related warrants. Based on the valuation of each on the date of issuance, the
Company will allocate $1,802,000 to the preferred stock and $1,198,000 to the
warrants.
Fifty percent of each share of Series C Preferred Stock shall be convertible on
the earlier of the effective date of registration of the Company's common stock
("Conversion Date") or one-hundred and twenty (120) days from the closing of the
Series C Preferred Stock, the remaining fifty percent shall be convertible on
the earlier of the forty-fifth day after the effective date of registration or
one-hundred and sixty-five (165) from the closing of the Series C Preferred
Stock. The Conversion Price will be either the discounted price (twenty-five
percent off of the five-day closing bid price) or $3.94, whichever is less.
However, in no event shall the
F-21
<PAGE>
conversion price be less than $1.875 per share. In the event the stock is
trading below $1.875, the floor price will be adjusted to the lowest closing bid
price for the Company's common stock during such five-day period from which the
holder shall be entitled to an additional discount. The holder shall be
entitled to an additional discount privilege equal to one percent (1%) per
month, or fraction of a month, from the time of closing until the Conversion
Date for any conversion thirty (30) days after the Conversion Date and one-half
percent (2%) per month or fraction of a month for any conversions thereafter
("Additional Discount"). All shares outstanding on June 1, 2001, will be
automatically converted into Common Stock on such date in accordance with the
Conversion Formula and the Conversion Price then in effect.
The Company shall have the right in its sole discretion, to redeem, prior to
receipt of the Notice of Conversion, in whole or in part any shares of Series C
Preferred Stock. The redemption price per share of common stock after
conversion of the Series C Preferred Stock shall be calculated as 133 percent of
the face value plus any unpaid penalty should the Company not effect the date of
registration 150 days from Closing. The Company shall not have a redemption
privilege if the common stock is trading above $3.50 per share unless the Holder
agrees in writing to allow the Company to redeem such shares.
On the date of issuance of the Series C preferred stock, the conversion price of
certain of the Series C preferred stock was less than the quoted market price of
the Company's common stock. Accordingly, had the shares been converted as of
the issuance date, the intrinsic value of this beneficial conversion feature
would have been approximately $263,000. The eventual accretion of the intrinsic
value of the beneficial conversion feature will be measured at the date of
conversion and will be recorded as an increase in the carrying value of the
preferred stock and a dividend charge to retained earnings over the conversion
rights period.
In the event of any liquidation, dissolution or winding-up of the Company,
either voluntary or involuntary (a "Liquidation"), the holders of shares of the
Series C Preferred Stock then issued and outstanding shall be entitled to be
paid out of the assets of the Company available for distribution to its
shareholders, whether from capital, surplus or earnings, before any payment
shall be made to the holders of shares of the Common Stock or upon any other
series of Preferred Stock of the Company with a liquidation preference
subordinate to the liquidation preferences of the Series A and B Preferred
Stock. The amount of the pay-out will be an amount per share equal to the
Stated Value.
7. INCOME TAXES:
The components of the provision for income taxes for the years ended December
31, 1995, 1996, and 1997, are as follows:
F-22
<PAGE>
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
CURRENT TAXES:
Federal $ (818,086) $(1,739,575) $(1,355,932)
State (144,368) (306,984) (233,658)
----------- ----------- -----------
(962,454) (2,406,559) (1,589,590)
----------- ----------- -----------
Deferred taxes:
Federal (61,852) (993,316) (458,860)
State (10,915) (175,625) (79,118)
----------- ----------- -----------
(72,767) (1,168,941) (537,978)
----------- ----------- -----------
Income tax benefit (1,035,221) (3,215,500) (2,127,568)
Increase in valuation
allowance 1,035,221 3,215,500 2,127,568
----------- ----------- -----------
Income tax provision $ - $ - $ -
=========== =========== ===========
</TABLE>
Components of the Company's deferred tax assets as of December 31, 1996 and
1997, are as follows:
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 3,374,800 $ 4,964,390
Compensation related to granting of
stock options 1,170,800 1,708,778
----------- -----------
Total deferred tax assets 4,545,600 6,673,168
Valuation allowance (4,545,600) (6,673,168)
----------- -----------
Net deferred tax assets $ - $ -
=========== ===========
</TABLE>
Because of the uncertainty associated with future realization of the deferred
tax assets, the deferred tax asset has been offset in total by a valuation
allowance.
F-23
<PAGE>
The Company has net operating loss ("NOL") carryforwards for federal tax return
purposes that may be offset against future taxable income. If not used, the
carryforwards will expire as follows. The use of the NOLs is subject to
statutory and regulatory limitations regarding changes in ownership.
<TABLE>
<CAPTION>
OPERATING
LOSSES
-----------
<S> <C>
2009 $ 1,076,200
2010 2,249,000
2011 5,111,700
2012 3,988,032
-----------
$12,424,932
===========
</TABLE>
Reconciliation of the statutory federal rate to the effective rates were as
follows:
<TABLE>
<CAPTION>
1995 1996 1997
------ ------ ------
<S> <C> <C> <C>
U.S. federal statutory income tax rate 34.00% 34.00% 34.00%
State income taxes, net of federal tax benefit 4.71 4.71 2.38
Amortization of intangibles assets - - 2.48
Valuation allowance (38.71) (38.71) (38.86)
------ ------ ------
-% -% -%
====== ====== ======
</TABLE>
8. LEASES:
The Company has entered into several operating leases for office space and
equipment that are to expire at certain times through 2002. Additionally, the
Company has certain capital lease obligations for office equipment. As of
December 31, 1997, the Company had the following minimum lease payments:
<TABLE>
<CAPTION>
YEAR
ENDING
DECEMBER 31
- -----------
<S> <C>
1998 $152,003
1999 15,997
2000 15,225
2001 7,718
2002 5,846
--------
Total Minimum Lease Payments $196,789
========
</TABLE>
Included in the above are lease payments being made by the Company on behalf of
the former lessee. Management is in the process of assuming the lease. Total
rent expense was $8,400, $47,672, and $62,844 for the years ended December 31,
F-24
<PAGE>
1995, 1996, and 1997, respectively. The amount of related party rent expense
was $8,400, $11,400, and $0 for the years ended December 31, 1995, 1996, and
1997, respectively.
9. COMMITMENTS AND CONTINGENCIES:
EMPLOYMENT AGREEMENTS
Through December 31, 1995, the Company had entered into separate employment
agreements with four of its officers. The agreements for the four officers were
to expire November 11, 1997, and automatically renew for an additional one-year
period unless the Company or the employees notified the other party not less
than 120 days prior to the expiration of the agreement of the Company's or the
employees' intent to let the agreement expire. One of the officers resigned on
January 8, 1997, but the remaining terms and conditions of his employment
agreement remained in full force as they related to his continuing obligations
(i.e., noncompete agreement) to the Company. The agreements for two of the
officers were terminated by the Board of Directors effective March 15, 1997.
During 1996, the Company entered into separate employment agreements with three
of its officers and one employee. All agreements expire in 1998 and do not
automatically renew. The agreements for two of the officers were terminated
August 6, 1996, and January 27, 1997, respectively.
All of the above agreements included the granting of stock options to purchase
common stock. (See Note 10.)
PLACEMENT AGENT FEE
SERIES B
Under the terms of the Placement Agent Agreement related to the issuance of
Series B Preferred Stock (Note 6), the Placement Agent was paid fees equal to 11
percent of the funded amount of $3 million or $330,000 for the placement of the
3,000 shares of Series B Preferred Stock, 50,000 shares of common stock of the
Company, valued at approximately $200,000 as of the closing date, for
establishing the Put Equity Line of Credit and warrants to purchase 250,000
shares of common stock at a price and under the conditions of the Series B
Preferred Stock investors' warrants, valued at approximately $815,000 as of the
closing date. In addition, as the Company, at its sole discretion, utilizes the
Put Equity Line of Credit, the Placement Agent will receive a fee of 8 percent
of the cash actually invested at each funding. If the entire Line of Credit is
used, the Placement Agent would earn an additional $240,000.
SERIES C
Under the terms of the Placement Agent Agreement related to the issuance of
Series C Preferred Stock (Note 6), the Placement Agent was paid fees equal to 11
percent of the funded amount of $3 million or $330,000 for the placement of
F-25
<PAGE>
the 3,000 shares of Series C Preferred Stock, and warrants to purchase 250,000
shares of common stock at a price and under the conditions of the Series C
Preferred Stock investors' warrants, valued at approximately $690,000 as of
September 1, 1998, (Series C has not closed).
LITIGATION
In December 1994, a former officer and director filed suit against the Company,
claiming damages for breach of fiduciary duty, breach of oral agreement,
interference with contractual relations, conspiracy, restitution, and fraud. On
April 4, 1995, the Company had filed a counterclaim against the plaintiff for
fraud, breach of fiduciary duty, declaratory relief, recession, intentional and
negligent interference with prospective advantage and money loaned. On December
17, 1996, the Court entered summary judgment against the plaintiff on all claims
against the Company. On February 5, 1997, all claims were dismissed and final
judgment was entered. On February 11, 1997, the plaintiff filed a notice of
appeal. On February 3, 1998, the Company and the plaintiff agreed to a
settlement in which plaintiff would receive a certain number of the Company's
common shares. The Company has recognized a liability of $178,500, as of
December 31, 1997, related to the settlement. The liability is included in due
to former officers and shareholders on the accompanying balance sheet.
The Company filed a lawsuit against three individuals formerly associated with
the Company for misappropriation of trade secrets, conversion and breach of
fiduciary duty. The defendants filed counterclaims against the Company alleging
intentional interference with economic advantage, intentional interference with
contractual relations and unfair competition arising out of the same set of
occurrences. On July 26, 1996, the Company filed a motion for a preliminary
injunction. On December 4, 1996, the District Court granted the Company's
motion and issued a preliminary injunction against the defendants. The
injunction was conditioned upon the Company's posting a bond in the amount of $1
million. The Company did not post the bond and the injunction was dissolved.
Prior to December 31, 1997, the case was settled in conjunction with another
related case. See the following paragraph for a discussion of the settlement.
On December 20, 1996, a lawsuit was filed against the Company by one of the
individuals discussed above and another individual formerly associated with the
Company. The complaint alleges multiple claims including breach of contract,
fraud, negligent misrepresentation, breach of fiduciary duty, wrongful
termination and conversion, all arising out of the plaintiffs' employment with
the Company. On March 25, 1997, the Company filed a counterclaim for
misappropriation of trade secrets, conversion, and breach of fiduciary duty. On
June 25, 1997, the Company and the plaintiffs agreed to a settlement in which
the Company would pay cash and provide options to purchase shares of registered
Company common stock. Currently, the Company is unable to comply with the
requirement because the Company does not have a registration statement on file
with the SEC. The court has requested continual updates regarding the Company's
efforts to comply. The Company has recognized a liability of $698,000 related
to the settlement of this case. The liability is included in due to former
officers and shareholders in the accompanying balance sheet.
F-26
<PAGE>
In June 1996, a former Director and Officer filed a Complaint against the
Company, in which he requested the Court to declare that he could sell 220,000
shares of the Company's common stock standing in his name. The Company also
filed a complaint against the former officer and director in which it asserted
claims for breach of fiduciary duty, breach of a certain Employment Agreement,
accounting as to a certain Severance Agreement, declaratory relief, fraud, and
conspiracy to defraud. In the declaratory relief claim, the Company alleged
that former Director and Officer is required, pursuant to a certain Reverse
Stock Split Agreement, to return all of his issued and outstanding shares of the
Company so that new certificates equal to one-half the shares presently standing
in his name can be issued to him, the remaining shares to be retained by the
Company. In September 1997, the former Director and Officer filed a
counterclaim against the Company asserting claims for partial recission of the
Severance Agreement, breach of the Severance Agreement, recission of a certain
Lock-Up Agreement, or in the alternative, breach of the Lock-Up Agreement, and
tortuous interference with economic advantage. An unfavorable outcome against
the Company would not require the former officer and director to return his
shares under the Reverse Stock Split Agreement. Additionally, the Company would
be required to pay a maximum of $300,000 under the Severance Agreement among the
former officer and director, and an individual claiming existence of an
employment and/or consulting arrangement. Currently, the Company has accrued
$203,522 related to this matter as due to former officer on the accompanying
balance sheet.
In November 1997, the individual claiming the existence of an employment and/or
consulting agreement filed a complaint against the Company claiming recission
for breach of a Severance Agreement, or in the alternative, breach of Severance
Agreement. The settlement of this case would fall within the Severance
settlement in the above case.
On September 1, 1998, a settlement agreement for all outstanding claims and
obligations was reached between the Company and the former officer/director and
the individual claiming existence of an employment and/or consulting agreement.
Under the terms of the settlement agreement, 350,000 shares of the Company's
common stock, previously transferred by the former officer/director to the
individual claiming existence of an employment and/or consulting agreement can
remain with the individual. The former officer/director will then return his
remaining shares of the Company's common stock, which will be approximately
1,400,000 shares (after the aforementioned transfer), and the Company will
reissue him 350,000 shares of its common stock. The settlement also provides
that the individual claiming existence of an employment and/or consulting
agreement has the option to purchase the Company's former ED and UITI
technologies for $50,000.
On June 28, 1998, the Company and CBS Corporation agreed to a settlement for
amounts past due, owed to CBS by Skysite. Under the settlement, the Company was
required to pay CBS $430,000. The Company has made payment and CBS has released
all of its prior claims and security interests against the Company. The Company
has fully recognized this settlement in accounts payable and accrued liabilities
in the accompanying consolidated balance sheet.
F-27
<PAGE>
On July 27, 1998, a former employee and consultant of the Company filed a
complaint against the Company for breach of an employment contract related to
his employment termination. The plaintiff has requested unpaid wages and
severance totaling $100,000, the value of 100,000 stock options, which the
former employee believes he is entitled, punitive damages (to be proven at the
time of trial), and related interest. Management believes that the plaintiff
was terminated for just cause and fully compensated under his employment
agreement. Given the early stage of the case, it is not possible to determine
the likelihood of an unfavorable outcome on this matter. Therefore, the Company
has not included an accrual for any possible loss in the accompanying financial
statements.
On August 14, 1998, the Company received correspondence from the legal counsel
of Intelligent Decision Systems, Inc. (see Note 12), alleging breach of certain
terms of a Technology Licensing Agreement, between Intelligent Decisions Systems
and the Company. Intelligent Decision Systems is requesting return of the
consideration previously paid as the initial license fee, amounting to $968,750,
plus interest from February 1995. Management intends to vigorously defend the
case. Due to the recent delivery of the notice, the likelihood of an
unfavorable outcome cannot be determined at this time; therefore no accrual has
been included in the accompanying financial statements.
SUPPLIER AGREEMENT
Skysite is subject to a "take-or-pay" provision pursuant to an agreement with a
supplier of private network satellite products and services. Under this
agreement, Skysite has made payments totaling $418,593. Effective January 1,
1998, the Company executed a new agreement with the Company requiring it to make
future minimum purchases from the supplier as follows (assuming no cancellation
of the agreement under termination provisions described below).
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31, AMOUNT
- ------------ ----------
<S> <C>
1998 $ 252,000
1999 572,000
2000 892,000
2001 1,212,000
2002 1,532,000
2003 1,852,000
2004 2,172,000
2005 1,206,000
----------
Total $9,690,000
==========
</TABLE>
F-28
<PAGE>
Satisfaction of annual commitments are evaluated quarterly, beginning with a
minimum commitment of $33,000 in the first quarter of 1998 plus increases in
subsequent quarterly commitments of $20,000 each. Notwithstanding the above
provision, the Company may terminate its agreement with the supplier upon 90
days written notice, in which case the Company is required to pay a termination
fee equal to 30 percent of the remaining unpaid balance as of the date of
cancellation.
F-29
<PAGE>
10. STOCK OPTIONS:
The following table summarizes stock option activity under the Company's various
stock option arrangements.
<TABLE>
<CAPTION>
EXERCISE WEIGHTED
OPTIONS PRICE PER AVERAGE
OUTSTANDING SHARE EXERCISE PRICE
----------- -------------- --------------
<S> <C> <C> <C>
Balance, December 31, 1994 1,002,400 $ 0.625 $ 0.625
Granted 1,165,200 0.625 0.625
Exercised - - -
Cancelled/Expired - - -
----------- -------------- ----------
Balance, December 31, 1995 2,167,600 0.625 0.625
Granted 1,145,000 0.625 0.625
Granted (immediately exercisable) 75,000 10.5625-11 10.71
Exercised (400,000) 0.625 0.625
Cancelled/Expired - - -
----------- -------------- ----------
Balance, December 31, 1996 2,987,600 0.625-11 0.878
Granted 2,860,000 0-0.88 0.15
Granted (immediately exercisable) 568,000 0.3125-2.6250 0.9146
Exercised - - -
Cancelled/Expired (400,000) - 0.625
----------- -------------- ----------
Balance, December 31, 1997 6,015,600 $ 0-11 $ 0.51
=========== ============== ==========
</TABLE>
F-30
<PAGE>
The following table summarizes the status of options outstanding as of December
31, 1997.
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
REMAINING
CONTRACTUAL NUMBER
EXERCISE PRICE NUMBER LIFE EXERCISABLE
--------------- --------- ----------- -----------
<S> <C> <C> <C>
$0.00 2,380,000 2.2 -
0.3125 264,000 4.1 264,000
0.500 120,000 4.3 120,000
0.625 2,562,600 4.4 2,562,600
0.8733 - 0.9688 240,000 4.6 120,000
01.000 - 2.625 374,000 3.3 374,000
10.563 - 11.0 75,000 3.3 75,000
--------------- --------- --- ---------
$0 - 11.0 6,015,600 3.4 3,515,600
=============== ========= === =========
</TABLE>
F-31
<PAGE>
In September 1995, the Company adopted a stock option plan that reserved a total
of 2,400,000 shares of authorized, but unissued shares of common stock (the
"1995 Plan"). Options under the 1995 Plan may be granted to employees and/or
parties who render services to the Company. The final date on which options
could be granted was September 30, 1996. All options will expire on June 30,
2001 if not previously exercised. During 1995, 725,200 options were granted to
employees and officers under the 1995 Plan at an exercise price of $0.625 per
share. No options under the 1995 Plan have been exercised.
In addition, during September 1995, 440,000 stock options were granted to
parties under various settlement agreements at an exercise price of $0.625 per
share. These options expire in September 2000. No options have been exercised.
In January 1996, the Company granted options to purchase 170,000 shares of
common stock to various individuals at an exercise price of $0.625 per share
under the 1995 Plan. All options expire October 1, 2000. No options have been
exercised.
In March 1996, the Company granted 400,000 options for services rendered in
connection with fund raising activities to an investment advisor. These options
were exercised in 1996.
In May 1996 and September 1996, the Company, pursuant to employment agreements,
granted options to purchase 575,000 shares of common stock at an exercise price
of $0.625 per share. These options were issued to three officers and an
employee of the Company. Options to purchase 100,000 shares of the common stock
were immediately vested with the balance of the options vesting over a two-year
period. These options expire at various dates through September 2001. At the
May 1997 Board meeting, the Company elected to cancel 350,000 of these options
that had not vested as of December 31, 1996. These employees were incorporated
into the new employee stock option plan effective January 1, 1997.
Effective May 6, 1996, the Company established a nonemployee directors' stock
option plan (the "Director Plan") whereby each person who is elected as a
director and constitutes an eligible participant shall be granted an option to
purchase 25,000 shares of common stock on the effective date of his/her becoming
an eligible participant. Each person who is subsequently re-elected to a second
and third term will be granted an option to purchase an additional 25,000 and
50,000 shares, respectively. The exercise price per share for all options
granted under the Director Plan will be equal to the market price of the common
stock as of the date of grant. The term of each option is for a period of five
years from the date of grant. During 1996, three directors were elected with
each receiving 25,000 options. Effective March 15, 1997, the Board of Directors
amended the plan, entitling each outside director to receive 40,000 options
quarterly which will vest on the following dates: March 15, 1997; June 15,
1997; September 15, 1997; December 15, 1997; and March 15, 1998. The exercise
price of each option will be the average bid price for the 90 days immediately
preceding the vesting. The difference between the exercise price and the fair
value of the stock as of the date of issuance represents deferred compensation
which the Company will
F-32
<PAGE>
recognize on the date the options vest. If a director should resign, options
will be awarded according to the above schedule through the closing date of the
quarter in which he/she submits the resignation. The Company reserved 300,000
shares of authorized, but unissued shares of common stock for this plan.
Effective March 14, 1997, the Board of Directors asked that the two employees of
the Company vacate their Employee Agreements and continue to work for the
Company under the new Employee Stock Option Plan. Under the new plan, any and
all employees' in previous agreements will have their options pro-rated through
December 31, 1996. All full-time employees of record on January 1, 1997, will
be covered by the new Employee Stock Option Plan. Every full-time employee on
record will be granted 25,000 options on the first trading day of each calendar
quarter. Each option is vested as it is granted and the exercise price of each
option will be $.3125. As a result of implementation of the new plan and the
change in the options to be given, the Company has canceled the unvested options
by reducing deferred compensation and additional paid-in capital, and valued the
new options based upon the current exercise price and market value.
During 1997, the Company granted 1,045,000 options to employees and nonemployee
directors. These options were issued under various arrangements with different
terms for the exercise price and vesting periods. No options have been
exercised.
On February 21, 1998, the Board adopted the 1998 stock option plan which went
into effect on January 1, 1998. The number of shares increased to 6,000,000.
Officers, other key employees, directors, and advisors of the Company who
contribute to the growth of the Company shall be eligible for the Plan. Both
the option term and price are to be determined at the date of grant.
The Company has elected to follow Accounting Principles Board ("APB") Opinion
No. 25, "Accounting for Stock Issued to Employees," and related interpretations
in accounting for its employee stock options. Under APB Opinion No. 25, because
the exercise price of the Company's employee stock options is generally equal to
the fair value of the underlying stock at the date of grant, no compensation
expense is recognized. In October 1995, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards ("SFAS") No. 123,
"Accounting for Stock-Based Compensation," which established an alternative
method of expense recognition for stock-based compensation awards to employees
based on fair values. The Company elected not to adopt SFAS No. 123 for expense
recognition purposes.
Pro forma information regarding net income is required by SFAS No. 123 and has
been determined as if the Company had accounted for its employee stock options
under the fair value method of that statement. The weighted-average fair value
of options granted during the years ended December 31, 1995, 1996, and 1997, was
$0.63, $10.14, and $1.26, respectively. The fair value for options was
estimated at the date of grant using a Black-Scholes option pricing model with
the following weighted-average assumptions:
F-33
<PAGE>
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Expected life (in years) 3 3 3
Risk-free interest rate 6.5% 6.5% 6.1%
Volatility factor 20.0% 20.0% 150%
</TABLE>
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options that have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price characteristics, which
are significantly different from those of traded options, and because changes in
the subjective input assumptions can materially affect the fair value estimate,
in management's opinion, the existing models do not necessarily provide a
reliable single measure of the fair value of its employee stock options.
Had compensation cost for these plans been determined consistent with SFAS No.
123, the Company's net loss and loss per share would have been increased to the
following pro forma amounts:
<TABLE>
<CAPTION>
DECEMBER 31,
- -----------------------------------------------------------------------------------------------------
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Net loss available to common stockholders:
As reported $(2,588,053) $(8,056,918) $(7,104,867)
Pro forma (2,758,053) (8,236,918) (7,493,351)
Net loss per common share:
As reported $ (0.15) $ (0.37) $ (0.34)
Pro forma (0.16) (0.38) (0.36)
</TABLE>
Because the method prescribed by SFAS No. 123 has not been applied to options
granted prior to January 1, 1995, the resulting pro forma compensation cost may
not be representative of that to be expected in future years.
11. LICENSE FEE INCOME:
In January 1995, the Company entered into a license agreement with Digital
Sciences, Inc. to license its "ED" technology and services, and received an
initial license fee paid in the form of 250,000 shares of Digital Sciences, Inc.
common stock with a fair value of $629,688. The Company recognized this stock
receipt as income during 1995 as management believed that all of the
requirements of the Company under the agreement were completed during the year.
In addition, Digital Sciences, Inc. will pay a license fee based on a percentage
of gross revenue derived from the use of the ED technology and services. The
Company did not receive any such license fees in 1996 and 1997.
F-34
<PAGE>
As a result of various mergers and acquisitions, the Company's shares in Digital
Science, Inc. were converted to shares in Intelligent Decision Systems, Inc.
("IDSI"). In November 1996, the Company agreed to transfer all of its shares of
IDSI stock to a stockholder in exchange for the cancellation of a loan of
$500,000 made by such stockholder to the Company in October 1996. The Company
recognized a loss of $129,688 on this transfer.
12. LICENSE FEE EXPENSE:
In 1994, as part of an agreement with NTN Communications, Inc. (NTN), the
Company incurred and expensed a license fee of $250,000. Of this fee, $200,000
was paid in 1994. The remaining $50,000 has not been paid and is included in
accounts payable and accrued expenses in the accompanying consolidated balance
sheet. The initial term of the agreement expires December 13, 2001. Unless
terminated, the agreement will be extended for a period of seven years. The
Company has a nonexclusive worldwide license to promote, market and develop an
online computer service, which was to be provided by NTN, for use with the
Company's now abandoned product. The technology of the computer service
provides two-way interactive computerized games that are broadcast to multiple
locations, can be played by multiple participants at each location and allow the
retrieval and processing of data entered by the participants. The Company is
required to pay usage royalties as defined in the agreement. The Company has
not used the NTN online computer service and has not paid any royalties to NTN.
The Company has abandoned this product and does not intend to use the NTN
service in the future.
In January 1996, the Company finalized an agreement with a technology company,
for a nonexclusive, nontransferable license to its computer operating system
technology. The initial term of the agreement expires December 26, 1998.
Unless terminated, in accordance with the terms of the agreement, the agreement
is to be renewable for subsequent three-year periods at the licensee's option.
The Company is required to pay usage royalties as defined in the agreement. To
date no usage royalties have been paid by the Company. Under the terms of the
agreement, the Company is required to pay a minimum royalty of $900,000 to the
licensor or its successors. In January 1996, the Company paid an initial
royalty deposit of $450,000 to the licensor, and recognized this payment as
research and development expense. The Company also recorded an additional
liability in the amount of $450,000 for the unpaid portion of the minimum
royalty.
13. SIGNIFICANT CUSTOMERS/SUPPLIERS:
A significant portion of the Company's net revenues is derived from a limited
number of customers. From August 26, 1997, to December 31, 1997, approximately
11 percent of this Company's total net revenue was derived from the Royal
Bahamas Police Force.
In addition, the Company purchases its supplies from three suppliers --
Westinghouse Electric, AMSC, and Mitsubishi Electronics America.
F-35
<PAGE>
14. RELATED-PARTY TRANSACTIONS:
During 1995 and 1996, the Company made advances to stockholders of $57,908 and
$116,478, respectively. The 1995 amount, which was originally intended to be
recovered, was forgiven during the year in which it was advanced and accounted
for as compensation expense in 1995.
15. SUBSEQUENT EVENTS:
In April and August 1998, the Company made loans totaling $510,000 to a target
company in a potential acquisition. On May 6, 1998, the Company signed a letter
of intent to acquire the target company and certain other companies.
Subsequently, the Company and the target companies mutually rescinded their
letter of intent, and have agreed to renegotiate and restructure the proposed
acquisition.
On July 2, 1998, the Company settled two outstanding cases with two former
officers and directors. Under the terms of the settlement, the plaintiffs would
return to the Company outstanding common shares totaling 872,000 and the Company
will cancel 450,800 of options previously issued to the plaintiffs. The Company
would then release the restrictions associated with the remaining shares held by
the two parties. However, the two parties have agreed to specific terms (i.e.
timing) under which the shares can be sold and the options exercised.
Additionally, one of the plaintiffs has released the Company from any further
payments related to a note payable of $105,000 and accrued interest of $12,701
owed by the Company to the plaintiff as of December 31, 1997 (see Note 5).
F-36
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
DECLINATION/RESIGNATION OF BLACKMAN KALLICK BARTELSTEIN, LLP.
The Company's former independent public accountants, Blackman Kallick
Bartelstein, LLP ("BKB"), declined to stand for re-election as the Company's
auditors for the fiscal year ended December 31, 1997.
The declination/resignation of BKB was effected by letter dated September
24, 1997.
BKB's Report to the Company for the fiscal year ended December 31, 1996 was
qualified with respect to the Company's ability to continue as a going concern.
BKB's report stated that the Company's financial statements had been prepared
assuming that it would continue as a going concern; that the Company continues
to be a development stage enterprise and to date has not generated any revenues
from product sales or positive cash flows from operations; that the ultimate
success of the Company is dependent upon its ability to complete the development
of its products and technology and to successfully introduce its products to the
consumer marketplace; and that the Company must also be able to raise
significant additional capital in debt or equity markets for both the
introduction and development of products and also to sustain the day-to-day
operations of the company. BKB concluded that these factors raised substantial
doubt about the Company's ability to continue as a going concern.
The decision to change accountants was not recommended or approved by the
Company's Board of Directors or Audit Committee, although the Board understood
that since the Company had moved its operations to California, it was not
feasible to continue to have its books audited by a small, Chicago, Illinois
based accounting firm and therefore understood that BKB would probably
voluntarily resign or decline to stand for re-election as the Company's
auditors.
During the two most recent fiscal years, namely the fiscal years ended
December 31, 1996, and December 31, 1997, and the subsequent interim periods
preceding the decision of BKB to decline to stand for re-election as the
Company's auditors, there were no disagreements with BKB on any matter of
accounting principles or practices, financial statement disclosure or auditing
scope or procedure.
ENGAGEMENT/RESIGNATION OF ARTHUR ANDERSEN
On April 1, 1998, the Company engaged Arthur Andersen LLP as the Company's
principal accountants to audit the Company's and its subsidiaries financial
statements for the fiscal year ended December 31, 1997. On September 30, 1998,
the Company's auditors, Arthur Andersen LLP, resigned as the Company's
independent accountants. The change in accountant is a result of Arthur Andersen
LLP's resignation and was not recommended or approved by the Company's Board of
Directors, nor was such approval required in order to give effect to the
resignation. The Company has not yet appointed a new independent accountant.
Arthur Andersen LLP was engaged to perform an audit of the Company's and
its subsidiary's 1997 consolidated financial statements and had issued an
unqualified report, dated September 1, 1998, on the consolidated financial
statements of the Company and its subsidiary as of and for the year ended
December 31, 1997. That report, however, was not released by the Company, and on
September 30, 1998, Arthur Andersen LLP withdrew the report. Arthur Andersen
LLP's resignation and withdrawal were not related to the financial statements.
Further, there were no disagreements between the Company and Arthur Andersen LLP
on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure or reportable events during such
periods or through the interim period ended September 30, 1998 (date of
resignation).
Arthur Andersen LLP has advised the Company that at the time of its
resignation, it was preparing to issue a management letter with comments and
suggestions for consideration related to the Company's internal controls. This
letter was to contain a reference to material weaknesses in the Company's
internal controls over financial reporting for the year ended December 31, 1997.
However, Arthur Andersen LLP had expanded the scope of its audit to take account
of the weaknesses in internal control so as to be able to issue an unqualified
report and its resignation and withdrawal of the report were unrelated to the
Company's financial reporting for the year ended December 31, 1997. Management
of the Company believes that it has begun to address the issues during 1998 with
the employment of qualified personnel in financial reporting positions.
19
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information with respect to each of
the directors and executive officers of the Company as of October 6, 1998:
<TABLE>
<CAPTION>
NAME AGE POSITION
----- --- --------
<S> <C> <C>
Robert Wussler .............. 61 Chairman of the Board, President and Chief
Executive Officer of the Company and Director of
Skysite
Edward Kopf ................. 51 Executive Vice President, Secretary and Treasurer
of the Company and Secretary of Skysite, Project
77 and Insat
Charles Maynard ............. 54 Chief Executive Officer of Skysite, Project 77
and Insat
Philip Kernan ............... 48 President and Chief Financial Officer of Skysite,
Project 77 and Insat
Lawrence Siegel ............. 49 Director of the Company and Skysite
Thomas Glenndahl ............ 51 Director of the Company and Skysite
Henrikas Iouchkiavitchious .. 63 Director of the Company and Skysite
A. Frans Heideman ........... 56 Director of the Company and Skysite
</TABLE>
ROBERT WUSSLER. Mr. Wussler has been Chairman of the Board since March
1997, a Director of the Company since May 1996 and President and Chief Executive
Officer of the Company since July 1998. Mr. Wussler has been a Director of
Skysite since August 1997. From June 1995 to May 1998, Mr. Wussler was the
President and Chief Executive Officer of Affiliate Enterprises, Inc., a
television syndication company. Since February 1992, Mr. Wussler has been the
President and Chief Executive Officer of the Wussler Group, a media consulting
group. From 1989 to 1992, he was the President and Chief Executive Officer of
COMSAT Video Enterprises, which was in the business of satellite delivery of
entertainment to the U.S. lodging industry. Mr. Wussler is the former President
of CBS Television, CBS Sports and the former Senior Executive Vice President of
Turner Broadcasting System, Inc. Mr. Wussler is a member of the Board of
Directors of the following public companies: EDnet, INC. (OTC - DNET);
Nostalgia Network, Inc. (OTC - NNET); The Translation Group, Ltd. (OTC - THEO);
and Beachport Entertainment Corporation (OTC -BPRT).
EDWARD KOPF. Mr. Kopf has been the Executive Vice President, Secretary and
Treasurer of the Company since July 1998. Prior to that, from January 1997 to
May 1998, Mr. Kopf was an independent consultant and from July 1991 to August
1996, he was the President and Chief Operating Officer of American Political
Network, an information company located in Alexandria, Virginia. Mr. Kopf was
Vice President of Circuit Cities Stores, Inc. from 1982 to 1990.
CHARLES MAYNARD. Mr. Maynard has been the Chief Executive Officer of
Skysite since July 1997. Prior to joining Skysite, Mr. Maynard was the
President and Chief Executive Officer of Cybernetics Services, Inc., a public
media and satellite network company engaged in the creation and delivery of
specialized programs and advertising to various markets. From 1995 to 1997, Mr.
Maynard was the President and Chief Executive Officer of Progressive World
Messaging, a company engaged in the marketing and delivery of wireless data text
messaging, voice messaging, extended cordless telephone service and interactive
video services. From 1992 to 1995, Mr. Maynard served on the Board of Directors
of Source Media Inc. and from 1992 to 1994, he was the managing director of
TeleDiffusion de France.
PHILIP KERNAN. Mr. Kernan has been the President and Chief Financial
Officer of Skysite since July 1997. Prior to joining Skysite, Mr. Kernan worked
as a management consultant at Cybernetic Services, Inc. From May 1993 to
January 1997, Mr. Kernan was a Vice President of David Werner International.
20
<PAGE>
LAWRENCE SIEGEL. Mr. Siegel has been a Director of the Company since
March 1997. Mr. Siegel has been a director of Skysite since August 1997. From
March 1997 to July 1998, Mr. Siegel was the President and Chief Executive
Officer of the Company, and had performed such duties since January 1997 upon
the resignation of William Buck. From January 1996 until January 1997, Mr.
Siegel was an independent consultant. From November 1994 until December 1995,
Mr. Siegel was the President of Yellow Pearl, Inc., a software company founded
by him in 1994. From 1992 to 1994, Mr. Siegel was the President of T-HQ, Inc.,
a software company. From 1988 to 1992, he was the President of Atari
Corporation.
THOMAS GLENNDAHL. Mr. Glenndahl was elected to the Board of Directors in
August 1996 and has been a director of Skysite since August 1997. He is the
founder and, since 1982, has been the Chief Executive Officer of the Aspect
Group, an international education group.
HENRIKAS IOUCHKIAVITCHIOUS. Mr. Iouchkiavitchious has been a Director of
the Company since February 1998. Since September 1990, Mr. Iouchkiavitchious has
been an assistant director-general of UNESCO, a division of the United Nations.
A. FRANS HEIDEMAN. Mr. Heideman has been a Director of the Company since
February 1998. Since 1993, Mr. Heideman has been the President of New Dominion
Capital Group, an investment banking firm. Mr. Heideman is a director of
Pyrocap International Corporation (OTC - PYOC), a manufacturer of specialty
products related to fire suppression and odor control and a director of Orion
Technologies, Inc., a Calgary-based Company that provides professional internet
services to businesses.
The Bylaws of the Company require that the Board of Directors be comprised
of not less than three nor more than nine members. There are currently five
members of the Board of Directors and one vacancy. The Company did not hold an
annual meeting of shareholders in 1997. The Company intends to hold its next
annual meeting of shareholders in late 1998 or early 1999.
As of March 1997, each non-employee Director received an option to purchase
up to 40,000 shares of Common Stock, every quarter, with the options vesting on
the 15th day of the month preceding the following quarter. The Company
discontinued the grant of such quarterly options following those grants made in
April 1998. The Company has granted 300,000 options pursuant to the terms of
the 1996 Non-Employee Directors' Stock Option Plan, as amended (the "1996 Stock
Option Plan") and 435,000 options pursuant to the terms of the 1998 Stock
Option, Deferred Stock and Restricted Stock Plan (the "1998 Stock Option
Plan"). None of the shares underlying any of the Company's stock option plans
have been registered with the Securities and Exchange Commission. Furthermore,
many of the option grants were not granted pursuant to a written plan. For the
potential consequences of such option grants, see "Risk Factors--Risks
Associated With Stock Option Grants." Non-employee members of the Board of
Directors are entitled to a retainer fee of $6,000 per year, payable monthly,
and $1,000 per meeting attended, as well as reasonable expenses incurred in
attending such meetings. No family relationships exist between any of the
Directors or executive officers of the Company or Skysite.
SECTION 16(A) COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's officers, directors and greater than ten
percent shareholders of a registered class of the Company's equity securities to
file reports of beneficial ownership and changes of beneficial ownership with
the Securities and Exchange Commission.
Based solely upon a review of Forms 3, 4 and 5 delivered to the Company by
its officers, directors and greater than 10% shareholders, it appears that the
following reports were not timely filed: Mr. Glenndahl (Form 3); Donald
Gilbreath (Form 3); Roger Remillard (Form 3); William Buck (Form 3); Hugh Jencks
(Form 3); Jerome Greenberg (Form 3); Mitchell Melamed (Form 3); Robert Reid
(Form 3); Mr. Wussler (Form 3); and Mr. Siegel (Form 3).
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth certain information with respect to
compensation for fiscal years ended December 31, 1995, 1996 and 1997 paid to the
Company's Chief Executive Officers (the "Named Executive Officers"). No other
executive officers of the Company received compensation in excess of $100,000
during 1997.
21
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
-------------------------------- ---------------------------
SECURITIES
OTHER ANNUAL UNDERLYING LTIP ALL OTHER
NAME AND SALARY BONUS COMPENSATION OPTIONS/SARS PAYOUTS COMPENSATION
PRINCIPAL POSITION YEAR ($) ($) ($) (#) ($) ($)
- -------------------------- ------- ------- ----- ------------- ------------ ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Lawrence Siegel............. 1997(1) 250,288 ---- ----- ----- ----- -----
President and Chief
Executive Officer
William Buck................ 1997(2) ----- ---- ----- ----- ----- -----
President and Chief
Executive Officer
1996 60,000 ---- ----- ----- ----- -----
1995 60,000 ---- ----- 384,000 ----- -----
</TABLE>
________________
(1) Upon the resignation of Mr. Buck, Mr. Siegel replaced him as interim
President and Chief Executive Officer of the Company in January 1997, and
in March 1997, Mr. Siegel was appointed to such positions until May 1998,
when Mr. Wussler succeeded him.
(2) Mr. Buck resigned from his positions as Chief Executive Officer and
President of the Company on January 8, 1997.
THE STOCK OPTION PLANS
The Company has adopted three stock option plans, two of which, the 1996
Stock Option Plan and the 1998 Stock Option Plan, were adopted to provide a
means of performance-based compensation in an effort to attract and retain
qualified personnel. The Company can grant no further options pursuant to the
terms of its third stock option plan.
1996 Stock Option Plan
Effective May 1996, the Board of Directors adopted the 1996 Stock Option
Plan. The 1996 Stock Option Plan provides for the grant of stock options to the
non-employee Directors of the Company. The terms of the 1996 Stock Option Plan
provide that the exercise price of any options granted shall be no less than the
fair market value of the Common Stock at the time of grant. The exercise period
for any options granted under the 1996 Stock Option Plan is five years.
The 1996 Stock Option Plan authorizes the grant of options to purchase
300,000 shares of Common Stock and as of October 6, 1998, 300,000 shares
underlying the options were available for issue upon the exercise of such
options. Subject to anti-dilution provisions for a stock split, stock dividend,
combination or exchange of shares, recapitalization or other change in the
capital structure of the Company, corporate separation or division of the
Company, sale by the Company of all or a substantial portion of its assets,
reorganization, rights offering, a partial or complete liquidation, or any other
similar corporate transaction, the Board of Directors may adjust the number of
shares available for grant under the 1996 Stock Option Plan, the number of
shares underlying outstanding options, the exercise price of outstanding options
and any other characteristics the Board of Directors deems necessary or
appropriate. In the event of a change in control, as defined in the 1996 Stock
Option Plan, any options not currently exercisable will become exercisable
immediately upon the occurrence of an event constituting a change in control.
Unless previously terminated by the Board of Directors, no options may be
granted under the 1996 Stock Option Plan after December 31, 2000.
22
<PAGE>
The exercise price of any option granted under the 1996 Stock Option Plan
is payable in full (i) in cash, (ii) by surrender of shares of the Company's
Common Stock already owned by the option holder having a market value equal to
the aggregate exercise price of all shares to be purchased, (iii) by the
delivery of cash or the extension of credit by a broker-dealer, (iv) by the
delivery of a note executed by the optionholder, (v) by requesting that the
Company withhold whole shares of Common Stock then issuable upon exercise of any
option, (vi) by certifying ownership of shares to the Board of Directors for
later delivery, or (vii) by any combination of the foregoing.
The Board of Directors may from time to time revise or amend the 1996 Stock
Option Plan, and may suspend or discontinue it at any time. However, no such
revision or amendment may impair the rights of any participant under any
outstanding Award without such participant's consent.
The Company has granted options to purchase 300,000 shares of Common Stock
at a per share exercise price ranging from approximately $0.50 to $10.87 per
share, vesting within three months from the date of grant under the 1996 Stock
Option Plan.
1998 Stock Option Plan
Effective January 1998, the Board of Directors adopted the 1998 Stock
Option, Deferred Stock and Restricted Stock Plan (the "1998 Stock Option Plan"),
which provides for the grant of qualified incentive stock options ("ISOs") that
meet the requirements of Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"), stock options not so qualified ("NQSOs"), deferred stock,
restricted stock, stock appreciation rights and limited stock appreciation
rights awards ("Awards"). The 1998 Stock Option Plan may be administered by a
committee of directors appointed by the Board of Directors or by the Board (the
"Administrator"). Subject to shareholder approval of the 1998 Stock Option
Plan, ISOs may be granted to the officers and key employees of the Company, any
of its subsidiaries or parent corporation. The exercise price for any option
granted under the 1998 Stock Option Plan may not be less than 100% (or 110% in
the case of ISOs granted to an employee who is deemed to own in excess of 10% of
the outstanding Common Stock) of the fair market value of the shares of Common
Stock at the time the option is granted.
The 1998 Stock Option Plan authorizes the grant of options to purchase, and
Awards of 6,000,000 shares of the Company's Common Stock, and as of October 6,
1998, 6,000,000 shares underlying the options were available for issue upon the
exercise of such options. The number of shares reserved for issuance under the
1998 Stock Option Plan is subject to anti-dilution provisions for stock splits,
stock dividends and similar events. If an option granted under the 1998 Stock
Option Plan expires or terminates, or an Award is forfeited, the shares subject
to any unexercised portion of such option or Award will again become available
for the issuance of further options or awards under the 1998 Stock Option Plan.
Under the 1998 Stock Option Plan, the Company may make loans available to
stock option plan holders, subject to the Administrator's approval, in
connection with the exercise of stock options granted under the 1998 Stock
Option Plan. If shares of Common Stock are pledged as collateral for such
indebtedness, such shares may be returned to the Company in satisfaction of such
indebtedness. If so returned, such shares shall again be available for issuance
in connection with future stock options and Awards under the 1998 Stock Option
Plan.
Unless the 1998 Stock Option Plan is previously terminated by the Board of
Directors, no options or Awards may be granted under the Stock Option Plan ten
years after the effective date of the 1998 Stock Option Plan.
Options granted under the 1998 Stock Option Plan will become exercisable
according to the terms of the grant made by the Administrator. Awards will be
subject to the terms and restrictions of the award made by the Administrator.
The Administrator has discretionary authority to select participants from among
eligible persons and to determine at the time an option or Award is granted and
in the case of options, whether it is intended to be an ISO or a NQSO, and when
and in what increments shares covered by the option may be purchased.
Under current law, ISOs may not be granted to any individual who is not
also an officer or employee of the Company, any subsidiary or parent
corporation.
The exercise price of any option granted under the 1998 Stock Option Plan
is payable in full (i) in cash, (ii) by surrender of shares of the Company's
Common Stock already owned by the option holder having a market value equal to
the aggregate exercise price of all shares to be purchased including, in the
case of the exercise of NQSOs, restricted stock subject to an Award under the
1998 Stock Option Plan, (iii) by cancellation of indebtedness owed by the
Company to the optionholder, (iv) by a full recourse promissory note executed by
the optionholder, (v) by requesting that the Company withhold whole shares of
Common Stock then issuable upon exercise of any option,
23
<PAGE>
(vi) by arrangement with a broker which is acceptable to the Administrator, or
(vii) by any combination of the foregoing. The terms of any promissory note may
be changed from time to time by the Board of Directors to comply with applicable
Internal Revenue Service or Commission regulations or other relevant
pronouncements.
The Board of Directors may from time to time revise or amend the 1998 Stock
Option Plan, and may suspend or discontinue it at any time. However, no such
revision or amendment may impair the rights of any participant under any
outstanding Award without such participant's consent or may, without shareholder
approval, increase the number of shares subject to the 1998 Stock Option Plan,
materially modify the class of participants eligible to receive options or
Awards under the 1998 Stock Option Plan, or extend the maximum option term under
the 1998 Stock Option Plan.
The Company has granted options to purchase 435,000 shares of Common Stock
at a per share exercise price ranging from $0.81 to $4.88, vesting from time to
time from the date of grant under the 1998 Stock Option Plan.
In 1995, the Company adopted a stock option plan which permitted the grant
of options to purchase up to 2,400,000 shares of the Company's common stock
pursuant to Rule 701 of the Securities Act (the "1995 Stock Option Plan"). Rule
701 exempts the sale of securities pursuant to the exercise of stock options for
those companies that are not required to make reports pursuant to Section 13 or
15(d) of the Exchange Act, if certain other conditions and restrictions are
satisfied. Because the Company is required to file reports pursuant to Section
13 of the Exchange Act, the Company can no longer grant options pursuant to this
Plan. The Company has granted options to purchase 1,910,200 shares pursuant to
the 1995 Stock Option Plan, of which, 520,000 shares have been issued and
1,390,200 are available for issue upon the exercise of such options. All grants
made pursuant to the 1995 Stock Option Plan were made at a per share exercise
price of approximately $0.63.
The following tables set forth option grants and exercises for the named
executive officers for the year ended December 31, 1997.
<TABLE>
<CAPTION>
OPTION GRANTS IN FISCAL YEAR ENDED DECEMBER 31, 1997
PERCENT OF
TOTAL POTENTIAL REALIZABLE VALUE AT
NUMBER OF OPTIONS ASSUMED ANNUAL RATES OF STOCK
SECURITIES GRANTED TO PRICE APPRECIATION FOR OPTION
UNDERLYING EMPLOYEES EXERCISE OR TERM
OPTIONS IN FISCAL BASE PRICE EXPIRATION ------------------------------
NAME GRANTED (#) YEAR ($/SH) DATE 5% ($) 10% ($)
---- ----------- -------- ---------- ---------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
William Buck ......... ---- ---- ---- ---- ---- ----
Lawrence Siegel(1) ... 40,000 5.52 1.1875 1/02/02 5,000 7,500
40,000 5.52 0.5000 4/1/02 43,000 46,000
40,000 5.52 0.8733 7/1/02 ----- -----
40,000 5.52 0.9688 10/1/02 3,248 5,248
</TABLE>
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR ENDING OPTION VALUES
NUMBER OF SHARES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-
OPTIONS AT FISCAL THE-MONEY OPTIONS AT
YEAR-END (#) FISCAL YEAR-END ($)(1)
---------------------- -------------------------
SHARE ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE (#) REALIZED ($) UNEXERCISABLE UNEXERCISABLE
---- -------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
William Buck(2) .... ----- ----- ----- -----
----------------------------------------------------------------------------------------------------
</TABLE>
24
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Lawrence Siegel ... ----- ----- 160,000/0 257,600/0
</TABLE>
___________________
(1) The value of "in the money" options represents the difference between the
exercise price of such option and the $1.61 closing price of the Company's
Common Stock as quoted on the Nasdaq Bulletin Board on December 31, 1997.
(2) Pursuant to a settlement agreement with the Company, all outstanding
options granted to Mr. Buck were canceled on September 1, 1998.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company does not have a Compensation Committee of the Board of
Directors. Decisions regarding the compensation of the Company's executive
officers are made by the Board. The only current or former officers or
employees of the Company that participated in decisions regarding the
compensation of the executive officers of the Company during the year ended
December 31, 1997 were Mr. Wussler, Mr. Siegel, Hugh Jencks, the Company's
former Secretary, Vice President and Chief Operating Officer and Jerome
Greenberg, the Company's former Chairman of the Board, Vice President and
Treasurer.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of October 6, 1998, except as set
forth in footnote 1 below, by (a) each director and the Named Executive Officers
of the Company, (b) each person known by the Company to beneficially own more
than five percent of the Common Stock and (c) all current executive officers and
directors as a group.
<TABLE>
<CAPTION>
NUMBER OF
SHARES
BENEFICIALLY PERCENT OF SHARES
NAME OF BENEFICIAL OWNER OWNED BENEFICIALLY OWNED (4)
------------------------ ------------ ----------------------
<S> <C> <C>
William Buck(1)........................... 350,000 2.3
Robert Wussler(2)(3)...................... 265,000 1.7
Thomas Glenndahl(2)(3).................... 265,000 1.7
Lawrence Siegel(2)(3)..................... 240,000 1.5
A. Frans Heideman(2)(3)................... 40,000 *
Henrikas Iouchkiavitchious(2)(3).......... 40,000 *
All directors and executive officers
as a group (8 persons)................. 1,078,000 6.5
</TABLE>
________________
* LESS THAN ONE PERCENT.
(1) To the best of the Company's knowledge, Mr. Buck can be reached at 11 Bis
du Dopropol, 75017 Paris, France. The 350,000 shares Mr. Buck is believed
to beneficially own is based upon a settlement agreement with the Company
dated September 1, 1998. Any subsequent acquisitions or dispositions by Mr.
Buck of the Company's Common Stock are unknown. Mr. Buck is no longer
affiliated with the Company.
(2) To the Company's knowledge, except as set forth in the footnotes to this
table and subject to applicable community property laws, each person named
in the table has or will have sole voting and investment power with respect
to the shares of Common Stock set forth opposite such person's name. Each
of such persons may be reached through the Company at 2 Wisconsin Circle,
Chevy Chase, Maryland 20815.
(3) For each of such persons, represents currently vested but unexercised
options to purchase Common Stock.
(4) The percentage of beneficial ownership is calculated using 15,526,800
shares of Common Stock which were outstanding on October 6, 1998.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to the securities. In computing the number
of shares beneficially owned by a person and the percentage of ownership of
that person, shares of Common Stock subject to options held by that person
that are currently exercisable within 60 days of October 6, 1998 are deemed
outstanding. Such shares, however, are not deemed outstanding for purposes
of computing percentage ownership of any other person.
25
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
William Buck, the Company's former President and Chief Executive
Officer and Director resigned on January 8, 1997. The resignation related to
his position as an officer and Director of the Company and any of the Company's
wholly-owned subsidiaries. The Board of Directors approved a severance
agreement which included the former President and an individual claiming to have
incurred expenses on behalf of the Company as a consultant. The severance
agreement provided that the Company would reimburse the former President and the
alleged consultant for reasonable expenses associated with the Company's
business incurred by them up to an amount approximately equal to $300,000 upon
submission to the Company of valid documentation approved by the Company.
In June 1997, the Company filed a complaint against Mr. Buck in the
United States District Court for the Northern District of Illinois, Eastern
Division asserting claims for breach of fiduciary duty, breach of employment
agreement, accounting as to his severance agreement, fraud and conspiracy to
defraud. The Company is also requesting declaratory relief seeking the return
of Mr. Buck's certificates for the Company's Common Stock so that new
certificates equal to one-half of those surrendered would be reissued to Mr.
Buck in accordance with the terms of a reverse stock split agreement. In
September 1997, Mr. Buck filed a counterclaim against the Company alleging
breach of the severance agreement, breach of a lock-up agreement and tortious
interference with economic advantage. See "Business--Legal Proceedings" for a
more detailed description of the lawsuit.
On June 23, 1997, Mr. Buck filed a lawsuit in the United States
District Court for the Northern District of Illinois Eastern Division against
the Company praying for a declaratory judgment that certain shares of the
Company's Common Stock beneficially owned by Mr. Buck could be sold pursuant to
Rule 144 of the Securities Act. See "Business--Legal Proceedings" for a more
detailed description of the lawsuit.
On September 1, 1998, the Company entered into a Settlement Agreement
and Release with Mr. Buck resolving all disputes, claims and differences between
the parties. The Settlement Agreement and Release provided that Mr. Buck would
be entitled to retain 350,000 shares of the Company's Common Stock, which shares
could be sold by him in accordance with a tradeability schedule limiting the
number of shares that could be sold by him during any month for a period of two
years.
On June 20, 1997, Jerome Greenberg agreed to contribute to the
Company's treasury 5,902,200 shares of Common Stock that he beneficially owned
in exchange for $10 and an agreement by the Company to use 6% of the funds
raised from the sale of its Series A Preferred Stock to repay outstanding notes
payable owed to Mr. Greenberg. As a result of this contribution, Mr. Greenberg
retained 655,800 shares (plus options to purchase an aggregate of 100,000 shares
of Common Stock). The Company entered into a settlement agreement with Mr.
Greenberg on August 24, 1998 whereby the Company agreed to grant 200,000 shares
of Common Stock to Mr. Greenberg and to pay him an aggregate of $750,000 in
three equal installments on September 1, 1998 and January 5 and February 28,
1999 as payment in full for the Company's outstanding obligation.
In December 1997, Donald Gilbreath, a former Vice President of the
Company, filed a complaint in the United States District Court for the District
of Colorado alleging that the Company wrongfully interfered with the sale of
certain shares of the Company's Common Stock owned by Mr. Gilbreath and refused
to permit Mr. Gilbreath to exercise certain vested options to purchase the
Company's Common Stock. In July 1998, Mr. Gilbreath entered into a settlement
agreement which permitted him to keep one-half of his shares of the Company's
Common Stock with all restrictive legends removed. Mr. Gilbreath is subject to
a restrictive tradeability schedule as to the disposition of said shares. See
"Business--Legal Proceedings" for a more detailed description of the lawsuit.
In June 1997, Roger Remillard, a former Director of the Company, and
his wife filed a complaint in the United States District Court for the District
of Colorado alleging that the Company wrongfully refused to remove legends from
certain of the Remillards' shares of the Company's Common Stock, that the
Company refused to permit the Remillards to exercise certain vested stock
options, that the Company wrongfully interfered with a private contract of Mr.
Remillard with a third party and that the Company failed to pay certain sums to
Mr. Remillard under a demand promissory note. In July 1998, the Company and the
Remillards entered into a settlement agreement in which the Remillards were
allowed to retain a majority of their 1,192,000 shares of the Company's Common
Stock with all restrictive legends removed. The Remillards are subject to a
restrictive tradeability schedule as to the disposition of said shares.
Pursuant to the settlement agreement, the Remillards were permitted to retain
200,000 stock options, which must be exercised before January 1, 1999. See
"Business--Legal Proceedings" for a more detailed description of the lawsuit.
26
<PAGE>
In March 1997, the Board of Directors agreed to pay Robert Wussler a
consulting fee of $8,000 per month. This consulting fee arrangement was
discontinued when Mr. Wussler was appointed President and Chief Executive
Officer of the Company in July 1998.
27
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following financial statements are filed as part of this Form 10-K:
The following unaudited consolidated financial statements of the
Company and its subsidiaries:
. Unaudited Consolidated Balance Sheets at December 31, 1996 and
1997.
. Unaudited Consolidated Statements of Operations for the years
ended December 31, 1995, 1996 and 1997.
. Unaudited Consolidated Statements of Changes in Stockholders'
Equity (Deficit) for the years ended December 31, 1995, 1996 and
1997.
. Unaudited Consolidated Statements of Cash Flows for the years
ended December 31, 1995, 1996 and 1997.
. Notes to Unaudited consolidated Financial Statements.
All schedules have been omitted because they are either not
applicable, not required or the information required has been disclosed in
the financial statements and related notes or otherwise in the Form 10-K.
(b) Reports on Form 8-K
A Current Report on Form 8-K, dated October 13, 1997, was filed
reporting on Item 4, relating to a change in the Company's certifying
accountant.
A Current Report on Form 8-K/A, dated November 10, 1997, was filed
reporting on Item 4, relating to a change in the Company's certifying
accountant.
A Current Report on Form 8-K/A, dated December 3, 1997, was filed
reporting on Items 4 and 7, relating to a change in the Company's
certifying accountant and letter from certifying accountant.
A Current Report on Form 8-K/A, dated December 15, 1997, was filed
reporting on Items 4 and 7, relating to a change in the Company's
certifying accountants and letter from certifying accountant.
(c) Exhibits
Exhibit No. Description
- -------------- -----------
2.1 Agreement and Plan of Reorganization, dated as of June 20,
1997, by and among the Registrant, Skysite and the shareholders
of Skysite, as amended
3.1 Articles of Incorporation of the Company, as amended
3.2 Bylaws of the Company(1)
4.1 Specimen Common Stock Certificate(1)
4.2 Specimen Series A Preferred Stock Certificate
4.3 Specimen Series B Preferred Stock Certificate
4.4 Specimen Series C Preferred Stock Certificate
4.5 Certificate of Designations, Preferences and Privileges of
the Series A Preferred Stock of the Company(2)
28
<PAGE>
4.6 Certificate of Designation, Number, Powers, Preferences and
Relative, Participating, Optional, and Other Special Rights and
the Qualifications, Limitations, Restrictions, and Other
Distinguishing Characteristics of Series B Preferred Stock of
the Company
4.7 Certificate of Designation, Number, Powers, Preferences and
Relative, Participating, Optional, and Other Special Rights and
the Qualifications, Limitations, Restrictions, and Other
Distinguishing Characteristics of Series C Preferred Stock of
the Company
10.1 1996 Non-Employee Directors' Stock Option Plan
10.2 1998 Stock Option, Deferred Stock and Restricted Stock Plan
10.3 Lease, dated November 14, 1997 between the Company and Alliance
Business Centers, regarding 2 Wisconsin Avenue, Suite 700,
Chevy Chase, Maryland 20815
10.4 Lease, dated July 22, 1998, between Skysite and Soundstorm,
regarding 727 South Main Street, Burbank, California 91510
10.5 Placement Agent Agreement between the Company and Wincap, Ltd.,
dated December 6, 1996(1)
10.6 Supply Agreement between Skysite and American Mobile Satellite
Corporation, dated February 25, 1998
10.7 Distributor Agreement between Skysite and Westinghouse
Electronic Corporation, dated February 21, 1996
10.8 Agreement between Skysite and Mitsubishi Electronics America,
Inc., dated November 7, 1997
10.9 Service Provider Agreement between Skysite and Iridium North
America, dated December 1, 1997, as amended
10.10 Agreement between Skysite and PTT Telecom BV,
dated September 15, 1997
10.11 Distribution Agreement between Skysite and CUE Paging
Corporation, dated January 26, 1998
10.12 Bulk Seller Agreement between Skysite and ARDIS Company, dated
February 23, 1998
21 Subsidiaries
24 Power of attorney (included on signature page)
27 Financial Data Schedule
99.1 United States of America v. Alan Brady Bingham, et. al.,
Criminal No. H-97-262-SS, United States District Court,
Southern District of Texas, Houston Division.
________________
(1) Previously filed with the Securities and Exchange Commission as an Exhibit
to the Company's Registration Statement on Form 10, as amended, File No. 0-
21225 and incorporated herein by reference.
(2) Previously filed with the Securities and Exchange Commission as an Exhibit
to the Company's Current Report on Form 8-K dated August 20, 1998 and
incorporated herein by reference.
29
<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 duly authorized, on the 6th day of
October, 1998.
U.S. DIGITAL COMMUNICATIONS, INC.
By: /s/ ROBERT WUSSLER
-----------------------------------------
Robert Wussler, Chairman
POWER OF ATTORNEY
We, the undersigned directors and officers of U.S. Digital Communications,
Inc., do hereby constitute and appoint Robert Wussler and Edward Kopf, or either
of them, our true and lawful attorneys and agents, to do any and all acts and
things in our name and behalf in our capacities as directors and officers and to
execute any and all instruments for us and in our names in the capacities
indicated below, which said attorneys and agents, or either of them, may deem
necessary or advisable to enable said corporation to comply with the Securities
Exchange Act of 1934, as amended, and any rules, regulations and requirements of
the Securities and Exchange Commission, in connection with this report,
including specifically, but without limitation, power and authority to sign for
us or any of us in our names and in the capacities indicated below, any and all
amendments to this report; and we do hereby ratify and confirm all that the said
attorneys and agents, or either of them, shall do or cause to be done by virtue
hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON
THE DATES INDICATED.
[CAPTION]
<TABLE>
SIGNATURE TITLE DATE
--------- ------ -----
<S> <C> <C>
/s/ ROBERT WUSSLER Chairman of the Board and Directors, October 6, 1998
- ----------------------------------- President and Chief Executive Officer
Robert Wussler
/s/ EDWARD KOPF Executive Vice President, Secretary October 6, 1998
- ----------------------------------- and Treasurer; ( Principal Accounting
Edward Kopf and Financial Officer)
/s/ LAWRENCE SIEGEL Director October 6, 1998
- -----------------------------------
Lawrence Siegel
/s/ THOMAS GLENNDAHL Director October 6, 1998
- -----------------------------------
Thomas Glenndahl
/s/ A. FRANS HEIDEMAN Director October 6, 1998
- -----------------------------------
A. Frans Heideman
/s/ HENRIKAS IOUCHKIAVITCHIOUS Director October 6, 1998
- -----------------------------------
Henrikas Iouchkiavitchious
</TABLE>
30
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
- -------------- -----------
2.1 Agreement and Plan of Reorganization, dated as of June 20,
1997, by and among the Registrant, Skysite and the shareholders
of Skysite, as amended
3.1 Articles of Incorporation of the Company, as amended
3.2 Bylaws of the Company(1)
4.1 Specimen Common Stock Certificate(1)
4.2 Specimen Series A Preferred Stock Certificate
4.3 Specimen Series B Preferred Stock Certificate
4.4 Specimen Series C Preferred Stock Certificate
4.5 Certificate of Designations, Preferences and Privileges of
the Series A Preferred Stock of the Company(2)
4.6 Certificate of Designation, Number, Powers, Preferences and
Relative, Participating, Optional, and Other Special Rights and
the Qualifications, Limitations, Restrictions, and Other
Distinguishing Characteristics of Series B Preferred Stock of
the Company
4.7 Certificate of Designation, Number, Powers, Preferences and
Relative, Participating, Optional, and Other Special Rights and
the Qualifications, Limitations, Restrictions, and Other
Distinguishing Characteristics of Series C Preferred Stock of
the Company
10.1 1996 Non-Employee Directors' Stock Option Plan
10.2 1998 Stock Option, Deferred Stock and Restricted Stock Plan
10.3 Lease, dated November 14, 1997 between the Company and Alliance
Business Centers, regarding 2 Wisconsin Avenue, Suite 700,
Chevy Chase, Maryland 20815
10.4 Lease, dated July 22, 1998, between Skysite and Soundstorm,
regarding 727 South Main Street, Burbank, California 91510
10.5 Placement Agent Agreement between the Company and Wincap, Ltd.,
dated December 6, 1996(1)
10.6 Supply Agreement between Skysite and American Mobile Satellite
Corporation, dated February 25, 1998
10.7 Distributor Agreement between Skysite and Westinghouse
Electronic Corporation, dated February 21, 1996
10.8 Agreement between Skysite and Mitsubishi Electronics America,
Inc., dated November 7, 1997
10.9 Service Provider Agreement between Skysite and Iridium North
America, dated December 1, 1997, as amended
10.10 Agreement between Skysite and PTT Telecom BV, dated September
15, 1997
10.11 Distribution Agreement between Skysite and CUE Paging
Corporation, dated January 26, 1998
10.12 Bulk Seller Agreement between Skysite and ARDIS
Company, dated February 23, 1998
31
<PAGE>
21 Subsidiaries
24 Power of attorney (included on signature page)
27 Financial Data Schedule
99.1 United States of America v. Alan Brady Bingham, et. al.,
Criminal No. H-97-262-SS, United States District Court,
Southern District of Texas, Houston Division.
________________
(1) Previously filed with the Securities and Exchange Commission as an Exhibit
to the Company's Registration Statement on Form 10, as amended, File No. 0-
21225 and incorporated herein by reference.
(2) Previously filed with the Securities and Exchange Commission as an Exhibit
to the Company's Current Report on Form 8-K dated August 20, 1998 and
incorporated herein by reference.
32
<PAGE>
EXHIBIT 2.1
AGREEMENT AND PLAN OF REORGANIZATION
-------------------------------------
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made and
entered into as of this 20th day of June, 1997 by and between VISCORP, a Nevada
corporation, (hereinafter referred to as "VISCORP"), and SKYSITE COMMUNICATIONS
CORPORATION, a Delaware corporation, (hereinafter referred to as "SKYSITE") and
the holders of all of the outstanding shares of SKYSITE (the "Shareholders"), as
listed on Exhibit A and on the signatory pages hereafter.
RECITALS:
--------
A. VISCORP desires to acquire all of the issues and outstanding capital
stock of SKYSITE and the Shareholders of SKYSITE desire to exchange all of
their shares of SKYSITE capital stock for shares of VISCORP authorized but
unissued shares of stock as hereinafter provided.
B. It is the intention of the parties hereto that: (i) VISCORP shall
acquire all of the issued and outstanding capital stock of SKYSITE in exchange
solely for the number of shares of VISCORP authorized but unissued shares of
Common Stock, par value $.01 ("Common Stock"), set forth below (the "Exchange");
(ii) the Exchange shall qualify as a tax free reorganization under Section
368(a)(1)(B) of the Internal Revenue Code of 1986, as amended, and related
sections thereunder; and (iii) the Exchange shall qualify as a transaction in
securities exempt from registration or qualification under the Securities Act
of 1933, as amended, and under the applicable securities laws of each state
or jurisdiction where the Shareholders reside.
C. The board of directors of VISCORP deem it to be in the best interest of
VISCORP and its shareholders to acquire all of the issued and outstanding
capital stock of SKYSITE.
D. The board of directors of SKYSITE deem it to be in the best interest of
its shareholders to exchange all of the capital stock of SKYSITE for shares of
VISCORP authorized but unissued shares of Common Stock, as hereinafter provided.
NOW, THEREFORE, in consideration of the mutual covenants, agreements,
representations and warranties contained in this Agreement, the parties hereto
agree as follows:
SECTION 1. EXCHANGE OF SHARES
- -----------------------------
1.1 Exchange of Shares. VISCORP and the Shareholders of SKYSITE hereby
------------------
agree that the Shareholders shall, on the Closing Date (as hereinafter defined),
exchange all of the issued and outstanding shares of SKYSITE into 2 groups of
shareholders as follows: (a) 510,000 shares of Common Stock proportionately to
all the SKYSITE shareholders, except Tom D. Soumas, Jr.
<PAGE>
("Soumas"), and (b) 240,000 shares of Common Stock to Soumas, (together referred
to as the "Shares"). As further consideration to certain SKYSITE Shareholders
the parties hereto agree that the ones listed on Exhibit A who shall be entitled
to certain options to purchase a maximum of 500,000 shares of VISCORP Common
Stock at 40c per share for a period of 3 years from the Closing Date (the
"Options"). The number of shares of SKYSITE capital stock owned by each
Shareholder and the number of shares of VISCORP Common Stock and Options which
each will receive in the Exchange are set forth in Exhibit A hereto.
1.2 Delivery of Shares. On the Closing Date, the Shareholders will deliver
------------------
to VISCORP the certificates representing the Shares, duly endorsed (or with
executed stock powers) so as to make VISCORP the sole owner thereof.
Simultaneously, VISCORP will deliver certificates representing the VISCORP
Shares to the Shareholders subject to certain conditions as set forth in Section
8 of this Agreement or in escrow with VISCORP. The Exchange shall not be
effected unless a minimum of ninety (90%) percent of SKYSITE's outstanding
shares of capital stock are delivered to VISCORP on the Closing Date (as is more
fully set forth in Section 8 of this Agreement).
1.3 Investment Intent. The VISCORP Shares have not been registered under
-----------------
the Securities Act of 1933, as amended (the "Act"), and may not be resold unless
the VISCORP Shares are registered under the Act or an exemption from such
registration is available. The Shareholders represent and warrant that each of
them is acquiring the VISCORP Shares for his own account, for investment, and
not with a view to the sale or distribution of the VISCORP shares. Each
certificate representing the VISCORP Shares will have a legend thereon
incorporating language or substantially similar language, as follows:
"The Shares represented by the certificate have not been registered under
the Securities Act of 1933, as amended (the "Act"). The shares have been
acquired for investment and may not be sold or transferred in the absence
of an effective Registration Statement for the shares under the Act unless
in the opinion of counsel satisfactory to the Company, registration is not
required under the Act."
SECTION 2. REPRESENTATIONS AND WARRANTIES OF SKYSITE
- ----------------------------------------------------
SKYSITE hereby represents and warrants as follows:
2.1 Organization and Good Standing: Ownership of Shares.
---------------------------------------------------
SKYSITE is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware. There are no outstanding subscriptions,
rights, options, warrants or other agreements obligating SKYSITE to issue, sell
or transfer any stock or other securities of SKYSITE except the warrants and
options listed on Schedule 2.1 attached hereto and made a part hereof.
2.2 Corporate Authority. SKYSITE has the corporate power to enter into this
-------------------
Agreement and to perform its respective obligations hereunder. The execution and
delivery of this
2
<PAGE>
Agreement and the consummation of the transaction contemplated hereby have been
duly authorized by the Board of Directors of SKYSITE. The execution and
performance of this Agreement will not constitute a material breach of any
agreement, indenture, mortgage, license or other instrument or document to which
SKYSITE is a party and will not violate any judgment, decree, order, writ, rule,
statute, or regulation applicable to SKYSITE or its properties. The execution
and performance of this Agreement will not violate or conflict with any
provision of the respective Certificate of Incorporation or by-laws of SKYSITE.
2.3 Ownership of Shares. The Shareholders are the owner of record and
-------------------
beneficially of all of the issued and outstanding shares of capital stock of
SKYSITE, which shares are free and clear of all rights, claims, liens and
encumbrances, and have not been sold, pledged, assigned or otherwise transferred
except pursuant to this Agreement. The shares represent all of the outstanding
capital stock of SKYSITE.
2.4 Financial Statements, Books and Records. Schedule 2.4 consists of the
---------------------------------------
unaudited financial statements of SKYSITE as of April 30, 1997 and for all
previous fiscal years prior thereto from the beginning of SKYSITE (the
"Financial Statements"). The Financial Statements fairly represent the financial
position of SKYSITE as at such dates and the results of their operations for the
periods then ended. The Financial Statements were prepared in accordance with
generally accepted accounting principles applied on a consistent basis with
prior periods except as otherwise stated therein. The books of account and other
financial records of SKYSITE are in all respects complete and correct in all
material respects and are maintained in accordance with good business and
accounting practices.
2.5 Access to Records. The corporate financial records, minute books and
-----------------
other documents and records of SKYSITE have been made available to VISCORP prior
to the Closing hereof.
2.6 No Material Adverse Changes. Since the date of the Financial Statements
---------------------------
there has not been:
(i) any material adverse change in the financial position of SKYSITE
except changes arising in the ordinary course of business, which changes
will in no event materially and adversely affect the financial position of
SKYSITE;
(ii) any damage, destruction or loss materially affecting the assets
prospective business, operations or condition (financial or otherwise) of
SKYSITE whether or not covered by insurance;
(iii) any declaration, setting aside or payment of any dividend or
distribution with respect to any redemption or repurchase of SKYSITE's
capital stock;
(iv) any sale of an asset (other than in the ordinary course of
business) or any mortgage or pledge by SKYSITE of any properties or
assets; or
3
<PAGE>
(v) adoption of any pension, profit sharing, retirement, stock bonus,
stock option or similar plan or arrangement.
2.7 Taxes. SKYSITE as of April 30, 1997, had filed or will timely file all
------
material tax, governmental and/or related forms and reports (or extensions
thereof) due or required to be filed and has (or will have) paid or made
adequate provisions for all taxes or assessments which had become due as of
April 30, 1997.
2.8 Compliance with Laws. SKYSITE has complied with all federal, state,
---------------------
county and local laws, ordinances, regulations, inspections, orders, judgments,
injunctions, awards or decrees applicable to it or its business which, if not
complied with, would materially and adversely affect the business of SKYSITE.
2.9 No Breach. The execution, delivery and performance of this Agreement
----------
and the consummation of the transactions contemplated hereby will not:
(i) violate any provision of the Certificate of Incorporation or
By-Laws of SKYSITE;
(ii) violate, conflict with or result in the breach of any of the
terms of, result in a material modification of, otherwise give any other
contracting party the right to terminate, or constitute (or with notice or
lapse of time or both constitute) a default under, any contract or other
agreement to which SKYSITE is a party or by or to which it or any of its
assets or properties may be bound or subject;
(iii) violate any order, judgment, injunction, award or decree of
any court, arbitrator or governmental or regulatory body against, or
binding upon, SKYSITE or upon the properties or business of SKYSITE; or
(iv) violate any statute, law or regulation of any jurisdiction
applicable to the transactions contemplated herein which could have a
materially adverse effect on the business or operations of SKYSITE.
2.10 Actions and Proceedings. SKYSITE is not a party to any material
------------------------
pending litigation or, to its knowledge, any governmental investigation or
proceeding not reflected in the SKYSITE Financial Statements, and to its best
knowledge, no material litigation, claims, assessments or any governmental
proceedings are threatened against SKYSITE except as set forth on Schedule
2.10 attached hereto and made a part hereof.
2.11 Agreements. Schedule 2.11 sets forth any material contract or
-----------
arrangement to which SKYSITE is a party or by or to which it or its assets,
properties or business are bound or subject, whether written or oral.
4
<PAGE>
2.12 Brokers or Finders. No broker's or finder's fee will be payable by
------------------
SKYSITE in connection with the transactions contemplated by this Agreement, nor
will any such fee be incurred as a result of any actions by SKYSITE or any of
its Shareholders except appearing on Schedule 2.12 and 3.14 as one Schedule
attached hereto and made a part hereof.
2.13 Real Estate. Except as set forth on Schedule 2.13, SKYSITE owns no
-----------
real property nor is a party to any leasehold agreement.
2.14 Tangible Assets. SKYSITE has full title and interest in all machinery,
---------------
equipment, furniture, leasehold improvements, fixtures, projects, owned or
leased by SKYSITE, any related capitalized items or other tangible property
material to the business of SKYSITE (the "Tangible Assets"). SKYSITE holds all
rights, title and interest in all the Tangible Assets owned by it on the Balance
Sheet or acquired by it after the date on the Balance Sheet free and clear of
all liens, pledges, mortgages, security interests, conditional sales contracts
or any other encumbrances. All of the Tangible Assets are in good operating
condition and repair and are usable in the ordinary course of business of
SKYSITE and conform to all applicable laws, ordinances and government orders,
rules and regulations relating to their construction and operation, except as
set forth on Schedule 2.14 hereto.
2.15 Liabilities. SKYSITE did not have any direct or indirect indebtedness,
-----------
liability, claim, loss, damage, deficiency, obligation or responsibility, known
or unknown, fixed or unfixed, liquidated or unliquidated, secured or unsecured,
accrued or absolute, contingent or otherwise, including, without limitation, any
liability on account of taxes, any governmental charge or lawsuit (all of the
foregoing collectively defined to as "Liabilities"), which are not fully, fairly
and adequately reflected on the Financial Statement except for a specific
Liabilities set forth on Schedule 2.15 attached hereto and made a part hereof.
As of April 30, 1997, SKYSITE will not have any Liabilities, other than
Liabilities fully and adequately reflected on the Financial Statements except
for Liabilities incurred in the ordinary course of business. To the best
knowledge of the Shareholders, there is no circumstance, condition, event or
arrangement which may hereafter give rise to any Liabilities not in the ordinary
course of business.
2.16 Operations of SKYSITE. From the date of the Financial Statements
---------------------
through April 30, 1997, hereof SKYSITE has not and will not have:
(i) incurred any indebtedness or borrowed money;
(ii) declared or paid any dividend or declared or made any
distribution of any kind to any shareholder, or made any direct or indirect
redemption, retirement, purchase or other acquisitions of any shares in its
capital stock;
(iii) made any loan or advance to any shareholder, officer, director,
employee, consultant, agent or other representative or made any other loan
or advance otherwise than in the ordinary course of business.
5
<PAGE>
(iv) except in the ordinary course of business, incurred or assumed
any indebtedness or liability (whether or not currently due and payable);
(v) disposed of any assets of SKYSITE except in the ordinary course
of business;
(vi) materially increased the annual level of compensation of any
executive employee of SKYSITE;
(vii) increased, terminated, amended or otherwise modified any plan
for the benefit of employees of SKYSITE.
(viii) issued any equity securities or rights to acquire such equity
securities; or
(ix) except in the ordinary course of business, entered into or
modified any contact, agreement or transaction.
2.17 Capitalization. The authorized capital stock of SKYSITE consists of
--------------
3,000 shares of common stock, no par value, of which 1,000 shares are presently
issued and outstanding. SKYSITE has not granted, issued or agreed to grant,
issue or make any warrants, options, subscription rights or any other
commitments of any character relating to the issued or unissued shares of
capital stock of SKYSITE except for the warrants and options set forth on
Schedule 2.1 attached hereto and made a part hereof. SKYSITE has no subsidiaries
or other entities except as listed on Schedule 2.17 attached hereto, setting
forth the shares or percentage interest owned by SKYSITE.
2.18 Private Placement of VISCORP Common Stock.
------------------------------------------
(a) The Shareholders have agreed to assist VISCORP in a Private
Placement ("Private Placement") of a certain number of shares of Common Stock of
VISCORP, so as to raise a minimum of $100,000 plus the costs and expenses of
said Private Placement.
(b) The parties agree that one of the purposes of the Private
Placement would be for VISCORP to raise funds of at least $100,000 plus all
costs and expenses of the Private Placement. VISCORP agrees to apply the first
net proceeds of $100,000 so raised, to replace a security deposit of
certain collateral of shares provided by certain of SKYSITE Shareholders to
American Mobile Satellite Corporation ("AMSC"). SKYSITE and its Shareholders
agree that VISCORP has made no assurance that such funds will be raised from the
Private Placement.
2.19 Full Disclosure. No representation or warranty by SKYSITE in this
---------------
Agreement or in any document or schedule to be delivered by them pursuant
hereto, and no written statement, certificate or instrument furnished or to be
furnished SKYSITE pursuant hereto or in connection with the negotiation,
execution or performance of this Agreement contains or will contain any untrue
statement of a material fact or omits or will omit to state any fact necessary
to make any
6
<PAGE>
statement herein or therein not materially misleading or necessary to a complete
and correct presentation of all material aspects of the business of SKYSITE.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF VISCORP
- ----------------------------------------------------
VISCORP hereby represents and warrants as follows:
3.1 Organization and Good Standing. VISCORP is a corporation duly
------------------------------
organized, validly existing and in good standing under the laws of the State of
Nevada. It has the corporate power to own its own property and to carry on its
business as now being conducted and is duly qualified to do business in any
jurisdiction where so required except where the failure to so qualify would have
no material negative impact.
3.2 Corporate Authority. VISCORP has the corporate power to enter into this
-------------------
Agreement and to perform their respective obligations hereunder. The execution
and delivery of this Agreement and the consummation of the transactions
contemplated hereby have been duly authorized by the Board of Directors of
VISCORP. The execution and performance of this Agreement will not constitute a
material breach of any agreement, indenture, mortgage, license or other
instrument or document to which VISCORP is a party and will not violate any
judgment, decree, order, writ, rule, statute, or regulation applicable to
VISCORP or its properties. The execution and performance of this Agreement will
not violate or conflict with any provision of the respective Articles of
Incorporation or by-laws of VISCORP.
3.3 The VISCORP Shares. As of the Closing Date, there are approximately 130
------------------
shareholders of record that are the owners of 22,178,000 shares of VISCORP
Common Stock, and 2,031,832 shares of Preferred Stock, none of whom owns in
excess of 5% of the issued and outstanding shares, except as may be set forth on
Schedule 3.3 attached hereto and made a part hereof. There are outstanding
warrants, issued stock options, stock rights or other commitments of any
character relating to the issued or unissued shares of capital stock both Common
Stock and Preferred Stock of VISCORP all of which are set forth on Schedule 3.3
attached hereto. The VISCORP shares on said schedule 3.3 represent all of the
outstanding capital stock of VISCORP.
At the Closing, the VISCORP Shares to be issued and delivered to the
SKYSITE Shareholders hereunder will when so issued and delivered, constitute
valid and legally issued shares of VISCORP Common Stock, fully paid and
nonassessable.
3.4 Financial Statement: Books and Records. Schedule 3.4 consists of the
--------------------------------------
audited financial statements of VISCORP for the fiscal year ended December 31,
1996 and interim unaudited financial statements ended at March 31, 1997
(collectively the "Financial Statements"). The Financial Statements fairly
represent the financial position of VISCORP as at such date and the results of
their operations for the periods then ended. The Financial Statements were
prepared in accordance with generally accepted accounting principles applied on
a consistent basis with prior periods except as otherwise stated therein. The
books of account and other
7
<PAGE>
financial records of VISCORP are in all respects complete and correct in all
material respects and are maintained in accordance with good business and
accounting practices.
3.5 No Material Adverse Changes.
----------------------------
Since the dates of the interim unaudited financial statements on Schedule
3.4;
(i) there has not been any material adverse changes in the financial
position of VISCORP except changes arising in the ordinary course of
business, which changes will in no event materially and adversely affect
the financial position of VISCORP and the past audit for the fiscal year
ended December 31, 1996 will be consistent with the representations made by
Blackman Kallick Bartelstein, LLP to VISCORP.
(ii) any damage, destruction or loss materially affecting the assets,
prospective business, operations or condition (financial or otherwise) of
VISCORP whether or not covered by insurance;
(iii) any declaration setting aside or payment of any dividend or
distribution with respect to any redemption or repurchase of VISCORP
capital stock;
(iv) any sale of an asset (other than in the ordinary course of
business) or any mortgage pledge by VISCORP of any properties or assets;
or
(v) adoption of any pension, profit sharing, retirement, stock bonus,
stock option or similar plan or arrangement.
3.6 Taxes. VISCORP has (or by the Closing Date, will have filed) all
------
material tax, governmental and/or related forms and reports (or extensions
thereof) due or required to be filed and has (or will have) paid or made
adequate provisions for all taxes or assessments which have become due as of the
Closing Date.
3.7 Compliance with Laws. VISCORP has complied with all federal, state,
---------------------
county and local laws, ordinances, regulations, inspections, orders, judgments,
injunctions, awards or decrees applicable to it or its business, which, if not
complied with, would materially and adversely affect the business of VISCORP or
the trading market for the VISCORP Shares and specifically, and to the best of
its knowledge VISCORP complied with provisions for registration under the
Securities Act of 1933 and all applicable blue sky laws in connection with its
public stock offering and there are no outstanding, pending or threatened stop
orders or other actions or investigations relating thereto.
3.8 Actions and Proceedings. VISCORP is not a party to any material
------------------------
pending litigation or, to its knowledge, any governmental proceedings are
threatened against VISCORP, except as set forth on Schedule 3.8 attached hereto
and made a part hereof.
8
<PAGE>
3.9 Periodic Reports. VISCORP has delivered to SKYSITE true and complete
----------------
copies of Forms 10-K and 10-Q report pursuant to SEC Rules and Regulations for
reporting companies under the Securities Exchange Act of 1934, as amended. As of
their respective dates, such reports and statements did not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstance under which they were made, not misleading. VISCORP presently has
one subsidiary (incorporated in Illinois). Schedule 3.9 sets forth all of the
documentation of such reports VISCORP has delivered to SKYSITE.
3.10 Disclosure. VISCORP has (and at the Closing it will have) disclosed in
----------
writing all events, conditions and facts materially affecting the business,
financial conditions or results of operation of VISCORP all of which have been
set forth herein. VISCORP has not now and will not have, at the Closing,
withhold disclosure of any such events, conditions, and facts which they have
knowledge of or have reasonable grounds to know may exits.
3.11 Capitalization. The authorized Capital Stock of VISCORP consists of
--------------
50,000,000 shares of Common Stock of which 22,128,000 shares of Common Stock are
issued and outstanding and has authorized 10,000,000 shares of Preferred Stock,
par value $.01 per share, of which 2,031,832 shares are issued and outstanding.
3.12 Access to Records. The corporate financial records, minute books, and
-----------------
other documents and records of VISCORP have been made available to SKYSITE prior
to the Closing hereof.
3.13 No Breach. The execution, delivery and performance of this of this
---------
Agreement and the consummation of the transactions contemplated hereby will not:
(i) violate any provision of the Articles of Incorporation or By-Laws
of VISCORP.
(ii) violate, conflict with or result in the breach of any of the
terms of, result in a material modification of, otherwise give any other
contracting party the right to terminate, or constitute (or with notice
or lapse of time or both constitute) a default under, any contract or other
agreement to which VISCORP is a party or by or to which it or any of its
assets or properties may be bound or subject;
(iii) violate any order, judgment, injunction, award or decree of any
court, arbitrator or governmental or regulatory body against, or binding
upon, VISCORP or upon the securities, properties or business to VISCORP; or
(iv) violate any statute, law or regulation of any jurisdiction
applicable to the transactions contemplated herein.
9
<PAGE>
3.14 Brokers or Finders. No broker's or finder's fee will be payable by
------------------
VISCORP in connection with the transactions contemplated by this Agreement, nor
will any such fee be incurred as a result of any actions of VISCORP except
appearing of Schedule 2.12 and 3.14 as one Schedule attached hereto and made a
part hereof.
3.15 OTC Bulletin Board. VISCORP shares are listed on the OTC Bulletin
------------------
Board under the symbol "VICP". No representation is being made by VISCORP of any
trading of the shares of VISCORP. At the Closing Date, VISCORP's Rule 15c2-11
documentation and reports required to be filed with the SEC as discussed above
shall have been updated and shall be current in all material respects, except as
may appear on Schedule 3.15, attached hereto which exceptions shall be permitted
only by the written consent of SKYSITE.
3.16 Authority to Execute and Perform Agreements. VISCORP has the full
-------------------------------------------
legal right and power and all authority and approval required to enter into,
execute and deliver this Agreement and to perform fully its obligations
hereunder. This Agreement has been duly executed and delivered and is the valid
and binding obligation of VISCORP enforceable in accordance with its terms,
except as may be limited by bankruptcy, moratorium, insolvency or other similar
laws generally affecting the enforcement of creditors' rights. The execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby and the performance by VISCORP of this Agreement, in accordance with its
respective terms and conditions will not:
(i) require the approval or consent of any governmental or regulatory
body or the approval or consent of any other person;
(ii) conflict with or result in any breach or violation of any of the
terms and conditions of, or constitute (or with any notice or lapse of time
or both would constitute) a default under, any order, judgment or decree
applicable to VISCORP, or any instrument, contract or other agreement to
which VISCORP is a party or by or to which VISCORP is bound or subject; or
(iii) result in the creation of any lien or other encumbrance on the
assets or properties of VISCORP.
3.17 Full Disclosure. No representation or warranty by VISCORP in this
---------------
Agreement or in any document or schedule to be delivered by them pursuant
hereto, and no written statement, certificate or instrument furnished or to be
furnished by VISCORP pursuant hereto or in connection with the negotiation,
execution or performance of this Agreement contains or will contain any untrue
statement of a material fact or omits or will omit to state any fact necessary
to make any statement herein or therein not materially misleading or necessary
to complete and correct presentation of all material aspects of the business of
VISCORP.
10
<PAGE>
SECTION 4. CONDITIONS PRECEDENT
- -------------------------------
4.1 Conditions Precedent to the Obligation of VISCORP. All obligations of
-------------------------------------------------
VISCORP under this Agreement are subject to the fulfillment, prior to or as of
the Closing Date, as indicated below, of each of the following conditions:
(a) The representations and warranties by or on behalf of VISCORP
contained in this Agreement or in any certificate or document delivered pursuant
to the provisions hereof shall be true in all material respects at and as of
Closing Date as though such representations and warranties were made at and as
of such time.
(b) VISCORP shall have performed and complied in all material
respects, with all covenants, agreements, and conditions set forth in, and shall
have executed and delivered all documents required by this Agreement to be
performed or complied with or executed and delivered by them prior to or at the
Closing.
(c) On or before the Closing, the Board of Directors of VISCORP shall
have approved in accordance with Nevada law the execution, delivery and
performance of this Agreement and the consummation of the transaction
contemplated herein and authorized all of the necessary and proper action to
enable VISCORP to comply with the terms of the Agreement.
(d) The Exchange shall be permitted by Nevada law and VISCORP shall
have sufficient shares of VISCORP's Common Stock authorized to complete the
Exchange.
(e) At the Closing, all instruments and documents delivered to
SKYSITE and the Shareholders pursuant to provisions hereof shall be reasonably
satisfactory to legal counsel for SKYSITE.
(f) At the Closing, VISCORP shall have delivered to SKYSITE an
opinion of counsel dated as of the Closing to the effect that:
(i) VISCORP is a corporation duly organized, validly existing
and in good standing under the laws of the State of Nevada;
(ii) This Agreement has been duly authorized executed and
delivered by VISCORP and is a valid and binding obligation of
VISCORP enforceable in accordance with its terms;
(iii) VISCORP through its Board of Directors has taken all
corporate action necessary for performance under this Agreement;
11
<PAGE>
(iv) The documents executed and delivered to SKYSITE and the
SKYSITE Shareholders hereunder are valid and binding in accordance
with their terms to the shares of VISCORP Shares to be issued
pursuant to section 1.1 hereof, and such Shares will be duly and
validly issued, fully paid and non-assessable; and
(v) VISCORP has the corporate power to execute, deliver the
Shares and perform under this Agreement.
(i) The shares of restricted VISCORP Common Stock to be issued to the
Shareholders of SKYSITE at Closing will be validly issued, nonassessable and
fully paid under Nevada corporation law and will be issued in a non-public
offering and isolated transaction in compliance with all federal and state
securities laws, bearing a restrictive legend, as is more fully set forth above.
4.2 Conditions Precedent to the Obligations of SKYSITE and SKYSITE
--------------------------------------------------------------
Shareholders. All obligations of SKYSITE and SKYSITE Shareholders under this
- ------------
Agreement are subject to the fulfillment, prior to or at Closing, of each of the
following conditions:
(a) The representations and warranties by SKYSITE and its
Shareholders, contained in this Agreement or in any certificate or document
delivered pursuant to the provisions hereof shall be true in all material
respects at and as of the Closing as though such representations and
warranties were made at and as of such time;
(b) SKYSITE shall have performed and complied with, in all material
respects, with all covenants, agreements, and conditions set forth in, and
shall have executed and delivered all documents required by this Agreement
to be performed or complied or executed and delivered by them prior to or
at the Closing;
(c) SKYSITE shall deliver on behalf of its Shareholders to VISCORP a
letter commonly known as an "Investment Letter," or investment
representations acknowledging that the shares of VISCORP Common Stock are
being acquired for investment purposes.
(d) Except for the obligations and liabilities set forth on the
Schedules attached to this Agreement the Shareholders, and each of them and
their respective successors, heirs, executors and assigns shall execute
General Releases in favor of VISCORP and SKYSITE and their respective
officers, directors, partners, predecessors and successors of and from any
and all liabilities, liens, debts, accounts, accounting, payments, due,
demands, obligations, promises, acts, agreements, costs and expenses
(including attorneys' fees) damages, actions and causes of action of
whatever kind or nature, whether known or unknown, suspected or
unsuspected, which any of them now or
12
<PAGE>
hereafter own or hold or has at any time heretofore owned or held against
the other by reason of any matter, cause or thing whatsoever, which
occurred, was done, omitted or was suffered to be done through the date of
execution of this Agreement and to the date of the closing.
(e) Resignation of all of SKYSITE's officers and director except
Soumas, Jr. (or any present officer and/or director of VISCORP).
(f) SKYSITE and its Shareholders shall deliver an opinion of its
legal counsel to viscorp to the effect that:
(i) SKYSITE is a corporation duly organized validly existing
and in good standing under the laws of the State of Delaware and is
duly qualified to do business in any jurisdiction where so required
except where the failure to so qualify would have no material adverse
impact on the company;
(ii) SKYSITE has the corporate power to carry on its business
as now being conducted; and
(iii) This Agreement has been duly authorized, executed and
delivered by SKYSITE.
SECTION 5. COVENANTS
- --------------------
5.1 Corporate Examinations and Investigations. Prior to the Closing Date,
-----------------------------------------
the parties acknowledge that they have been entitled, through their employees
and representatives, to make such investigation of the assets, properties,
business and operations, books, records and financial condition of the other as
they each may reasonably require. No investigations, by a party hereto shall,
however, diminish or waive any of the representations, warranties, covenants or
agreements of the party under this Agreement.
5.2 Expenses. Each party hereto agrees to pay its own costs and expenses
--------
incurred in negotiating this Agreement and consummating the transactions
described herein.
5.3 Further Assurances. The parties shall execute such documents and other
------------------
papers and take such further actions as may be reasonably required or desirable
to carry out the provisions hereof and the transactions contemplated hereby.
Each such party shall use its best efforts to fulfill or obtain the fulfillment
of the conditions to the Closing, including, without limitation, the execution
and delivery of any documents or other papers, the execution and delivery of
which are necessary or appropriate to the Closing.
5.4 Confidentiality. In the event the transactions contemplated by this
---------------
Agreement are not consummated, VISCORP, SKYSITE and the Shareholders agree to
keep confidential any
13
<PAGE>
information disclosed to each other in connection therewith for a period of two
(2) years from the date hereof; provided, however, such obligation shall not
apply to information which:
(i) at the time of the disclosure was public knowledge;
(ii) after the time of disclosure becomes public knowledge (except
due to the action of the receiving party); or
(iii) the receiving party had within its possession at the time of
disclosure.
5.5 Stock Certificates. At the Closing, the Shareholders shall have
-------------------
delivered the certificates representing the Shares duly endorsed (or with
executed stock powers) so as to make VISCORP the sole owner thereof. At such
Closing, VISCORP shall issue to the Shareholders the VISCORP Shares.
5.6 Investment Letters. The Shareholders shall have delivered to VISCORP
-------------------
an "Investment Letter" agreeing that the shares are being acquired for
investment purposes only and not with the view to public resale or distribution.
SECTION 6. SURVIVAL OF REPRESENTATIONS AND WARRANTIES OF SKYSITE
- ----------------------------------------------------------------
(a) Notwithstanding any right of VISCORP to investigate the affairs
of SKYSITE and its Shareholders, VISCORP has the right to rely fully upon
representations, warranties, covenants and agreements of SKYSITE and its
Shareholders contained in this Agreement or in any document delivered to VISCORP
by SKYSITE and its Shareholders or any of their representatives, in connection
with the transactions contemplated by this Agreement. All such representations,
warranties, covenants and agreements shall survive the execution and delivery
hereof and the closing hereunder for twelve (12) months following the Closing.
SECTION 7. INDEMNIFICATION
- --------------------------
For a period of two (2) years from the Closing, SKYSITE and its
Shareholders agree to indemnify and hold harmless VISCORP, and VISCORP agrees
to indemnify and hold harmless SKYSITE and its Shareholders, at all times after
the date of this Agreement against and in respect of any liability, damage, or
deficiency, all actions, suits, proceedings, demands, assessments, judgments,
costs and expenses, including attorneys' fees, incident to any of the foregoing,
resulting from any material misrepresentation made by any indemnifying party to
an indemnified party, an indemnifying party's breach of covenant or warranty or
an indemnifying party's nonfulfillment of any agreement hereunder, or from any
material misrepresentation or omission from any certificate furnished or to be
furnished hereunder.
In the event any Shareholder listed on Exhibit A to this Agreement breaches
this indemnification in this Section 7 of the Agreement, in addition to all
other remedies, which
14
<PAGE>
VISCORP may have and said breach was discoverable within 90 days from April 30,
1997, by the use of reasonable diligence, the number of Shares contemplated to
be distributed to said Shareholder, pursuant to the terms and conditions of this
Agreement shall be reduced by the dollar value of such breach as determined by
VISCORP, in its sole discretion, with the responsibility being allocated solely
to the aforesaid breaching Shareholder's share holdings.
SECTION 8. DOCUMENTS AT CLOSING AND THE CLOSING
- -----------------------------------------------
8.1 Documents at Closing. At the Closing, the following transactions
--------------------
shall occur, all of such transactions being deemed to occur simultaneously:
(a) SKYSITE will deliver, or will cause to be delivered, to VISCORP
the following:
(i) a certificate executed by the President and Secretary of
SKYSITE to the effect that all representations and warranties made by
SKYSITE under this Agreement are true and correct as of the Closing,
the same as though originally given to VISCORP on said date;
(ii) a certificate from the State of Delaware dated at or about
the Closing to the effect that SKYSITE is in good standing under the
laws of said State;
(iii) Investment Letters or investment representations in the
form executed by each SKYSITE Shareholder;
(iv) General Releases of all its Shareholders;
(v) Stock certificates representing those shares of SKYSITE
Shares to be exchanged for VISCORP Shares will be delivered; and
(vi) Stock option agreement to certain SKYSITE Shareholders
listed on Exhibit A for a maximum of 500,000 shares of VISCORP Common
Stock at 40c per share for a 3 year period from the Closing Date.
(vii) such other instruments, documents and certificates, if
any, as are required to be delivered pursuant to the provisions of
this Agreement, including but not limited to certified copies of
resolutions of SKYSITE's Board of Directors authorizing this
transaction and an opinion of counsel of SKYSITE as described herein
including but not limited to such items set forth in Section 4
hereof;
(viii) resignation of its officers and directors, except for
Soumas and Siegel;
(b) VISCORP will deliver or cause to be delivered to SKYSITE and the
SKYSITE Shareholders:
15
<PAGE>
(i) stock certificates representing those shares of VISCORP
Shares to be issued as a part of the Exchange as described in Section
1 hereof;
(ii) a certificate from VISCORP executed by the President or
Secretary of VISCORP, to the effect that all representations and
warranties of VISCORP made under this Agreement are true and correct
as of the CLosing, the same as though originally given to SKYSITE on
said due date;
(iii) certified copies of resolutions by VISCORP's Board of
Directors authorizing this transaction;
(iv) certificates from the Nevada Secretary of State dated at
or about the Closing Date that VISCORP is in good standing under the
laws of said State;
(v) opinion of VISCORP's counsel as described in Section
4.1(h) above;
(vi) such other instruments and documents as are required to be
delivered pursuant to the provisions of this Agreement;
(vii) all other items, the delivery of which is a condition
precedent to the obligations of VISCORP, as set forth in Section 4
hereof.
8.2 The Closing. The CLosing shall take place on or before June 23, 1997
-----------
or at such other later time or place as may be agreed upon by the parties
hereto. At the closing, the parties shall provide each other with such documents
as may be necessary or appropriate in order to consummate the transactions
contemplated hereby including evidence of due authorization of the Agreement and
the transactions contemplated hereby.
SECTION 9. MISCELLANEOUS
- ------------------------
9.1 Waivers. The waiver of a breach of this Agreement or the failure of
-------
any party hereto to exercise any right under this Agreement shall in no way
constitute waiver as to future breach whether similar or dissimilar in nature or
as to the exercise of any further right under this Agreement.
9.2 Amendment. This Agreement may be amended or modified only by an
---------
instrument of equal formality signed by the parties or the duly authorized
representatives of the respective parties.
9.3 Assignment. This Agreement is not assignable except by operation of
----------
law.
9.4 Notice. Until otherwise specified in writing, the mailing addresses and
------
fax numbers of the parties of this Agreement shall be as follows:
16
<PAGE>
To: VISCORP: VisCorp
Attention: Lawrence Siegel
4764 Park Granada
Calabasas, CA 91302
Phone (818) 225-0000
Fax (818) 591-2720
cc: Stuart D. Pearlman, Esq.
Defrees & Fiske
200 South Michigan Avenue
Suite 1100
Chicago, IL 60604
Phone (312) 372-4000
Fax (312) 939-5617
To: SKYSITE: Mr. Tom D. Soumas, Jr.
Skysite Communications Corp.
11500 Sherman Way - Bldg. 2
North Hollywood, CA 91506
Phone (800) Skysite
Fax
To: The Shareholders:
Chris Dieterich, Esq.
2950 31st Street
Suite 240
Santa Monica, CA 90405
Phone (310) 450-3214
Fax (310) 452-0076
Any notice or statement given under this Agreement shall be deemed to have been
given if sent by registered mail addressed to the other party at the address
indicated above or at such other address which shall have been furnished in
writing to the addressor.
9.5 Governing Law. This Agreement shall be construed, and the legal
-------------
relations be the parties determined, in accordance with the laws of the State of
Nevada, thereby precluding any choice of law rules which may direct the
application of the laws of any other jurisdiction.
9.6 Arbitration.
-----------
(a) All disputes and differences arising in connection with or
relating to the provisions of this Agreement, including what constitutes a
dispute or difference, shall be settled and finally determined by arbitration
unless agreement in writing has been reached between the
17
<PAGE>
parties within ninety (90) days after either party shall have given written
notice to the other party of the existence of a dispute or difference which it
desires to have arbitrated. Such notice shall state the point or points in
dispute.
(b) Arbitration shall be conducted in Los Angeles, California in
accordance with the rules of the American Arbitration Association augmented by
the rights of Civil Discovery included in the Federal Rules of Civil Procedure
by three (3) arbitrators, one of whom shall be selected by VISCORP, one by
SKYSITE and a Chairman of the Arbitration Court selected by the two arbitrators
so selected. The applicable law shall be as provided above. Each party shall
notify the other party of the arbitrator selected by it within sixty (60) days
of the giving of written notice referred to above. In the event that the two
arbitrators selected by the parties are unable to reach agreement as to the
third arbitrator, the third arbitrator shall be selected by the American
Arbitration Association. Arbitration shall be held in the jurisdiction of the
party against which or whom the arbitration is instituted. Each party shall be
given the opportunity to present to the arbitrators its evidence, witnesses and
arguments, and the right to be represented by counsel of its selection when the
other party be represented by counsel, of its selection when the other party
presents its evidence, witnesses and arguments. In the event one of the parties
shall fail, after reasonable notice, to appear and participate in the
arbitration preceedings as normally interpreted by the above-mentioned rules,
the arbitrators shall be entitled to make their decision and award on the basis
of the evidence, witnesses and arguments presented by the party appearing.
(c) The decision and the award of the arbitrators shall be in writing
and shall be final and binding upon the parties hereto. Judgment upon the award
rendered may be entered in any court having jurisdiction thereof, or application
may be made to such court for a judicial acceptance of the award and an order of
enforcement, as the case may be. The expenses of arbitration shall be borne in
accordance with the determination of the arbitrators with respect thereto.
Pending decision by the arbitrators with respect to the dispute or difference
undergoing arbitration, all other obligations of the parties hereto shall
continue as stipulated herein, and all monies not directly involved in such
dispute or difference shall be paid when due. All parties will have the right to
appeal as if the award had been rendered in Federal District Court.
9.7 Publicity. No publicity release or announcement concerning this
----------
Agreement or the transactions contemplated hereby shall be issued by either
party hereto at any time from the signing hereof without advance approval in
writing of the form and substance by the other party.
9.8 Entire Agreement. This Agreement (including the Exhibits and Schedules
-----------------
hereto) and the collateral agreements executed in connection with the
consummation of the transactions contemplated herein contain the entire
agreement among the parties with respect to the purchase and issuance of the
Shares and the VISCORP Shares and related transactions, and supersede all prior
agreements, written or oral, with respect thereto, including but not limited to
the Memoranda of Understanding entered into by the parties hereto on May 2,
1997.
18
<PAGE>
9.9 Headings. The headings in this Agreement are for reference purposes
--------
only and shall not in any way affect the meaning or interpretation of this
Agreement.
9.10 Severability of Provisions. The invalidity or unenforceability of any
--------------------------
term, phrase, clause, paragraph, restriction, covenant, agreement or provision
of this Agreement shall in no way affect the validity or enforcement of any
other provision or any part thereof.
9.11 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which when so executed, shall constitute an original copy
hereof, but all of which together shall consider but one and the same document.
9.12 Binding Effect. This Agreement shall be binding upon the parties
--------------
hereto and inure to the benefit of the parties, their respective heirs,
administrators, executors, successors and assigns.
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
first above written.
VISCORP
By:
-----------------------------------
Robert Wussler, Chairman
-----------------------------------
(Print Name and Title)
ATTEST:
- -----------------------------------
Hugh Jencks, Secretary
SKYSITE COMMUNICATIONS CORPORATION
By:
-----------------------------------
Tom D. Soumas, Jr., President
-----------------------------------
(Print Name and Title)
ATTEST:
- -----------------------------------
19
<PAGE>
SKYSITE COMMUNICATIONS CORPORATION
By: /s/ Tom D. Soumas, Jr.
--------------------------------------------
Tom D. Soumas, Jr., President
--------------------------------------------
(Print Name and Title)
ATTEST:
/s/ Michael Savage
- ------------------------
ALL OF SKYSITE SHAREHOLDERS:
Intercontinental Technologies Group, Inc.
By: /s/ Chris Dieterich
--------------------------------------------
Chris Dieterich, Secretary/General Counsel
/s/ Tom D. Soumas, Jr.
--------------------------------------------
Tom D. Soumas, Jr.
Cochran Ranch and Tennis Club, a corporation
By: /s/ Michael Savage
--------------------------------------------
Michael Savage
Sinai Administrative Trust
By: /s/ Ruban Kitary, Trustee Attorney-in-fact
--------------------------------------------
Ruban Kitary
/s/ George Straayer
--------------------------------------------
George Straayer
/s/ Carol Anderson
--------------------------------------------
Carol Anderson
/s/ Howard Garber
--------------------------------------------
Howard Garber
20
<PAGE>
AMENDMENT TO AGREEMENT AND PLAN
OF REORGANIZATION
(May 28, 1998)
The parties to this Agreement are U.S. Digital Communications, Inc.
(formerly VisCorp), a Nevada corporation ("USDI"), and each of the following
former shareholders of Skysite Communications Corporation ("Skysite"), a
Delaware corporation: Intercontinental Technologies Group, Inc. ("ITG"), Cochran
Ranch and Tennis Club, Inc., by Michael Savage, its president ("Cochran"), Sinai
Administrative Trust, in favor of Ruben Kitay, its trustee ("Sinai"), George
Straayer, Carol Anderson and Howard Garber. Collectively, this group will be
identified as the "Selling Shareholders".
This Amendment Agreement is intended to modify the Agreement and Plan of
Reorganization ("Merger Agreement"), executed by all of the above Selling
Shareholders on or before June 6, 1997, and between USDI, Skysite, the Selling
Shareholders and Tom Soumas, also a former shareholder of Skysite, but not a
party to this Amendment Agreement.
Recitals
Whereas, disputes have arisen between USDI and Soumas, and these disputes
have been focused on the value of Skysite at the time of its transfer to USDI,
causing USDI to dispute the value of the transfers to the Selling Shareholders,
arguably as participants in the valuation (or lessening of valuation) of
Skysite, and
Whereas, the parties to this Amendment Agreement desire to resolve their
outstanding differences and deal only with the misrepresentations and
inaccuracies attributable to Soumas,
NOW, THEREFORE, in consideration of the mutual covenants, agreements,
representations, and warranties contained in this Amendment Agreement, the
parties hereto agree as follows:
Section 1.0 Modified Consideration
1.1 The consideration originally set forth in the June 6, 1997, Merger
Agreement as to the Selling Shareholders (510,000 shares of common stock, plus
500,000 options exercisable at $0.40 per share) will remain as the consideration
to be delivered to the Selling Shareholders, subject to 1.2 below.
1.2 The Selling Shareholders will pay to USDI, as compensation for the
errors, misrepresentations and/or inaccuracies of Soumas, the sum of $200,000,
said sum to be deducted from any sales of the common stock being delivered to
the Selling Shareholders under (S) 1.1.
1.3 An escrow account at the Smith Barney (New York) brokerage firm will
be
<PAGE>
established for purposes of executing the terms of this Section 1.0. All of the
shares of common stock and all of the option rights will be deposited by USDI
into that escrow, along with instructions to pay to USDI the first $200,000
realized by any sales of the stock. Furthermore, USDI will be paid the first
$0.40 on the exercise of any of the options, pursuant to the terms and
conditions set forth within the options themselves. Once the initial $200,000
has been tendered to USDI, the remainder of the common shares still contained in
the account will be free of further USDI-imposed restrictions under this Section
1.3 and may be distributed to the Selling Shareholders according to any
agreement satisfactory to them (subject to any restrictive legends as provided
for in Section 4.1 below) and USDI will have no further interest in these
shares. The options, if unexercised, may also be distributed to the Selling
Shareholders.
Section 2.0 Assignment of Claims
2.1 In consideration for the payment of $200,000 to USDI by the Selling
Shareholders, USDI hereby assigns to the Selling Shareholders all claims USDI
has arising out of the Merger Agreement and the transactions contemplated
therein. Nevertheless, USDI will retain any claims it has against Soumas (i) for
the use of USDI's trade secrets and other proprietary information for the
conduct of a competing business, and (ii) the conversion by Soumas of certain
property of USDI. Should the Selling Shareholders institute an action against
Soumas to recover any portion of the $200,000 paid to USDI, which is being paid
against a total claim by USDI of $480,000 in losses caused by Soumas, then USDI
will be entitled to 33.3% of all funds actually recovered from Soumas by the
Selling Shareholders. The recovery will be net of actual costs for attorneys'
fees, costs advanced, expert or lay witnesses, and other similar and reasonable
charges arising in litigation or arbitration.
2.2 Notwithstanding (P) 2.1 above, USDI will retain the right to raise
as a defense, counterclaim, set off or recoupment, to any claims or action
brought by Soumas against USDI, all damages caused by the misrepresentations
made by Skysite and Soumas in the Merger Agreement and the related transactions,
including all negotiations related thereto. The parties will agree prior to any
settlement with Soumas pursuant to this (P) 2.2 as to the allocation, by either
of the parties, of the "offsets" or the "recovered" amounts, since these amounts
may have an impact on the other party's litigation efforts against Soumas.
Section 3.0 Assistance of USDI/ITG Personnel
3.1 USDI and ITG agree to assist each other in the anticipated
litigation against Soumas.
3.2 The Selling Shareholders agree to assist USDI in any litigation
resulting from the Merger Agreement or this Amendment Agreement in any
subsequent litigation or arbitration between Soumas and USDI.
3.3 Neither USDI nor ITG can commit to provide the assistance of any
individuals who are no longer in its employ.
<PAGE>
3.4 Both ITG and USDI shall provide reasonable notice prior to scheduling
any matter requiring the use of USDI or ITG personnel. In addition, USDI and/or
ITG shall be reimbursed for any out of pocket expenditures, travel expenses, and
attorneys fees incurred by the non-litigating party in responding to requests of
the litigating party. The reimbursement of these items will be made out of the
first proceeds of the respective litigation.
Section 4.0 Legal Opinion Concerning the Tradeability of Shares
4.1 Any legal opinion obtained by the Selling Shareholders regarding the
tradeability of shares must be obtained from counsel approved by USDI in its
reasonable discretion. In addition, any such counsel shall have sufficient
experience in security matters to render an opinion (at least 10 years
experience) and shall have malpractice insurance with with limits of no less
than three million dollars ($3,000,000). All shares of stock issued to Selling
Shareholders shall contain all appropriate restrictions.
4.2 USDI will aid in the documentation of any factual representations
necessary to provide the counsel providing the opinion with assurances as to the
events or dates and times in question, the number of issued and outstanding
securities, the identification of officers, directors and/or affiliates and any
other information reasonably requested by the opining counsel. Notwithstanding
any other provisions of this Amendment, the Selling Shareholders agree not to
sell any shares received pursuant to this Agreement on or before June 7, 1998.
Section 5.0 Miscellaneous
5.1 Waiver. The waiver of a breach of this Amendment Agreement or the
failure of any party hereto to exercise any right under this Amendment Agreement
shall in no way constitute waiver as to future breach whether similar or
dissimilar in nature or as to the exercise of any further right under this
Agreement.
5.2 Further Actions and Assurances. At any time and from time to time,
each party agrees to take actions and to execute and deliver documents as may
be reasonably necessary to effectuate the purposes of this Agreement.
5.3 Assignment. Neither this Agreement nor any right created by it shall
be assignable by the parties without the prior written consent of the other
parties.
5.4 Notices. Any notice or other communication required or permitted by
this Agreement must be in writing and shall be deemed to be properly given when
delivered in person to an officer of the other party, when deposited in the
United States mails for transmittal by certified or registered mail, postage
paid, or when deposited with a public telegraph company for transmittal, charges
prepaid, provided the communication is addressed:
<PAGE>
Selling Shareholders:
c/o Dieterich & Associates
Attorneys-in-fact for the Selling Shareholder(s)
11300 W. Olympic, Suite 800
Los Angeles, California 90064
U.S. Digital, Inc.:
c/o Robert Kostecka
Caplan Buckner Rohrbaugh & Kostecka
Counsel to USDI
3 Bethesda Metro Center
Bethesda, Maryland 20814
or to any such person or address designated by the parties, in writing, to
receive notice.
5.5 Headings. The section and subsection headings in this agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
5.6 Counterparts. This Agreement may be executed simultaneously in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
5.7 Governing Law. This Agreement shall be governed by the laws of the
State of Nevada, notwithstanding any conflict-of-law provision to the contrary.
Should any aspect of this agreement be subject to litigation or arbitration, the
prevailing party in such dispute will be entitled to, in addition to all other
damages, an award of its reasonable attorneys and accountant's fees.
5.8 Binding Effect. This Agreement shall be binding upon the parties hereto
and inure to the benefit of the parties, their respective heirs, administrators,
executors, successors, and assigns.
5.9 Agency. The law offices of Dieterich & Associates will function as the
trustee for the distribution of the shares and options under this Amendment
Agreement, and each of the signing Selling Shareholders hereby appoints
Dieterich & Associates as their agent for purposes of carrying out the terms
and conditions of this Amendment Agreement.
5.10 Facsimile Counterparts. A facsimile telecopy, or other reproduction
of this Agreement may be executed by one or more parties hereto and such
executed copy may be delivered by facsimile or similar instantaneous electronic
transmission device pursuant to which the signature of or on behalf of such
party can be seen, and such execution and delivery shall be considered valid,
binding and effective for all purposes. At the request of any party hereto, all
parties agree to execute an original of this Agreement as well as any
<PAGE>
facsimile, telecopy or other reproduction hereof.
5.11 Time is of the Essence. Time is of the essence of this Agreement and
of each and every position hereof.
5.12 Representation. All parties acknowledge that they have been
represented by counsel of their own choosing and that they have received advice
and guidance from their respective counsel. Based upon this representation, no
party will be construed to have been the drafting party for this Agreement, and
no party will be adjudged unrepresented for purposes of interpreting ambiguities
in the Agreement.
5.13 Publicity. No publicity release or announcement concerning this
Amendment Agreement or the transactions contemplated hereby shall be issued by
either party hereto at any time from the signing hereof without advance approval
in writing of the forma and substance by the other party.
5.14 Entire Agreement. This Amendment Agreement, the Merger Agreement, and
all of the collateral agreements referenced in (P)9.8 of the Merger Agreement
contain the entire agreement among the parties to this Amendment Agreement with
respect to the transactions set forth herein, and supersede all prior
agreements, written or oral, with respect thereto, including but not limited to
the Memoranda of Understanding entered into by the parties hereto on May 2,
1997.
5.15 Mutual Release. All signatories to this Amendment Agreement hereby
agree that execution of this document, and compliance with the terms and
conditions contained within this Amendment Agreement by the respective party
charged with such compliance, will effect a full and complete mutual release of
any and all claims they might have against the parties signatory to this
Agreement. Each party hereby fully releases and discharges each other, and each
and all of their attorneys and principals, from any and all obligations,
liabilities, claims, costs, expenses, demands, charges, debts, actions and
causes of action which either any of them may now have, or hereinafter have, by
reason of or arising from the matters embraced in the Merger Agreement and this
Amendment Agreement, both known and unknown, other than as to performance agreed
to but not yet completed under this Amendment Agreement and the Merger
Agreement, which will also be released upon timely performance according to the
terms of this Agreement and the Merger Agreement.
IN WITNESS WHEREOF, the parties have executed this Amendment Agreement to
be effective the 27th of May, 1998.
U.S. DIGITAL COMMUNICATIONS, INC.
By: /s/ Robert J. Wussler
----------------------------
<PAGE>
INTERCONTINENTAL TECHNOLOGIES
GROUP, INC.
By:
--------------------------
Robert M. Terry
President
/s/George Straayer
- -----------------------------
George Straayer, Individually
/s/Carol Anderson
- -----------------------------
Carol Anderson, Individually
/s/Howard Garber
- -----------------------------
Howard Garber, Individually
COCHRAN RANCH AND TENNIS
CLUB, INC.
By: /s/Michael Savage
--------------------------
Michael Savage
President
/s/Ruben Kitay
- -----------------------------
Sinai Administrative Trust,
Ruben Kitay, Trustee
Agency Accepted:
DIETERICH & ASSOCIATES
By: /s/Christopher Dieterich
--------------------------
Christopher Dieterich
Counsel to Selling Shareholders
<PAGE>
INTERCONTINENTAL TECHNOLOGIES
GROUP, INC.
By:/s/Robert M. Terry
--------------------------
Robert M. Terry
President
- -----------------------------
George Straayer, Individually
- -----------------------------
Carol Anderson, Individually
- -----------------------------
Howard Garber, Individually
COCHRAN RANCH AND TENNIS
CLUB, INC.
By:
--------------------------
Michael Savage
President
/s/Ruben Kitay
- -----------------------------
Sinai Administrative Trust,
Ruben Kitay, Trustee
Agency Accepted:
DIETERICH & ASSOCIATES
By: /s/Christopher Dieterich
--------------------------
Christopher Dieterich
Counsel to Selling Shareholders
<PAGE>
EXHIBIT 3.1
FILED
IN THE OFFICE OF THE
SECRETARY OF STATE OF THE
STATE OF NEVADA
OCT 24 1997
No. C3741-84
---------
/s/ Dean Heller
DEAN HELLER, SECRETARY OF STATE
Restated Articles of Incorporation
of
VisCorp
The undersigned, Lawrence Siegel and Hugh A. Jencks, the President and
Secretary of VisCorp, respectively, hereby certify that the Board of Directors
of the Corporation, by Unanimous Written Consent dated as of October 8, 1997,
adopted a resolution to amend and restate the Corporation's Articles of
Incorporation, as follows:
Resolved that the Corporation's Articles of Incorporation, including
amendments that change its name and delete Articles relating to the
Corporation's initial business, principal office and the right to distribute
property to its shareholders and purchase its own shares, are restated as
follows:
"Article I
The name of the Corporation shall be:
U.S. Digital Communications, Inc.
Article II
The purpose for which this Corporation is organized is the transaction of
any or all lawful business of which corporations may be incorporated under the
laws of the State of Nevada, as may be amended from time to time.
Article III
The existence of the Corporation shall be perpetual.
Article IV
1. The Corporation shall be authorized to issue Fifty Million Shares of
Common Stock, par value $0.01 per share.
2. The Corporation shall be authorized to issue Ten Million Shares of
Preferred Stock, par value $0.01 per share. The Preferred Stock may be issued in
series, from time to time, with such designations, relative rights, priorities,
preferences, qualifications, limitations and restrictions thereof, as the Board
of Directors may from time to time determine. The rights, priorities,
preferences, qualifications, limitations and restrictions of different series of
preferred stock may differ with respect to dividend rates, amounts payable on
liquidation, voting rights, conversion rights, redemption provisions, sinking
fund provisions and other matters. The Board of Directors may authorize the
issuance of preferred stock which ranks senior to the Common Stock with respect
to the payment of dividends and the distribution of assets on liquidation. The
-1-
<PAGE>
Board of Directors is further authorized to fix the limitations and
restrictions, if any, upon the payment of dividends on Common Stock to be
effective while any shares of preferred stock are outstanding. The Board of
Directors may issue, without stockholder approval, preferred stock with voting
and conversion rights which could adversely affect the voting power of the
holders of Common Stock.
Article V
The name and address of the Resident Agent of the Corporation is
Fred V. Schiemann
3061 Probasco Way
Sparks, Nevada 89431
Article VI
The members of the governing Board shall be called Directors. The number of
persons to serve on the Board of Directors shall be fixed by the Bylaws. The
present Board of Directors consists of five directors. The persons who are
serving as Directors until the next Annual Meeting or until their successors are
elected and qualified are:
Robert Wussler Jerome Greenberg Roger Remillard
2 Wisconsin Circle, Ste. 700 2778 North Hamden #202 250 Warwick Lane
Chevy Chase, MD 20815 Chicago, IL 60614 Crystal Lake, IL 60014
Thomas Glenndahl Lawrence Siegel
Aspect VisCorp
350 Sansome Street 4764 Park Granada, Ste. 110
San Francisco, CA 94104 Calabasas, CA 91302
Article VII
The Corporation may issue rights and options to purchase shares of stock of
the Corporation to Directors, Officers or Employees of the Corporation or any
affiliate thereof, and no stockholder approval or ratification of any such
issuance of rights and options shall be required.
Article VIII
The stock of the Corporation after payment of the subscription price and
when issued shall be nonassessable.
-2-
<PAGE>
Article IX
The Corporation shall indemnify and hold the Officers and Directors of the
Corporation harmless and free from liability for any claims received against
said Officer and/or Director in the performance of their duties on behalf of the
Corporation and shall, further, reimburse said persons for any legal expenses
incurred in the defense of such claims pursuant to NRS 78, Section 2 and 3 as
amended."
---------------------
The number of shares of the Corporation outstanding and entitled to vote on
an amendment to the Articles of Incorporation are 15,900,000; and said changes
and amendment have been consented to and approved by a majority vote of
stockholders holding at least a majority of each class of stock outstanding and
entitled to vote thereon.
/s/ Lawrence Siegel
--------------------------------
Lawrence Siegel, President
/s/ Hugh A. Jencks
--------------------------------
Hugh A. Jencks, Secretary
State of California )
)ss.
County of Los Angeles)
On October 23, 1997, before me, the undersigned Notary Public, personally
--
appeared Lawrence Siegel and Hugh A. Jencks, known to me or satisfactorily
proven to be the persons whose names are subscribed to the foregoing instrument,
and acknowledged that they executed the same in the capacities and for the
purposes therein contained.
In witness whereof, I have hereunto set my hand and official seal on
the day and year first above written.
/s/ Bahram Eftekhari
-----------------------------------
Notary Public
My Commission Expires: ------------------------------------
BAHRAM EFTEKHARI
3/3/2000 COMM. #1089171
- ---------------------- [Seal] NOTARY PUBLIC-CALIFORNIA
LOS ANGELES COUNTY
My Comm. Exp. Mar. 3, 2000
-----------------------------------
-3-
<PAGE>
FILED
IN THE OFICE OF THE
SECRETARY OF STATE OF THE
STATE OF NEVADA
OCT 24 1997
No. C3741-84
------------
/s/ Dean Heller
DEAN HELLER, SECRETARY OF STATE
THIS FORM SHOULD ACCOMPANY RESTATED ARTICLES (PURSUANT TO NRS 78.403 (b))
OF INCORPORATION FOR A NEVADA CORPORATION
1. Name of corporation VisCorp
--------------------------------------------------------
2. Date of adoption of Amended and Restated Articles October 8, 1997
--------------------------
3. If the articles were amended, please indicate what changes have been made:
(a) Was there a name change? Yes[X] No[_] If yes, what is the new name?
U.S. Digital Communications, Inc.
-----------------------------------------------------------------------
(b) Did you change the resident agent? Yes[_] No[X] If yes, please
indicate the new resident agent and address.
-----------------------------------------------------------------------
-----------------------------------------------------------------------
Please attach the resident agent acceptance certificate.
(c) Did you change the purposes? Yes[_] No[X] Did you add Banking? [_]
Gaming? [_] Insurance? [_] None of these? [X]
(d) Did you change the capital stock? Yes[_] No[X] If yes, what is the
new capital stock?
-----------------------------------------------------------------------
(e) Did you change the directors? Yes[X] No[_] If yes,indicate the
change:
All new directors listed in Restated Articles.
-----------------------------------------------------------------------
(f) Did you add the directors liability provision? Yes[X] No[_] Changed
existing provision.
(g) Did you change the period of existence? Yes[_] No[X] If yes, what
is the new existence?
-----------------------------------------------------------------------
(h) If none of the above apply, and you have amended or modified the
articles, how did you change your articles?
Initial business deleted; principal office deleted; specific
-----------------------------------------------------------------------
right to distribute property to shareholders deleted.
-----------------------------------------------------------------------
-----------------------------------------------------------------------
/s/ Lawrence Siegel
Lawrence Siegel, President 10/23/97
- ----------------------------------------------------- -------------------------
Name and Title of Officer Date
State of California |
-------------------- |
|ss.
County of Los Angeles |
------------------- |
On 10/23/97 , personally appeared before me, a Notary Public,
---------------------
Lawrence Siegel , who acknowledged that he/she executed the above instrument.
- ----------------
/s/ Bahram Eftekhari
-------------------------
Notary Public
-----------------------------------
BAHRAM EFTEKHARI
(NOTARY STAMP OR SEAL) COMM. # 1089171
[Seal] NOTARY PUBLIC-CALIFORNIA
---------- LOS ANGELES COUNTY
My Comm. Exp. Mar. 3, 2000
-----------------------------------
<PAGE>
EXHIBIT 4.2
- -------------------- --------------------
NUMBER SHARES
- -------------------- --------------------
SPECIMEN
INCORPORATED UNDER THE LAWS OF THE STATE OF NEVADA
U.S. DIGITAL COMMUNICATIONS, INC.
----------------
CUSIP 90332A 206
----------------
This Certifies that is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF THE SERIES A PREFERRED STOCK OF THE PAR
VALUE OF $0.01 EACH OF
U.S. DIGITAL COMMUNICATIONS, INC.
transferable only on the books of the Corporation by the holder hereof in person
or by duly authorized Attorney upon surrender of this Certificate properly
endorsed.
A statement, in full, of all the designations, preferences, qualifications,
limitations and special or relative rights of the shares of each class
authorized to be issued, will be furnished by the Corporation to any
shareholder upon request and without charge.
IN WITNESS WHEREOF, the said Corporation has caused this Certificate to be
signed by its duly authorized officers and its Corporate Seal to be hereunto
affixed.
Dated ___________________
_______________________________
PRESIDENT
_________________________
SECRETARY
<PAGE>
For Value Received, _______ hereby sell, assign and transfer unto _________
________________________________________________________________________________
_________________________________________________________________________ Shares
represented by the within Certificate and do hereby irrevocably constitute and
appoint _______________________________________________________________ Attorney
to transfer the said Shares in the books of the within named Corporation with
full power of substitution in the premises.
Dated: _______________________ 19 ___
In presence of
______________________________________
_________________________________________
NOTICE THE SIGNATURE OF THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE
FACE OF THE CERTIFICATE, IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER
Certificate
for
[LOGO]
ISSUED TO
DATED
<PAGE>
EXHIBIT 4.3
INCORPORATED UNDER THE LAWS OF THE STATE OF NEVADA
-------------- --------------
NUMBER SHARES
-------------- --------------
SPECIMEN
U.S. DIGITAL COMMUNICATIONS, INC.
Authorized Capital Stock: 60,000,000 Shares - Par Value $0.01 Per Share
50,000,000 Shares Common Stock 10,000,000 Shares Preferred Stock
--------------------------------------
3,000 Shares Series B Preferred Stock
SERIES B
This Certifies that _________________________________________ is the registered
holder of _____________________________ Shares of Series B Preferred Stock
transferable only on the books of the Corporation by the holder hereof in person
or by Attorney upon surrender of this Certificate properly endorsed.
In Witness Whereof, the said Corporation has caused this Certificate to be
signed by its duly authorized officers and its Corporate Seal hereunto affixed.
this _______ day of _________________ A.D. ______
/s/ Hugh Jencks /s/ Robert J. Wussler
- ----------------------------- --------------------------------
SECRETARY PRESIDENT
<PAGE>
NOTICE THE SIGNATURE OF THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE
OF THE CERTIFICATE. IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT, OR ANY CHANGE WHATEVER.
FOR VALUE RECEIVED ____________ HEREBY SELL, ASSIGN AND TRANSFER UNTO
___________________
_____________________________________________________________________
PLEASE INSERT SOCIAL SECURITY OR
OTHER IDENTIFYING NUMBER OF ASSIGNEE
_____________________________________________________________________
__________________________________________________ SHARES REPRESENTED
BY THE WITHIN CERTIFICATE AND DO HEREBY IRREVOCABLY CONSTITUTE AND
APPOINT ____________________________________________________ ATTORNEY
TO TRANSFER THE SAID SHARES ON THE SHARE REGISTER OF THE WITHIN NAMED
CORPORATION WITH FULL POWER OF SUBSTITUTION IN THE PREMISES.
DATED ________________________ ____
IN PRESENCE OF _______________________ ) ____________________________
)
______________________________________ ) ____________________________
"The securities represented hereby have not been registered
under the Securities Act of 1933, as amended, or applicable
state securities laws, nor the securities laws of any other
jurisdiction. They may not be sold or transferred in the
absence of an effective registration statement under those
securities laws or an opinion of counsel, reasonable
satisfactory to the Company, that the sale or transfer is
pursuant to an exemption to the registration requirements of
those securities laws."
<PAGE>
EXHIBIT 4.4
INCORPORATED UNDER THE LAWS OF THE STATE OF NEVADA
NUMBER SHARES
U.S. DIGITAL COMMUNICATIONS, INC.
AUTHORIZED TO ISSUE 50,000,000 COMMON SHARES, 10,000,000 PREFERRED SHARES, AND
4,000 SERIES C PREFERRED SHARES
PAR VALUE $.01 PER SHARE
SERIES C PREFERRED STOCK
This certifies that is the registered holder of
------------------------------
Shares of the capital stock of the above named
- --------------------------------
corporation, fully paid and non-assessable, transferable only on the books of
the Corporation by the holder hereof in person or by Attorney upon surrender of
this Certificate properly endorsed.
In Witness Whereof, the said Corporation has caused this Certificate to be
signed by its duly authorized officers and its Corporate Seal to be hereunto
affixed this day of A.D. 19
------------- ------------- --
---------------------------------- ----------------------------------
SECRETARY PRESIDENT
<PAGE>
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM -as tenants in common UNIF GIFT MIN ACT-......Custodian.......
(Cust) (Minor)
TEN ENT -as tenants by the entireties under Uniform Gifts to Minors
JT TEN -as joint tenants with right of
survivorship and not as tenants Act........................
in common (State)
Additional abbreviations may also be used though not in the above list.
For Value Received, _______ hereby sell, assign and transfer unto _________
________________________________________________________________________________
_________________________________________________________________________ Shares
represented by the within Certificate and do hereby irrevocably constitute and
appoint _______________________________________________________________ Attorney
to transfer the said Shares on the books of the within named Corporation with
full power of substitution in the premises.
Dated: _______________________ 19 ___
In presence of
______________________________________
_________________________________________
NOTICE THE SIGNATURE OF THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE
FACE OF THE CERTIFICATE, IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER
<PAGE>
EXHIBIT 4.6
FILED
IN THE OFFICE OF THE
SECRETARY OF STATE OF THE
STATE OF NEVADA
APR 23 1998
NO. C3741-84
--------
/s/ Dean Heller
DEAN HELLER, SECRETARY OF STATE
CERTIFICATE OF DESIGNATION, NUMBER, POWERS,
PREFERENCES AND RELATIVE, PARTICIPATING
OPTIONAL, AND OTHER SPECIAL RIGHTS AND THE
QUALIFICATIONS, LIMITATIONS, RESTRICTIONS,
AND OTHER DISTINGUISHING CHARACTERISTICS OF
SERIES B PREFERRED STOCK
OF
U.S. DIGITAL COMMUNICATIONS, INC.
The undersigned President and Secretary of this Corporation hereby certify
that Board of Directors of this Corporation, pursuant to the authority expressly
vested in it has adopted the following resolutions creating a Series B issue of
Preferred Stock:
RESOLVED, that three thousand (3,000) of the ten million authorized shares
of Preferred Stock of the Corporation shall be designated Series B Preferred
Stock (the "Series B Preferred Stock") and shall possess the rights and
privileges set forth below:
A. Par Value, Stated Value, Accretion Rate, Purchase Price and
-----------------------------------------------------------
Certificates.
------------
1. Each share of Series B Preferred Stock shall have a no par
value of and a stated value (face amount) of One Thousand Dollars
($1,000.00) (the "Stated Value").
2. The Series B Preferred Stock shall be offered at a purchase
price of One Thousand Dollars ($1,000.00) per share.
3. Certificates representing the shares of Series B Preferred
Stock purchased shall be issued by the Corporation to the
purchasers immediately upon acceptance of the subscriptions to
purchase such shares.
B. Dividends.
---------
1. The Series B Preferred Stock will bear no dividends, and the
holders of the Series B Preferred Stock shall not be entitled to
the receipt of dividends on the Series B Preferred Stock.
<PAGE>
C. Liquidation Preference.
----------------------
1. In the event of any liquidation, dissolution or winding-up
of the Corporation, either voluntary or involuntary (a
"Liquidation"), the holders of shares of the Series B Preferred
Stock then issued and outstanding shall be entitled to be paid
out of the assets of the Corporation available for distribution
to its shareholders, whether from capital, surplus or earnings,
before any payment shall be made to the holders of shares of the
Common Stock or upon any other series of Preferred Stock of the
Corporation with a liquidation preference subordinate to the
liquidation preference of the Series A Preferred Stock, an amount
per share equal to the sum of (i) the Stated Value and (ii) an
amount equal to zero percent (0.00%) of the Stated Value
multiplied by the fraction N/365, where N equals the number of
days elapsed since full payment for the shares of Series B
Preferred Stock was deposited with the escrow agent for the
offering of the Series B Preferred Stock. If, upon any
Liquidation of the Corporation, the assets of the Corporation
available for distribution to its shareholders shall be
insufficient to pay the holders of shares of the Series B
Preferred Stock and the holders of any other series of Preferred
Stock with a liquidation preference equal to the liquidation
preference of the Series B Preferred Stock the full amounts to
which they shall respectively be entitled, the holders of shares
of the Series B Preferred Stock and the holders of any other
series of Preferred Stock with liquidation preference equal to
the liquidation preference of the Series B Preferred Stock shall
receive all of the assets of the Corporation available for
distribution and each such holder of shares of the Series B
Preferred Stock and the holders of any other series of Preferred
Stock with a liquidation preference equal to the liquidation
preference of the Series B Preferred Stock shall share ratably in
any distribution in accordance with the amounts due such
shareholders. After payment shall have been made to the holders
of shares of the Series B Preferred Stock of the full amount to
which they shall be entitled, as aforesaid, the holders of shares
of the Series B Preferred Stock shall be entitled to no further
distributions thereon and the holders of shares of the Common
Stock and of shares of any other series of stock of the
Corporation shall be entitled to share, according to their
respective rights and preferences, in all remaining assets of the
Corporation available for distribution to its shareholders.
-2-
<PAGE>
2. A merger or consolidation of the Corporation with or into
any other corporation, or a sale, lease, exchange, or transfer of
all or any part of the assets of the Corporation which shall not
in fact result in the liquidation (in whole or in part) of the
Corporation and the distribution of its assets to its
shareholders shall not be deemed to be a voluntary or involuntary
liquidation (in whole or in part), dissolution, or winding-up of
the Corporation.
D. Conversion of Series B Preferred Stock.
--------------------------------------
The holders of Series B Preferred Stock shall have the following
conversion rights:
1. Right to Convert. Fifty percent (50%) of each share of
----------------
Series B Preferred Stock shall be convertible, on the effective
date of registration and at the Conversion Prices set forth
below, into fully paid and nonassessable shares of Common Stock
and the remaining fifty percent (50%) of each share of Series B
Preferred Stock shall be convertible on the forty-fifty (45th)
day after the effective date of registration at the Conversion
Prices set forth below (sometimes referred to herein as
"Conversion Shares").
2. Mechanics of Conversion. Each holder of Series B Preferred
-----------------------
Stock who desires to convert the same into shares of Common Stock
shall provide notice ("Conversion Notice") via telecopy
(facsimile) to the Corporation. The original Conversion Notice
and the certificate or certificates representing the Series B
Preferred Stock for which conversion is elected, shall be
delivered to the Corporation by international courier, duly
endorsed. The date upon which a Conversion Notice is received by
the Corporation shall be a "Notice Date."
Upon receipt by the Corporation of a facsimile copy of a Conversion Notice,
the Corporation shall immediately send to the holder, via telecopy (facsimile),
a confirmation of receipt of the Conversion notice which shall specify that the
Conversion Notice has been received and the name and telephone number of a
contact person at the Corporation whom the holder should contact regarding
information related to the conversion. The Corporation shall use all reasonable
efforts to issue and deliver within three (3) business days after the Notice
Date, to such holder of Series B Preferred Stock at the address of the holder on
the stock books of the Corporation, a certificate or certificates for the number
of shares of Common Stock to which the holder shall be entitled as aforesaid;
provided that the original shares of Series B Preferred Stock to be converted
are received by the transfer agent or the Corporation within three (3)
-3-
<PAGE>
Business days after the Notice Date and the person or persons entitled to
receive the shares of Common Stock issuable upon such conversion shall be
treated for all purposes as the record holder or holders of such shares of
Common Stock on such date. If the original certificate(s) representing the
shares of Series B Preferred Stock to be converted are not received by the
transfer agent or the Corporation within three (3) business days after the
Notice Date, the Conversion Notice shall become null and void.
3. Lost or Stolen Certificates. Upon receipt by the Corporation of
---------------------------
evidence of the loss, destruction, theft or mutilation of any Series B
Preferred Stock certificates (the "Certificates") and (in the case of
loss, theft or destruction) of indemnity or security reasonably
satisfactory to the Corporation, and upon surrender and cancellation
of the Certificates, if mutilated, the Corporation shall execute and
deliver new Series B Preferred Stock Certificates of like tenor and
date. However, the Corporation shall not be obligated to re-issue such
lost or stolen Series B Preferred Stock Certificates if the holder
thereof contemporaneously requests the Corporation to convert such
Series B Preferred Stock into Common Stock, in which event the
Corporation shall be entitled to rely on an affidavit of loss,
destruction or theft of the Series B Preferred Stock Certificate or,
in the case of mutilation, tender of the mutilated certificate, and
shall issue the Conversion Shares.
4. Conversion Dates. The shares of Series B Preferred Stock shall
----------------
become convertible into shares of Common Stock at any time commencing
------
(i) the effective date of a registration statement covering the
Conversion Shares and (ii) forty-five (45) days after the effective
date of registration of the shares to be converted (referred to as a
"Conversion Date").
5. Conversion Formula/ Conversion Price. Each share of Series B
------------------------------------
Preferred Stock shall be convertible into the number of shares of
Common Stock in accordance with the following formula (the "Conversion
Formula"):
[(.00) x (N/365) x (1,000)] + 1.000
-----------------------------------=
Conversion Price
where,
N= the number of days between (i) the date that, in connection with the
consummation of the initial purchase by holder of shares
-4-
<PAGE>
of Series B Preferred Stock from the Corporation, the escrow
agent first had in its possession funds representing full payment
for the shares of Series B Preferred Stock being converted, and
(ii) the Notice Date.
Conversion
Price = Discount Price or the Ceiling Price, whichever is less,
but in no event shall the Conversion Price be less than
the Floor Price.
Discount
Price = 25% of five (5)-day average Closing Bid Price for the
Corporation's Common Stock immediately before
Conversion Date.
Ceiling
Price = 100% of Closing Bid Price for the Corporation's Common
Stock the date of Closing.
Floor Price = $.50 per share of the Corporation's Common Stock with
the agreement to adjust the floor should the
Corporation's Common Stock trade less than $.50 per
share for five (5) consecutive days prior to the
conversion dates herein. The adjusted floor shall then
be the lowest Closing Bid Price for the Corporation's
Common Stock during such five (5)-day period.
For purposes hereof, the term "Closing Bid Price" shall mean the closing
bid price for the Corporation's Common Stock on the NASD Electronic Bulletin
Board, or if no longer traded thereon, the closing bid price on the principal
national securities exchange on which the Common Stock is so traded. The holder
shall be entitled to an additional discount privilege equal to one percent (1%)
per month, or fraction of a month, from the time of closing until the Conversion
Date for any conversions thirty (30) days after the Conversion Date and one-half
percent (1/2%) per month or fraction of a month for any conversions thereafter
("Additional Discount").
6. Automatic Conversion. Each share of Series B Preferred
--------------------
Stock outstanding on May 1, 2001 automatically shall be converted
into Common Stock on such date in accordance with the Conversion
Formula and the Conversion Price then in effect, and May 1, 2001
shall be deemed to be the Notice Date with respect to such
conversion.
- 5 -
<PAGE>
7. No Fractional Shares. If any conversion of the Series B Preferred
--------------------
Stock would create a fractional share of Common Stock or a right to
acquire a fractional share of Common Stock, such fractional share shall
be disregarded and the number of shares of Common Stock issuable upon
conversion, if the aggregate, shall be the next higher number of
shares.
8. Reservation of Stock Issuable Upon Conversion. The Corporation shall at
---------------------------------------------
all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the
conversion of the shares of the Series B Preferred Stock, such number
of its shares of Common Stock as shall from time to time be sufficient
to effect the conversion of all then outstanding shares of the Series B
Preferred Stock; and if at any time the number of authorized but
unissued shares of Common Stock shall not be sufficient to effect the
conversion of all then outstanding shares of the Series B Preferred
Stock, the Corporation will take such corporate action as may be
necessary to increase its authorized but unissued shares of Common
Stock to such number of shares as shall be sufficient for such purpose.
9. Adjustment to Conversion Price.
------------------------------
(a) If, prior to the conversion of all shares of Series B Preferred
Stock, the number of outstanding shares of Common Stock is increased
by a stock split, stock dividend, or other similar event, the
Conversion Price shall be proportionately reduced, or if the number
of outstanding shares of Common Stock is decreased by a combination
or reclassification of shares, or other similar event, the Conversion
Price shall be proportionately increased.
(b) If, prior to the conversion of all shares of Series B Preferred
Stock, there shall be any merger, consolidation, exchange of shares,
recapitalization, reorganization, or other similar event, as a result
of which shares of Common Stock of the Corporation shall be changed
into the same or a different number of shares of the same or another
class or classes of stock or securities of the Corporation or another
entity, then the holders of Series B Preferred Stock shall thereafter
have the right to purchase and receive upon conversion of shares of
Series B Preferred Stock, upon the basis and upon the terms and
conditions specified herein and
-6-
<PAGE>
in lieu of the shares of Common Stock immediately
theretofore issuable upon conversion, such shares of stock
and/or securities as may be issued or payable with respect
to or in exchange for the number of shares of Common Stock
immediately theretofore purchasable and receivable upon the
conversion of shares of Series B Preferred Stock held by
such holders had such merger, consolidation, exchange of
shares, recapitalization or reorganization not taken place,
and in any such case appropriate provisions shall be made
with respect to the rights and interests of the holders of
the Series B Preferred Stock to the end that the provisions
hereof (including, without limitation, provisions for
adjustment of the Conversion Price and of the number of
shares issuable upon conversion of the Series B Preferred
Stock) shall thereafter be applicable, as nearly as may be
practicable in relation to any shares of stock or securities
thereafter deliverable upon the exercise hereof. The
Corporation shall not effect any transaction described in
this subsection unless the resulting successor or acquiring
entity (if not the Corporation) assumes by written
instrument the obligation to deliver to the holders of the
Series B Preferred Stock such shares of stock and/or
securities as, in accordance with the foregoing provisions,
the holders of the Series B Preferred Stock may be entitled
to purchase.
(c) If any adjustment under this subsection would create a
fractional share of Common Stock or a right to acquire a
fractional share of Common Stock, such fractional share
shall be disregarded and the number of shares of Common
Stock issuable upon conversion shall be the next higher
number of shares.
10. Redemption Privilege. The Corporation shall have the right,
--------------------
in its sole discretion, to redeem in whole or in part any shares
of Series B Preferred Stock submitted for conversion. The
redemption price per share of Common Stock after conversion of
the Series B Preferred Stock shall be calculated as 133% of the
face value plus any accrued Additional Discount.
E. Voting. Except as otherwise provided below or by the General
------
Corporation Law of the State of Nevada, the holders of the Series B
Preferred Stock shall have no voting power whatsoever, and no holder
of Series B Preferred Stock shall vote or otherwise participate in any
-7-
<PAGE>
proceeding in which actions shall be taken by the Corporation
or the shareholders thereof or be entitled to notification
as to any meeting of the Board of Directors or the shareholders.
Notwithstanding the above, Corporation shall provide holders of the Series
B Preferred Stock ("Holders") with notification of any meeting of the
shareholders regarding any major corporate events affecting the Corporation. In
the event of any taking by the Corporation of a record of its shareholders for
the purpose of determining shareholders who are entitled to receive payment of
any dividend or other distribution, any right to subscribe for, purchase or
otherwise acquire any share of any class or any other securities or property
(including by way of merger, consolidation or reorganization), or to receive any
other right, or for the purpose of determining shareholders who are entitled to
vote in connection with any proposed sale, lease or conveyance of all or
substantially all of the assets of the Corporation, or any proposed liquidation,
dissolution or winding up of the Corporation, the Corporation shall mail a
notice to the Holders, at least ten (10) days prior to the record date specified
therein, of the date on which any such record is to be taken for the purpose of
such dividend, distribution, right or other event, and a brief statement
regarding the amount and character of such dividend, distribution, right or
other event to the extent known at such time.
To the extent that, under Nevada law, the vote of the Holders, voting
separately as a class, is required to authorize a given action of the
Corporation, the affirmative vote or consent of the Holders of at least a
majority of the shares of the Series B Preferred Stock represented at a duly
held meeting at which a quorum is present or by written consent of a majority of
the shares of Series B Preferred Stock (except as otherwise may be required
under Nevada law) shall constitute the approval of such action by the class. To
the extent that under Delaware law the Holders are entitled to vote on a matter
with holders of Common Stock, voting together as one (1) class, each share of
Series B Preferred Stock shall be entitled to a number of votes equal to the
number of shares of Common Stock into which it is then convertible using the
record date for the taking of such vote of stockholders as the date as of which
the Conversion Price is calculated. The Holders also shall be entitled to notice
of all shareholder meetings or written consents with respect to which they would
be entitled to vote, which notice would be provided pursuant to the
Corporation's by-laws and applicable statutes.
F. Protective Provisions. So long as shares of Series B Preferred
---------------------
Stock are outstanding, the Corporation shall not, without first
obtaining the approval (by vote or written consent, as provided by
law) of the Holders of at least seventy-five percent (75%) of the
then outstanding shares of Series B Preferred Stock:
-8-
<PAGE>
(a) alter or change the rights, preferences or privileges of
the Series B Preferred Stock so as to affect adversely the
Series B Preferred Stock;
(b) create any new class or series of stock or issue any
capital stock senior to or having a preference over or parity
with the Series B Preferred Stock with respect to dividends,
payments upon Liquidation (as provided for in Section B of
this Designation) or redemption, except for a class of stock
approved by WS Marketing & Financial Services, Inc. d/b/a
SMS Capital Services, or increase the number of authorized
shares of Series B Preferred Stock or change the Stated
Value thereof;
(c) do any act or thing not authorized or contemplated by
this Designation which would result in taxation of the
holders of shares of the Series B Preferred Stock under
Section 305 of the Internal Revenue Code of 1986, as
amended (or any comparable provision of the Internal
Revenue Code as hereafter from time to time amended); or
(d) enter into a merger in which the Corporation is not the
surviving corporation; provided, however, that the
provisions of this subparagraph (d) shall not be applicable to
any such merger if the authorized capital stock of the
surviving corporation immediately after such merger shall
include only classes or series of stock for which no such
consent or vote would have been required pursuant to this
section if such class or series had been authorized by the
Corporation immediately prior to such merger or which
have the same rights, preferences and limitations and
authorized amount a class or series of stock of the
Corporation authorized (with such consent or vote of the
Series B Preferred Stock) prior to such merger and
continuing as an authorized class or series at the time
thereof.
G. Status of Converted Stock. In the event any shares of Series B
-------------------------
Preferred Stock shall be converted as contemplated by this Designation,
the shares so converted shall be canceled, shall return to the status of
authorized but unissued Preferred Stock of no designated class or series,
and shall not be issuable by the Corporation as Series B Preferred Stock.
-9-
<PAGE>
H. Taxes. All shares of Common Stock issued upon conversion of
-----
Series B Preferred Stock will be validly issued, fully paid and
nonassessable. The Corporation shall pay any and all documentary
stamp or similar issue or transfer taxes that may be payable in
respect of any issue or delivery of shares of Common Stock on
conversion of Series B Preferred Stock pursuant hereto. The
Corporation shall not, however, be required to pay any tax which
may be payable in respect of any transfer involved in the issue
and delivery of shares of Common Stock in a name other than that
in which the Series B Preferred Stock so converted were
registered, and no such issue or delivery shall be made unless
and until the person requesting such transfer has paid to the
Corporation the amount of any such tax or has established to the
satisfaction of the Corporation that such tax has been paid or
that no such tax is payable. The Corporation shall adjust the
amount of dividends paid or accrued so as to indemnify the
holders of Preferred Stock against any withholding or similar tax
in respect of such dividends.
FURTHER RESOLVED, that the statements contained in the foregoing
resolutions creating and designating the said Series B Preferred Stock and
fixing the number, powers, preferences and relative, optional, participating,
and other special rights and the qualifications, limitations, restrictions, and
other distinguishing characteristics thereof shall, upon the effective date of
said series, be deemed to be included in and be a part of the certificate of
incorporation of the Corporation pursuant to the provisions the General
Corporation Law of the State of Nevada.
Signed on April 21, 1998.
--------
/s/ Robert J. Wussler
---------------------------------
ROBERT WUSSLER, President
U.S. DIGITAL COMMUNICATIONS, INC.
/s/ [ILLEGIBLE]
---------------------------------
Assistant, Secretary
---------
U.S. DIGITAL COMMUNICATIONS, INC.
-10-
<PAGE>
STATE OF MARYLAND )
)ss.
County of Montgomery )
----------
On April 21, 1998, before me, the undersigned Notary Public, personally
--
appeared ROBERT WUSSLER, known to me or satisfactorily proved to be the person
whose name is subscribed to the foregoing instrument, and acknowledged that he
executed the same in the capacity and for the purposes therein contained.
In witness whereof, I have hereunto set my hand and official seal on the
day and year first above written.
/s/Patricia Dennis
------------------
Notary Public
My Commission Expires:
9/12/01
---------------------
-11-
<PAGE>
------------------------------
STATE OF NEVADA
Secretary of State
I hereby certify that this is a
true and complete copy of
the document as filed in this
office.
APR 24 '98
/s/Dean Heller
DEAN HELLER
Secretary of State
By D. Farmer
---------
------------------------------
-12-
<PAGE>
EXHIBIT 4.7
FILED
IN THE OFFICE OF THE
SECRETARY OF STATE OF THE
STATE OF NEVADA
AUG 19 1998 CERTIFICATE OF DESIGNATION, NUMBER, POWERS,
PREFERENCES AND RELATIVE, PARTICIPATING,
No. C3741-84 OPTIONAL, AND OTHER SPECIAL RIGHTS AND THE
-------- QUALIFICATIONS, LIMITATIONS, RESTRICTIONS,
/s/ Dean Heller AND OTHER DISTINGUISHING CHARACTERISTICS OF
DEAN HELLER, SERIES C PREFERRED STOCK
SECRETARY OF STATE
OF
U.S. DIGITAL COMMUNICATIONS, INC.
The undersigned President and Secretary of U.S. Digital Communications,
Inc. (the "Corporation") hereby certify that Board of Directors of the
Corporation, pursuant to the authority expressly vested in it has adopted the
following resolutions creating a Series C issue of Preferred Stock:
RESOLVED, that four thousand (4,000) of the ten million (10,000,000)
authorized shares of Preferred Stock of the Corporation shall be designated
Series C Preferred Stock (the "Series C Preferred Stock") and shall possess the
rights and privileges set forth below:
A. Par Value, Stated Value, Accretion Rate, Purchase Price and
-----------------------------------------------------------
Certificates.
- ------------
1. Each share of Series C Preferred Stock shall have no par
value and a stated value (face amount) of One Thousand Dollars ($1,000.00) (the
"Stated Value").
2. The Series C Preferred Stock shall be offered at a purchase
price of One Thousand Dollars ($1,000.00) per share.
3. Certificates representing the shares of Series C Preferred
Stock purchased shall be issued by the Corporation to the purchasers immediately
upon acceptance of the subscriptions to purchase such shares.
B. Dividends.
---------
1. The Series C Preferred Stock will bear no dividends, and the
holders of the Series C Preferred Stock shall not be entitled to the receipt of
dividends on the Series C Preferred Stock.
C. Liquidation Preference.
----------------------
1. In the event of any liquidation, dissolution or winding-up
of the
-1-
<PAGE>
Corporation, either voluntary of involuntary (a "Liquidation"), the holders of
shares of the Series C Preferred Stock then issued and outstanding shall be
entitled to be paid out of the assets of the Corporation available for
distribution to its shareholders, whether from capital, surplus or earnings,
before any payment shall be made to the holders of shares of the Common Stock or
upon any other series of Preferred Stock of the Corporation with a liquidation
preference subordinate to the liquidation preference of the Series A Preferred
Stock and the Series B Preferred Stock, an amount per share equal to the sum of
(i) the Stated Value and (ii) an amount equal to zero percent (0%) of the Stated
Value multiplied by the fraction N/365, where N equals the number of days
elapsed since full payment for the shares of Series C Preferred Stock was
deposited with the escrow agent for the offering of the Series C Preferred
Stock. If, upon any Liquidation of the Corporation, the assets of the
Corporation available for distribution to its shareholders shall be insufficient
to pay the holders of shares of the Series C Preferred Stock and the holders of
any other series of Preferred Stock with a liquidation preference equal to the
liquidation preference of the Series C Preferred Stock the full amounts to which
they shall respectively be entitled, the holders of shares of the Series C
Preferred Stock and the holders of any other series of Preferred Stock with
liquidation preference equal to the liquidation preference of the Series C
Preferred Stock shall receive all of the assets of the Corporation available for
distribution and each such holder of shares of the Series C Preferred Stock and
the holders of any other series of Preferred Stock with a liquidation preference
equal to the liquidation preference of the Series C Preferred Stock shall share
ratably in any distribution in accordance with the amounts due such
shareholders. After payment shall have been made to the holders of shares of the
Series C Preferred Stock of the full amount to which they shall be entitled, as
aforesaid, the holders of shares of the Series C Preferred Stock shall be
entitled to no further distributions thereon and the holders of shares of the
Common Stock and of shares of any other series of stock of the Corporation shall
be entitled to share, according to their respective rights and preferences, in
all remaining assets of the Corporation available for distribution to its
shareholders.
2. A merger or consolidation of the Corporation with or into any
other corporation, or a sale, lease, exchange, or transfer of all or any part of
the assets of the Corporation which shall not in fact result in the liquidation
(in whole or in part) of the Corporation and the distribution of its assets to
its shareholders shall not be deemed to be a voluntary or involuntary
liquidation (in whole or in part), dissolution, or winding-up of the
Corporation.
D. Conversion of Series C Preferred Stock.
--------------------------------------
The holders of Series C Preferred Stock shall have the following
conversion rights:
1. Right to Convert. Fifty percent (50%) of each share of Series
----------------
C Preferred Stock shall be convertible, on the earlier of (i) the effective date
of registration of the underlying Common Stock of the Corporation or (ii) one
hundred and twenty (120) calendar days after the closing of the offering of the
Series C Preferred Stock (the "Closing"), and at the Conversion Prices set forth
below, into fully paid and nonassessable shares of Common Stock, and the
remaining fifty percent (50%) of each share of Series C Preferred Stock all be
convertible on
-2-
<PAGE>
the earlier of (x) the forty-fifth (45th) day after the effective date of
registration of the underlying Common Stock of the Corporation, or (y) one
hundred and sixty-five (165) calendar days after Closing, at the Conversion
Prices set forth below (sometimes deferred to herein as "Conversion Shares").
2. Mechanics of Conversion. Each holder of Series C Preferred
------------------------
Stock who desires to convert the same into shares of Common Stock shall provide
notice ("Conversion Notice") via telecopy (facsimile) to the Corporation. The
original Conversion Notice and the certificate or certificates representing the
Series C Preferred Stock for which conversion is elected, shall be delivered to
the Corporation by international courier, duly endorsed. The date upon which a
Conversion Notice is received by the Corporation shall be a "Notice Date."
Upon receipt by the Corporation of a facsimile copy of a Conversion Notice,
the Corporation shall immediately send to the holder, via telecopy (facsimile),
a confirmation of receipt of the Conversion notice which shall specify that the
Conversion Notice has been received and the name and telephone number of a
contact person at the Corporation whom the holder should contact regarding
information related to the conversion. The Corporation shall use all reasonable
efforts to issue and deliver within three (3) business days after the Notice
Date, to such holder of Series C Preferred Stock at the address of the holder on
the stock books of the Corporation, a certificate or certificates for the number
of shares of Common Stock to which the holder shall be entitled as aforesaid;
provided that the original shares of Series C Preferred Stock to be converted
are received by the transfer agent or the Corporation within three (3) business
days after the Notice Date and the person or persons entitled to receive the
shares of Common Stock issuable upon such conversion shall be treated for all
purposes as the record holder or holders of such shares of Common Stock on such
date. If the original certificate(s) representing the shares of Series C
Preferred Stock to be converted are not received by the transfer agent or the
Corporation within three (3) business days after the Notice Date, the Conversion
Notice shall become null and void.
3. Lost or Stolen Certificates. Upon receipt by the Corporation of
---------------------------
evidence of the loss, destruction, theft or mutilation of any Series C Preferred
Stock certificates (the "Certificates") and (in the case of loss, theft or
destruction) of indemnity or security reasonably satisfactory to the
Corporation, and upon surrender and cancellation of the Certificates, if
mutilated, the Corporation shall execute and deliver new Series C Preferred
Stock Certificates of like tenor and date. However, the Corporation shall not be
obligated to re-issue such lost or stolen Series C Preferred Stock Certificates
if the holder thereof contemporaneously requests the Corporation to convert such
Series C Preferred Stock into Common Stock, in which event the Corporation shall
be entitled to rely on an affidavit of loss, destruction or theft of the Series
C Preferred Stock Certificate or, in the case of mutilation, tender of the
mutilated certificate, and shall issue the Conversion Shares.
4. Conversion Dates. The shares of Series C Preferred Stock shall
----------------
become convertible into shares of Common Stock as stated in Paragraph D.1.
above. Each notice
-3-
<PAGE>
upon which a holder elects to convert Series C Preferred Stock shall be
considered a Conversion Date with respect to such stock and the shares of Common
Stock into which such stock is converted.
5. Conversion Formula/Conversion Price. Each share of Series C
-----------------------------------
Preferred Stock shall be convertible into the number of shares of Common Stock
in accordance with the following formula (the "Conversion Formula"):
[(.00) x (N/365) x (1,000) + 1,000]
-----------------------------------
Conversion price
where,
N= the number of days between (i) the date that, in connection
with the consummation of the initial purchase by holder of
shares of Series C Preferred Stock from the Corporation, the
escrow agent first had in its possession funds representing
full payment for the shares of Series C Preferred Stock being
converted, and (ii) the Notice Date.
Conversion
Price = Discount Price or the Ceiling Price, whichever is less, but
in no event shall the Conversion Price be less than the
amount derived by multiplying the Floor Price by 75%.
Discount
Price= 25% off of the five (5)-day average Closing Bid Price for the
Corporation's Common Stock immediately before Conversion
Date.
Ceiling
Price= $3.94 per share.
Floor Price= $2.50 per share of the Corporation's Common Stock with the
agreement to adjust the floor should the Corporation's Common
Stock trade less than $2.50 per share for five (5)
consecutive trading days prior to the conversion dates
herein. The adjusted floor shall then be the lowest Closing
Bid Price for the Corporation's Common Stock during such five
(5)-day period from which the Holder shall be entitled to the
Additional Discount.
For purposes hereof, the term "Closing Bid Price" shall mean the closing
bid price for the Corporation's Common Stock on the NASD Electronic Bulletin
Board, or if no longer traded thereon, the closing bid price on the principal
national securities exchange or quotation system on
-4-
<PAGE>
which the Common Stock is so traded. The holder shall be entitled to an
additional discount privilege equal to one percent (1%) per month or fraction of
a month off the five (5) day average closing bid price for the Corporation's
Common Stock immediately before the Conversion Date, from the time of Closing
until the effective date of registration of the underlying Common Stock for any
conversions thirty (30) days after the effective date of registration of the
underlying Common Stock and one-half percent (1/2%) per month or fraction of a
month off the five (5) day average closing bid price for the Corporation's
Common Stock immediately before the Conversion Date for any conversions
thereafter ("Additional Discount").
6. Automatic Conversion. Each share of Series C Preferred Stock
--------------------
outstanding on June 1, 2001 automatically shall be converted into Common Stock
on such date in accordance with the Conversion Formula and the Conversion Price
then in effect, and June 1, 2001 shall be deemed to be the Notice Date with
respect to such conversion.
7. Forced Conversion. In the event the Floor Price is reached for the
-----------------
Corporation's Common Stock for five (5) consecutive trading days, the
Corporation shall have the right, but not the obligation, to require the holders
of Series C Preferred Stock to convert the Series C Preferred Stock into Common
Stock at such time, at the Conversion Price then in effect, and the date upon
which the Floor Price has been reached for the Corporations Common Stock for
five (5) consecutive trading days shall be deemed to be the Notice Date with
respect to such conversion.
8. No Fractional Shares. If any conversion of the Series C Preferred
--------------------
Stock would create a fractional share of Common Stock or a right to acquire a
fractional share of Common Stock, such fractional share shall be disregarded and
the number of shares of Common Stock issuable upon conversion, if the aggregate,
shall be the next higher number of shares
9. Reservation of Stock Issuable Upon Conversion. The Corporation
---------------------------------------------
shall at all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
the shares of the Series C Preferred Stock, such number of its shares of Common
Stock as shall from time to time be sufficient to effect the conversion of all
then outstanding shares of the Series C Preferred Stock; and if at any time the
number of authorized but unissued shares of Common Stock shall not be
sufficient to effect the conversion of all then outstanding shares of the Series
C Preferred Stock, the Corporation will take such corporate action as may be
necessary to increase its authorized but unissued shares of Common Stock to such
number of shares as shall be sufficient for such purpose.
10. Adjustment to Conversion Price.
------------------------------
(a) If, prior to the conversion of all shares of Series C
Preferred Stock, the number of outstanding shares of Common Stock is increased
by a stock split, stock dividend, or other similar event, the Conversion Price
shall be proportionately reduced, or if the number of outstanding shares of
Common Stock is decreased by a combination or reclassification
-5-
<PAGE>
of shares, or other similar event, the Conversion Price shall be proportionately
increased.
(b) If, prior to the conversion of all shares of Series C Preferred
Stock, there shall be any merger, consolidation, exchange of shares,
recapitalization, reorganization, or other similar event, as a result of which
shares of Common Stock of the Corporation shall be changed into the same or a
different number of shares of the same or another class or classes of stock or
securities of the Corporation or another entity, then the holders of Series C
Preferred Stock shall thereafter have the right to purchase and receive upon
conversion of shares of Series C Preferred Stock, upon the basis and upon the
terms and conditions specified herein and in lieu of the shares of Common Stock
immediately theretofore issuable upon conversion, such shares of stock and/or
securities as may be issued or payable with respect to or in exchange for the
number of shares of Common Stock immediately theretofore purchasable and
receivable upon the conversion of shares of Series C Preferred Stock held by
such holders had such merger, consolidation, exchange of shares,
recapitalization or reorganization not taken place, and in any such case
appropriate provisions shall be made with respect to the rights and interests of
the holders of the Series C Preferred Stock to the end that the provisions
hereof (including, without limitation, provisions for adjustment of the
Conversion Price and of the number of shares issuable upon conversion of the
Series C Preferred Stock) shall thereafter be applicable, as nearly as may be
practicable in relation to any shares of stock or securities thereafter
deliverable upon the exercise hereof. The Corporation shall not effect any
transaction described in this subsection unless the resulting successor or
acquiring entity (if not the Corporation) assumes by written instrument the
obligation to deliver to the holders of the Series C Preferred Stock such shares
of stock and/or securities as, in accordance with the foregoing provisions, the
holders of the Series C Preferred Stock may be entitled to purchase.
(c) If any adjustment under this subsection would create a fractional
share of Common Stock or a right to acquire a fractional share of Common Stock,
such fractional share shall be disregarded and the number of shares of Common
Stock issuable upon conversion shall be the next higher number of shares.
11. Redemption Privilege. The Corporation shall have the right, in its
--------------------
sole discretion, to redeem, prior to receipt of the Notice of Conversion, in
whole or in part any shares of Series C Preferred Stock. The redemption price
shall be the greater of (i) 133% of the Stated Value of the Series C Preferred
Stock or (ii) the amount derived by multiplying (x) the number of shares of the
Corporation's Common Stock into which the Series C Preferred Shares could have
been converted calculated as of the date of the Notice of Conversion, by the
closing asking price of the Corporation's Common Stock as of the date of Notice
of Conversion. The Corporation shall not have a redemption privilege if the
Common Stock is trading above $3.50 per share unless the Holder agrees in
writing to allow the Corporation to redeem such shares.
E. Voting. Except as otherwise provided below or by the General
------
Corporation Law of the State of Nevada, the holders of the Series C Preferred
Stock shall have no voting power whatsoever, and no holder of Series C Preferred
Stock shall vote or otherwise participate in any proceeding in which actions
shall be taken by the Corporation or the shareholders
-6-
<PAGE>
thereof or be entitled to notification as to any meeting of the Board of
Directors or the shareholders.
Notwithstanding the above, Corporation shall provide holders of the Series
C Preferred Stock ("Holders") with notification of any meeting of the
shareholders regarding any major corporate events affecting the Corporation. In
the event of any taking by the Corporation of a record of its shareholders for
the purpose of determining shareholders who are entitled to receive payment of
any dividend or other distribution, any right to subscribe for, purchase or
otherwise acquire any share of any class or any other securities or property
(including by way of merger, consolidation or reorganization), or to receive any
other right, or for the purpose of determining shareholders who are entitled to
vote in connection with any proposed sale, lease or conveyance of all or
substantially all of the assets of the Corporation, or any proposed liquidation,
dissolution or winding up of the Corporation, the Corporation shall mail a
notice to the Holders, at least ten (10) days prior to the record date specified
therein, of the date on which any such record is to be taken for the purpose of
such dividend, distribution, right or other event, and a brief statement
regarding the amount and character of such dividend, distribution, right or
other event to the extent known at such time.
To the extent that, under Nevada law, the vote of the Holders, voting
separately as a class, is required to authorize a given action of the
Corporation, the affirmative vote or consent of the Holders of at least a
majority of the shares of the Series C Preferred Stock represented at a duly
held meeting at which a quorum is present or by written consent of a majority of
the shares of Series C Preferred Stock (except as otherwise may be required
under Nevada law) shall constitute the approval of such action by the class. To
the extent that under Nevada law the HOlders are entitled to vote on a matter
with holders of Common Stock, voting together as one (1) class, each share of
Series C Preferred Stock shall be entitled to a number of votes equal to the
number of shares of Common Stock into which it is then convertible using the
record date for the taking of such vote of stockholders as the date as of which
the Conversion Price is calculated. The Holders also shall be entitled to notice
of all shareholder meetings or written consents with respect to which they would
be entitled to vote, which notice would be provided pursuant to the
Corporation's by-laws and applicable statutes.
F. Protective Provisions. So long as shares of Series C Preferred
---------------------
Stock are outstanding, the Corporation shall not, without first obtaining the
approval (by vote or written consent, as provided by law) of the Holders of at
least seventy-five percent (75%) of the then outstanding shares of Series C
Preferred Stock:
(a) alter or change the rights, preferences or privileges of the
Series C Preferred Stock so as to affect adversely the Series C Preferred Stock;
(b) create any new class or series of stock or issue any capital
stock senior to or having a preference over or parity with the Series C
Preferred Stock with respect to dividends, payments upon Liquidation (as
provided for in Section B of this Designation) or redemption, or increase the
number of authorized shares of Series C Preferred Stock or change the Stated
Value thereof;
-7-
<PAGE>
(c) do any act or thing not authorized or contemplated by this
Designation which would result in taxation of the holders of shares of the
Series C Preferred Stock under Section 305 of the Internal Revenue Code of 1986,
as amended (or any comparable provision of the Internal Revenue Code as
hereafter from time to time amended); or
(d) enter into a merger in which the Corporation is not the
surviving corporation; provided, however, that the provisions of this
subparagraph (d) shall not be applicable to any such merger if the authorized
capital stock of the surviving corporation immediately after such merger shall
include only classes or series of stock for which no such consent or vote would
have been required pursuant to this section if such class or series had been
authorized by the Corporation immediately prior to such merger or which have the
same rights, preferences and limitations and authorized amount as a class or
series of stock of the Corporation authorized (with such consent or vote of the
Series C Preferred Stock) prior to such merger and continuing as an authorized
class or series at the time thereof.
G. Status of Converted Stock. In the event any shares of Series C
-------------------------
Preferred Stock shall be converted as contemplated by this Designation, the
shares so converted shall be canceled, shall return to the status of authorized
but unissued Preferred Stock of no designated class or series, and shall not be
issuable by the Corporation as Series C Preferred Stock.
H. Taxes. All shares of Common Stock issued upon conversion of
-----
Series C Preferred Stock will be validly issued, fully paid and nonassessable.
The Corporation shall pay any and all documentary stamp or similar issue or
transfer taxes that may be payable in respect of any issue or delivery of shares
of Common Stock on conversion of Series C Preferred Stock pursuant hereto. The
Corporation shall not, however, be required to pay any tax which may be payable
in respect of any transfer involved in the issue and delivery of shares of
Common Stock in a name other than that in which the Series C Preferred Stock so
converted were registered, and no such issue or delivery shall be made unless
and until the person requesting such transfer has paid to the Corporation the
amount of any such tax or has established to the satisfaction of the Corporation
that such tax has been paid or that no such tax is payable. The Corporation
shall adjust the amount of dividends paid or accrued so as to indemnify the
holders of Preferred Stock against any withholding or similar tax in respect of
such dividends.
FURTHER RESOLVED, that the statements contained in the foregoing
resolutions creating and designating the said Series C Preferred Stock and
fixing the number, powers, preferences and relative, optional, participating,
and other special rights and the qualifications, limitations, restrictions, and
other distinguishing characteristics thereof shall, upon the effective date of
said series, be deemed to be included in and be a part of the certificate of
incorporation of the Corporation pursuant to the provisions the General
Corporation Law of the State of Nevada.
-8-
<PAGE>
Signed on August 7, 1998
--------
US DIGITAL COMMUNICATIONS, INC.
By: /s/Robert J. Wussler
--------------------
Title: Chairman & CEO
--------------
By: /s/ [ILLEGIBLE]
---------------
Title: Secretary
---------
Attest:
By:
------------------
Title:
------------------
[CORPORATE SEAL]
[Seal]
/s/Ellen M. Gott
ELLEN M. GOTT
NOTARY PUBLIC STATE OF MARYLAND
My Commission Expires July 21, 2001
-9-
<PAGE>
EXHIBIT 10.1
VisCorp
NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
Effective as of May 6, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I ESTABLISHMENT.................................................... 1
1.1 Purpose.......................................................... 1
ARTICLE II DEFINITIONS..................................................... 1
2.1 "Affiliate"...................................................... 1
2.2 "Agreement" or "Option Agreement"................................ 1
2.3 "Board of Directors" or "Board".................................. 1
2.4 "Change in Control".............................................. 1
2.5 "Code" or "Internal Revenue Code"................................ 2
2.6 "Commission"..................................................... 2
2.7 "Committee"...................................................... 2
2.8 "Common Stock"................................................... 2
2.9 "Company"........................................................ 2
2.10 "Director"....................................................... 2
2.11 "Disability"..................................................... 3
2.12 "Effective Date"................................................. 3
2.13 "Exchange Act"................................................... 3
2.14 "Fair Market Value".............................................. 3
2.15 "Grant Date"..................................................... 4
2.16 "NASDAQ"......................................................... 4
2.17 "Option"......................................................... 4
2.18 "Option Period".................................................. 4
2.19 "Option Price"................................................... 4
2.20 "Participant".................................................... 4
2.21 "Plan"........................................................... 4
2.22 "Public Offering"................................................ 4
2.23 "Representative"................................................. 4
2.24 "Rule 16b-3" or "Rule 16a-1(c)(3)"............................... 4
2.25 "Securities Act"................................................. 5
ARTICLE III ADMINISTRATION................................................. 5
3.1 Committee Structure and Authority................................ 5
ARTICLE IV STOCK SUBJECT TO PLAN........................................... 6
4.1 Number of Shares................................................. 6
4.2 Release of Shares................................................ 6
4.3 Restrictions on Shares........................................... 6
4.4 Reasonable Efforts To Register................................... 6
4.5 Adjustments...................................................... 7
4.6 Limited Transfer During Offering................................. 7
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE V OPTIONS.......................................................... 7
5.1 Eligibility...................................................... 7
5.2 Grant and Exercise............................................... 8
5.3 Terms and Conditions............................................. 8
5.4 Termination...................................................... 9
ARTICLE VI MISCELLANEOUS................................................... 10
6.1 Amendments and Termination....................................... 10
6.2 General Provisions............................................... 10
6.3 Special Provisions Regarding a Change in Control................. 12
6.4 Delay............................................................ 13
6.5 Headings......................................................... 13
6.6 Severability..................................................... 13
6.7 Successors and Assigns........................................... 13
6.8 Entire Agreement................................................. 13
</TABLE>
ii
<PAGE>
VisCorp
NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
ARTICLE I
---------
ESTABLISHMENT
-------------
1.1 Purpose. The VisCorp Non-employee Directors' Stock Option Plan
-------
("Plan") is hereby established by VisCorp, a Nevada corporation ("Company"),
effective as of May 6, 1996 ("Effective Date"). The purpose of the Plan is to
promote the overall financial objectives of the Company and its stockholders by
motivating directors of the Company who are not employees, to further align the
interests of such directors with those of the stockholders of the Company and to
achieve long-term growth and performance of the Company. The Plan and the grant
of Options hereunder are expressly conditioned upon the Plan's approval by the
stockholders of the Company to the extent required for an application of Rule
16b-3 of the Securities Exchange Act of 1934, as amended, and if such approval
is not obtained, then the Plan and all Options granted thereunder shall be null
and void ab initio.
-- ------
ARTICLE II
----------
DEFINITIONS
-----------
For purposes of the Plan, the following terms are defined as set forth
below:
2.1 "Affiliate" means any individual, corporation, partnership, limited
---------
liability company, association, joint-stock company, trust, unincorporated
association or other entity (other than the Company) that directly, or
indirectly through one or more intermediaries, controls, is controlled by, or is
under common control with, the Company, including, without limitation, any
member of an affiliated group of which the Company is a common parent
corporation as provided in Section 1504 of the Code.
2.2 "Agreement" or "Option Agreement" means, individually or collectively,
--------- ----------------
any agreement entered into pursuant to this Plan pursuant to which an Option is
granted to a Participant.
2.3 "Board of Directors" or "Board" means the Board of Directors of the
------------------ -----
Company.
2.4 "Change in Control" means the happening of any of the following events
-----------------
following a Public Offering: (a) any corporation, person or other entity (other
than the Company, a majority-owned subsidiary of the Company or any of its
subsidiaries, or an employee benefit plan (or related trust) sponsored or
maintained by the Company), including a "group" as defined in Section 13(d)(3)
of the Exchange Act, becomes the
<PAGE>
beneficial owner of stock representing more than the greater of (1) twenty-five
percent (25%) of the combined voting power of the Company's then outstanding
securities or (ii) the percentage of the combined voting power of the Company's
then outstanding securities which equals (A) ten percent (10%) plus (B) the
percentage of the combined voting power of the Company's outstanding securities
held by such corporation, person or entity on the Effective Date; (b)(i) the
stockholders of the Company approve a definitive agreement to merge or
consolidate the Company with or into another corporation other than a
majority-owned subsidiary of the Company, or to sell or otherwise dispose of all
or substantially all of the Company's assets, and (ii) the persons who were the
members of the Board of Directors prior to such approval do not represent a
majority of the directors of the surviving, resulting or acquiring entity or the
parent thereof; (c) the stockholders of the Company approve a plan of
liquidation of the Company; or (d) within any period of 24 consecutive months,
persons who were members of the Board of Directors immediately prior to such 24-
month period, together with any persons who were first elected as directors
(other than as a result of any settlement of a proxy or consent solicitation
contest or any action taken to avoid such a contest) during such 24-month period
by or upon the recommendation of persons who were members of the Board of
Directors of the Company immediately prior to such 24-month period and who
constituted a majority of the Board of Directors at the time of such election,
cease to constitute a majority of the Board.
2.5 "Code" or "Internal Revenue Code" means the Internal Revenue Code of
---- ---------------------
1986, as amended, Treasury Regulations (including proposed regulations)
thereunder and any subsequent Internal Revenue Code.
2.6 "Commission" means the Securities and Exchange Commission or any
----------
successor agency.
2.7 "Committee" means the person or persons appointed by the Board of
---------
Directors to administer the Plan, as further described in the Plan.
2.8 "Common Stock" means the shares of the common stock, par value $.01
------------
per share, of the Company, whether presently or hereafter issued, and any other
stock or security resulting from adjustment thereof as described hereinafter or
the common stock of any successor to the Company which is designated for the
purpose of the Plan.
2.9 "Company" means VisCorp, a Nevada corporation, and includes any
-------
successor or assignee corporation or corporations into which the Company may be
merged, changed or consolidated; any corporation for whose securities the
securities of the Company shall be exchanged; and any assignee of or successor
to substantially all of the assets of the Company.
2.10 "Director" means each and any director who serves on the Board and who
--------
is not an officer or employee of the Company or any of its Affiliates.
2
<PAGE>
2.11 "Disability" means a mental or physical illness that renders a
----------
Participant totally and permanently incapable of performing the Participant's
duties for the Company or an Affiliate. Notwithstanding the foregoing, a
Disability shall not qualify under the Plan if it is the result of (i) a
willfully self-inflicted injury or willfully self-induced sickness; or (ii) an
injury or disease contracted, suffered, or incurred, while participating in a
criminal offense. The determination of Disability for purposes of the Plan shall
not be construed to be an admission of disability for any other purpose.
2.12 "Effective Date" means May 6, 1996.
--------------
2.13 "Exchange Act" means the Securities Exchange Act of 1934, as amended,
------------
and the rules and regulations promulgated thereunder.
2.14 "Fair Market Value" means:
-----------------
(a) prior to a Public Offering, the value determined on the basis of the
good faith determination of the Committee and without regard to whether the
Common Stock is restricted, illiquid or represents a minority interest, unless
expressly provided otherwise in an Agreement;
(b) on the date of a Public Offering, the initial price to the public; and
(c) on or after a Public Offering, the value determined on the basis of the
good faith determination of the Committee, without regard to whether the Common
Stock is restricted or represents a minority interest, pursuant to the
applicable method described below:
(i) if the Common Stock is listed on a national securities exchange or
quoted on NASDAQ, the closing price of the Common Stock on the relevant date
(or, if such date is not a business day or a day on which quotations are
reported, then on the immediately preceding date on which quotations were
reported), as reported by the principal national exchange on which such
shares are traded (in the case of an exchange) or by NASDAQ, as the case may
be;
(ii) if the Common Stock is not listed on a national securities
exchange or quoted on NASDAQ, but is actively traded in the over-the-counter
market, the average of the closing bid and asked prices for the Common Stock
on the relevant date (or, if such date is not a business day or a day on
which quotations are reported, then on the immediately preceding date on
which quotations were reported), or the most recent preceding date for which
such quotations are reported; and
(iii) if, on the relevant date, the Common Stock is not publicly traded
or reported as described in (i) or (ii), the value determined in good faith
by the Committee.
3
<PAGE>
2.15 "Grant Date" means the date as of which an Option is granted pursuant
----------
to the Plan.
2.16 "NASDAQ" means The Nasdaq Stock Market, including the Nasdaq National
------
Market.
2.17 "Option" means the right to purchase the number of shares of Common
------
Stock specified by the Plan at a price and for a term fixed by the Plan, and
subject to such other limitations and restrictions as the Plan and the
Committee imposes.
2.18 "Option Period" means the period during which the Option shall be
-------------
exercisable in accordance with the Agreement and Article V.
2.19 "Option Price" means the price at which the Common Stock may be
------------
purchased under an Option as provided in Section 5.3.
2.20 "Participant" means a Director to whom an Option has been granted
-----------
under the Plan, and in the event a Representative is appointed for a Participant
or another person becomes a Representative, then the term "Participant" shall
mean such appointed Representative. The term also shall include a trust for the
benefit of the Participant, the Participant's parents, spouse or descendants; a
partnership the interests in which are for the benefit of the Participant, the
Participant's parents, spouse or descendants; or a custodian under a uniform
gifts to minors act or similar statute for the benefit of the Participant's
descendants, to the extent permitted by the Committee and not inconsistent with
an application of Rule 16b-3. Notwithstanding the foregoing, the term
"Termination of Directorship" shall mean the Termination of the Directorship of
the Director.
2.21 "Plan" means the VisCorp Non-employee Directors' Stock Option Plan,
----
as herein set forth and as may be amended from time to time.
2.22 "Public Offering" means the initial public offering of shares of
---------------
Common Stock under the Securities Act.
2.23 "Representative" means (a) the person or entity acting as the
--------------
executor or administrator of a Participant's estate pursuant to the last will
and testament of a Participant or pursuant to the laws of the jurisdiction in
which the Participant had the Participant's primary residence at the date of the
Participant's death; (b) the person or entity acting as the guardian or
temporary guardian of a Participant; (c) the person or entity which is the
beneficiary of the Participant upon or following the Participant's death; or (d)
any person to whom an Option has been permissibly transferred by the Committee;
provided that only one of the foregoing shall be the Representative at any point
in time as determined under applicable law and recognized by the Committee.
2.24 "Rule 16b-3" or "Rule 16a-1(c)(3)" mean Rule 16b-3 and Rule
---------- ----------------
16a-1(c)(3), as promulgated under the Exchange Act, as amended from time to
time, or any successor thereto, in effect and applicable to the Plan and
Participants.
4
<PAGE>
2.25 "Securities Act" means the Securities Act of 1933, as amended, and
--------------
the rules and regulations promulgated thereunder.
In addition, certain other terms used herein have definitions given to them
in the first place in which they are used.
ARTICLE III
-----------
ADMINISTRATION
--------------
3.1 Committee Structure and Authority. The Plan shall be administered by
---------------------------------
the Committee which, except as provided herein, shall be comprised of one or
more persons. The Committee shall be the Compensation Committee of the Board of
Directors, unless such committee does not exist or the Board establishes another
committee whose purpose is the administration of the Plan. In the absence of
an appointment, the Board shall be the Committee; provided that only those
members of the Compensation Committee of the Board who participate in the
decision relative to Options under the Plan shall be deemed to be part of the
"Committee" for purposes of the Plan. A majority of the Committee shall
constitute a quorum at any meeting thereof (including telephone conference) and
the acts of a majority of the members present, or acts approved in writing by a
majority of the entire Committee without a meeting, shall be the acts of the
Committee for purposes of the Plan. The Committee may authorize any one or more
of its members or an officer of the Company to execute and deliver documents on
behalf of the Committee. A member of the Committee shall not exercise any
discretion respecting himself or herself under the Plan. The Board shall have
the authority to remove, replace or fill any vacancy of any member of the
Committee upon notice to the Committee and the affected member. Any member of
the Committee may resign upon notice to the Board. The Committee may allocate
among one or more of its members, or may delegate to one or more of its agents,
such duties and responsibilities as it determines.
The Committee shall have the authority, subject to (i) the terms of the
Plan and (ii) the limitations of Rule 16b-3(c)(2)(ii), to adopt, alter and
repeal such administrative rules, guidelines and practices governing the Plan as
it shall, from time to time, deem advisable, to interpret the terms and
provisions of the Plan and any Option issued under the Plan and to otherwise
supervise the administration of the Plan. The Committee's policies and
procedures may differ with respect to Options granted at different times or to
different Participants.
Any determination made by the Committee pursuant to the provisions of the
Plan shall be made in its sole discretion. All decisions made by the Committee
pursuant to the provisions of the Plan shall be final and binding on all
persons, including the Company and Participants. Any determination shall not be
subject to de novo review if challenged in court.
-- ----
5
<PAGE>
ARTICLE IV
----------
STOCK SUBJECT TO PLAN
---------------------
4.1 Number of Shares. Subject to the adjustment under Section 4.5, the
----------------
total number of shares of Common Stock reserved and available for issuance
pursuant to Options under the Plan shall be three hundred thousand (300,000)
shares of Common Stock authorized for issuance on the Effective Date. Such
shares may consist, in whole or in part, of authorized and unissued shares or
treasury shares.
4.2 Release of Shares. The Committee shall have full authority to
-----------------
determine the number of shares of Common Stock available for Stock Options, and
in its discretion may include (without limitation) as available for distribution
any shares of Common Stock that have ceased to be subject to Stock Options, any
shares of Common Stock subject to any Stock Options that are forfeited, any
Stock Options that otherwise terminate without issuance of shares of Common
Stock being made to the Participant, or any shares (whether or not restricted)
of Common Stock that are received by the Company in connection with the exercise
of a Stock Option, including the satisfaction of any tax liability or the
satisfaction of a tax withholding obligation. If any shares could not again be
available for Options to a particular Participant under applicable law, such
shares shall be available exclusively for Options to Participants who are not
subject to such limitations.
4.3 Restrictions on Shares. Shares of Common Stock issued upon exercise
----------------------
of an Option shall be subject to the terms and conditions specified herein and
to such other terms, conditions and restrictions as the Committee in its
discretion may determine or provide in the Option Agreement. The Company shall
not be required to issue or deliver any certificates for shares of Common Stock,
cash or other property prior to (i) the listing of such shares on any stock
exchange, NASDAQ or other public market on which the Common Stock may then be
listed (or regularly traded), (ii) the completion of any registration or
qualification of such shares under federal or state law, or any ruling or
regulation of any government body which the Committee determines to be
necessary or advisable, and (iii) the satisfaction of any applicable withholding
obligation in order for the Company or an Affiliate to obtain a deduction with
respect to the exercise of an Option. The Company may cause any certificate for
any share of Common Stock to be delivered to be properly marked with a legend or
other notation reflecting the limitations on transfer of such Common Stock as
provided in the Plan or as the Committee may otherwise require. The Committee
may require any person exercising an Option to make such representations and
furnish such information as it may consider appropriate in connection with the
issuance or delivery of the shares of Common Stock in compliance with applicable
law or otherwise. Fractional shares shall not be delivered, but shall be rounded
to the next lower whole number of shares.
4.4. Reasonable Efforts To Register. If there has been a Public Offering,
------------------------------
the Company will register under the Securities Act the Common Stock delivered or
deliverable pursuant to Options on Commission Form S-8 if available to the
Company
6
<PAGE>
for this purpose (or any successor or alternate form that is substantially
similar to that form to the extent available to effect such registration), in
accordance with the rules and regulations governing such forms, as soon as such
forms are available for registration to the Company for this purpose. The
Company will use its reasonable efforts to cause the registration statement to
become effective as soon as possible and will file such supplements and
amendments to the registration statement as may be necessary to keep the
registration statement in effect until the earliest of (a) one year following
the expiration of the Option Period of the last Option outstanding, (b) the date
the Company is no longer a reporting company under the Exchange Act and (c) the
date all Participants have disposed of all shares delivered pursuant to any
Option. The Company may delay the foregoing obligation if the Committee
reasonably determines that any such registration would materially and adversely
affect the Company's interests or if there is no material benefit to
Participants.
4.5 Adjustments. In the event of a stock dividend, stock split,
-----------
combination or exchange of shares, recapitalization or other change in the
capital structure of the Company, corporate separation or division of the
Company (including, but not limited to, a split-up, spin-off, split-off or
distribution to Company stockholders other than a normal cash dividend), sale by
the Company of all or a substantial portion of its assets (measured on either a
stand-alone or consolidated basis), reorganization, rights offering, a partial
or complete liquidation, or any other corporate transaction, Company stock
offering or event involving the Company and having an effect similar to any of
the foregoing, then the Committee shall adjust or substitute, as the case may
be, the number of shares of Common Stock available for Options under the Plan,
the number of shares of Common Stock covered by outstanding Options, the
exercise price per share of outstanding Options, and any other characteristics
or terms of the Options as the Committee shall deem necessary or appropriate to
reflect equitably the effects of such changes to the Participants; provided,
however, that any fractional shares resulting from such adjustment shall be
eliminated by rounding to the next lower whole number of shares with appropriate
payment for such fractional share as shall reasonably be determined by the
Committee.
4.6 Limited Transfer During Offering. In the event there is an effective
--------------------------------
registration statement under the Securities Act pursuant to which shares of
Common Stock shall be offered for sale in an underwritten offering, a
Participant shall not, during the period requested by the underwriters managing
the registered public offering, effect any public sale or distribution of shares
received directly or indirectly pursuant to an exercise of an Option.
ARTICLE V
---------
OPTIONS
-------
5.1 Eligibility. Each Director shall be granted Options to purchase
-----------
shares of Common Stock as provided herein.
7
<PAGE>
5.2 Grant and Exercise. Each person who is elected as a Director and
------------------
constitutes an eligible Participant shall be granted an Option on the effective
date of their becoming an eligible Participant to purchase twenty-five thousand
(25,000) shares of Common Stock without further action by the Board or the
Committee. Each person who is subsequently re-elected to a second term as a
Director and continues to constitute an eligible Participant shall, on the date
of such re-election, without further action by the Board or the Committee, be
granted an option to purchase an additional twenty-five thousand (25,000) shares
of Common Stock. Each person who is subsequently re-elected to a third term as
a Director and continues to constitute an eligible Participant shall, on the
date of such re-election, without further action by the Board or the Committee,
be granted an Option to Purchase fifty thousand (50,000) shares of Common Stock.
If the number of shares of Common Stock available to grant under the Plan on a
scheduled date of grant is insufficient to make all automatic grants required to
be made pursuant to the Plan on such date, then each eligible Director shall
receive an Option to purchase a pro rata number of the remaining shares of
Common Stock available under the Plan; provided further, however, that if such
proration results in fractional shares of Common Stock, then such Option shall
be rounded down to the nearest number of whole shares of Common Stock. If there
is no whole number of shares remaining to be granted, then no grants shall be
made under the Plan. Each Option granted under the Plan shall be evidenced by
an Agreement, in a form approved by the Committee, which shall embody the terms
and conditions of such Option and which shall be subject to the express terms
and conditions set forth in the Plan. Such Agreement shall become effective
upon execution by the Participant.
5.3 Terms and Conditions. Options shall be subject to such terms and
--------------------
conditions as shall be determined by the Committee, including in each case the
following:
(a) Option Period. The Option Period of each Option shall be five (5)
-------------
years.
(b) Option Price. The Option Price per share of the Common Stock
------------
purchasable under an Option shall be the Fair Market Value as of the Grant Date.
(c) Exercisability. Unless an earlier time is specified in an Agreement,
--------------
and subject to the provisions of Section 6.3, Options granted on the Effective
Date of a Public Offering shall become fully exercisable upon the Grant Date and
Options granted thereafter shall become exercisable on the first anniversary of
the Grant Date. An Option only shall be exercisable during the Option Period.
(d) Method of Exercise. Subject to the provisions of this Article V, a
------------------
Participant may exercise Stock Options, in whole or in part, at any time during
the Option Period by the Participant's giving written notice of exercise on a
form provided by the Committee (if available) to the Company specifying the
number of shares of Common Stock subject to the Stock Option to be purchased.
Except when waived by the Committee, such notice shall be accompanied by payment
in full of the purchase price by cash or check or such other form of payment
as the Company may
8
<PAGE>
accept. If approved by the Committee (including approval at the time of
exercise), payment in full or in part may also be made (i) by delivering Common
Stock already owned by the Participant having a total Fair Market Value on the
date of such delivery equal to the Option Price; (ii) by the execution and
delivery of a note or other evidence of indebtedness (and any security agreement
thereunder) satisfactory to the Committee and permitted in accordance with
Section 5.3(e); (iii) by authorizing the Company to retain shares of Common
Stock which would otherwise be issuable upon exercise of the Option having a
total Fair Market Value on the date of delivery equal to the Option Price; (iv)
by the delivery of cash or the extension of credit by a broker-dealer to whom
the Participant has submitted a notice of exercise or otherwise indicated an
intent to exercise an Option (in accordance with Part 220, Chapter II, Title 12
of the Code of Federal Regulations, so-called "cashless" exercise); or (v) by
certifying ownership of shares of Common Stock by the Participant to the
satisfaction of the Committee for later delivery to the company as specified by
the committee; or (vi) by any combination of the foregoing or by any other
method permitted by the Committee.
(e) Nontransferability of Options. Except as provided herein or in an
-----------------------------
Agreement, no Option or interest therein shall be transferable by the
Participant other than by will or by the laws of descent and distribution, and
all Options shall be exercisable during the Participant's lifetime only by the
Participant. If and to the extent transferability is permitted by Rule 16b-3 and
except as otherwise provided herein or by an Agreement, every Option granted
hereunder shall be freely transferable, but only if such transfer does not
result in liability under Section 16 of the Exchange Act to the Participant or
other Participants and is consistent with registration of the Option and sale of
Common Stock on Form S-8 (or a successor form) or the Committee's waiver of such
condition.
5.4 Termination. Unless otherwise provided in an Agreement or determined
-----------
by the Committee, if a Participant ceases to be a Director due to death, any
unexpired and unexercised Stock Option held by such Participant shall thereafter
be fully exercisable for a period of ninety (90) days following the date of the
appointment of a Representative (or such other period or no period as the
Committee may specify) or until the expiration of the Option Period, whichever
period is the shorter. Unless otherwise provided in an Agreement or determined
by the Committee, if a Participant ceases to be a Director due to a Disability,
any unexpired and unexercisable Stock Option held by such Participant shall
thereafter be fully exercisable by the Participant for the period of ninety (90)
days (or such other period or no period as the Committee may specify)
immediately following the date the Participant ceases to be a Director or until
the expiration of the Option Period, whichever period is shorter, and the
Participant's death at any time following the date the Participant ceases to be
a Director due to Disability shall not affect the foregoing.
Unless otherwise provided in an Agreement or determined by the Committee,
if a Participant's directorship is terminated for any reason other than due to
Participant's death or Disability, any Option held by such Participant shall
thereupon terminate. Unless otherwise provided in an Agreement, the death or
Disability of a
9
<PAGE>
Participant after a termination of Directorship otherwise provided herein shall
not extend the exercisability of the time permitted to exercise an Option.
ARTICLE VI
----------
MISCELLANEOUS
-------------
6.1 Amendments and Termination. The Board may amend, alter or discontinue
--------------------------
the Plan at any time, but no amendment, alteration or discontinuation shall be
made which would impair the rights of a Participant under a Stock Option,
theretofore granted without the Participant's consent, except such an amendment
(a) made to avoid an expense charge to the Company or an Affiliate, (b) made to
cause the Plan to qualify for the exemption provided by Rule 16b-3, (c) to
prevent the Plan from being disqualified from the exemption provided by Rule
16b-3, or (d) made to permit the Company or an Affiliate a deduction under the
Code. In addition, no such amendment shall be made without the approval of the
Company's stockholders to the extent such approval is required by law or
agreement. Notwithstanding the foregoing, the Plan may not be amended more than
once every six (6) months to change the Plan provisions listed in section
(c)(2)(ii)(A) of Rule 16b-3, other than to comport with changes in the Code or
Rule 16b-3.
The Committee may amend the Plan at any time subject to the same
limitations (and exceptions to limitations) as applied to the Board and further
subject to any approval or limitations the Board may impose.
The Committee may amend the terms of any Stock Option theretofore granted,
prospectively or retroactively, but no such amendment shall impair the rights of
any Participant without the Participant's consent or reduce an Option Price,
except such an amendment made to cause the Plan or Award to qualify for the
exemption provided by Rule 16b-3, avoid an expense charge to the Company or an
Affiliate or qualify for a deduction. The Committee's discretion to amend the
Plan or Agreement shall be limited to the Plan's constituting a plan described
in section (c)(2)(ii) of Rule 16b-3.
Subject to the above provisions, the Board shall have authority to amend
the Plan to take into account changes in law and tax and accounting rules, as
well as other developments, and to grant Awards which qualify for beneficial
treatment under such rules without stockholder approval. Notwithstanding
anything in the Plan to the contrary, if any right under this Plan would cause a
transaction to be ineligible for pooling of interest accounting that would, but
for the right hereunder, be eligible for such accounting treatment, the
Committee may modify or adjust the right so that pooling of interest accounting
is available.
6.2 General Provisions.
------------------
(a) Representation. The Committee may require each person purchasing or
--------------
receiving shares pursuant to an Option to represent to and agree with the
Company
10
<PAGE>
in writing that such person is acquiring the shares without a view to the
distribution thereof in violation of the Securities Act. The certificates for
such shares may include any legend which the Committee deems appropriate to
reflect any restrictions on transfer.
(b) Withholding. If determined to be required to protect the Company, no
-----------
later than the date as of which an amount first becomes includable in the gross
income of the Participant for Federal income tax purposes with respect to any
Option, the Participant shall pay to the Company (or other entity identified by
the Committee), or make arrangements satisfactory to the Company or other entity
identified by the Committee regarding the payment of, any Federal, state, local
or foreign taxes of any kind required by law to be withheld with respect to such
amount. Unless otherwise determined by the Committee, withholding obligations
may be settled with Common Stock, including Common Stock that is part of the
Option that gives rise to the withholding requirement, provided that any
applicable requirements under Section 16 of the Exchange Act are satisfied. The
obligations of the Company under the Plan shall be conditional on such payment
or arrangements, and the Company and its Affiliates shall, to the extent
permitted by law, have the right to deduct any such taxes from any payment
otherwise due to the Participant.
(c) Controlling Law. The Plan and all Options made and actions taken
---------------
thereunder shall be governed by and construed in accordance with the laws of the
State of Illinois (other than its law respecting choice of law) except to the
extent the Nevada Revised Statutes would be mandatorily applicable. The Plan
shall be construed to comply with all applicable law, and to avoid liability to
the Company, an Affiliate or a Participant, including, without limitation,
liability under Section 16(b) of the Exchange Act.
(d) Offset. Any amounts owed to the Company or an Affiliate by the
------
Participant of whatever nature may be offset by the Company from the value of
any shares of Common Stock, cash or other thing of value under the Plan or an
Agreement to be transferred to the Participant, and no shares of Common Stock,
cash or other thing of value under the Plan or an Agreement shall be transferred
unless and until all disputes between the Company and the Participant have been
fully and finally resolved and the Participant has waived all claims to such
against the Company or an Affiliate.
(e) Fail-Safe. With respect to persons subject to Section 16 of the
---------
Exchange Act, transactions under this Plan are intended to comply with all
applicable conditions of Rule 16b-3 or Rule 16a-1(c)(3). To the extent any
provision of the Plan or action by the Committee fails to so comply, it shall be
deemed null and void, to the extent permitted by law and deemed advisable by the
Committee. Moreover, in the event the Plan does not include a provision required
by Rule 16b-3 or Rule 16a-1(c)(3) to be stated therein, such provision (other
than one relating to eligibility requirements, or the price and amount of
Options) shall be deemed to be incorporated by reference into the Plan with
respect to Participants subject to Section 16.
11
<PAGE>
6.3 Special Provisions Regarding a Change in Control. Notwithstanding
------------------------------------------------
any other provision of the Plan to the contrary, unless otherwise provided in an
Agreement, in the event of a Change in Control:
(a) Any Stock Options outstanding as of the date of such Change in Control
and not then exercisable shall become fully exercisable to the full extent of
the original grant;
(b) The Committee shall have full discretion, notwithstanding anything
herein or in an Option Agreement to the contrary, to do any or all of the
following with respect to an outstanding Stock Option:
(1) To cause any Stock Option to be cancelled, provided notice
of at least 15 days thereof is provided before the date of
cancellation;
(2) To provide that the securities of another entity be
substituted hereunder for the Common Stock and to make
equitable adjustment with respect thereto;
(3) To grant the Participant by giving notice during a pre-set
period to surrender all or part of a Stock Option to the
Company and to receive cash in an amount equal to the
amount by which the "Change in Control Price" (as defined in
Section 6.3(c)) per share of Common Stock on the date of such
election shall exceed the amount which the Participant must
pay to exercise the Option per share of Common Stock under
the Option (the "Spread") multiplied by the number of shares
of Common Stock granted under the Option;
(4) To require the assumption of the obligation of the Company
under the Plan subject to appropriate adjustment; and
(5) To take any other action the Committee determines to take.
(c) For purposes of this Section, "Change in Control Price" means the
higher of (i) the highest reported sales price of a share of Common Stock in any
transaction reported on the principal exchange on which such shares are listed
or on NASDAQ during the sixty (60)-day period prior to and including the date of
a Change in Control, or (ii) if the Change in Control is the result of a
corporate transaction, the highest price per share of Common Stock paid in such
tender or exchange offer or a corporate transaction. To the extent that the
consideration paid in any such transaction described above consists all or in
part of securities or other non-cash consideration, the value of such securities
or other non-cash consideration shall be determined in the sole discretion of
the Committee.
12
<PAGE>
6.4 Delay. If at the time, the Participant is subject to "short-swing"
-----
liability under Section 16 of the Exchange Act, any time period provided for
under the Plan, to the extent necessary to avoid the imposition of liability,
shall be suspended and delayed during the period the Participant would be
subject to such liability.
6.5 Headings. The headings contained in the Plan are for reference
--------
purposes only and shall not affect the meaning or interpretation of the Plan.
6.6 Severability. If any provision of the Plan shall for any reason be
------------
held to be invalid or unenforceable, such invalidity or unenforceability shall
not effect any other provision hereby, and the Plan shall be construed as if
such invalid or unenforceable provision were omitted.
6.7 Successors and Assigns. The plan shall inure to the benefit of and be
----------------------
binding upon each successor and assign of the Company. All obligations imposed
upon a Participant, and all rights granted to the Company hereunder, shall be
binding upon the Participant's heirs, legal representatives and successors.
6.8 Entire Agreement. The Plan and the Agreement constitute the entire
----------------
agreement with respect to the subject matter hereof and thereof, provided that
in the event of any inconsistency between the Plan and the Agreement, the terms
and conditions of the Plan shall control.
13
<PAGE>
As of May 6, 1996.
VisCorp
By: /s/ W.H. BUCK
-----------------------
WILLIAM H. BUCK
Chief Executive Officer
14
<PAGE>
EXHIBIT 10.2
U.S. DIGITAL COMMUNICATIONS, INC.
1998 STOCK OPTION, DEFERRED STOCK
AND
RESTRICTED STOCK PLAN
Section 1. General Purpose of Plan; Definitions.
------------------------------------
(a) This plan is intended to implement and govern the 1998 Stock Option,
Deferred Stock and Restricted Stock Plan (the "Plan") of U.S. Digital
Communications, Inc., a Nevada corporation (the "Company"). The Plan was
adopted by the Board of Directors on February 21, 1998, subject to the approval
of the Company's shareholders. The purpose of the Plan is to enable the Company
and its Subsidiaries to obtain and retain competent personnel who will
contribute to the Company's success by their ability, ingenuity and industry,
and to provide incentives to such personnel and other important persons that are
linked directly to increases in shareholder value, and will therefore, inure to
the benefit of all shareholders of the Company.
(b) For purposes of the Plan, the following terms shall be defined as set
forth below:
(1) "Administrator" means the Board, or if the Board does not
administer the Plan, the Committee in accordance with Section 2.
(2) "Award" means any award of Deferred Stock, Restricted Stock, Stock
Appreciation Right, Limited Stock Appreciation Right or Stock Option.
(3) "Board" means the Board of Directors of the Company.
(4) "Code" means the Internal Revenue Code of 1986, as amended from
time to time, or any successor thereto.
(5) "Committee" means the Compensation Committee of the Board, or any
other Committee the Board may subsequently appoint to administer the Plan. If
at any time the Board shall administer the Plan, then the functions of the Board
specified in the Plan shall be exercised by the Committee.
(6) "Company" means U.S. Digital Communications, Inc., a corporation
organized under the laws of the State of Nevada (and any successor corporation).
(7) "Deferred Stock" means an award made granted pursuant to Section 7
below of the right to receive Stock at the end of a specified deferral period.
<PAGE>
(8) "Disability" means permanent and total disability as determined
under the Company's disability program or policy.
(9) "Effective Date" shall mean the date provided pursuant to Section
16.
(10) "Eligible Employee" means an employee, consultant or advisor of
the Company, any Subsidiary or Parent Corporation eligible to participate in the
Plan pursuant to Section 4.
(11) "Fair Market Value" means, as of any given date, with respect to
any Awards granted hereunder, at the discretion of the Administrator and subject
to such limitations as the Administrator may impose, (A) the closing sale price
of the Stock on such date as reported in the Western Edition of the Wall Street
Journal Composite Tape, or (B) the average of the closing price of the Stock on
each day on which the Stock was traded over a period of up to twenty trading
days immediately prior to such date, or (C) if the Stock is not publicly traded,
the fair market value of the Stock as otherwise determined by the Administrator
in the good faith exercise of its discretion.
(12) "Incentive Stock Option" means any Stock option intended to be
designated as an "incentive stock option" within the meaning of Section 422 of
the Code.
(13) "Limited Stock Appreciation Right" means a Stock Appreciation
Right that can be exercised only in the event of a Change of Control as defined
in Section 10.
(14) "Non-Qualified Stock Option" means any Stock Option that is not
an Incentive Stock Option, including any Stock Option that provides (as of the
time such option is granted) that it will not be treated as an Incentive Stock
Option.
(15) "Parent Corporation" means any corporation (other than the
Company) in an unbroken chain of corporations ending with the Company, if each
of the corporations other than the Company owns stock possessing 50% or more of
the total combined voting power of all classes of stock in one of the other
corporations in the chain.
(16) "Participant" means any Eligible Employee selected by the
Administrator pursuant to the Administrator's authority in Section 2 below, to
receive grants of Stock Options or Awards or any combination of the foregoing.
(17) "Restricted Period" means the period set by the Administrator as
it pertains to Deferred Stock or Restricted Stock awards pursuant to Section 7.
(18) "Restricted Stock" means an award of shares of Stock granted
pursuant to Section 7 subject to restrictions that will lapse with the passage
of time or upon the attainment of performance objectives.
(19) "Stock" means the Common Stock, no par value per share, of the
Company.
-2-
<PAGE>
(20) "Stock Appreciation Right" means the right pursuant to an award
granted under Section 6 below to receive an amount equal to the difference
between (A) the Fair Market Value, as of the date such Stock Appreciation Right
or portion thereof is surrendered, of the shares of Stock covered by such right
or such portion thereof and (B) the aggregate exercise price of such right or
such portion thereof.
(21) "Stock Option" means an option to purchase shares of Stock
granted pursuant to Section 5.
(22) "Subsidiary" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company, if each of the
corporations (other than the last corporation) in the unbroken chain owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in the chain.
Section 2. Administration.
(a) The Plan shall be administered by the Board or by a Committee appointed
by the Board, which shall serve at the pleasure of the Board; provided, however,
that if the Committee does not consist solely of "Non-Employee Directors," as
defined in Rule 16b-3 as promulgated by the Securities and Exchange Commission
(the "Commission") under the Securities axchange Act of 1934 (the "Exchange
Act"), and as such Rule may be amended from time to time, or any successor
definition adopted by the Commission, then the Plan shall be administered, and
each grant shall be approved, by the Board.
(b) The Administrator shall have the power and authority to grant to
Eligible Employees, pursuant to the terms of the Plan: (A) Stock Options, (B)
Stock Appreciation Rights or Limited Stock Appreciation Rights, (C) Deferred
Stock, (D) Restricted Stock, or (E) any combination of the foregoing.
In particular, the Administrator shall have the authority;
(1) to select those employees of the Company or any Subsidiary or
Parent Corporation who are Eligible Employees;
(2) to determine whether and to what extent Stock Options, Stock
Appreciation Rights, Limited Stock Appreciation Rights, Deferred Stock,
Restricted Stock or a combination of the foregoing, are to be granted to
Eligible Employees of the Company or any Subsidiary hereunder;
(3) to determine the number of shares of Stock to be covered by each
such Award;
(4) to determine the terms and conditions, not inconsistent with the
terms of the Plan, of any such Award including, but not limited to, (x) the
restricted period applicable to Deferred Stock or Restricted Stock awards, (y)
the date or dates on which restrictions applicable to such
-3-
<PAGE>
Deferred Stock or Restricted Stock shall lapse during such period, and (z) when
and in what increments shares covered by Stock Options may be purchased; and
(5) to determine the terms and conditions (including restrictions on
transfer as may be appropriate under Federal and state securities laws),
consistent with the terms of this Plan, which shall govern all written
instruments evidencing the Stock Options, Stock Appreciation Rights, Limited
Stock Appreciation Rights, Deferred Stock, Restricted Stock or any combination
of the foregoing.
(c) The Administrator shall have the authority, in its discretion, to
adopt, alter and repeal such administrative rules, guidelines and practices
governing the Plan as it shall from time to time deem advisable; to interpret
the terms and provisions of the Plan and any Award issued under the Plan (and
any agreements relating thereto); and to otherwise supervise the administration
of the Plan.
(d) All decisions made by the Administrator pursuant to the provisions of
the Plan shall be final and binding on all persons, including the Company, any
Subsidiaries, Parent Corporation and the Participants.
Section 3. Stock Subject to Plan.
(a) The total number of shares of Stock reserved and available for issuance
under the Plan shall be 6,000,000 shares. Such shares shall consist of
authorized but unissued shares.
(b) To the extent that (i) a Stock Option expires or is otherwise
terminated without being exercised or (ii) any shares of Stock subject to any
Deferred Stock or Restricted Stock award granted hereunder are forfeited, such
shares shall again be available for issuance in connection with future Awards
under the Plan. If any shares of Stock have been pledged as collateral for
indebtedness incurred by a Participant in connection with the exercise of a
Stock Option and such shares are returned to the Company in satisfaction of such
indebtedness, such shares shall again be available for issuance in connection
with future Awards under the Plan.
(c) In the event of any merger, reorganization, consolidation,
recapitalization, stock dividend, or other change in corporate structure
affecting the Stock, a substitution or adjustment may be made in (i) the
aggregate number of shares reserved for issuance under the Plan, and (ii) the
kind, number and option price of shares subject to outstanding Stock Options
granted under the Plan as may be determined by the Administrator, in its sole
discretion, provided that the number of shares subject to any Award shall always
be a whole number. Such other substitutions or adjustments shall be made as may
be determined by the Administrator, in its sole discretion; provided, however,
that with respect to Incentive Stock Options, such adjustment shall be made in
accordance with Section 424 of the Code. An adjusted option price shall also be
used to determine the amount payable by the Company upon the exercise of any
Stock Appreciation Right or Limited Stock Appreciation Rights associated with
any Stock Option.
Section 4. Eligibility.
-4-
<PAGE>
(a) Officers and other key employees, directors and consultants and
advisors of the Company, any Subsidiary or Parent Corporation who are
responsible for or contribute to the management, growth and/or profitability of
the business of the Company, shall be eligible to be granted Non-Qualified Stock
Options, Stock Appreciation Rights, Limited Stock Appreciation Rights, and
Deferred Stock or Restricted Stock awards hereunder. Officers and other key
employees of the Company, any Subsidiary or Parent Corporation shall also be
eligible to be granted Incentive Stock Options hereunder. The Participants
under the Plan shall be selected from time to time by the Administrator, in its
sole discretion, from among the Eligible Employees recommended by the senior
management of the Company, and the Administrator shall determine, in its sole
discretion, the number of shares covered by each Award.
Section 5. Stock Option for Eligible Employees.
(a) Stock Options may be granted to Eligible Employees alone or in addition
to other Awards granted under the Plan. Any Stock Option granted under the Plan
shall be in such form as the Administrator may from time to time approve, and
the provisions of Stock Option awards need not be the same with respect to each
optionee. Recipients of Stock Options shall enter into a stock option agreement
with the Company, in such form as the Administrator shall determine, which
agreement shall set forth, among other things, the exercise price of the option,
the term of the option and provisions regarding exercisability of the option
granted thereunder.
The Stock Options granted under the Plan to Eligible Employees may be of
two types: (x) Incentive Stock Options and (y) Non-Qualified Stock Options.
(b) The Administrator shall have the authority under this Section 5 to
grant any optionee Incentive Stock Options, Non-Qualified Stock Options, or both
types of Stock Options (in each case with or without Stock Appreciation Rights
or Limited Stock Appreciation Rights); provided, however, that Incentive Stock
Options may not be granted to any individual who is not an employee of the
Company, its Subsidiaries or Parent Corporation. To the extent that any Stock
Option does not qualify as an Incentive Stock Option, it shall constitute a
separate Non-Qualified Stock Option. More than one option may be granted to the
same optionee and be outstanding concurrently hereunder.
(c) Stock Options granted under the Plan shall be subject to the following
terms and conditions and shall contain such additional terms and conditions, not
inconsistent with the terms of the Plan, as the Administrator shall deem
desirable:
(i) Option Price. The option price per share of Stock purchasable
------------
under a Stock Option shall be determined by the Administrator in its sole
discretion at the time of grant but shall be not less than 100% of the Fair
Market Value of the Stock on such date, and shall not, in any event, be less
than the par value of the Stock. The option price per share of Stock
purchasable under a Non-Qualified Stock Option may be less than 100% of such
Fair Market Value. If an employee owns or is deemed to own (by reason of the
attribution rules applicable under Section 424(d) of the Code) more than 10% of
the combined voting power of all classes of stock of the Company or any Parent
Corpo ration or Subsidiary and an Incentive Stock Option is granted to such
employee, the option
-5-
<PAGE>
price of such Incentive Stock Option (to the extent required by the Code at the
time of grant) shall be no less than 110% of the Fair Market Value of the Stock
on the date such Incentive Stock Option is granted.
(ii) Option Term. The term of each Stock Option shall be fixed by
-----------
the Administrator, but no Stock Option shall be exercisable more than ten years
after the date such Stock Option is granted; provided, however, that if an
-------- -------
employee owns or is deemed to own (by reason of the attribution rules of Section
424(d) of the Code) more than 10% of the combined voting power of all classes of
stock of the Company or any Parent Corporation or Subsidiary and an Incentive
Stock Option is granted to such employee, the term of such Incentive Stock
Option (to the extent required by the Code at the time of grant) shall be no
more than five years from the date of grant.
(iii) Exercisability. Stock Options shall be exercisable at such time
--------------
or times and subject to such terms and conditions as shall be determined by the
Administrator at or after grant; provided, however, that, except as provided
-------- -------
herein or unless otherwise determined by the Administrator at or after grant,
Stock Options shall be exercisable one year following the date of grant of the
option, but in no case, less than six (6) months following the date of the grant
of the option. To the extent not exercised, installments shall accumulate and be
exercisable in whole or in part at any time after becoming exercisable but not
later than the date the Stock Option expires. The Administrator may provide, in
its discretion, that any Stock Option shall be exercisable only in installments,
and the Administrator may waive such installment exercise provisions at any time
in whole or in part based on such factors as the Administrator may determine in
its sole discretion.
(iv) Method of Exercise. Subject to Section 5(c), Stock Options may
------------------
be exercised in whole or in part at any time during the option period, by giving
written notice of exercise to the Company specifying the number of shares to be
purchased, accompanied by payment in full of the purchase price in cash or its
equivalent, as determined by the Administrator. As determined by the
Administrator, in its sole discretion, payment in whole or in part may also be
made (i) in the form of unrestricted Stock already owned by the optionee, or, in
the case of the exercise of a Non-Qualified Stock Option, Restricted Stock
subject to an Award hereunder (based, in each case, on the Fair Market Value of
the Stock on the date the option is exercised), (ii) by cancellation of any
indebtedness owed by the Company to the optionee, (iii) by a full recourse
promissory note executed by the optionee, (iv) by requesting that the Company
withhold whole shares of Common Stock then issuable upon exercise of the Stock
Option (based on the Fair Market Value of the Stock on the date the option is
exercised), (v) by arrangement with a broker which is acceptable to the
Administrator where payment of the option price is made pursuant to an
irrevocable direction to the broker to deliver all or part of the proceeds from
the sale of the shares underlying the option to the Company, or (vi) by any
combination of the foregoing; provided, however, that in the case of an
-------- -------
Incentive Stock Option, the right to make payment in the form of already owned
shares may be authorized only at the time of grant. Any payment in the form of
stock already owned by the optionee may be effected by use of an attestation
form approved by the Administrator. If payment of the option exercise price of
a Non-Qualified Stock Option is made in whole or in part in the form of
Restricted Stock, the shares received upon the exercise of such Stock Option (to
the extent of the number of shares of Restricted Stock surrendered upon exercise
of such Stock Option) shall be restricted in accordance with the original terms
of the Restricted Stock award in question, except that the
-6-
<PAGE>
Administrator may direct that such restrictions shall apply only to that number
of shares equal to the number of shares surrendered upon the exercise of such
option. An optionee shall generally have the rights to dividends and other
rights of a shareholder with respect to shares subject to the option only after
the optionee has given written notice of exercise, has paid in full for such
shares, and, if requested, has given the representation described in paragraph
(a) of Section 11.
(d) The Administrator may require the voluntary surrender of all or a
portion of any Stock Option granted under the Plan as a condition precedent to a
grant of a new Stock Option. Subject to the provisions of the Plan, such new
Stock Option shall be exercisable at the price, during such period and on such
other terms and conditions as are specified by the Administrator at the time the
new Stock Option is granted; provided, however, that should the Administrator
-------- -------
so require, the number of shares subject to such new Stock Option shall not be
greater than the number of shares subject to the surrendered Stock Option. Upon
their surrender, the Stock Options shall be canceled and the shares previously
subject to such canceled Stock Options shall again be available for grants of
Stock Options and other Awards hereunder.
(e) Loans. The Company may make loans available to Stock Option holders
-----
in connection with the exercise of outstanding options granted under the Plan,
as the Administrator, in its discretion, may determine. Such loans shall (i) be
evidenced by promissory notes entered into by the Stock Option holders in favor
of the Company, (ii) be subject to the terms and conditions set forth in this
Section 5(e) and such other terms and conditions, not inconsistent with the
Plan, as the Administrator shall determine, (iii) bear interest, if any, at such
rate as the Administrator shall determine and (iv) be subject to Board approval.
In no event may the principal amount of any such loan exceed the sum of (x) the
exercise price less the par value of the shares of Stock covered by the option,
or portion thereof, exercised by the holder and (y) any Federal, state, and
local income tax attributable to such exercise. The initial term of the loan,
the schedule of payments of principal and interest under the loan, the extent to
which the loan is to be with or without recourse against the holder with respect
to principal or interest and the conditions upon which the loan will become
payable in the event of the holder's termination of employment shall be
determined by the Administrator; provided, however, that the term of the loan,
-------- -------
including extensions, shall not exceed seven years. Unless the Administrator
determines otherwise, when a loan is made, shares of Common Stock having a Fair
Market Value at least equal to the principal amount of the loan shall be pledged
by the holder to the Company as security for payment of the unpaid balance of
the loan, and such pledge shall be evidenced by a pledge agreement, the terms of
which shall be determined by the Administrator, in its discretion; provided,
--------
however, that each loan shall comply with all applicable laws, regulations and
- -------
rules of the Board of Governors of the Federal Reserve System and any other
governmental agency having jurisdiction.
(f) Limits on Transferability of Options.
------------------------------------
(i) Subject to Section 5(f)(ii), no Stock Option shall be transferable
by the optionee otherwise than by will or by the laws of descent and
distribution or, with respect to Non-Qualified Stock Options, pursuant to a
"qualified domestic relations order," as such term is defined in the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"). Incentive Stock
-7-
<PAGE>
Options shall be exercisable, during the optionee's lifetime, only by the
optionee or, with respect to Non-Qualified Stock Options, in accordance with the
terms of a qualified domestic relations order.
(ii) The Administrator may, in its discretion, authorize all or a
portion of the options (other than Incentive Stock Options) to be granted to an
optionee to be on terms which permit transfer by such optionee to (A) the
spouse, qualified domestic partner, children or grandchildren of the optionee
and any other persons related to the optionee as may be approved by the
Administrator ("Immediate Family Members"), (B) a trust or trusts for the
exclusive benefit of such Immediate Family Members, (C) a partnership or
partnerships in which such Immediate Family Members are the only partners, or
(D) any other persons or entities as may be approved by the Administrator,
provided that (x) there may be no consideration for any transfer unless approved
by the Administrator, (y) the stock option agreement pursuant to which such
options are granted must be approved by the Administrator, and must expressly
provide for transferability in a manner consistent with this Section 5(f)(ii),
and (z) subsequent transfers of transferred options shall be prohibited except
those in accordance with Section 5(f)(i) or expressly approved by the
Administrator. Following transfer, any such options shall continue to be subject
to the same terms and conditions as were applicable immediately prior to
transfer, provided that, except for purposes of Sections 5(g), (h) and (i) and
11(c) hereof, the terms "optionee," "Stock Option holder" and "Participant"
shall be deemed to refer to the transferee. The events of termination of
employment under Sections 5(g), (h) and (i) hereof shall continue to be applied
with respect to the original optionee, following which the options shall be
exercisable by the transferee only to the extent, and for the periods specified
under such sections unless the option agreement governing such options otherwise
provides. Notwithstanding the transfer, the original optionee will continue to
be subject to the provisions of Section 11(c) regarding payment of taxes,
including the provisions entitling the Company to deduct such taxes from amounts
otherwise due to such optionee. "Qualified domestic partner" for the purpose of
this Section 5(f)(ii) shall mean a domestic partner living in the same household
as the optionee and registered with, certified by or otherwise acknowledged by
the county or other applicable governmental body as a domestic partner or
otherwise establishing such status in any manner satisfactory to the
Administrator.
(g) Termination by Death. If an optionee's employment with the Company,
--------------------
any Subsidiary or Parent Corporation terminates by reason of death, the Stock
Option may thereafter be immediately exercised, to the extent then exercisable
(or on such accelerated basis as the Administrator shall determine at or after
grant), by the legal representative of the estate or by the legatee of the
optionee under the will of the optionee, for a period of twelve months (or such
shorter period as the Administrator shall specify at grant) from the date of
such death or until the expiration of the stated term of such Stock Option,
whichever period is shorter.
(h) Termination by Reason of Disability. If an optionee's employment with
-----------------------------------
the Company, any Subsidiary or Parent Corporation terminates by reason of
Disability, any Stock Option held by such optionee may thereafter be exercised,
to the extent it was exercisable at the time of such termination (or on such
accelerated basis as the Administrator shall determine at the time of grant),
for a period of twelve months (or such shorter period as the Administrator shall
specify at grant) from the date of such termination of employment or until the
expiration of the stated term of such Stock Option, whichever period is shorter;
provided, however, that, if the optionee dies within
- -------- -------
-8-
<PAGE>
such twelve-month period (or such shorter period as the Administrator shall
specify at grant) and prior to the expiration of the stated term of such Stock
Option, any unexercised Stock Option held by such optionee shall thereafter be
exercisable to the extent to which it was exercisable at the time of termination
for a period of twelve months (or such shorter period as the Administrator shall
specify at grant) from the time of death or until the expiration of the stated
term of such Stock Option, whichever period is shorter. In the event of a
termination of employment by reason of Disability, if an Incentive Stock Option
is exercised after the expiration of the exercise periods that apply for
purposes of Section 422 of the aeode, such Stock Option shall thereafter be
treated as a Non-Qualified Stock Option.
(i) Other Termination. Except as otherwise provided in this paragraph or
-----------------
otherwise determined by the Administrator, if an optionee's employment with the
Company, any Subsidiary or Parent Corporation terminates for any reason other
than death or Disability, the Stock Option may be exercised until the earlier to
occur of (i) three months from the date of such termination or (ii) the
expiration of the stated term of such Stock Option.
(j) Annual Limit on Incentive Stock Options. To the extent that the
---------------------------------------
aggregate Fair Market Value (determined as of the date the Incentive Stock
Option is granted) of the shares of Stock with respect to which Incentive Stock
Options granted to an optionee under this Plan and all other option plans of the
Company, its Parent Corporation and any Subsidiary become exercisable for the
first time by the optionee during any calendar year exceeds $100,000, such Stock
Options shall be treated as Non-Qualified Stock Options.
Section 6. Stock Appreciation Rights.
(a) Grant and Exercise. Stock Appreciation Rights and Limited Stock
------------------
Appreciation Rights may be granted either alone ("Free Standing Rights") or in
conjunction with all or part of any Stock Option granted under the Plan
("Related Rights"). In the case of a Non-Qualified Stock Option, Related Rights
may be granted either at or after the time of the grant of such Stock Option.
In the case of an Incentive Stock Option, Related Rights may be granted only at
the time of the grant of the Incentive Stock Option.
A Related Right or applicable portion thereof granted in conjunction with a
given Stock Option shall terminate and no longer be exercisable upon the
termination or exercise of the related Stock Option, except that, unless
otherwise provided by the Administrator at the time of grant, a Related Right
granted with respect to less than the full number of shares covered by a related
Stock Option shall only be reduced if and to the extent that the number of
shares covered by the exercise or termination of the related Stock Option
exceeds the number of shares not covered by the Stock Appreciation Right.
A Related Right may be exercised by an optionee, in accordance with
paragraph (b) of this Section 6, by surrendering the applicable portion of the
related Stock Option. Upon such exercise and surrender, the optionee shall be
entitled to receive an amount determined in the manner prescribed in paragraph
(b) of this Section 6. Stock Options which have been so surrendered, in
-9-
<PAGE>
whole or in part, shall no longer be exercisable to the extent the Related
Rights have been so exercised.
(b) Terms and Conditions. Stock Appreciation Rights shall be subject to
--------------------
such terms and conditions, not inconsistent with the provisions of the Plan, as
shall be determined from time to time by the Administrator, including the
following:
(i) Related Stock Appreciation Rights.
(A) Stock Appreciation Rights that are Related Rights ("Related
Stock Appreciation Rights") shall be exercisable only at such time or times
and to the extent that the Stock Options to which they relate shall be
exercisable in accordance with the provisions of Section 5 and this Section
6; provided, however, that any Related Stock Appreciation Right shall not
-------- -------
be exercisable during the first six months of its term, except that this
additional limitation shall not apply in the event of death or Disability
of the optionee prior to the expiration of such six-month period.
(B) Upon the exercise of a Related Stock Appreciation Right, an
optionee shall be entitled to receive up to, but not more than, an amount
in cash or that number of shares of Stock (or in some combination of cash
and shares of Stock) equal in value to the excess of the Fair Market Value
of one share of Stock as of the date of exercise over the option price per
share specified in the related Stock Option multiplied by the number of
shares of Stock in respect of which the Related Stock Appreciation Right is
being exercised, with the Administrator having the right to determine the
form of payment.
(C) Related Stock Appreciation Rights shall be transferable or
exercisable only when and to the extent that the underlying Stock Option
would be transferable or exercisable under paragraph (f) of Section 5 of
the Plan.
(D) Upon the exercise of a Related Stock Appreciation Right, the
Stock Option or part thereof to which such Related Stock Appreciation Right
is related shall be deemed to have been exercised for the purpose of the
limitation set forth in Section 3 of the Plan on the number of shares of
Stock to be issued under the Plan, but only to the extent of the number of
shares issued under the Related Stock Appreciation Right.
(E) A Related Stock Appreciation Right granted in connection with
an Incentive Stock Option may be exercised only if and when the Fair Market
Value of the Stock subject to the Incentive Stock Option exceeds the
exercise price of such Stock Option.
(ii) Free Standing Stock Appreciation Rights.
(A) Stock Appreciation Rights that are Free Standing Rights
("Free Standing Stock Appreciation Rights") shall be exercisable at such
time or times and subject to such terms and conditions as shall be
determined by the Administrator at or after grant; provided, however, that
-------- -------
Free Standing Stock Appreciation Rights shall not be exercisable
-10-
<PAGE>
during the first six months of its term, except that this limitation shall
not apply in the event of death or Disability of the recipient of the Free
Standing Stock Appreciation Right prior to the expiration of such six-month
period.
(B) The term of each Free Standing Stock Appreciation Right shall
be fixed by the Administrator, but no Free Standing Stock Appreciation
Right shall be exer cisable more than ten years after the date such right
is granted.
(C) Upon the exercise of a Free Standing Stock Appreciation
Right, a recipient shall be entitled to receive up to, but not more than,
an amount in cash or that number of shares of Stock (or any combination of
cash or shares of Stock) equal in value to the excess of the Fair Market
Value of one share of Stock as of the date of exercise over the price per
share specified in the Free Standing Stock Appreciation Right (which price
shall be no less than 100% of the Fair Market Value of the Stock on the
date of grant) multiplied by the number of shares of Stock with respect to
which the right is being exercised, with the Administrator having the right
to determine the form of payment.
(D) Free Standing Stock Appreciation Rights shall be transferable
or exercisable subject to the provisions governing the transferability and
exercisability of Stock Options set forth in paragraphs (c) and (f) of
Section 5.
(E) In the event of the termination of an em ployee who has
received Free Standing Stock Appreciation Rights, such rights shall be
exercisable to the same extent that a Stock Option would have been
exercisable in the event of the termination of the optionee.
(F) For the purpose of the limitation set forth in Section 3 on
the number of shares to be issued under the Plan, the grant or exercise of
Free Standing Stock Appreciation Rights shall be deemed to constitute the
grant or exercise, respectively, of Stock Options with respect to the
number of shares of Stock with respect to which such Free Standing Stock
Appreciation Rights were so granted or exercised.
(iii) Limited Stock Appreciation Rights.
(A) Limited Stock Appreciation Rights may only be exercised
within the 30-day period following a "Change of Control" (as defined in
Section 10 below), and, with respect to Limited Stock Appreciation Rights
that are Related Rights ("Related Limited Stock Appreciation Rights"), only
to the extent that the Stock Options to which they relate shall be
exercisable in accordance with the provisions of Section 5 and this Section
6; provided, however, that no Related Limited Stock Appreciation Right
shall be exercisable during the first six months of its term, except that
this additional limitation shall not apply in the event of death or
Disability of the optionee prior to the expiration of such six-month
period.
(B) Upon the exercise of a Limited Stock Appreciation Right, the
recipient shall be entitled to receive an amount in cash equal in value to
the excess of the
-11-
<PAGE>
"Change of Control Price" (as defined in Section 10) of one share of Stock
as of the date of exercise over (1) the option price per share specified in
the related Stock Option, or (2) in the case of a Limited Stock
Appreciation Right which is a Free Standing Stock Appreciation Right, the
price per share specified in the Free Standing Stock Appreciation Right,
such excess to be multiplied by the number of shares in respect of which
the Limited Stock Appreciation Right shall have been exercised.
Section 7. Deferred Stock and Restricted Stock.
(a) General. Deferred Stock and Restricted Stock awards may be issued to
-------
Eligible Employees either alone or in addition to other Awards granted under the
Plan. The Administrator shall determine the Eligible Employees, and the time or
times at which, grants of Deferred Stock or Restricted Stock awards shall be
made; the number of shares to be awarded; the price, if any, to be paid by the
recipient of Deferred Stock or Restricted Stock awards; the Restricted Period
(as defined in paragraph 7(c) hereof) applicable to Deferred Stock or Restricted
Stock awards; the performance objectives applicable to Deferred Stock or
Restricted Stock awards; the date or dates on which restrictions applicable to
such Deferred Stock or Restricted Stock awards shall lapse during such
Restricted Period; and all other conditions of the Deferred Stock or Restricted
Stock awards. The Administrator may also condition the grant of Deferred Stock
or Restricted Stock awards upon the exercise of Stock Options, or upon such
other criteria as the Administrator may determine, in its sole discretion. The
provisions of Deferred Stock or Restricted Stock awards need not be the same
with respect to each recipient.
(b) Awards and Certificates. The prospective recipient of a Deferred Stock
-----------------------
or Restricted Stock award shall not have any rights with respect to such Award,
unless and until such recipient has executed an agreement evidencing the Award
(a "Deferred Stock Award Agreement" or "Restricted Stock Award Agreement" as
appropriate) and has delivered a fully executed copy thereof to the Company,
within a period of sixty days (or such other period as the Administrator may
specify) after the Award date.
Except as provided below in this Section 7(b), (i) each Participant who is
awarded Restricted Stock shall be issued a stock certificate in respect of such
shares of Restricted itock; and (ii) such certificate shall be registered in the
name of the Participant, and shall bear an appropriate legend referring to the
terms, conditions, and restrictions applicable to such Award, substantially in
the following form:
"The transferability of this certificate and the shares of stock
represented hereby are subject to the terms and conditions (including
forfeiture) of the U.S. Digital Communications, Inc. 1998 Stock Option,
Deferred Stock and Restricted Stock Plan and a Restricted Stock Award
Agreement entered into between the registered owner and U.S. Digital
Communications, Inc. Copies of such Plan and Agreement are on file in the
offices of U.S. Digital Communications, Inc."
The Company shall require that the stock certificates evidencing such
shares be held in the custody of the Company until the restrictions thereon
shall have lapsed, and that, as a condition of
-12-
<PAGE>
any Restricted Stock award, the Participant shall have delivered a stock power,
endorsed in blank, relating to the Stock covered by such Award.
With respect to Deferred Stock awards, at the expiration of the Restricted
Period, stock certificates in respect of such shares of Deferred Stock shall be
delivered to the Participant, or his legal representative, in a number equal to
the shares of Stock covered by the Deferred Stock award.
(c) Restriction and Conditions. The Deferred Stock or Restricted Stock
--------------------------
awards granted pursuant to this Section 7 shall be subject to the following
restrictions and conditions:
(i) Subject to the provisions of the Plan and the Deferred Stock or
Restricted Stock Award Agreements, during such period as may be set by the
Administrator commencing on the grant date (the "Restricted Period"), the
Participant shall not be permitted to sell, transfer, pledge or assign shares of
Deferred Stock or Restricted Stock awarded under the Plan. Within these limits,
the Administrator may, in its sole discretion, provide for the lapse of such
restrictions in installments and may accelerate or waive such restrictions in
whole or in part based on such factors and such circumstances as the
Administrator may determine, in its sole discretion, including, but not limited
to, the attainment of certain performance related goals, the Participant's
termination, death or Disability or the occurrence of a "Change of Control" as
defined in Section 10 below.
(ii) Except as provided in paragraph (c)(i) of this Section 7, the
Participant shall have, with respect to the shares of Restricted Stock, all of
the rights of a shareholder of the Company, including the right to vote the
shares, and the right to receive any dividends thereon during the Restricted
Period. With respect to Deferred Stock awards, the Participant shall generally
not have the rights of a shareholder of the Company, including the right to vote
the shares during the Restricted Period; provided, however, that dividends
-------- -------
declared during the Restricted Period with respect to the number of shares
covered by a Deferred Stock award shall be paid to the Participant.
Certificates for shares of unrestricted Stock shall be delivered to the
Participant promptly after, and only after, the Restricted Period shall expire
without forfeiture in respect of such shares of Deferred Stock or Restricted
Stock, except as the Administrator, in its sole discretion, shall otherwise
determine.
(iii) Subject to the provisions of the Deferred Stock or Restricted
Stock Award Agreement and this Section 7, upon termination of employment for any
reason during the Restricted Period, all shares subject to any restriction as of
the date of such termination shall be forfeited by the Participant, and the
Participant shall only receive the amount, if any, paid by the Participant for
such Deferred Stock or Restricted Stock, plus simple interest on such amount at
the rate of 8% per year.
Section 8. Amendment and Termination.
(a) The Board may amend, alter or discontinue the Plan, but no amendment,
alteration, or discontinuation shall be made that would impair the rights of the
Participant under any Award theretofore granted without such Participant's
consent, or that without the approval of the shareholders (as described below)
would:
-13-
<PAGE>
(i) except as provided in Section 3, increase the total number of
shares of Stock reserved for the purpose of the Plan;
(ii) change the employees or class of employees eligible to
participate in the Plan;
(iii) extend the maximum option period under Section 5 of the Plan.
(b) Notwithstanding the foregoing, shareholder approval under this Section
8 shall only be required at such time and under such circumstances as
shareholder approval would be required under applicable laws, regulations and
exchange requirements.
(c) The Administrator may amend the terms of any Award theretofore granted,
prospectively or retroactively, but, subject to Section 3, no such amendment
shall impair the rights of any holder without his or her consent.
Section 9. Unfunded Status of Plan.
The Plan is intended to constitute an "unfunded" plan for incentive
compensation. With respect to any payments not yet made to a Participant or
optionee by the Company, nothing contained herein shall give any such
Participant or optionee any rights that are greater than those of a general
creditor of the Company.
Section 10. Change of Control.
The following acceleration and valuation provisions shall apply in the
event of a "Change of Control," as defined in paragraph (b) of this Section 10:
(a) In the event of a "Change of Control," unless otherwise determined by
the Administrator or the Board in writing at or after grant (including under any
individual agreement), but prior to the occurrence of such Change of Control;
(i) any Stock Appreciation Rights outstanding for at least six months
and any Stock Options awarded under the Plan not previously exercisable and
vested shall become fully exercisable and vested;
(ii) the restrictions applicable to any Restricted Stock or Deferred
Stock awards under the Plan shall lapse, and such shares and Awards shall be
deemed fully vested;
(iii) any indebtedness incurred pursuant to Section 5(e) above shall
be forgiven and the collateral pledged in connection with any such loan shall be
released; and
(iv) the value of all outstanding Stock Options, Stock Appreciation
Rights, Limited Stock Appreciation Rights, Restricted Stock and Deferred Stock
awards shall, to the extent determined by the Administrator at or after grant,
be cashed out by a payment of cash or other
-14-
<PAGE>
property, as the Administrator may determine, on the basis of the "Change of
Control Price" (as defined in paragraph (c) of this Section 10) as of the date
the Change of Control occurs or such other date as the Administrator may
determine prior to the Change of Control.
(b) For purposes of paragraph (a) of this Section 10, a "Change of 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 Exchange Act(other than the Company; any trustee or other fiduciary holding
securities under an employee benefit plan of the Company; or any company owned,
directly or indirectly, by the shareholders of the Company in substantially the
same proportions as their ownership of the Stock of the Company) is or becomes
after the Effective Date the "beneficial owner" (as defined in Rule 13d-3 under
the Exchange Act), directly or indirectly, of securities of the Company (not
including in the securities beneficially owned by such person or any securities
acquired directly from the Company or its affiliates) representing 30% or more
of the combined voting power of the Company's then outstanding securities; or
(ii) during any period of two consecutive years (not including any
period prior to the Effective Date), individuals who at the beginning of such
period constitute the Board, and any new director (other than a director
designated by a person who has entered into an agreement with the Company to
effect a transaction described in clause (i), (iii) or (iv) of this Section
10(b)) whose election by the Board or nomination for election by the Company's
shareholders 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 at least a majority thereof; or
(iii) the shareholders of the Company approve a merger or consolidation
of the Company with any other corporation, other than (A) 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), in combination with the ownership of any trustee or other
fiduciary holding securities under an employee benefit plan of the Company, at
least 75% of the combined voting power of the voting securities of the Company
or such surviving entity outstanding immediately after such merger or
consolidation or (B) a merger or consolidation effected to implement a
recapitalization of the Company (or similar transaction) in which no person
acquires more than 50% of the combined voting power of the Company's then
outstanding securities; or
(iv) the shareholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition by the
Company of all or substantially all of the Company's assets.
(c) For purposes of this Section 10, "Change of Control Price" means the
higher of (i) the highest price per share paid or offered in any transaction
related to a Change of Control of the Company or (ii) the highest price per
share paid in any transaction reported on the exchange or national market system
on which the Stock is listed, at any time during the preceding sixty day
-15-
<PAGE>
period as determined by the Administrator, except that, in the case of Incentive
Stock Options and Stock Appreciation Rights or Limited Stock Appreciation Rights
relating to Incentive Stock Options, such price shall be based only on
transactions reported for the date on which the Administrator decides to cash
out such options.
Section 11. General Provisions.
(a) The Administrator may require each person purchasing shares pursuant to
a Stock Option to represent to and agree with the Company in writing that such
person is acquiring the shares without a view to distribution thereof. The
certificates for such shares may include any legend which the Administrator
deems appropriate to reflect any restrictions on transfer.
All certificates for shares of Stock delivered under the Plan shall be
subject to such stock-transfer orders and other restrictions as the
Administrator may deem advisable under the rules, regulations, and other
requirements of the Commission, any stock exchange upon which the Stock is then
listed, and any applicable Federal or state securities law, and the
Administrator may cause a legend or legends to be placed on any such
certificates to make appropriate reference to such restrictions.
(b) Nothing contained in the Plan shall prevent the Board from adopting
other or additional compensation arrangements, subject to shareholder approval
if such approval is required; and such arrangements may be either generally
applicable or applicable only in specific cases.
(c) Each Participant shall, no later than the date as of which the value of
an Award first becomes includable in the gross income of the Participant for
Federal income tax purposes, pay to the Company, or make arrangements
satisfactory to the Administrator regarding payment of, any Federal, state, or
local taxes of any kind required by law to be withheld with respect to the
Award. The obligations of the Company under the Plan shall be conditional on
the making of such payments or arrangements, and the Company (and, where
applicable, its Subsidiaries) shall, to the extent permitted by law, have the
right to deduct any such taxes from any payment of any kind otherwise due to the
Participant.
(d) No member of the Board or the Administrator, nor any officer or
employee of the Company acting on behalf of the Board or the Administrator,
shall be personally liable for any action, determination, or interpretation
taken or made in good faith with respect to the Plan, and all members of the
Board or the Administrator and each and any officer or employee of the Company
acting on their behalf shall, to the extent permitted by law, be fully
indemnified and protected by the Company in respect of any such action,
determination or interpretation.
(e) No Enlargement of Employee Rights. This Plan is purely voluntary on
the part of the Company, and while the Company hopes to continue it
indefinitely, the continuance of the Plan shall not be deemed to constitute a
contract between the Company and any employee, or to be consideration for or a
condition of the employment of any employee. Nothing contained in the Plan
shall be deemed to give any employee the right to be retained in the employ of
the Company, its Subsidiaries, or its Parent Corporation to interfere with the
right of the Company, or it Subsidiaries
-16-
<PAGE>
to discharge or retire any employee thereof at any time. No employee shall have
any right to or interest in Stock Options, Stock Appreciation Rights or Limited
Stock Appreciation Rights, Restricted Stock, or Deferred Stock, authorized
hereunder prior to the grant of such a Stock Option or other award described
herein to such employee, and upon such grant he or she shall have only such
rights and interests as are expressly provided herein, subject, however, to all
applicable provisions of the Company's Articles of Incorporation, as the same
may be amended from time to time.
Section 12. Specific Performance.
The Stock Options granted under this Plan and the Shares issued pursuant to
the exercise of such Stock Options cannot be readily purchased or sold in the
open market, and, for that reason among others, the Company and its shareholders
will be irreparably damaged in the event that this Plan is not specifically
enforced. In the event of any controversy concerning the right or obligation to
purchase or sell any such Option or Optioned Stock, such right or obligation
shall be enforceable in a court of equity by a decree of a specific performance.
Such remedy shall, however, be cumulative and not exclusive, and shall be in
addition to any other remedy which the parties may have.
Section 13. Invalid Provision.
In the event that any provision of this Plan is found to be invalid or
otherwise unenforceable under any applicable law, such invalidity or
unenforceability shall not be construed as rendering any other provisions
contained herein invalid or unenforceable, and all such other provisions shall
be given full force and effect to the same extent as though the invalid
unenforceable provision was not contained herein.
-17-
<PAGE>
Section 14. Applicable Law.
This Plan shall be governed by and construed in accordance with the laws of
the State of California.
Section 15. Successors and Assigns.
This Plan shall be binding on and inure to the benefit of the Company and
the employees to whom an Option is granted hereunder, and such employees' heirs,
executors, administrators, legatees, personal representatives, assignees and
transferees.
Section 16. Effective Date of Plan.
The Plan became effective (the "Effective Date") on January 1, 1998.
Section 17. Term of Plan.
No Stock Option, Stock Appreciation Right, Limited Stock Appreciation
Right, Deferred Stock or Restricted Stock award shall be granted pursuant to the
Plan on or after the tenth anniversary of the Effective Date, but Awards
theretofore granted may extend beyond that date.
IN WITNESS WHEREOF, pursuant to the due authorization and adoption of this
plan by the Board on the day and year first above written, the Company has
caused this Plan to be duly executed by its duly authorized officers.
U.S. Digital Communications, Inc.
By: /s/ Robert J. Wussler
------------------------------
Name:
Title:
-18-
<PAGE>
EXHIBIT 10.3
[LETTERHEAD OF ALLIANCE BUSINESS CENTERS]
LEASE AND SERVICE AGREEMENT
This Agreement is made this 14th day of November, 1997, by and between ALLIANCE
Business Centers, 2 Wisconsin, Inc., d/b/a ALLIANCE Business Centers ("Lessor")
-------------------------------
having offices known and numbered as Suite 700 (the "Facility") in the building
located at 2 Wisconsin Circle, Chevy Chase, MD 20815 (the "Building") and
Affiliate Enterprises, Inc., ("Lessee") a Delaware corporation, with an address
of 2 Wisconsin Circle, Suite 700, Chevy Chase, MD 20815. The parties for
themselves, their heirs, legal representatives, successors and assigns, agree as
follows:
1. Demise and Description of Property.
-----------------------------------
a. Lessor leases to Lessee and Lessee leases from Lessor, the
"Premises" (defined below), being a subpart of Lessor's total leased Facility
space, for the term and subject to the conditions and covenants hereinafter set
forth and to all encumbrances, restrictions, zoning laws, regulations or
statutes affecting the Building, Facility or Premises.
b. The Premises consists of Facility office space number(s) #725,
726A/B, 727/728, 729 and 730 as shown in the floor plan annexed hereto. Lessor
hereby grants Lessee the privilege to use in common with other lessees and
parties that Lessor may designate certain office amenities located in the
Facility; the use of all of which are subject to such reasonable rules and
regulations as Lessor currently has in place and may adopt from time to time.
The amenities are more particularly described in attached Exhibit "A." "The
Operating Standards" as presently in place and governing the use of the Premises
and the Facility are attached in Exhibit "B".
2. Use.
----
a. The Premises shall be used by Lessee solely for Media Development and
such other normally incident uses and for no other purpose, in strict accordance
with the Operation Standards. Additionally, Lessee shall not offer at the
Premises any services which Lessor provides to its lessees, including, but not
limited to those amenities or services described in attached Exhibit "A". In the
event Lessee breaches any provision of this paragraph, Lessor shall be entitled
to exercise any rights or remedies available to the Lessor pursuant to this
Agreement together with such other rights and remedies as the Lessor may
otherwise have and choose to exercise.
b. Lessee shall not make nor permit to be made any use of the Premises
which would violate any of the terms of this Agreement or which, directly or
indirectly, is forbidden by statute, ordinance or government regulations, which
may be dangerous to life, limb or property, which may invalidate or increase the
premium of any policy of insurance carried on the Building or on the Facility,
which will suffer or permit the Premises to be used in any manner or anything to
be brought into or kept there which, in the sole judgment of Lessor, shall in
any way impair or tend to impair the high quality character, reputation or
appearance of the Building or the Facility, or which may or tend to impair or
interfere with any services performed by Lessor for Lessee or for others.
3. Term.
-----
a. The term of this Agreement shall be for a period of twelve months,
commencing 9:00 a.m. on the 1st day of January, 1998, and ending 5:00 p.m. on
the 31st day of December, 1998, unless renewed as provided in paragraph "3(b)"
herein.
b. Upon the ending term date set forth herein or any extension thereof, the
Agreement shall be extended for the same period of time as the initial term and
upon the same terms and conditions as herein contained except for the amount of
base rental charges, which shall each be increased by ten percent (10%), unless
either party notifies the other in writing by certified or registered mail,
return receipt requested, or delivered by hand that the Agreement shall not be
extended within the period hereinafter specified or automatically renewed. If
Lessee has less than three offices, such notice shall be given at least 60 days
prior to the expiration date of this Agreement. If Lessee has three or more
offices, such notice shall be given at least 90 days prior to the expiration
date of this Agreement.
c. In the event the entire Premises or the Facility are damaged, destroyed
or taken by eminent domain or acquired by private purchase in lieu of eminent
domain so as to render the Premises fully untenantable and unrestorable in
Lessor's sole judgment, then within 90 days thereafter by written notice to the
other party, either party shall be able to terminate this Agreement, which will
terminate as of the date thereof.
4. Rent.
-----
a. For and during the term of this Agreement, Lessee shall pay Lessor as
rent for the Premises a annual total rental of $101,304.00, payable in equal
monthly installments of $8442.00, each payable in advance of the first day of
each calendar month after the commencement of the term, or a daily prorated
amount for any partial calendar month during the term. If any payment of rent or
other charges due under this Agreement is not received within five (5) calendar
days after its due date, the Lessee will also pay, as additional rent, a late
payment charge which shall be an amount equal to 10% of any amount owed to
Lessor or $50 whichever is greater.
b. It is additionally specifically covenanted and agreed that the financial
terms of this Agreement are strictly confidential and Lessee agrees not to
knowingly or willfully divulge this information to or any other Lessee or
potential Lessee of Lessor. Any such disclosure by the Lessee of the financial
terms of this Agreement as set forth herein above, shall constitute a material
breach of this Lease.
c. The first such payment of rental as well as the payment of the
Deposit as set forth in below shall be paid by Lessee simultaneously with
execution of this Agreement. Should the Lessee fail to make such payment prior
to the commencement of the term of
1 /s/RJW Initials /s/RJW Initials
------- -------
/s/ LS
------
<PAGE>
c. The first such payment of rental as well as the payment of the Deposit
as set forth in below shall be paid by Lessee simultaneously with execution of
this Agreement. Should the Lessee fail to make such payment prior to the
commencement of the term of this Agreement, then, at Lessor's sole option, the
Agreement shall be null and void and of no further effect.
d. The rental payable during the term of this Agreement shall be
increased on the first day of the month following notification of any rental
increase (however designated) which the Lessor might receive from the Lessor's
over-landlord ("Building"). The term "direct expenses" as used herein shall
refer to the same items and costs as are used by the Building in its
determination of expenses and costs passed on to Lessor. Lessor shall
immediately notify Lessee in writing of any such increase, and shall bill Lessee
for its pro rata share thereof, which bill Lessee shall pay promptly upon such
notification for each and every month thereafter for the balance of the term.
e. Rent charges are based on the value of the rental Premises and services
to be used by one person(s) per office and two persons for Office #730 only. If
more than said number of person(s) habitually use the Premises or services, the
Fixed Monthly Rental Charges will be increased by a factor of $100 for each
additional person who habitually uses the Premises.
f. If a Lessee check is returned for any reason, Lessee will pay an
additional charge of $100.00 per returned check and, for the purpose of
considering default and/or late charges, it will be as if the payment
represented by the returned check had never been made.
5. Security Deposit.
----------------
a. Lessee shall deposit with Lessor $16,884.00, or the equivalent of two
months rent, in good or certified funds with a domestic bank, as a non-interest
bearing security deposit. Lessor may use the security deposit to cure any
default of Lessee under this Agreement, restore the Premises including any and
all furniture, fixtures and equipment provided by Lessor and vendors at the
Premises to their original condition and configuration, reasonable wear and tear
excepted, to pay for repairs to any damage to the Premises, Executive Suite or
Building, caused by Lessee or Lessee's guests, to pay any rent or other charges
which Lessee owes Lessor at or prior to the expiration of this Agreement, and to
reimburse Lessor for costs or expenses arising from any other obligation of
Lessee which Lessee has failed to perform. If Lessor transfers control or
ownership of the Premises and Lessor transfers the security deposit to such
purchaser, Lessee will look solely to the new Lessor for the return of the
security deposit, and the Lessor named in this Agreement shall be released from
all liability for the return of the security deposit.
b. The security deposit (less any sums used by Lessor in accordance with
the terms and conditions of this Agreement) will be returned within sixty (60)
days after the termination of any services rendered or expiration of the term
hereof. The security deposit shall not under any circumstance be applied in lieu
of be the final payment(s) of Fixed Monthly Rental charges or service charges
under this Agreement.
c. In the event that, by reason of the Lessee's default in its
obligations pursuant to this Agreement or otherwise, including but not limited
to the payment of the Fixed Monthly Rental Charge, any amounts due by reason of
the Lessee's use of additional services hereto and/or by reason of the Lessee's
use of telephone services as supplied pursuant to this Agreement, Lessor shall
be entitled to apply any of the security deposited pursuant to this Agreement to
any outstanding sums due or owing to the Lessor, and Lessor shall have the right
to charge the Lessee, as additional rent, such sums as are necessary to
replenish any and all amounts applied so as to cause the security to be returned
to its entire amount. The failure to pay such amounts as are necessary to
replenish the security shall be considered a breach of this Agreement and shall
entitle the Lessor to exercise any of its rights pursuant to this Agreement or
otherwise.
6. Delivery of Possession.
----------------------
If, for any reason whatsoever, Lessor cannot deliver possession of the
Premises to Lessee at the commencement of the term, this Agreement shall not be
void nor voidable nor shall Lessor be liable to Lessee for any loss or damage
resulting therefrom, but there shall be an abatement of rent for the period
between the stated term commencement and the time when Lessor does deliver
possession of the Premises.
7. Services.
--------
a. So long as Lessee is not in default hereunder, Lessor shall make
available certain amenities to Lessee as more particularly described in Exhibit
"A." Such services shall be offered to Lessee, in conjunction with such services
being offered by Lessor to its other lessees, without charge for the reasonable
use of the same.
b. In addition, provided Lessee is not in default hereunder and provided
the cost thereof does not exceed the Security Deposit, Lessor shall make
available to Lessee certain other services the cost of which shall be billed to
the Lessee as additional rent and the payment of which shall be subject to the
same terms and conditions as those governing the payment of the Fixed Monthly
Rental Charge herein regardless of when such charges are billed to the Lessee.
8. Telephone Services.
------------------
a. Provided Lessee is not in default of any of the terms, covenants,
conditions or provisions of this Agreement, Lessor will make available to
Lessee, a telecommunications package which will consist of some combination of
telephone equipment, numbers, lines, conference calling, voice mail, local, long
distance and international service, and directory listing. All components of the
telecommunications package including any telephone numbers used by Lessee will
remain at all times the property of Lessor and Lessee will acquire no rights in
the components beyond the term specified by Lessor.
b. Upon Lessee's written request, Lessee shall be entitled to appoint
Lessor as its exclusive agent for the sole purpose of procuring and arranging
Lessee's local "white pages" listings. Lessor shall have no involvement nor
responsibility for any "yellow pages" listings desired by Lessee.
c. Lessor shall not be liable for any interruption or error in the
performance of its services to Lessee under this Section. Lessee waives any
recourse as against the Lessor for any claimed liability arising from the
provision of telecommunication services including, but not limited to, injuries
to persons or property arising out of mistakes, omissions, interruptions,
delays, errors or defects in transmissions occurring in the course of furnishing
telecommunications services provided same are not caused by the willful acts of
the Lessor, as well any claim for business interruption and for consequential
damages.
d. Lessor shall use reasonable efforts to provide Telephone Services to
Lessee in a first-class, professional manner. Telephone service charges shall be
as per Lessor's then scheduled rates for the same, or as the same may be amended
by Lessor from time to time
[LOGO OF ALLIANCE] 2 Initials Initials
---- ----
<PAGE>
fraud including, but not limited to, unauthorized use of calling cards or
telephone lines.
f. It is expressly acknowledged and agreed that Lessor shall be the sole
and exclusive provider of telecommunication services to Lessee. Lessee hereby
agrees and covenants that it will not use any other telephone service or
telephone carrier to provide it service in the Premises. In the event that
Lessee uses or acquires any other telephone service at the Premises, such use
and/or installation shall constitute a material default in the Lessee's
obligations hereunder.
9. Furniture and Fixtures.
----------------------
At its own cost and expense, Lessor shall furnish and install furniture,
fixtures and equipment as are in Lessor's sole opinion necessary to provide
suitable office accommodations for Lessee, upon such terms and conditions
routinely applicable to the Facility. All such furniture, fixtures and equipment
shall remain Lessor's property.
10. Insurance: Waiver of Claims.
---------------------------
a. Lessor has no obligation to and will not carry insurance for Lessee's
benefit. Lessor will not be liable to Lessee or to any other person for damages
on account of loss, damage or theft, to any business or personal property of
Lessee. Lessee hereby waives any claims against Lessor from any loss, cost,
liability or expense (including reasonable attorneys' fees) arising from
Lessee's use of the Premises or any common areas made available to Lessee by
Lessor or from the conduct of Lessee's business, or from any activity, work, or
thing done in the Premises or common areas by Lessee or Lessee's agents,
contractors, visitors or employees. To the extent that Lessor has any liability
for any of the forgoing pursuant to any law, ordinance or statute, Lessee shall
seek recovery for such loss(es)/or damage(s) from its own insurance company as
provided for in subparagraph (c) herein prior to making any claims against
Lessor.
b. The Lessor shall not be liable or responsible to the Lessee for any
injury or damage resulting from the acts or omissions of Lessor, its employees,
persons leasing office space or obtaining services from the Lessor, or other
persons occupying any part of the Premises or Building, or for any failure of
services provided such as water, gas or electricity, HVAC or for any injury or
damage to person or property caused by any person except for such loss or damage
arising from the willful or grossly negligent misconduct of the Lessor, its
agents, servants, or employees or from the Lessor's failure to make repairs
which it is obligated to make hereunder. Neither Lessor or any of its agents,
employees, officers or directors shall be responsible for damages resulting from
any error, omission or defect in any work performed or provided as part of the
services rendered, whether uncompensated services or compensated services.
c. Lessee shall provide Lessor with a certificate of insurance evidencing
General/Public Liability coverage with liability limits of not less than One
Million Dollars ($1,000,000) per occurrence for Bodily Injury and/or Property
Damage Liability and One Hundred Thousand Dollars ($100,000) per occurrence for
Fire/Legal Liability. Said insurance coverage shall remain in force during the
term of this Agreement and renewals thereof. The Lessor, Alliance National,
Inc, and Alliance Business Centers, Inc., shall be named as an additional named
insured on each of these policies. Lessee's failure to provide or maintain such
Insurance shall not reduce or otherwise alter Lessee's liability or
responsibility to pay any judgment rendered against Lessee for such Liability
and Damages Failure to maintain such Insurance and/or to name the Lessor and its
designees, as set forth above, shall constitute a material breach of this
Agreement.
d. Both parties hereby agree to defend, indemnify and hold the other
harmless from and against any and all claims, damages, injury, loss and expenses
to or of any person or property resulting from the acts or negligence of their
agents, employees, invitees and/or licensees while in the Building, Executive
Suite and/or Premises.
e. Any fire and extended risk casualty insurance that Lessee maintains
shall include a waiver of subrogation in favor of Lessor and Building Landlord,
and any fire and extended risk insurance carried on the Facility by Lessor shall
likewise contain a waiver of subrogation in favor of Lessee.
11. Waiver of Breach.
----------------
Should Lessor not insist upon the strict performance of any term or
condition of this Agreement or to exercise any right or remedy available for a
breach thereof, and no acceptance of full or partial payment during the
continuance of any such breach shall constitute a waiver of any such breach or
any such term or condition. No term or condition of this Agreement required to
be performed by Lessee and no breach thereof, shall be waived, altered or
modified, except by a written instrument executed by Lessor. No waiver of any
breach shall affect or alter any term or condition of this Agreement, and each
term or condition shall continue in full force and effect with respect to any
other then existing or subsequent breach thereof.
12. Operating Standards.
-------------------
The Operating Standards attached to this Agreement as Exhibit "B" are
hereby made an integral part of this Agreement. Lessee, its employees, agents,
guests, invitees, visitors and/or any other persons caused to be present in and
around the Premises by the Lessee shall perform and abide by the rules and
regulations and any amendments or additions to said rules and regulations as
Lessor may make. In addition, Lessee, its employees and agents shall abide by
all applicable governmental rules, regulations, statutes and ordinances relating
in any way to the Premises or the Facility or Lessee's use or occupancy of the
Premises or the Facility; failing which Lessee shall be in default hereunder and
shall pay any fines or penalties imposed for such violation(s) directly to the
appropriate governmental authority or to Lessor, if Lessor has paid such amount
on behalf of Lessee. Such remedy shall not be exclusive. It is hereby further
explicitly agreed and understood that full compliance with the Operating
Standards as set forth constitutes a material obligation of this Agreement, and
that the failure to so comply shall constitute a violation of this Agreement
entitling the Lessor to exercise any of its remedies pursuant to this Agreement
or otherwise.
13. Employment of Lessor's Employees.
--------------------------------
a. Lessee agrees that it will not, during the term of this Agreement and
any renewals thereof, or for a period of one year after the expiration or sooner
termination of this Agreement, hire or issue an offer to employ any person who
is or has been an employee of Lessor or Lessor's agent without prior consent
from Lessor. If Lessee either hires an employee of Lessor or Lessor's agent;
or hires any person who has been an employee of Lessor or its agent within six
months prior to the time they are hired by Lessee, Lessee will, at Lessors sole
option, be liable to Lessor for liquidated damages equal to six months wages of
the employee, at the rate last paid that employee by Lessor.
b. If Lessor assists in hiring an employee for Lessee, Lessee shall pay to
the Lessor a commission equal to 20% of that employee's
[LOGO OF ALLIANCE BUSINESS CENTERS]
/s/RJW Initials /s/LS Initials
------ -----
3
<PAGE>
of Lessor or Lessor's agent without prior consent from Lessor. If Lessee either
hires an employee of Lessor or Lessor's agent, or hires any person who has been
an employee of Lessor or its agent within six months prior to the time they are
hired by Lessee, Lessee will, at Lessors sole option, be liable to Lessor for
liquidated damages equal to six months wages of the employee, at the rate last
paid that employee by Lessor.
b. If Lessor assists in hiring an employee for Lessee, Lessee shall pay to
the Lessor a commission equal to 20% of that employee's annual salary. The
provisions hereof shall survive the expiration or sooner termination of the
term thereof.
14. Alteration.
----------
If Lessee requires any special wiring or office alterations for
extraordinary business machines or other purposes not consistent with the
current wiring, extraordinary telephone equipment or computer equipment. Such
alteration shall be done (i) only with the express written permission of the
Lessor, and if said permission is granted, then (ii) by an agent designated by
Lessor at Lessee's cost. The electrical current shall be used for ordinary
lighting purposes only, unless written permission to do otherwise shall first
have been obtained from Lessor at an agreed cost to Lessee. Lessor further
reserves the sole and exclusive right to limit the number and type of lines and
telephone equipment Lessee can install in the leased Premises.
15. Re-Entry.
--------
Lessor and its agents shall have the right to enter the Premises at any
time for the purpose of making any repairs, alterations, inspections which it
shall deem necessary for the preservation, safety or improvements of said
Premises, without in any way being deemed or held to have committed an eviction
(constructive or otherwise) of or trespass against Lessee.
16. Relocation.
----------
a. Lessee agrees that the Lessor may, in its sole discretion, relocate the
lessee from its present Premises to a like or similar office space within the
same facility upon thirty (30) days notice to the Lessee. In the event that the
Lessor requires the Lessee to relocate, the Lessor hereby agrees to bear the
reasonable cost of any such relocation, which cost shall be limited to the cost
associated with the physical transfer of the Lessee's property to any different
office, which the Lessor may designate.
b. In the event that any such relocation is effected, the Lessee hereby
acknowledges that, unless otherwise agreed in writing, that all of the terms and
conditions of this Agreement shall remain in full force and effect.
17. Assignment and Subletting.
-------------------------
No assignment or subletting of the Premises, this Agreement or any part
thereof shall be made by Lessee without Lessor's prior written consent, which
consent may be withheld for any or no reason in Lessor's sole discretion.
Neither all nor any part of Lessee's interest in the Premises or this Agreement
shall be encumbered, assigned or transferred, in whole or in part, either by act
of the Lessee or by operation of law.
18. Surrender.
---------
a. On expiration of the term, any extended term, or sooner termination of
this Agreement, Lessee shall promptly surrender and deliver the Premises to
Lessor, without demand, and in as good condition as when let, ordinary wear and
tear excepted.
b. Upon Lessee serving a notice of cancellation as provided in 3b herein
Lessor shall have the right to show Lessee's Premises during the 60 day period
(for one or two offices) or 90 day period (for three or more offices) as the
case may be.
c. Without prior written approval of Lessor, Lessee shall not remove any
of its property from the Premises upon termination of this Agreement or at any
other time, except during Lessor's normal business hours. In the event Lessor
consents to Lessee's removing property before or after normal business hours,
any expenses incurred by Lessor as a result, including but not limited to
expenses for personnel, security, elevator, utilities and the like shall be
paid by Lessee in advance, to the extent determinable by Lessor, by certified
and/or bank check.
d. If Lessee vacates the Premises and leaves behind any property,
whatsoever, same will be deemed abandoned by Lessee and may be disposed of by
Lessor at Lessee's expense. If Lessee defaults in the payment of sums due to
Lessor, and Lessor changes the locks, removes Lessee's property, or otherwise
denies access to Lessee, Lessor shall not be liable for conversion or partial,
actual and/or constructive eviction.
19. Holding Over.
------------
a. In the event that Lessee, should not renew this Agreement in accordance
with the terms and conditions hereof, and/or fail to surrender the Premises upon
the expiration of the term of the Agreement as provided herein, Lessee agrees to
pay Lessor, as liquidated damages, a sum equal to twice the monthly rent and all
additional charges for services provided by Lessor to Lessee, for each month
that Lessee retains possession of the Premises or any part thereof, provided,
however, that the acceptance of such sums, representing liquidated damages shall
not be deemed to be permission to Lessee to continue in possession of the
Premises.
20. Default and Remedies.
--------------------
a. If the Lessee shall default in fulfilling any of its terms, conditions,
covenants or provisions of this Agreement, including but not limited to:
1. Payment of fixed Monthly Rental Charges and/or any other charges
hereunder within ten days of the date such charges become due;
2. Becomes comes insolvent, makes an assignment for benefit of creditors,
or files a voluntary petition under any bankruptcy or insolvency law, or
has filed against it an involuntary petition under any such law;
3. Defaults in fulfilling any of the terms, conditions, covenants or
provisions of this Agreement including but not limited to the breach of any
of the terms and conditions set forth in the exhibits attached hereto;
4. The abandonment and/or vacatur of the Premises by the Lessee;
then, after five days notice of any such default(s), the Lessor may, at its sole
discretion, terminate this Agreement upon five days notice to the Lessee, and
upon the expiration of such notice period, the Lessee
[LOGO OF ALLIANCE BUSINESS CENTERS] _____ Initials _____ Initials
4
<PAGE>
sole discretion, may accept notwithstanding the foregoing. Lessor shall have no
obligation, implied or otherwise, to mitigate its damage(s) under such
circumstances.
b. Should Lessor be unable to re-let the Premises, or should each monthly
re-rental be less than the rental, Lessee is obligated to pay under this
Agreement or any renewal thereof, at Lessor's option Lessee shall pay the amount
of such deficiency, plus the expenses of reletting, immediately in one lump sum
(if allowable under law) to Lessor upon demand and/or as such obligations
accrue.
c. If Lessee shall default in the observance or performance of any term or
covenant on Lessee's part to be observed or performed under or by virtue of any
of the terms or provisions in any article of this lease, then, unless otherwise
provided elsewhere in this lease, Lessor may immediately or at any time
thereafter and with notice perform the obligation of Lessee thereunder, and if
Lessor, in connection therewith or in connection with any default by Lessee in
the covenant to pay rent hereunder, makes any expenditure [ILLEGIBLE]
[ILLEGIBLE PORTION]
21. Mail & Telephone Forwarding.
---------------------------
a. After termination or expiration of the [ILLEGIBLE] Agreement, Lessee
hereby agrees that it will take all reasonable steps to notify all parties of
Lessee's new address and phone numbers. Lessor shall have no obligation, to
notify any person or entity of Lessee's new address and/or phone numbers, except
as expressly provided herein.
b. Lessor will, unless otherwise instructed by Lessee in writing, hold
mail for Lessee at its new address and give out new telephone number via a voice
mail message for a period of three (3) months at the rate of $125.00 per month,
which sums shall be deducted from any amounts deposited with the Lessor as
security hereunder and paid to the Lessor in advance. In the event that there is
not sufficient security remaining on deposit to pay for the charges set forth
herein, unless the Lessee shall pay the charges set forth herein to the Lessor
in advance, Lessor shall have no obligation to provide the services set forth
herein.
22. Notices.
------
Any notice under this Agreement shall be in writing and shall be either
delivered by hand or by first class mail to the party at the address set forth
below. Lessor hereby designates its address as:
ALLIANCE BUSINESS CENTERS
2 Wisconsin Circle, Suite 700
Chevy Chase, MD 20815
Attn: Management
with a copy by regular first class mail to:
ALLIANCE Business Centers
122 East 42nd Street, Suite 2707
New York, NY 10168
Attn: Legal Department
Lessee hereby designates its address (which address must be an address within
the United States), as
Affiliate Enterprises, Inc.
Attn: Mr. Robert Wussler/Mr. Wade Hargrove
Brooks, Pierce, McLendon (Other Than 2 Wisconsin)
150 Fayeteville St. Mall, Suite 1
Phone:______________________________
Fax:________________________________
Raleigh, NC 27601
If such mail is properly addressed and mailed, as above, it shall be deemed
notice for all purposes, given when sent or delivered, even if returned as
undelivered.
23. Landlord's Election Under This Agreement.
----------------------------------------
Upon early termination of the main Building lease, this Agreement shall
terminate unless the Building Landlord under the main lease elects to have this
Agreement assigned to the Building Landlord or to such other entity as is
designated in such notice by the Building Landlord, (ii) the Building Landlord
shall be deemed to be the Lessor under this Agreement and shall assume all
rights and responsibilities of Lessor under this Agreement, and (iii) Lessee
shall be deemed to have attorned to the Building Landlord as Lessor under this
Agreement.
24. Time of Essence.
---------------
Time is of the essence as to the performance by Lessee of all covenants,
terms and provisions of this Agreement.
25. Severability.
------------
The invalidity of any one or more of the sections, subsections, sentences,
clauses or words contained in this Agreement or the application thereof to any
particular set of circumstances, shall not affect the validity of the remaining
portions of this Agreement or of their valid application to any other set of
circumstances. All of said sections, subsections, sentences, clauses and words
are inserted conditionally on being valid in law; and in the event that one or
more of the sections, subsections, sentences, clauses or words contained herein
shall be deemed invalid, this Agreement shall be construed as if such invalid
sections, subsections, sentences, clauses or words had not been inserted. In the
event that any part of this Agreement shall be held to be unenforceable or
invalid, the remaining parts of this Agreement shall nevertheless continue to be
valid and enforceable as though the invalid portions had not been a part hereof.
In addition, the parties acknowledge (i) that this Agreement has been fully
negotiated by and between the parties in good faith and is the result of the
joint efforts of both parties, (ii) that both parties have been provided with
the opportunity to consult with legal counsel regarding its terms, conditions
and provisions and (iii) that regardless of whether or not either party has
elected to consult with legal counsel, it is the intent of the parties that in
no event shall the terms, conditions or provisions of this Agreement be
construed against either party as the drafter of this Agreement.
26. Execution by Lessee.
-------------------
The party or parties executing this Agreement on behalf of the Lessee
warrant(s) and represent(s): (i) that such executing party (or parties) has (or
have) complete and full authority to execute this Agreement on behalf of Lessee,
(ii) that Lessee shall fully perform its obligations hereunder.
5
<PAGE>
27. Assumption Agreements and Covenants.
-----------------------------------
This Agreement is subject and subordinate to the main Building lease
governing the Facility, under which Lessor is bound as tenant, and the
provisions of the main lease, other than as to the payment of rent or other
monies, are incorporated into this Agreement as if completely herein rewritten.
Lessee shall comply with and be bound by all provisions of the main lease except
that the payment of rent shall be governed by the provisions of this Agreement,
and Lessee shall indemnify and hold Lessor harmless from and against any claim
or liability under the main lease of Lessor arising from Lessee's breach of the
Main Lease or this Agreement. Lessor covenants and warrants that the use of the
Premises as a business office is consistent with and does not violate the terms
of the main lease.
28. Covenant and Conditions.
-----------------------
Each term, provision and obligation of this Agreement to be performed by
Lessee shall be construed as both a covenant and condition.
29. Entire Agreement.
----------------
This Agreement embodies the entire understandings between the parties
relative to its subject matter, and shall not be modified, changed or altered in
any respect except in writing signed by all parties.
30. Counterparts.
------------
This Agreement may be executed in two or more counterparts, each of which
shall be deemed to be an original, but all of which together shall constitute
one and the same instrument.
IN WITNESS WHEREOF, Lessor and Lessee have executed this Agreement as of
the date first above written.
LESSOR: ALLIANCE, 2 Wisconsin, Inc.
By:
--------------------------------
LESSEE: Affiliate Enterprises, Inc.
(If a corporation)
By:
--------------------------------
Title:
-----------------------------
(Corporate Seal)
LESSEE:
(If an individual or partnership)
By:
--------------------------------
By:
--------------------------------
EXHIBIT "A"
- -----------
. Furnished Private Office
. Furnished, Decorated Reception Room with Professional Receptionist
. Personalized Telephone Answering During Office Hours
. 24 hour Voicemail
. 40 hours of Conference Room or private furnished offices, subject to prior
scheduling and use by other lessees
. Corporate Identity on Lobby Directory where Available
. Complete Mail Room Facility
. Receipt of Mail and Packages
. Complete Kitchen Facilities with Coffee Machine
. Utilities and Maintenance
. HVAC During Normal Business Hours
. Janitorial Services
. 8 hours per month courtesy use of other Alliance Business Centers
affiliated facilities. Locations subject to current affiliation and
availability.
[LOGO OF ALLIANCE] 6
Initials Initials
---- ----
<PAGE>
LEASE AND SERVICE AGREEMENT
REBATE RIDER
RE: Lease and Service Agreement between ALLIANCE 2 Wisconsin, Inc., and
Affiliate Enterprises, Inc. ("Agreement").
DATE: November 14, 1997
CENTER: 2 Wisconsin Circle, Chevy Chase, M.D.
WHEREAS The agreement in Paragraph "4a" provides that the lessor shall pay, as
rent for the premises, a annual total rent of $101,304.00 payable in equal
monthly installments of $8442.00, and
WHEREAS the parties agree and understand that the said sum reflects the market
rent for the Premises, and
WHEREAS the parties have agreed, that in consideration of entering into the
Agreement, that the Lessor shall accept instead and in place of the rent
described in paragraph "4a" the annual total sum of $84,144.00 payable in
monthly installments of $7012.00 which reflects a monthly abatement in the
amount of $1430.00.
It is hereby agreed as follows:
1. Paragraph "4a" is hereby modified so that, upon expiration of the term of
the Agreement and upon the renewal thereof, whether by operation of the
Agreement or otherwise, the Lessee agrees to pay and shall pay rent as set
forth in Paragraph "4a" of the Agreement.
2. Upon the expiration of any such renewal term, Lessee hereby agrees and
understands that Paragraph "3b" of the Agreement shall apply to any such
renewals.
3. Lessor agrees to increase Lessee's monthly complimentary conference room
allowance from 12 hours per month to 40 hours per month.
All other terms and conditions of the Agreement shall remain in full force and
effect.
ACCEPTED BY LESSOR: ACCEPTED BY LESSEE:
ALLIANCE 2 Wisconsin, Inc. Affiliate Enterprises, Inc.
By: /s/ Lori Shackleton By: /s/ Robert J. Wussler
--------------------------- --------------------------
Date: 11/17/97 Title: CEO & President
-------------------------- -----------------------
Date: 11/17/97
-----------------------
<PAGE>
2 Wisconsin Circle
Floor Plan Suite 700
Chevy Chase, MD
Phone: 301.961.1500
[LOGO OF ALLIANCE BUSINESS CENTERS]
[DIAGRAM OF FLOOR PLAN]
Notes:
- ------------------------------------------
- --------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
Exhibit C
---------
SCHEDULE OF SERVICES
<TABLE>
<S> <C> <C>
A. ACCOUNTING
1) Establishing a second account for Tenant's convenience $25.00 each time
2) Clerical fee for processing payment using MC/VISA/American Express $10.00 each time
3) Fax or send duplicate statement or records (plus postage and faxing $5.00 each copy
costs)
4) Research, collection calls or processing (plus postage, faxing and $22.00 Per hour
telephone incurred charges) Actual time billed as Clerical service Actual time
Clerical Rate
B. ADMINISTRATIVE
1) Credit authorization and set up fee
. New Full-Time Tenants $100.00 Per Office
. Identity $100.00 Per Contract
2) Moving a Tenant from one suite to another, switching phone, keys, $50.00 per person
and cards
3) Additional employee initial set up $100.00 one-time charge
Recurring Monthly Charge - Extra People Fee $100.00 Month
4) Painting and cleaning fee for a lease of less than six (6) months $200.00 Per office
including administrative coordination
5) Lost security card, lost key $25.00 Per Item
6) Tenant Storage: boxes, other items (if available) $40.00 Month/closet
C. ANSWERING SERVICE (8:30AM THRU 5:30PM -- MON. THRU FRI)
1) Full-time Tenant Included in Contract
2) Flex Time Plan Answering Service/Voice Mail Only $85.00 Includes 1 person
One voice mail box
3) Hand written messages (based on clerical rate of $22.00 per hour for $2.20 Per Message
.10 of an hour)
D. CLERICAL SERVICE*
1) Standard Clerical Rate $2.20 Per .10 of an hour
Clerical Service billed in 6 minute increments (i.e. .10 = 6 minutes)
Clerical Services Available
. Bank Deposits . Ordering Office Supplies
. Bill Paying Photocopying for Tenants
. Check Reconciliation or Visitors
. Computer Maintenance . Outgoing Calls for Tenants
. Arrange Conference Calls and . Payroll
Meetings . Preparation of Expense
. Extensive Fax Transmission Travel Reports
. Filing . Project Coordination
. Invoicing (Bookkeeping) . Proofreading/editing
. Light Accounting . Research
. Typing Forms
2) Normal Turnaround Time = 24 hours $22.00 Per hour
.10 hr minimum
</TABLE>
Initials /s/ LS
------
/s/ RJW
-------
10
<PAGE>
Exhibit C (Continued)
---------------------
<TABLE>
<S> <C> <C>
D. Clerical Service (Continued)
3) Rush Turnaround Time = 1-8 hours $44.00 Per hour
Clerical services will be billed at 200% of the normal Clerical rate .10 hr minimum
if performed before or after scheduled working hours, or requested
as a rush job
4) Notary $2.00 Per seal
.10 hr minimum
5) Patching a call through to a seven-digit number not set up with a $2.20 Per call + call
patch service
E. Concierge Services
1) Arrangement for Business Supplies, Catering, Meal order taking, etc. $22.00 Per hour
.10 hr minimum
F. Conference Rooms
1) Rental
. Full-Time Tenants Included up to 12 Hours
. Hourly $25.00 Per Hour
. Daily (1 to 12 people) $150.00 Per Day
2) Seminar Room (allowance at twice the time)
. Full-Time Tenants Included accumulated with
Conference Room rental
. Hourly $50.00 Per Hour
. Daily (up to 40 people) $300.00 Per Day
3) Cancellation, if not within 24 hours for conference room. Billable at 50%
of time reserved
4) Set-up/clean-up after Tenant in conference room $22.00 Per Hour
.10 hr minimum
Clerical rate
G. Directory Listing -- Building Lobby
1) Full-time/Flex time Tenant Included
2) Additional Listings $40.00 Per line
one time charge
H. Furniture
1) Moves/adds/changes including administrative coordination and $25.00 Per piece
moving of furniture places
2) Standard Furniture Set $50.00 Month/set
3) Additional Furniture Rental - Various Pieces Varies based on
Piece Requested
I. Kitchen Facilities
(Coffee, tea, etc)
1) Tenants/Clients per cup service $20.00 Month/Per Person
2) Pots for Conference Room - Set-up $22.00 Per hour
Actual time
Clerical rate
J. Mail Services
1) Deliver parcel to Tenants office. All parcels are called to $22.00 Per hour
tenant. If not picked up by 5:00pm. we will deliver to office. .10 hr minimum
</TABLE>
Initials /s/ RJW
-------
/s/ LS
-------
11
<PAGE>
Exhibit C (Continued)
--------------------
<TABLE>
<S> <C> <C>
J. Mail Services
2) Prepare Certified, Express, or Courier $22.00 Per hour
.10 hr minimum
3) Check mailbox/review mail by phone $22.00 Per hour
.10 hr minimum
4) Prepare packages, such as label/wrap $22.00 Per hour
.10 hr minimum + supplies
5) Trace Shipments (Fed Ex, UPS, etc.) $2.20 Per call+call
6) Mass mailings (folding, stuffing, posting, etc.) Varies Upon size of mailing
K. Message Handling
1) Message taking for visitors or conference room use $22.00 Per hour
.10 hr minimum
2) Tenant advertisements - recording messages $22.00 Per hour
.10 hr minimum
3) Relaying Tenant voice mail messages over the phone $22.00 Per hour
.10 hr minimum
L. Office Supplies
1) Minimum supplies are available on site through ALLIANCE or Cost + 20%
may be ordered (See a clerical assistant for requests)
2) Weekly orders may be placed directly for tenant $22.00 Per hour
.10 hr minimum
M. Parking
1) Surface By Time
2) Covered Parking Garage $100.00/month
N. Postage Fees
(Landlord shall serve as postal agent to all tenants and clients.)
1) U.S. Mail/UPS
. 25 pieces Complimentary Per day
. Additional (after 25 pieces) $2.20 Per 25 pieces+cost
2) Courier Service Cost+20%
3) Federal Express Standard Rates
O. Production & Copying
(a medium volume copy machine is available for Tenants)
1) Binding, copying & transparencies (production time only) $22.00 Per hour
.10 hr minimum + supplies
2) Photocopies
. up to 1000 $0.15 Each
. Production rate (after 1000) $0.10 Each
3) Binding (includes spine, cover & backing) $3.50 Each
</TABLE>
Initials /s/ RJW
-------
/s/ LS
------
12
<PAGE>
Exhibit C (Continued)
---------------------
<TABLE>
<S> <C> <C>
P. Telecommunications
1) Standard Phone Equipment $95.00 Per Set, Per Month
(Installation fee and set up not included)
. Phone with built in Speaker phone,
. DID Phone Number with 2 roll over lines
. 1 line Directory Listing
. Other basic features of telephone system.
2) Phone/ Fax or Data Line Installation $130.00 Per line
3) Fax or Data Line (Additional recurring charge each month) $40.00 Per line, Per month
4) Splitting a phone number for additional voice mail boxes $10.00 Per box, Per month
5) Voice mail; adding another personal box $10.00 Per box, Per month
$25.00 Per box, installation
6) Programming voice mail to pager $25.00 Programming fee,
Per pager
7) Paging
. Voice Mail Paging(Available 7/1/97) $10.00 Per pager
Per Month + call transfer fee
. Paging on Demand $2.20 Per Page
8) Call Patching set up fee $25.00 Per number
(one time charge)
9) Call Patching
. Up to 40 Patches $25.00 Per Month + call transfer fee
(based on distance of call)
. Additional Patches (after 40) $0.50 Per Patch and Call transfer
fee
. On Demand $2.20 Per Patch
10) Reconnect fee (after termination of service) $130.00 Per Phone or Data Line
Q. Telecopy/Fax - Plain paper fax available
(clerical charges may be incurred for faxes sent after normal
business hours)
1) Outgoing $2.00 Per Page + Call
2) Incoming $0.50 Per Page
R. Word Processing / Graphics*
1) Standard Word Processing Rate $2.60 Per .10 hr
Word Processing Services billed in 6 minute increments
2) Normal Turnaround Time = 24 hours $26.00 Per hour
.3 hr Minimum/Page
3) Rush Turnaround Time = 1-5 hours $52.00 Per hour
The clerical services below will be billed at 200% of the normal .3 hr Minimum/Page
Clerical rate if performed before or after scheduled working
hours, or requested as a rush job
4) Resumes:
Typing Only
. 1st Page $40.00 1st Page Only
. Each Additional Page $20.00 Per Page
Resume Writing Consultation Services $45.00 Per Hour
</TABLE>
Initials /s/ RJW
-------
/s/ LS
13
<PAGE>
Exhibit C (Continued)
---------------------
<TABLE>
<S> <C> <C>
R. Word Processing / Graphics (Continued)
Resumes supplied on diskette provided by Landlord $10.00 Per Disk
5) Letters typed for outside Tenants $9.00 Per Page
(including cover letters for resumes)
6) Letters, memos, proposals $7.80 Per Page
7) Tables, charts $35.00 Per Hour
to $80.00 .3 hr Minimum
8) Company Flyers, Pamphlets, Brochures Varies Scope of Project
9) Technical Design Varies Scope of Project
10) Flow Charts Varies Scope of Project
11) Logo Design Varies Scope of Project
12) Business Cards Varies Scope of Project
(consultation with Tenant and includes 5 designs-does not
include printshop charges)
13) Letterhead and/or envelope design Varies Scope of Project
(consultation with Tenant and includes 5 designs--does not
include printshop charges)
14) Spreadsheets $35.00-80.00 Scope of Project
15) Technical Assistance $ 65.00 Per Hour
S. Flex Time Program
1) Telephone Answering Only $ 85.00 Per Month
2) Mail Service Only $ 50.00 Per Month
3) Flex Program - Basic - No Conference Room $ 125.00 Per Month
4) Flex Program - Plus - 6 Hrs. Conf. Room $ 175.00 Per Month
5) Flex Program - Premier - 12 Hrs. Conf. Room $ 225.00 Per Month
6) Flex Program - Executive - 20 Hrs. Conf. Room $ 350.00 Per Month
</TABLE>
*Landlord shall bill in accordance with Industry Production Standards (IPS),
published by the National Association of Secretarial Services and the Executive
Suite Association. IPS are use for computing the time charged for document
production and non-keyboarding services. IPS are based on the average time
required to perform specific duties by a professional word processing operator.
This allows the Tenant to know how much a project will cost regardless of how
long it takes to complete it.
Initials /s/ RJW
-------
/s/ LS
------
14
<PAGE>
[LETTERHEAD OF ALLIANCE BUSINESS CENTERS] LEASE AND SERVICE AGREEMENT
SECOND OFFICE RIDER
RE: Lease and Service Agreement between ALLIANCE, 2 Wisconsin Inc., and
U.S. Digital, Inc., ("Agreement").
DATE: July 27, 1998
CENTER: 2 Wisconsin Circle, Suite 700, Chevy Chase, MD 20817
Paragraph "1b" of the Agreement is hereby modified as follows:
In place and instead of facility office space number #726 A/B, #727/28 and #750,
Lessee shall now occupy facility office space number #721, #722, #725, #726 A/B,
#727/28. Lessee hereby agrees and understands that it no longer has a right to
use and occupy facility office space #750.
In modifying Paragraph "4a", of the Agreement, Lessee shall pay Lessor as rent
for the Premises a total rental of $39,180.00, payable in equal monthly
installments of $7836.00 Lessee shall pay Lessor all start-up fee and increase
to security deposits and installation fees, prior to moving into Office #721 and
#722.
All other terms and conditions of the Agreement shall remain in full force and
effect.
ACCEPTED BY LESSOR: ACCEPTED BY LESSEE:
ALLIANCE, 2 Wisconsin Circle, Inc. U.S. Digital, Inc.
By: /s/ Lori Shackleton By: /s/ Robert J. Wussler
----------------------------- ---------------------
Date: 7/27/98 Title: Chairman
-------------------------- ------------------
Date: July 27, 1998
-------------------
<PAGE>
New Recurring Charges: (As of August 3, 1998)
Office #721 $1395.00
Office #722 $950.00
Office #725 $850.00
Office #726 A/B $1782.00
Office #727/28 $2559.00
Furniture Rental (#721) $50.00
Furniture Rental (#722) $50.00
Furniture Rental (#725) $50.00
Furniture Rental (#726) $100.00
Furniture Rental (#727/28) $50.00
Telephone Equipment (7 sets) $665.00
Modem/Fax Lines (5) $200.00
Coffee Service $40.00
Total Monthly Recurring: $8741.00
Start-up Fees Due for Offices #721 & #722:
August Rent: $2345.00
August Furniture $100.00
August Telephones (2) $190.00
Telephone Line Installation $300.00
Office Set-up Fee $300.00
Security Deposit Increase $2445.00
Total Due at Signing: $5680.00*
*Fees due are in addition to invoice dated July 20, 1998.
<PAGE>
Chevy Chase, MD
Wisconsin Circle . Suite 700 . Chevy Chase, MD 20815 . Phone: 301.961.1500
[FLOOR PLAN OF WISCONSIN CIRCLE IN CHEVY CHASE, MD]
notes
[LOGO OF ALLIANCE BUSINESS CENTERS]
<PAGE>
[LOGO OF ALLIANCE BUSINESS CENTERS]
Lease and Service Agreement
Office Rider #3
RE: Lease and Service Agreement between ALLIANCE, 2 Wisconsin, Inc., and
Affiliate Enterprises ("Agreement"), dated November 14, 1997.
DATE: June 4, 1998
CENTER: 2 Wisconsin Circle, Suite 700, Chevy Chase, MD 20815
Lessee shall be changed and named U.S. Digital, Inc.
Paragraph "1b" of the Agreement is hereby modified as follows:
In place and instead of facility office space numbers #726A/B, #727/28, as of
June 5, 1998, Lessee shall now occupy facility office space numbers #726 A/B,
#727/28 and #750. Lessee hereby agrees and understands that as of August 1,
1998, the occupant in Office #750 will be relocated to Office #725, at Lessees'
expense.
In modifying Paragraph "4a" of the Agreement, Lessee shall pay Lessor as rent
for the Premises a total rental of $37,737.00, payable in equal monthly
installments of $5391.00.
Lessee shall pay start up charges of $2055.11, for Office #750, prior to move
in. Charges to include, Office #750 rental (June 5-30, 1998), furniture rental,
telephone line/equipment rental, telephone/line installation (1 set),
administrative set up fees and state tax. (see attached)
All other terms and conditions of the Agreement shall remain in full force and
effect.
ACCEPTED BY LESSOR: ACCEPTED BY LESSEE:
ALLIANCE, 2 Wisconsin, Inc. U.S. Digital, Inc.
By: By: /s/ Robert J. Wussler
------------------------ ---------------------
Date: Title: CEO Chairman
---------------------- ------------------
Date: June 8, 1998
-------------------
<PAGE>
Office #750 New Recurring Items:
Effective June 5, 1998:
<TABLE>
<S> <C>
Office #750 Rental: $850.00
Furniture Rental: $50.00
Telephone Set Rental: $95.00
Total: $995.00
</TABLE>
Start-up Charges:
<TABLE>
<S> <C>
Office Rental (June 5-30, 1998) $736.67
Furniture Rental (prorated) $43.33
Telephone Rental (prorated) $82.33
Installation Charges $130.00
Office Set-up $150.00
Security Deposit Increase $900.00
State Tax $12.78
Total Due: $2055.11
</TABLE>
<PAGE>
[FLOOR PLAN]
Notes:
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
<PAGE>
EXHIBIT 10.4
LEASE
1. PARTIES:
This lease is made and entered into this 22nd day of July, 1998, by and
between Soundstorm (hereinafter referred to as "Landlord" and Skysite
Communications Corporation (hereinafter referred to as "Tenant").
2. PREMISES:
Landlord hereby leases to Tenant and Tenant hereby leases from Landlord, on
the terms and conditions hereinafter set forth, both certain real property
and the building and other improvements located thereon situated in the city
of Burbank, State of California, commonly known as 727 South Main Street and
described as:
Office and warehouse space of approximately 6,157 square feet, as shown in
Exhibit "A", as part of a larger 21,500 square foot building.
(Said real property is hereinafter called the "Premises.)
Tenant accepts the Premises in an "As Is" condition.
3. TERM:
The term of this lease shall be for 6 months, commencing on August 1st, 1998
and ending on January 31st, 1999 with the right to move in on or after July
24th, 1998. Tenant will have option to renew for an additional six months on
60 days notice, (i.e. by November 30, 1998.)
4. VEHICLE PARKING:
Tenant shall be entitled to use twelve (12) Reserved Parking Spaces on those
portions of the Common Areas designated by Landlord for parking. Tenant
shall not use more parking spaces than said number. Said parking spaces
shall be used for parking by vehicles no larger than full-size passenger
automobiles or pick-up trucks.
5. RENT:
Tenant shall pay Landlord as rent for the Premises, the sum of $5,500.00
dollars per month, in advance on the first day of each month. Tenant shall
pay to Landlord Base Rent of $5,500.00 for August 1-30, 1998 upon lease
execution. Rent shall be payable without notice or demand and without any
deduction, off-set or abatement in lawful money of the United States to the
Landlord at the address stated herein for notices or to such other persons
or such other places as the Landlord may designate to Tenant in writing.
6. SECURITY DEPOSIT:
Tenant shall deposit with Landlord upon Tenant's execution hereof the
Security Deposit of $8,250.00 as security for Tenant's faithful performance
of Tenant's obligations under this Lease. If Tenant fails to pay Base Rent
or other rent or charges due hereunder, or
<PAGE>
LEASE
otherwise Defaults under this Lease, Landlord may use, apply or retain all
or any portion of said Security Deposit for the payment of any amount due
Landlord or to reimburse or compensate Landlord for any liability, cost,
expense, loss or damage (including attorney's fees) which Landlord may
suffer or incur by reason thereof. If Landlord uses or applies all or any
portion of said Security Deposit, Tenant shall within ten (10) days after
written request therefore deposit monies with Landlord sufficient to
restore said Security Deposit to the full amount required by this Lease.
Landlord shall, at the expiration or earlier termination of the term hereof
and after Tenant has vacated the Premises, return to Tenant that portion of
the Security Deposit not used or applied by Landlord within two (2) weeks.
Provided there is no damage to the Premises and Tenant is not in default,
Tenant may apply a portion of the security deposit to the last month's
rent.
7. TAXES:
Real Property Taxes -
Landlord shall pay all real property taxes and general assessments levied
and assessed against the Premises during the term of this Lease.
Personal Property Taxes -
Tenant shall pay prior to the delinquency all taxes assessed against and
levied upon the trade fixtures, furnishings, equipment and other personal
property of Tenant contained in the Premises.
8. UTILITIES:
Tenant shall be responsible for all cost associated with telephone and
trash services associated with Tenant's use of the Premises. Landlord shall
be responsible for all costs associated with providing reasonable adequate
heating, cooling, electrical and water services to the Premises. Tenant
shall use electricity only to operate office equipment and machinery of the
type and size customarily used in modern offices. Beginning with the August
1998 electric bill and thereafter during the term of this lease, Landlord
shall provide the Tenant with a copy of the monthly electric bill for the
Premises within ten (10) days of its receipt. In the event that at the end
of the each six-month term of this lease, the cumulative amount of the
monthly electric bills for the Premises received during the term exceeds
twelve thousand dollars ($12,000.00), then the Tenant shall pay the
Landlord 28.6% of any such overage.
9. ALTERATIONS AND CONDITIONS:
Tenant shall not, without the Landlord's prior written consent, make any
alterations, improvements or additions in or about the Premises.
10. TENANT'S OBLIGATIONS:
Tenant, at Tenant's sole cost and expense, shall complete the following
prior to Lease commencement:
Page 2 of 5 July 22, 1998
<PAGE>
LEASE
a) Tenant shall separate from their space the existing telephone service
from the balance of the building.
11. LANDLORD'S OBLIGATIONS:
Landlord, at Landlord's sole cost and expense, shall complete the following
prior to August 1, 1998:
a) Disarm Tenant's designated space from the existing alarm system at the
Building.
b) Construct two (2) partition walls to isolate said Premises from the
balance of the Building. ("See Exhibit A").
c) Lock off all doorways entering into said Premises in order to prevent
access into said premises from other areas of the building.
12. HOLD HARMLESS:
Tenant shall indemnify and hold the Landlord harmless from and against any
and all claims arising from Tenant's use or occupancy of the Premises or
from the conduct of its business or from any activity, work or things which
may be permitted or suffered by Tenant in or about the Premises including
all damages, costs, attorney's fees, expenses and liabilities incurred in
the defense of any claim or action or proceeding arising therefrom. Except
for the Landlord's willful or grossly negligent conduct, Tenant hereby
assumes all risk of damage to property or injury to persons in or about the
Premises.
13. ASSIGNMENT AND SUBLETTING:
Tenant shall not voluntarily or by operation of law assign, transfer,
sublet, mortgage or otherwise transfer or encumber all or any part of
Tenant's interest in this Lease or in the premises without the Landlord's
prior, written consent, which consent shall not be reasonably withheld.
14. LATE CHARGES:
If any installment of rent or other sum due from Tenant shall not be
received by Landlord or Landlord's designee within ten (10) days after such
amount shall be due, then, without any requirement for notice to Tenant,
Tenant shall pay to Landlord a late charge equal to ten percent (10%) of
such overdue amount. Acceptance of such late charge by Landlord shall in no
event constitute a waiver of Tenant's Default or Breach with respect to
such overdue amount, nor prevent Landlord from exercising any of the other
rights and remedies granted hereunder.
15. DEFAULT:
It is agreed between the parties hereto that if any rent shall be due
hereunder and unpaid or if Tenant shall default and breach any other
covenant or provision of this Lease, the Landlord, after giving proper
notice required by law, may re-enter the Premises and
Page 3 of 5 July 22, 1998
<PAGE>
LEASE
remove any property and any and all persons therefrom in the manner allowed
by law. The Landlord may, at its option, either maintain this Lease in full
force and effect and recover the rent and other charges as they become due,
or, in the alternative, terminate this Lease. In addition, the Landlord may
recover all rentals and any other damages and pursue any other rights and
other remedies which the Landlord may have against the Tenant by reason of
such default as provided by law.
16. SURRENDER:
On the last day of the term of this Lease, Tenant shall surrender the
Premises to Landlord in good condition, broom clean, ordinary wear and tear
and damage by fire and the elements excepted. Tenant agrees to cooperate
with Landlord Sixty (60) days prior to Lease expiration on remarketing the
Premises. Tenant agrees to allow Landlord or its agent access to the
Premises for touring prospects.
17. HOLDING OVER:
If Tenant, with Landlord's consent, remains in possession of the Premises
after the expiration or termination of the term of this Lease, such
possession by Tenant shall be deemed to be a tenancy from month-to-month at
a rental increase of $6,000.00 per month, not including combined utility
bill, plus all other charges payable hereunder, and upon all the provisions
of the Lease applicable to such a month-to-month tenancy.
18. BINDING ON SUCCESSORS AND ASSIGNS:
Each provision of this Lease performable by Tenant shall be deemed both a
covenant and a condition. The terms, conditions and covenants of this lease
shall be binding upon and shall inure to the benefit of each of the parties
hereto, their heirs, personal representatives, successors and assigns.
19. HAZARDOUS SUBSTANCE CONDITIONS:
Tenant and Tenant's representatives shall comply in all respects with any
and all environmental Protection laws applicable to the Premises or
Tenant's use thereof.
20. NOTICES:
Whenever under this Lease a provision is made for any demand, notice or
declaration of any kind, it shall be in writing and delivered either
personally or sent by registered or certified United States mail, postage
prepaid, addressed at the address set forth below:
TO LANDLORD AT:
639 South Glenwood Place
Burbank, California 91506
Attn: John Fanaris
Page 4 of 5 July 22, 1998
<PAGE>
LEASE
TO TENANT AT:
P.O. Box 7549
Burbank, CA 91510-7549
Attn: Philip Kernan, Jr.
Such notice shall be deemed to be received within forty-eight (48) hours
from the time of mailing, if mailed as provided for in this paragraph.
21. WAIVERS:
No waiver by Landlord of any provision hereof shall be deemed a waiver of
any other provision hereof or of any subsequent breach by Tenant of the
same or other provisions.
22. TIME:
Time is of the essence of this Lease.
23. USE:
Space to be used for general office activities and final testing and
storage of clean electronic inventory.
24. LIABILITY INSURANCE:
Tenant shall obtain and keep in force during the term of this Lease a
Commercial General Liability policy of insurance protecting Tenant and
Landlord as additional insureds, against claims for bodily injury, personal
injury and property damage based upon, involving or arising out of the
ownership, use, occupancy or maintenance of the Premises and all areas
appurtenant thereto. Such insurance shall be on an occurrence basis
providing single limit coverage in an amount not less than $1,000,000 per
occurrence with an "Additional Insured-Managers or Landlords of Premises"
endorsement. The limits of said insurance required by this Lease or as
carried by Tenant shall not, however, limit the liability of Tenant nor
relieve Tenant of any obligation hereunder. All insurance to be carried by
Tenant shall be primary to and not contributory with any similar insurance
carried by Landlord, whose insurance shall be considered excess insurance
only.
LANDLORD: TENANT:
BY: BY: /s/ [Signature Illegible]
------------------------------ ------------------------------
DATE: DATE: 23 July 1998
---------------------------- ----------------------------
Page 5 of 5 July 22, 1998
<PAGE>
EXHIBIT 10.6
AMENDED AND RESTATED
PRIVATE NETWORK SATELLITE SERVICES AGREEMENT
This AMENDED AND RESTATED PRIVATE NETWORK SATELLITE SERVICES AGREEMENT
("Agreement") is made as of this _____ day of February, 1998, by and between
AMSC SUBSIDIARY CORPORATION ("AMSC"), a wholly-owned subsidiary of AMERICAN
MOBILE SATELLITE CORPORATION, both of which are Delaware corporations having
their principal places of business at 10802 Parkridge Boulevard, Reston, VA
20191-5416, and SKYSITE COMMUNICATIONS CORPORATION ("Skysite") a Delaware
corporation having its principal place of business at 11500 Sherman Way, North
Hollywood, CA 91605.
WHEREAS, AMSC is authorized by the Federal Communications Commission ("FCC")
to provide domestic Mobile Satellite Service ("MSS") within the United States,
Puerto Rico, the U.S. Virgin Islands, and U.S. coastal waters up to 200 miles on
or over ocean areas outside the territory of any foreign country; and
WHEREAS, AMSC's service lines include the sale of mobile satellite service on a
private network basis for use and/or resale to their customers; and
WHEREAS, Skysite is willing and desirous of purchasing mobile satellite service
on the terms and conditions set forth in this Agreement,
WHEREAS, the parties entered into a Private Network Satellite Services Agreement
as of December 7, 1995; and
WHEREAS, the parties entered into Amendments Nos. 1 and 2 to the Agreement as of
May 29 and June 30, 1997, respectively; and
WHEREAS, the parties now desire to amend and restate the Agreement and its
Amendments in their entirety as set forth in this Amended and Restated Private
Network Satellite Services Agreement.
NOW, THEREFORE, the parties agree as follows:
ARTICLE ONE
TERM; RELATIONSHIP OF THE PARTIES
---------------------------------
1.1 TERM.
----
(a) Term: This Agreement shall begin on January 1, 1998 (the "Commencement
----
Date"), and shall end on the date which is the earlier of June 30, 2005 or (2)
the date by which Skysite has purchased the full Commitment, as defined in
section 1.3(a) of this Agreement ("Term"). All references in this Agreement to
"quarter" and "quarterly" shall refer to and be calculated based on calendar
quarters.
<PAGE>
2 Commitment.
----------
(a) Total Commitment: Skysite hereby commits to purchase from AMSC Ten Million
----------------
Dollars ($10,000,000.00) worth of Service during the Term (the "Commitment"),
and agrees to pay for the full Commitment at the rates for Service shown in
Exhibit 2 to the Agreement and as otherwise described in this Agreement,
irrespective of whether it uses or resells all of the Commitment during the
Term.
(1) The Commitment may be satisfied by any combination of (i) Service
purchased on an on-demand, per-minute basis at the rates set forth in Exhibit 2
to this Agreement ("On-Demand Service") and/or (ii) Virtual Private Network
and/or Dedicated Private Network Channels, at the rates set forth in Exhibit 2
to this Agreement. All amounts billed to Skysite by AMSC and paid by Skysite for
On-Demand Service of for Channels, including but not limited to Communications
Time, activation charges and monthly access fees shall be included to satisfy
the Commitment.
(2) For purposes of this Agreement, "Communications Time" is the period of
time during which the AMSC satellite ("MSAT") is in communication with AMSC's
Communications Ground Segment ("CGS") as a result of a call initiated from or
directed to a satellite telephone ("User Equipment," "mobile telephone," or
"MT") which has been activated at the request of Skysite. Communications Time is
rounded up to the next whole minute.
(b) Quarterly Minimums: To satisfy the Commitment, Skysite's purchases of
------------------
On-Demand Service, Channels, and any Quarterly Reconciliation Payments, as
defined in section 2.2 of this Agreement, at the end of any given quarter shall
equal or exceed the Cumulative Quarterly Minimums shown in Exhibit 1, which is
attached to and hereby made a part of this Agreement (collectively, "Cumulative
Purchases").
(1) Skysite's Cumulative Purchases for a given quarter shall be equal to
all charges less any credits granted by AMSC for On-Demand Service and Channels.
(2) Unless Skysite disputes in writing the quarterly reconciliation
provided by AMSC pursuant to the provisions of section 2.2 of this Agreement
before the beginning of the next calendar quarter, the parties acknowledge the
accuracy of the quarterly reconciliation.
(3) The parties acknowledge that as of December 31, 1997, Skysite's
Cumulative Purchases for On-Demand Service and Channels were Four Hundred
Eighteen Thousand Five Hundred Ninety Three Dollars and Fifty Nine Cents
($418,593.59) as billed, of which Three Hundred Twenty Three Thousand Two
Hundred Ninety One Dollars and Fifty Six Cents ($323,291.56).
(4) Billing and payment for Quarterly Minimums shall be as described in
sections 2.3 and 2.5, respectively, of this Agreement.
- 2 -
<PAGE>
(c) Relationship to forecasts: Skysite acknowledges that the Commitment and
the Quarterly Minimums will be used by AMSC for its own capacity and traffic
planning requirements, and that therefore the Quarterly Minimums shall not be
modified or deferred for any reason, including, without limitation, the
unavailability of User Equipment. The Quarterly Minimums, and Skysite's
obligation to pay AMSC in accordance with them, shall not be affected by the
forecasts required pursuant to section 1.3(d) of this Agreement.
1.3 SKYSITE'S RESPONSIBILITIES.
----------------
Skysite's responsibilities under this Agreement shall include, in addition to
any others stated in this Agreement --
(a) Marketing and promotion: Skysite shall market and promote the Service to
-----------------------
its customers and potential customers on a "private label" basis. Skysite shall
not use AMSC's name, brand names, trademarks or servicemarks without AMSC's
advance written consent. Notwithstanding the foregoing, Skysite may identify
AMSC as its satellite service provider. Skysite may at any time during the Term
of this Agreement apply to AMSC for appointment as a Value-Added Service
Provider ("VASP") of the service, on AMSC's then-current terms and conditions
for VASP's, provided that Skysite meets AMSC's then-current standards for
appointment of VASP's.
(b) Rates, terms, and conditions to customers: Skysite shall be responsible
-----------------------------------------
for setting the prices and, subject to the provisions of Article 3 of this
Agreement, the terms and conditions, of the Service to its customers, as well as
managing customer accounts, including without limitation billing and collection
activities and determination and collection of any taxes applicable to the
Service as resold to Skysite's customers.
(c) Facilities provided by Skysite: Except for the communications services and
------------------------------
facilities described in section 1.6 of this Agreement, Skysite shall be
responsible, at its sole expense, for providing or arranging for the provision
of all other communications services and facilities required for its and its
customer's use of the Service, including, without limitation, all required MT's.
(d) Forecasts: Skysite shall provide AMSC with written forecasts of Skysite's
---------
requirements for Communications Time. Five year forecasts shall be provided
semi-annually, beginning upon execution of this Agreement, and shall identify
Skysite's anticipated usage on a quarterly basis for the first two years and on
a semi-annual basis for the last three years. Skysite shall provide AMSC upon
request with such other related forecasting information as AMSC may reasonably
request for the purpose of network planning.
(e) Other facilities requirements:
-----------------------------
(a) Compliance with AMSC requirements and standards: All MT's and other
-----------------------------------------------
communications facilities or services used by Skysite or its customers,
including, without limitation, Skysite's interconnection facilities and
equipment, if any, shall comply with all
- 3 -
<PAGE>
applicable technical and other requirements, including but not limited to those
of AMSC and the FCC. AMSC will provide its applicable requirements to Skysite
upon request; AMSC reserves the right to change such requirements from time to
time.
(2) Licenses and permits: Skysite shall secure all licenses, permits,
--------------------
rights-of-way, approvals, and any other arrangements necessary for its use and
the provision of the Service to its customers, including without limitation all
FCC or other governmental licenses, permits or approvals required in connection
with the interconnection facilities which Skysite may provide as set forth
herein.
(3) AMSC right of access: For the protection of AMSC's network, services,
--------------------
facilities and personnel, Skysite hereby grants AMSC the right at any time, and
from time to time, upon reasonable prior notice except in the case of an
emergency, to inspect all equipment and communications facilities or services
used by Skysite or its customers for compliance with FCC regulations, this
Agreement, and AMSC's emission requirements, protocol standards and other
technical requirements.
1.4 AMSC'S RESPONSIBILITIES.
-----------------------
AMSC's responsibilities under this Agreement shall, in addition to any others
contained herein, be as follows:
(a) Provision of Service: AMSC will provide the Service for use throughout the
--------------------
United States, in Puerto Rico, the U.S. Virgin Islands, and points up to 200
miles offshore, and other areas within the coverage of AMSC's MSAT, provided
that AMSC has received regulatory approval to provide Service in such areas.
(b) Access to AMSC facilities: AMSC shall provide, or provide access to, the
-------------------------
MSAT, the CGS, and such data and communications lines and other equipment and
facilities necessary to accept calls from and direct calls to MT's activated at
the request of Skysite, and to deliver calls from and to the calling and called
parties, respectively, unless Skysite elects to itself provide such
interconnection facilities and equipment in accordance with the provisions of
section 1.5 of this Agreement.
(c) Call detail records: (1) AMSC will provide Skysite on a monthly basis with
-------------------
the Service call records of Skysite's customers in reasonable detail sufficient
to enable Skysite to bill its customers, but in no greater detail than AMSC
generates for its own billing and record keeping purposes. Notwithstanding the
foregoing, call detail information will be limited to the origin, destination,
and duration of calls, and no taxes, other assessments, or call rating will be
applied.
(2) AMSC will provide call detail records to Skysite on media and in a
format agreed upon by the parties, provided, however, that if the parties agree
on a medium and format substantially different from the media and format in
which AMSC provides call detail records to AMSC's other private network
customers, AMSC reserves the right to charge Skysite for
- 4 -
<PAGE>
providing call detail records in such other agreed upon medium and format, based
on AMSC's costs of preparation and delivery, including but not limited to any
hardware/software modifications required to AMSC's facilities. AMSC will advise
Skysite in writing of any such costs and shall render an invoice, which will be
payable as described in section 2.5 of this Agreement.
(3) AMSC will use reasonable efforts, but shall not be obligated, to
develop a means by which Skysite may have electronic access to the call detail
records of Skysite's customers within 24 hours after the day on which such
records were generated.
(d) Deactivation of MT's: AMSC shall, upon receipt of written notice from
--------------------
Skysite requesting deactivation of a MT, promptly arrange for such deactivation,
but Skysite shall be liable for all charges for calls made from or directed to
any MT activated at Skysite's request until the end of the business day next
succeeding the date on which AMSC receives notice from Skysite to deactivate
such MT. The parties will agree in writing on the activation/deactivation
procedure for MT's on or before the Commencement Date; this procedure will
include a provision for emergency deactivation in the event of fraudulent usage
of a MT or MT's.
1.5 INTERCONNECTION OPTION:
----------------------
(a) Skysite may elect, by written notice to AMSC, to install a communications
switch and interconnection facilities and equipment to route calls between
AMSC's CGS and parties calling or called from MT's, as the case may be ("Call
Transport Termination"). In such event --
(1) Skysite shall be solely responsible for the purchase, installation,
maintenance and operation of the facilities necessary to provide Call Transport
Termination, including, without limitation, the connections therefrom into the
CGS, and AMSC shall have not liability for any costs related thereto nor any
responsibility for the installation, maintenance or operation thereof; and
(2) Calls will be deemed "completed," for purposes of section 2.1(c) of
this Agreement, when delivered to Skysite's switch, and Skysite shall be solely
responsible for the delivery and completion of calls to the called party; and
(3) The rates for Service will be reduced as described in section
2.1(a)(2) of this Agreement if Skysite elects to provide its own facilities
under this paragraph (a).
(b) Subsequent to an election under paragraph (a) of this section 1.5, Skysite
may, by ninety (90) days' written notice, but no more often than annually, elect
to have AMSC resume provision and maintenance of interconnection facilities in
accordance with this section 1.5.
(c) Upon receipt by AMSC of an election notice under paragraph (a) or (b) of
this section 1.5, AMSC and Skysite diligently shall endeavor to transfer Call
Transport Termination from or to Skysite's facilities and equipment, as the case
may be, in accordance with a schedule mutually
- 5 -
<PAGE>
agreed upon by the parties. Beginning with the first day after completion of
such transfer, Skysite shall be billed at the appropriate rates for Service, as
described in section 2.1(a) of this Agreement. Skysite shall be responsible
for, and promptly shall pay upon receipt of an invoice from AMSC, all costs and
charges reasonably incurred and documented by AMSC in completing such transfer.
1.6 FRAUD PREVENTION.
----------------
(a) The Service is provided subject to the condition that there will be no
abuse or fraudulent use thereof. Abuse and fraudulent use include, but are not
limited to, the following:
(1) Obtaining or attempting to obtain Service through any trick, scheme,
false representation, false credit device, or unapproved MT or other facilities,
with the intent to avoid payment, in whole or in part, of the charges for the
Service; or
(2) Obtaining, interrupting, accessing, altering, or destroying, or
attempting to obtain, interrupt, access, alter, or destroy, any files, programs,
information and/or use of the Service of another AMSC customer or user by
rearranging, tampering with, or making connection to any facilities of AMSC by
any trick, scheme, false representation, or through any other fraudulent means
or devices; or
(3) Assisting another to perform any of the acts prohibited in
subparagraph (1) or (2) of this paragraph (a).
(b) Skysite and AMSC shall cooperate to prevent abuse or fraudulent usage of
the Service. Skysite shall terminate any of its customers' use, or the
participation in or access to the Service by any of its vendors, promptly, but
in no event more than 24 hours after receipt of notice from AMSC, in the event
of their abuse or fraudulent use of or access to the Service or any other AMSC
facility.
1.7 GENERAL.
-------
(a) Contacts and coordination: The parties shall appoint and identify to
-------------------------
one another in writing such contacts as are reasonably necessary for
coordination of matters relating to technical, administrative, and billing
functions and activities, as well as any other appropriate matters. At a
minimum, each party shall identify a single point of contact for the development
and performance of the Implementation Plan provided for in section 1.5(a) of
this Agreement.
(b) Advertising and promotion:
-------------------------
(a) All advertising and promotion by the parties shall conform to the
standards of lawful advertising. All advertising and promotional materials
prepared by a party which include use of the other party's name or trademarks,
or any other statements relating to this Agreement, shall be submitted to the
other party in advance for written approval. Such written approval (i)
- 6 -
<PAGE>
shall not unreasonably be withheld, conditioned, or delayed, and (ii) shall not
relieve the generating party of responsibility for legal compliance with the
advertisement. Materials previously approved by a party shall not be subject to
repeated approvals before subsequent use.
(2) Except as provided in section 1.3(a) of this Agreement, Skysite shall
have no right, title or interest in or to AMSC's name, logo, trademarks or other
trade designations, and Skysite shall not make any use thereof without the
express prior written permission of AMSC.
(c) Ethical responsibilities of the parties: AMSC and Skysite shall each
---------------------------------------
refrain from doing anything that would tend to discredit, dishonor, reflect
adversely upon, or in any manner injure the reputation of the other or adversely
affect the other, or, in the case of AMSC, adversely affect AMSC's status as a
licensed common carrier, except that a party's enforcement of its rights and
performance of its duties and obligations contained herein shall not be deemed a
violation of the provisions of this paragraph (c). Each party shall be governed
in all its dealings under this Agreement by the highest standards of honesty,
integrity, and fair dealing.
(d) Confidentiality: The Reciprocal Nondisclosure Agreement between the
---------------
parties, entered into contemporaneously with this Agreement and shown as Exhibit
2 hereto, is hereby made a part of this Agreement. The Nondisclosure Agreement
shown in Exhibit 2 supersedes in its entirety the Nondisclosure Agreement
entered into by the parties as of November 3, 1995 ("11/3/95 Agreement").
Notwithstanding the foregoing, the 11/3/95 Agreement shall apply to all
information exchanged by the parties up to the date of execution of this
Agreement and the Nondisclosure Agreement shown in Exhibit 2. Without
limitation, the parties agree that their respective customer information,
including traffic and traffic projections, forecasts, customer lists, and other
customer account information (collectively, "Customer Information") is deemed to
be "Confidential Information" for purposes of the Nondisclosure Agreement.
1.8 USER EQUIPMENT.
--------------
(a) No alteration or modification: User Equipment may not be altered or
-----------------------------
modified without the advance written approval of the manufacturer and
certification by AMSC that altered or modified User Equipment is accepted for
use with the Service and AMSC's MSS network generally. Alteration or
modification of User Equipment may void the manufacturer's warranty, and AMSC
reserves the right to deny or terminate Service to altered or modified User
Equipment and shall have no liability whatever to Skysite or Skysite's customers
for any loss or damage caused by unauthorized altered or modified User Equipment
or by the termination of Service to such User Equipment.
(b) Installation, warranty, and maintenance: Skysite shall be responsible for
---------------------------------------
installation, warranty, and maintenance of User Equipment. Skysite's personnel
who install or service User Equipment shall successfully complete the Technical
Certification Program provided by AMSC and/or the manufacturers of User
Equipment.
- 7 -
<PAGE>
(c) Conditions of sale: Skysite may purchase User Equipment from AMSC for
------------------
resale to Skysite's customers for use in connection with the Service. Skysite's
purchases of User Equipment shall, unless otherwise agreed in writing by AMSC,
be on a prepaid basis.
(1) Skysite shall place orders for User Equipment in accordance with
AMSC's then-current policies and procedures, as provided to Skysite from time to
time by AMSC.
(2) The prices for User Equipment shall be as set forth on the price
sheets issued by AMSC from time to time, including any applicable volume
discounts or special promotions for which Skysite is eligible, and are subject
to change upon written notice from AMSC. Volume discounts, if offered, will be
available only for units ordered at one time, on the same sales order number.
Separate orders, even if placed on the same day, may not be aggregated to be
eligible for volume discount pricing.
(3) Skysite acknowledges and agrees that AMSC is neither the manufacturer
nor the warrantor of User Equipment. Skysite agrees to look solely to the User
Equipment manufacturer of the manufacturer's authorized service agent for
warranty or maintenance service.
(4) Unless otherwise agreed in writing by AMSC and Skysite, User Equipment
will not be pre-commmissioned before shipment. AMSC reserves the right to assess
a pre-commissioning fee to Skysite..
(d) Direct purchases of User Equipment: As an alternative or in addition to
----------------------------------
the provisions of paragraph (c) of this section 1.8, Skysite may at its option
purchase User Equipment directly from the manufacturers. Such purchases will be
at prices and on terms and conditions negotiated and agreed upon between Skysite
and the manufacture, and AMSC shall have no responsibility for User Equipment
purchased directly from the manufacturer.
ARTICLE TWO
RATES, BILLING, AND PAYMENT
---------------------------------
2.1 RATES AND CHARGES.
-----------------
(a) Rates: Rates and charges for the Service shall be as set forth in Exhibit
-----
3, which is attached to and made a part of this Agreement.
(1) The rates shown in Exhibit 3 are based on the volume of the
Commitment. Skysite may at its option, upon 60 days' written notice to AMSC,
elect to increase the Commitment, and in consideration of such increase, AMSC
will make available to Skysite AMSC's then-current rates for the volume elected
by Skysite, or such other rates as the parties may agree upon in writing. The
increased Commitment shall be (i) effective for the remainder of the
then-current Term of this Agreement and (ii) subject to the provisions of
section 1.2 of this Agreement
- 8 -
<PAGE>
(2) The per minute prices shown in Exhibit 3 will be reduced by Seven
Cents ($.07) per minute - if Skysite performs Call Transport Termination as
described in section 1.6(c) of this Agreement.
(3) AMSC covenants that Skysite shall at all times under this Agreement
receive a discount of no less than Twenty Five Percent (25%) off of AMSC's then-
current "base retail rates" for On-Demand Service, including Skycell Satellite
Dispatch Service, but excluding Fixed Site service.
(i) If and when AMSC's base retail rates for On-Demand Service (other
than for Fixed Site service) change, AMSC shall promptly notify Skysite and
modify this Agreement in writing as necessary to provide Skysite with at
least a Twenty Five Percent (25%) discount off of AMSC's rates for On-
Demand Service, except for the rates for Fixed Site service.
(ii) For purposes of this Agreement, "base retail rates" are the rates
charged by AMSC for the smallest volume or unit and/or the shortest term
duration in which AMSC prices the service and sells it on a regular basis
to unaffiliated entities, without discount for volume, duration of term, or
other discount or promotion. Skysite acknowledges and agrees that AMSC may
grant volume- or term-based or promotional discounts to its other customers
for those services and that AMSC shall not be obligated to guarantee
Skysite a Twenty Five Percent (25%) discount off of volume- or term-based
or promotional discounts.
(iii) Notwithstanding the foregoing, AMSC agrees that if, in any quarter,
Skysite's total purchases of On-Demand Service and Channels exceed the
applicable Quarterly Minimum for that quarter by at least 50%, AMSC will
sell User Equipment to Skysite at AMSC's cost for the subsequent quarter.
(b) Skycell Satellite Dispatch Service Plus rates: Skysite currently receives a
---------------------------------------------
thirty percent (30%) discount off of AMSC's then-current retail rates for
Skycell Satellite Dispatch Service. Current Skycell Satellite Dispatch Service
rates are shown in the attachment to Exhibit 2 to this Agreement. AMSC will not
increase Skysite's rates for Skycell Satellite Dispatch to reflect the 25%
discount described in paragraph (a)(3) of this section 2.1, but if AMSC lowers
its base retail rates for Skycell Satellite Dispatch Service, Skysite's rates
will be lowered only to the 25% discount level. Notwithstanding the foregoing,
the rates for "Voice Airtime per Minute" as shown on Exhibit 2 shall not be
available to Skysite, and the rates for voice airtime shall be as set forth in
Exhibit 2 to the Agreement. Skysite's resale of Skycell Satellite Dispatch
Service will be subject to the provisions of section 1.3(a) of this Agreement.
(c) Calculation of charges:
----------------------
(1) All charges for Communications Time shall be based on actual minutes
used (rounded up to the next whole minute) and will be applied to calls both to
and from each MT.
- 9 -
<PAGE>
If AMSC changes its billing policy and calculates Communications Time in less
than whole-minute increments, Skysite billing calculations shall be changed
accordingly.
(2) AMSC will bill Skysite for completed calls only, subject to the
provisions of section 1.5(a)(2) of this Agreement. A "completed call" is one
that is answered by the called party or, if unanswered, rings for more than 70
seconds.
(3) The rates described in this section 2.1 assume Call Transport
Termination by AMSC and within the 48 continental United States ("CONUS").
Unless Skysite is performing Call Transport Termination AMSC shall add a charge
for long distance connections for all Call Transport Termination outside of
CONUS. International long distance charges are passed through at AMSC's cost.
2.2 QUARTERLY RECONCILIATION.
------------------------
AMSC shall deliver to Skysite a reconciliation on a quarterly basis, comparing
Skysite's actual Cumulative Purchases during the previous quarter to the
applicable Cumulative Quarterly Minimum for that period.
2.3 BILLING OF CHARGES
------------------
AMSC shall bill Skysite for all Service rates and charges, including On-Demand
Service and Channels, and for User Equipment purchased by Skysite from AMSC
under this Agreement as set forth in this section 2.3
(a) Monthly billing: Fixed, recurring charges, including, but not limited to,
---------------
Access Fees and any deactivation or reactivation fees, and any other basic
monthly fees for On-Demand Service will be billed in advance. Usage and call
delivery charges will be billed in arrears in the month following the month in
which they are incurred.
(1) AMSC will issue to Skysite a monthly invoice on or before the 7th day
of each month. Skysite shall make Weekly Payments, as described in section 2.5,
defined in section 2.5(b) of this Agreement, in respect of such invoices.
(2) For purposes of computing partial month charges for access fees, each
day is considered to be 1/30 (one-thirtieth) of a month. A first invoice may
contain charges from a previous billing period for service provided from the
date of installation through the current invoice period.
(b) Quarterly billing: AMSC shall invoice Skysite, and Skysite shall pay AMSC,
-----------------
quarterly in advance for Channel(s). AMSC will invoice Skysite for new Channels
upon receipt of Skysite's order. An initial Channel invoice will be prorated on
a daily basis for the remainder of the quarter in which the Channel is
activated.
- 10 -
<PAGE>
(c) Reconciliation invoice: If Skysite's Cumulative Purchases are less than the
----------------------
applicable Cumulative Quarterly Minimum, AMSC will add to the next monthly
invoice an amount equal to the difference between Cumulative Purchases and the
applicable Cumulative Quarterly Minimum, and Skysite shall pay such invoice as
provided in section 2.5 of this Agreement. Such reconciliation and invoice
shall, absent manifest error, be deemed conclusively to establish such Actual
Usage.
(d) User Equipment: User Equipment must be paid for prior to shipment,
--------------
separately from charges for On-Demand Service and Channels.
2.4 TAXES.
-----
All rates set forth in this Agreement are exclusive of Applicable Taxes. For
purposes of this Agreement, "Applicable Taxes" are taxes, assessments,
surcharges, levies, or similar items assessed by a governmental body. Skysite is
liable for, and shall indemnify AMSC from and against, all Applicable Taxes
which may be passed directly through to Skysite or its customers, and all
Applicable Taxes properly chargeable to Skysite or its customers with respect to
AMSC's provision of the Service to Skysite or relating to Skysite's use, resale,
or lease of the Service or MT's to Skysite's customers or others, and/or any
penalty and interest thereon if assessed by the applicable governmental body.
AMSC will invoice Skysite for such penalties and interest, and Skysite shall pay
such invoices in accordance with the provisions of section 2.5(a) and (b) of
this Agreement.
2.5 TERMS OF PAYMENT.
----------------
(a) Payment method: Skysite shall make all payments under this Agreement for
--------------
On-Demand Service, Channels, any Quarterly Reconciliations, and User Equipment
by wire transfer in accordance with the instructions set forth in Exhibit 4,
which is attached to and hereby made a part of this Agreement.
(b) Payment deadline: Except for User Equipment and Channels, which shall be
----------------
prepaid, Skysite shall make all payments due under this Agreement by wire
transfer on or before AMSC's "Close of Business" every Friday ("Weekly
Payments"), without requirement of invoice, provided, however, that if a Friday
is a holiday recognized by the financial institution named in Exhibit 4, payment
shall be due on or before AMSC's Close of Business on the subsequent Monday.
(1) For purposes of this Agreement, AMSC's "Close of Business" is 5:30
p.m. prevailing Eastern time. Skysite's delivery to AMSC prior to the payment
deadline of a copy of its irrevocable wire transfer authorization, including the
Federal reference number, shall be deemed as timely payment in the event that
the actual transfer is delayed by reasons beyond Skysite's control.
- 11 -
<PAGE>
(2) "Amounts due" shall include any Applicable Taxes and any penalties
and interest thereon, and shall be payable whether or not such charges are
disputed or have been paid to Skysite by Skysite's customers.
(c) Cure period payments: The parties agree that, as of the date of this
--------------------
Agreement, Skysite owes AMSC One Hundred Forty Eight Thousand Eight Hundred
Twenty One Dollars and Twenty One Cents ($148,831.31) (the "Outstanding
Balance"), as shown in Exhibit 5, which is attached to and hereby made a part of
this Agreement. Skysite shall pay in full the Outstanding Balance, plus all new
charges for On-Demand Service and Channels billed during the period February 13,
1998, through April 24, 1998 ("Cure Period"), as set forth in this paragraph
(c).
(1) Beginning on February 13, 1998, and ending on April 24, 1998, Skysite
shall make eleven (11) Weekly Payments of Twenty Two Thousand Two Hundred Sixty
Dollars ($22,260.00) each, provided, however, that, if this Agreement is
executed by the parties after February 13, 1998, the first Weekly Payment shall
be in an amount equal to the sum of all Weekly Payments starting February 13,
1998, through the date of execution of this Agreement. By way of example and not
of limitation, if this Agreement is executed on or before February 27, 1998, the
Weekly Payment due on February 27, 1998, will be Sixty Six Thousand Seven
Hundred Eighty Dollars ($66,780.00).
(2) If all payments are made as described in this paragraph (c), then
Skysite will, by April 24, 1998, have (i) paid the Outstanding Balance in full,
(ii) paid all amounts due for the months of, March and April, 1998, and (iii)
prepaid the amounts due for the month of May 1998.
(3) Skysite's payments during the Cure Period shall be applied first to
the Outstanding Balance and then to the Service invoices for the months of
March, April, and May, 1998, according to the schedule set forth in Exhibit 5.
(d) Post Cure Period payments: For the month of May 1998 through the end of the
-------------------------
Term ("Post Cure Period"), Skysite shall, subject to the provisions of section
2.6(a) of this Agreement, prepay On-Demand Service in installments, as follows:
(1) AMSC and Skysite will calculate the amount to be paid each month by
adding Two Thousand Dollars ($2,000.00) to the amount of each previous month's
invoice ("Estimated Invoice"). During the month before the month in which the
invoice will be rendered, Skysite will make Weekly Payments in equal
installments of the Estimated Invoice, as illustrated in Exhibit 5 to this
Agreement.
(2) If the actual invoice for any month, including as appropriate, amounts
invoiced as a Reconciliation Invoice, as described in section 2.3(c) of this
Agreement, is either lesser or greater than the Estimated Invoice, the amount of
the underage or overage will be credited against or added to, as the case may
be, in full, the first Weekly Payment after the invoice is rendered by AMSC.
- 12 -
<PAGE>
(3) The parties agree that the Two Thousand Dollars ($2,000.00) referred
to in subparagraph (1) of this paragraph (d) shall be subject to review from
time to time, but in no event more often than quarterly, and may be increased or
decreased based on Skysite's actual monthly On-Demand purchases.
(4) If Skysite provides a Security Deposit as provided in section 2.6(a)
of this Agreement, AMSC will invoice Skysite monthly for actual usage, and
Skysite shall make four (4) Weekly Payments in equal portions of the invoiced
amounts begining the second Friday of each month.
(e) Failure to make Weekly Payments: If Skysite fails to make Weekly Payments
-------------------------------
as prescribed by paragraphs (c) and (d) of this section 2.5, the provisions of
section 4.1(a) of this Agreement shall apply.
(f) Equipment purchases: Notwithstanding the foregoing, Skysite may purchase
-------------------
User Equipment from AMSC only on a prepaid basis.
(g) Disputed amounts: Skysite shall notify AMSC in writing within thirty (30)
----------------
days after the date of invoice, or such reasonable period as may be warranted by
the facts or circumstances, by the in no event later than the end of the quarter
in which the invoice is rendered, of any dispute or disagreement with invoiced
charges but shall continue notwithsatnding any such dispute to make payment as
required by paragraph (a) of this section 2.5. All disputed amounts resolved in
Skysite's favor will be credited against amounts owing on subsequent invoices.
(h) Late charge: In addition to AMSC's remedies under section 4.1 of this
-----------
Agreement, if Skysite does not pay any invoice on or before the date it is due,
Skysite shall be required to pay a late charge, equal to one and one-half
percent (1 1/2%) per month on the unpaid amount of such invoice and any other
outstanding balance. The late charge shall be calculated from the due date of
the invoice until payment is received. Notwithstanding the foregoing, and
without prejudice to its right to assess late charges on future amounts which
may become overdue, AMSC herby waives payments of Two Thousand Eight Dollars and
Nineteen Cents $2,008.19 in late charges accrued in 1997 on the Outstanding
Balance.
(i) Collection costs: If AMSC takes any action to collect any unpaid balance
----------------
due from Skysite, AMSC shall be entitled to recover from Skysite all reasonable
costs of collection incurred by AMSC, including collection fees, reasonable
attorney's fees, and litigation expenses. AMSC will invoice Skysite for such
charges, and Skysite shall pay such invoice in accordance with the provisions
of paragraphs (a) and (b) of this section.
2.6 CREDITWORTHINESS
----------------
(a) Security Deposit: In lieu of prepaying for On-Demand Services in
----------------
installments as provided in section 2.5(d) of this Agreement, Skysite may,
subject to the consent of AMSC, provide AMSC with a security deposit as
follows:
- 13 -
<PAGE>
(1) Based on AMSC's assessment of Skysite's creditworthiness, financial
standing, and payment history, the Security Deposit would be in an amount equal
to one (1) month's average billings under this Agreement, calculated based on
the average of the billings for the calendar months preceding the delivery of
the Security Deposit. Skysite may at its option apply its prepayments to the
security deposit.
(2) AMSC reserves the right, based on increases in Skysite's average
monthly billings, to request that the Security Deposit be increased to an amount
equal to one month's average billings, calculated based on the average of the
billings for the three (3) month period immediately preceding AMSC's request for
an increase and Skysite will either increase the Security Deposit upon such
request or resume prepayments as described in section 2.5(d) of this Agreement.
(3) AMSC will retain the Security Deposit, if provided, as security for
Skysite's prompt payment of amounts due under this Agreement and reserves the
right to apply the Security Deposit against any amounts due under this Agreement
which are not paid to AMSC within the time periods prescribed in this Agreement.
In such an event, AMSC reserves the right to require Skysite to, and Skysite
promptly shall, restore the Security Deposit to its original amount or increase
the amount of the Security Deposit.
(b) AMSC will release the Stock Escrow Agreement dated April 9, 1996, among
Skysite, AMSC, and West America Securities on May 2, 1998, provided that all
payments have been made during the Cure Period as required by section 2.5 of
this Agreement.
2.7 RECORDKEEPING AND AUDIT.
-----------------------
(a) Maintenance of records: Each party shall, directly or through a third
----------------------
party service bureau, create and maintain full, complete and accurate records of
business conducted pursuant to this Agreement, including but not limited to data
relating to customer activations, deposits, call placement and delivery,
invoices, payments, and Service credits. Records shall be retained for the
longer of two (2) years, or as long as required by applicable law.
(b) Request for audit: If the parties have a bona fide dispute as to the
-----------------
amounts paid or unpaid, owed and owing hereunder, each party reserves the right
to request, no more frequently than annually, an audit of the records maintained
by the other party in connection with the transactions contemplated hereby.
(c) Performance of audit: Such an audit shall be performed by an independent
--------------------
accounting firm agreed upon by AMSC and Skysite and shall be subject to the
audited party's standard security and confidentiality procedures. To the extent
the audited party identifies its records as confidential and/or proprietary, it
may direct that the other party shall have access only to the results of the
audit and not to the underlying records which are the subject of the audit.
(d) Cost of audit: The party requesting the audit under this section 2.7 shall
-------------
pay all of the costs thereof, unless the audit results in an adjustment to
amounts due to or from the other party
- 14 -
<PAGE>
in excess of ten percent (10%) of the total amount due, in which case the
audited party shall pay one-half of the costs thereof.
ARTICLE THREE
USE OF SERVICE
------------------
31. REGULATORY MATTERS.
------------------
(a) Lawful purposes: Skysite and its customers shall utilize the Service only
---------------
for lawful purposes and in compliance with all applicable rules, policies and
regulations of the FCC and those of any other Federal, State or local
governmental bodies.
(b) Relationship to FCC: All MSS provided by AMSC, including the Service as
-------------------
provided under this Agreement, is subject to the continuing approval of the
FCC. Skysite hereby consents to the filing of this Agreement with the FCC if
required by applicable law and regulation. AMSC shall advise Skysite in advance
of such a filing.
(c) Allocation of capacity: Skysite acknowledges and agrees that (1) MSS,
----------------------
including the Service, capacity is finite and will be made available to AMSC's
customers, including Skysite and its customers, on a first-come, fist-served
basis, subject to the availability of MSAT capacity; and (2) AMSC reserves the
right, in its sole discretion, to allocate MSAT satellite capacity among all of
its services, including the Service provided under this Agreement. AMSC shall
determine in its sole discretion how and whether to obtain additional satellite
capacity, whether for restoral or for the expansion of AMSC's services.
3.2 PREEMPTION, INTERRUPTION, OR SUSPENSION OF SERVICE.
--------------------------------------------------
(a) The Service may be pre-empted, interrupted or suspended due to conditions
or for reasons beyond Supplier's control ("Emergency Pre-emption"), including
but not limited to maintenance requirements or emergency conditions experienced
by AMSC; to protect AMSC's personnel, facilities, or services; to provide
priority and pre-emptive access to Supplier's satellite system by the Federal
Aviation Administration, U.S. Coast Guard, or other governmental agency as
required under AMSC's FCC license, or to provide responsive emergency support to
government agencies during any natural or man-made disasters or otherwise as
required by law (collectively "Government Priority Access").
(b) In the event of Emergency Pre-emption, AMSC will notify Skysite as soon as
practicable and shall use its best efforts to restore Skysite's Service in
accordance with AMSC's priority restoral policies. Under AMSC's policies, users
of dedicated satellite channels receive the highest priority except for
Governmental Priority Access. Dedicated channels will not otherwise be
pre-empted or diverted for use by other customers.
- 15 -
<PAGE>
(c) Restoral of Service in the event of a short term outage will be performed
in accordance with Supplier's policies and procedures as quickly as practicable
consistent with maintaining the integrity of the Service and AMSC's mobile
satellite system. Skysite acknowledges that AMSC's system does not generally
provide for selective or successive restoral of channels, or of individual
customers.
(d) In the event of an outage affecting AMSC's entire mobile satellite system
("Catastrophic Outage"), dedicated channels will, to the extent consistent with
the orderly restoration of service generally, be the first to be restored,
either on AMSC's satellite or by transfer to TMI's satellite (if and to the
extent capacity is provided on such satellite pursuant to agreement between AMSC
and TMI). Skysite acknowledges that on-demand services are not subject to
restoral on the same terms as dedicated channels.
3.3 SERVICE CREDITS:
---------------
(a) AMSC will grant to Skysite a service credit in the event of Service
outages, including outages caused by Emergency Preemption, as set forth in this
section 3.3. No service credit will be granted where the Service is interrupted
or unavailable due to the negligence of Skysite or to the failure of facilities
and equipment provided by Skysite or its other communications providers.
(1) Skysite shall accrue credit for future Service in an amount equal to
the actual period of time for which the Service is completely unavailable for a
period of one hour or more. AMSC shall maintain a log of all such service
credits. If Skysite has not used the full amount of the Commitment by the end of
the Term, the Term shall be extended for an amount of time equal to the
aggregate amount of service credits due to Skysite as shown in the log.
Otherwise, the service credit shall expire at the end of the Term, and no
monetary or other credit compensation shall be given to Skysite in respect
thereof.
(2) Where the Service remains available but is modified or restricted so
as to affect adversely the Service for a period of 24 hours or more, a credit
allowance will be given at the discretion of AMSC, based on the extent and
duration of such modification or restriction.
(3) No credit allowance will be given where the Service is preempted,
interrupted, suspended, modified, or restricted for a period of less than one
(1) hour.
(4) AMSC shall issue Customer a credit equal to 1/30th of the amount of
any Access Fees paid in a month in respect of each full day (i.e. from 12:00
a.m. to 11:59 p.m.) that the Service is unavailable.
(5) In addition, if Skysite provides a credit to an End User in respect of
an active call which is dropped as a result of any unavailability of the
Service, AMSC shall issue a credit to Skysite equal to the lesser of (i) the
amount of credit issued to such End User by Skysite and (ii) the amount billed
to Skysite by AMSC for the last minute of such call. Skysite shall provide AMSC
upon request with documentation of credits granted to its End Users.
- 16 -
<PAGE>
(b) The liability of AMSC for any interruption of the Service shall in no event
exceed the credit allowance provided for in this section 3.3. Except for such
credit allowance, AMSC shall not be liable to Skysite for any loss or damage
incurred by reason of or incidental to any delay or interruption of the Service.
3.4 WARRANTY
--------
(a) AMSC warrants that the Service will operate in accordance with its service
description when utilized in accordance with AMSC's instructions and operational
procedures.
(b) EXCEPT AS OTHERWISE PROVIDED IN THE AGREEMENT, AMSC MAKES NO WARRANTY
REGARDING THE PROVISION OF THE SERVICE, INCLUDING BUT NOT LIMITED TO THE IMPLIED
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
3.5 LIMITATION OF LIABILITY:
-----------------------
(a) In no event will AMSC be liable for any indirect, consequential, or special
damages, or for any lost profits, even if advised of the possibility of the
same. In no event will AMSC be responsible for the failure of skysite and/or its
equipment and/or service suppliers to perform their respective
responsibilities. Without limiting the foregoing, AMSC shall in no event be
liable for:
(1) Any act or omission of Skysite or any defect or malfunction in any
equipment or services provided or used by Skysite or its service and/or
equipment suppliers; or
(2) Unlawful or unauthorized use of AMSC's facilities and services, unless
such use results solely from the gross negligence or willful misconduct of
AMSC;
(3) Libel, slander, or infringement of copyright arising from or in
connection with messages transmitted via the Service, unless the libel, slander
or infringement results solely from the negligence or willful misconduct of
AMSC; or
(4) The unauthorized access to, or alteration, theft, or destruction of
data and/or information of Skysite by any person, whether through accident or
fraudulent means or devices, whether caused by interruption, errors, defects,
delays in operation, failure of performance, unless caused solely by the gross
negligence or willful misconduct of AMSC; or
(5) Any claim arising out of a breach in the privacy or security of
communications transmitted over AMSC's facilities unless such breach arises
out of the willful misconduct of AMSC;
(6) Changes in any of AMSC's facilities, operations or procedures required
by any other authority or entity which render any facilities or services
provided by AMSC or Skysite obsolete, or require modification or alteration of
Skysite's facilities or services, or otherwise affect their use of performance.
- 17 -
<PAGE>
(b) AMSC's liability for any other damages asserted by Skysite shall be limited
to Skysite's actual damages due to AMSC's gross negligence or willful acts and
shall in no event One Hundred Thousand Dollars ($100,000.00).
(c) To the extent that any Service or facilities provided hereunder are
provided by third parties pursuant to arrangement with AMSC, the disclaimer of
or limitations on AMSC's liability, as stated in this section 3.5, shall extend
fully to such third parties.
(d) Skysite recognizes that AMSC may, from time to time, obtain satellite
capacity for Skysite from TMI Communications and Company, Limited Partnership
("TMI"), the authorized provider of mobile satellite service in Canada. Skysite
agrees that, in such event, TMI and its officers, directors, employees,
shareholders, partners, investors and agents shall not be liable, for any reason
whatsoever, whether in contract or tort or under any other theory of law, for
damages related in any way to the provision of the Service hereunder arising out
of an act or omission of TMI or resulting from the use of services under this
Agreement, including but not limited to any fault in TMI's MSAT which results in
failure to establish service, delays, in-service interruption, degradation or
loss or distortion of services.
3.6 INDEMNIFICATION:
---------------
(a) AMSC shall in no event be liable to Skysite, and Skysite shall indemnify
and hold harmless AMSC in the event of a suit or claim against AMSC based on any
of the following:
(1) The content or addressing of any message transmitted by Skysite or any
claim of libel, slander, or infringement of copyright against AMSC arising from
or in connection with the transmission of messages via the Service unless the
libel, slander or infringement results solely from the gross negligence or
willful misconduct of AMSC; or
(2) The infringement of patents arising from the combination or use of
AMSC-provided facilities with facilities or services provided by Skysite or any
other entity, including Skysite's service and equipment suppliers; or
(3) any loss, liability, damage, or expense caused to AMSC and/or its
facilities by the negligence or willful acts or omissions of Skysite, its users,
and equipment and/or service vendors and not caused by the negligence or willful
acts of AMSC.
(b) AMSC shall notify Skysite of any claim, action or suit asserted against
AMSC based upon the events specified in paragraph (a) of this section 3.6.
Skysite shall, at its expense and using counsel acceptable to AMSC, resist and
assume responsibility for the defense of such litigation, provided that AMSC
may, at Skysite's expense, participate in the defense of any such claim, action
or suit. In connection with its defense of such litigation, AMSC shall not take
any action which is inconsistent with Skysite's litigation strategy as expressed
to AMSC or AMSC's counsel. Skysite shall pay all expenses and satisfy all
judgments, including reasonable attorneys' fees and
- 18 -
<PAGE>
litigation expenses, which may be incurred by or rendered against AMSC in
connection therewith.
(c) Insurance: At the request of AMSC, which may, in AMSC's sole discretion, be
---------
made upon execution of this Agreement or at any time thereafter, Skysite shall
obtain insurance, in an amount and on terms and with carriers reasonably
acceptable to AMSC, to fulfill Skysite's obligations set forth in paragraphs (a)
and (b) of this section 3.6.
3.7 FORCE MAJEURE.
-------------
Except for credit allowances for service interruptions as specified in section
3.3 of this Agreement, AMSC shall not be liable for any failure of performance
due to causes beyond its control, including, but not limited to, acts of God,
fires, floods or other catastrophes; national emergencies, insurrections, riots
or wars; strikes, lockouts, work stoppages or other labor difficulties; and any
law, order, regulation or other action of any governing authority or agency
thereof.
ARTICLE FOUR
TERMINATION AND REMEDIES
----------------------------
4.1 TERMINATION BY AMSC.
--------------------
AMSC may suspend or terminate the provision of the Service hereunder to Skysite
and/or terminate this Agreement without any liability of AMSC to Skysite or any
third party in the event of a default by Skysite. Skysite shall be deemed to be
in default, and AMSC's rights in such event. shall be as follows:
(a) Failure to make payments when due:
---------------------------------
(1) If Skysite fails to pay any Weekly Payment in full by the date and
time it is due, and payment is not received by AMSC's Close of Business on the
Monday, or, if the Monday is a Federal holiday, the subsequent Tuesday,
following the Friday due date, AMSC may and will (i) turn off and cease
providing the Service to Skysite and Skysite's End Users and (ii) cease
activating new End Users for Skysite.
(2) If Skysite fails in two consecutive weeks to make any Weekly Payment
in full by the date and time it is due, and payment is not received by AMSC's
Close of Business on the Monday, or, if the Monday is a Federal holiday, the
subsequent Tuesday, following the Friday due date, AMSC may and will terminate
this Agreement.
(3) Suspension of Service and/or termination of this Agreement pursuant to
this paragraph (a) shall be (i) without any further requirement of notice, (ii)
without liability to AMSC, and (iii) in addition to any other right or remedy
available to AMSC.
- 19 -
<PAGE>
(b) Security for payment: If Skysite fails to maintain or reinstate the
--------------------
Security Deposit as provided in section 2.6(c) of this Agreement, within fifteen
days after receipt of notice to do so from AMSC, AMSC may terminate this
Agreement without further requirement of notice.
(c) Other events of default: AMSC may terminate this Agreement upon written
-----------------------
notice to Skysite if -
(1) Any court, administrative agency, or other governmental authority
having jurisdiction over Skysite's finds that Skysite's or Skysite's customers'
use of the Service is in violation of any statute or law or of any order, rule
or regulation of any court, agency or government authority, or AMSC reasonably
believes, based on a court order, statute, or agency regulation, that Skysite's
or Skysite's customers' use of the Service is in violation of any statute or law
or of any order, rule or regulation of any court, agency or government
authority, and such violation is not corrected as soon as possible, but in no
event more than thirty (30) days after written demand therefor is received by
Skysite from AMSC, provided, however, that Skysite shall not be deemed to be in
default if its customer's use of the Service is in violation of any statute or
law or of any order, rule or regulation of any court, agency or government
authority, and Skysite promptly terminates that customer;
(2) Skysite, Skysite's customers, or equipment and facilities provided by
Skysite under this Agreement, any of which are not authorized or certified by
AMSC and/or operated in accordance with AMSC's prescribed procedures, interfere
with the Service or facilities provided by AMSC to other of AMSC's or
Skysite's customers or the communications service or facilities of any third
party, or in any other way cause harm or act in a manner likely, in AMSC's sole
judgment, to cause harm to AMSC's network, facilities, services, reputation or
personnel or to or the communication service or facilities of any third party
(based upon receipt by AMSC of notice from such third party), and such
interference or harm is not corrected immediately upon the written demand of
AMSC, or, if such interference or harm is not susceptible of immediate cure, if
Skysite does not immediately commence and diligently work to correct such
interference and harm, which must, in any event, be corrected within two (2)
business days after receipt of notice from AMSC; or
(3) Skysite or any of Skysite's customers uses an unauthorized MT or a MT
which has been modified without the prior approval of AMSC, in any call using
the Service, and (1) such use is not stopped within as soon as reasonably
possible, but in no event more than twenty four (24) hours after written demand
therefor is received by Skysite from AMSC, or if (2) such use is repeated by
Skysite or such customer at any time after such 24-hour period provided,
however, that Skysite shall not be deemed to be in default under this paragraph
(e) if Skysite has terminated or authorized the termination of such customer's
use of the Service; or
(4) Skysite fails, upon written notice from AMSC, to terminate within 24
hours of receipt of notice, as required under section 1.6 of this Agreement, a
customer or vendor that has made fraudulent use of or access to the Service or
any other AMSC facility; or
- 20 -
<PAGE>
(5) Skysite makes an unauthorized assignment of its rights, duties and/or
obligations under this Agreement and fails to obtain AMSC's consent therefor
within 15 days after receipt of notice from AMSC.
(d) Termination under this section 4.1 shall be effective immediately upon
receipt by Skysite of written notice of default, or at the end of such period as
AMSC may grant for cure of the default.
4.2 TERMINATION BY EITHER PARTY.
---------------------------
Either AMSC or Skysite (the "Terminating Party") may terminate this Agreement
and the use of the Service hereunder without any liability to the other or, in
the case of a termination by AMSC, to any third party, if the other party (the
"Defaulting Party") is in default of the provisions of this Agreement. For
purposes of this section 4.2, a default shall be any of the following:
(a) the Defaulting Party dissolves or liquidates, or transfers all or
substantially all of its assets to another person or entity, except as permitted
under section 5.2 of this Agreement;
(b) the Defaulting Party becomes the subject of voluntary or involuntary
bankruptcy, insolvency, reorganization or liquidation proceedings, makes an
assignment for the benefit of creditors, or admits in writing its inability to
pay its debts as they mature, or a receiver is appointed or any of its assets or
properties, and the same is not dismissed, vacated, or stayed within thirty
(30) days, or the party seeking to terminate has reason to believe that the
commencement of any such proceeding or assignment for the benefit of creditors
is imminent;
(c) the Defaulting Party fails to perform or observe in all material respects
and in a timely manner any term, condition, or covenant to be performed by it
under this Agreement, the breach of which is not the subject of a separate
provision in this Article 4, provided, however, that if such failure is not
reasonably susceptible of cure within thirty (30) days, it shall not be a breach
hereunder if such party promptly commences and diligently pursues a cure,
reasonably acceptable to the Terminating Party, of such failure; or
(d) the Defaulting Party provides any information to, or makes any
representations or warranties to, the other in connection with the Service, or
otherwise in connection with any information required to be provided by it
hereunder, which proves to have been false or misleading in any material respect
as of the date provided or made.
(e) Termination under this section 4.2 shall be effective immediately upon
receipt by the Defaulting Party of written notice of default, or at the end of
such period as the Terminating Party may grant the cure of the default.
- 21 -
<PAGE>
4.3 OTHER REMEDIES.
--------------
(a) Termination for default: if the provision of Service under this Agreement
-----------------------
is terminated for default, as described in section 4.1 or 4.2 of this Agreement,
the Terminating Party shall be entitled to exercise all remedies which may be
available to it, either at law or in equity, or both.
(b) Other termination: Upon any termination of the Service other than under
-----------------
section 4.1 or 4.2, AMSC promptly shall refund or return to Skysite, as
appropriate, the Advance Payment and/or all deposits, letters of credit and
other forms of security provided by Skysite, less only such amounts as are due
for use of the Service before termination and such other amounts as AMSC
reasonably shall determine are due and owing, or will become due and owing, from
Skysite. AMSC shall pay Skysite simple interest on the amount of any cash
deposit so refunded from the date of its deposit with AMSC to the date refunded
at a per annum rate equal to the prime lending rate published in the "Money
Rates" column of The Wall Street Journal as of the date of the termination of
-----------------------
the Service.
(c) Immediate payment: In addition to any other rights or remedies available to
-----------------
AMSC under this Agreement or otherwise, AMSC may demand immediate payment of all
amounts billed and payable, as well as all other amounts due hereunder, (1) if
the Service is terminated by AMSC pursuant to section 4.1 or 4.2 of this
Agreement, (2) if Skysite is delinquent in the payment of any invoice beyond any
applicable grace period, or (3) if AMSC has reason to believe that Skysite is
about to cease operations or go out of business or about to seek protection
under any applicable bankruptcy or reorganization laws.
(d) Termination by Skysite: Notwithstanding any other provision of this
----------------------
Agreement, Skysite may terminate this Agreement upon 90 days' written notice to
AMSC, subject to payment to AMSC of a Termination Fee equal to Thirty Percent
(30%) of the remaining unpaid balance of the Commitment, plus any amounts owing
and unpaid as of the date of termination. The Termination Fee shall be paid
within 30 days of AMSC's receipt of notice of termination under this paragraph
(d).
(e) Termination liability: If AMSC terminates this Agreement pursuant to the
---------------------
provisions of section 4.1 for the default of Skysite, Skysite. agrees to pay to
AMSC -
(1) a sum equal to Thirty Percent (30%) of the remaining unpaid balance of
the Commitment, which amount is agreed by the parties to be the measure of
AMSC's damages in the event of Skysite's default and not a penalty; and
(2) amounts owing and unpaid by Skysite's under this Agreement; and
(3) all costs and fees incurred by AMSC in undertaking collection of the
amounts described in subparagraphs (1) and (2) of this paragraph (e), including
but not limited to fees of collection agencies, attorneys' fees, and filing fees
and court costs.
- 22 -
<PAGE>
4.4 REGULATORY APPROVALS.
--------------------
If (a) AMSC fails to obtain and maintain all required and material FCC or other
government approvals for the provision of the Service in AMSC's authorized
territory as described in this Agreement or (b) a final order of the FCC, or
other government agency having jurisdiction, revoking or denying renewal of the
MSS authorization granted to AMSC is issued and becomes effective, the provision
and use of Service under this Agreement will terminate immediately, and the
provisions of section 4.3(b) of this Agreement will apply.
ARTICLE FIVE
GENERAL
----------------
5.1 REPRESENTATIONS AND WARRANTIES.
------------------------------
Each party represents and warrants to the other that -
(a) it if fully authorized to enter into and perform this Agreement; this
Agreement when executed, will be binding upon it; and it has made no
misrepresentations to the other party in connection with the negotiation,
execution, or performance of this Agreement; and
(b) the execution and performance of this Agreement does not and will not
violate any other contract, obligation, or instrument to which it is a party, or
which is binding upon it, including terms relating to covenants not to compete
and confidentiality obligations.
5.2 ASSIGNMENT.
----------
(a) AMSC: AMSC shall have the right to assign this Agreement, including its
----
rights and obligations under this Agreement, without consent of Skysite, to such
person or entity who shall from time to time hold the FCC license pursuant to
which the Service is authorized. AMSC shall also have the unrestricted right to
assign this Agreement, or any of its rights hereunder, to any lender as
collateral security in connection with any financing arrangement of AMSC.
(b) Skysite: Skysite shall not assign any of its rights and obligations under
-------
this Agreement to any other person, firm agency, corporation or other legal
entity without the prior written approval of AMSC, which shall not unreasonably
be withheld, conditioned, or delayed, provided, however, that Skysite may assign
this Agreement to any lender as collateral security in connection with any
financing arrangement of Skysite, provided that Skysite shall remain responsible
for performing its responsibilities hereunder.
5.3 SUCCESSORS AND ASSIGNS.
----------------------
This Agreement shall be binding upon and shall inure to the benefit of the
parties hereto and their permitted assigns. This Agreement is entered into
solely for the benefit of such parties. Nothing
- 23 -
<PAGE>
herein contained will be deemed to create any third party beneficiaries or
confer any benefit or rights on or to any person not a party hereto, and no
person not a party hereto shall be entitled to enforce any provisions hereof or
exercise any rights hereunder.
5.4 NO THIRD PARTY BENEFICIARIES. Skysite shall be solely a value-added
----------------------------
reseller of the Service purchased from AMSC, and the provision by AMSC to
Skysite of the Service is not part of any principal and agent relationship,
employer and employee relationship, or joint venture or partnership between AMSC
and Skysite. This Agreement is entered into solely for the benefit of
AMSC and Skysite and is for the exclusive benefit of such parties. Nothing
contained in this Agreement will be deemed to create any third party
beneficiaries or confer any benefit or rights on or to any person not a party
hereto, and no person not a party hereto (including without limitation
customers, vendors, or creditors of Skysite) shall be entitled to enforce any
provisions hereof or exercise any rights hereunder.
5.5 NOTICES.
-------
(a) All notices and other communications hereunder shall be given in writing
and shall be deemed to have been duly given and effective (1) upon receipt if
delivered in person or by facsimile, (2) one (1) day after deposit prepaid with
a national overnight express delivery service; or (3) three (3) days after
deposit in the United States certified mail, postage prepaid, return receipt
requested:
If to Skysite by mail:
Skysite Communications Corporation
P.O. Box 7549
Burbank, CA 91510-7549
If to Skysite by overnight express delivery:
Skysite Communications Corporation
11500 Sherman Way
North Hollywood, CA 91605
Attention: Chief Operating Officer
Facsimile: 818/759-6999
With a copy to the Corporate Counsel, Skysite Communications Corporation,
at the above address.
If to AMSC:
AMSC Subsidiary Corporation
10802 Parkridge Boulevard
Reston, VA 20191-5416
Attention: Senior Program Manager, Large Accounts Contracts
- 24 -
<PAGE>
Facsimile: 703/758-6239
With a copy to the General Counsel, AMSC, at the above address.
(b) Each party may designate by notice, delivered as described in paragraph (a)
of this section 5.5, a new address (or substitute or additional persons) to
which any notice, demand, request or communication may thereafter be so given,
served or sent.
5.6 APPLICABLE LAW.
--------------
To the extent not governed by Federal law, this Agreement shall be governed by
and enforced in accordance with the laws of the Commonwealth of Virginia,
without giving effect to principles of conflicts of law thereof.
5.7 WAIVER AND SEVERABILITY.
-----------------------
(a) Neither the waiver by either of the parties hereto of a breach of or a
default under any of the provisions of this Agreement, nor the failure of either
of the parties, on one or more occasions to enforce any of the provisions of
this Agreement or to exercise any right or privilege hereunder shall thereafter
be construed as a waiver of any subsequent breach of default of a similar
nature, or as a waiver of any provisions, rights, or privileges hereunder. Any
waiver under this Agreement must be in writing and, as to AMSC, executed by both
AMSC's (1) General Counsel and (2) President or any Vice President.
(b) In the event that any one or more of the provisions of this Agreement shall
be held by a court of competent jurisdiction to be invalid or unenforceable in
any respect, such invalidity and unenforceability shall not affect any other
provision of this Agreement, and the Agreement shall be construed as though such
invalid and/or unenforceable provision(s) had never been contained herein.
5.8 MODIFICATION.
------------
No amendment or modification to this Agreement shall be valid unless made in
writing and signed by the authorized representatives of the parties. As to AMSC,
the "authorized representatives" means both AMSC's (a) General Counsel and (b)
President or any Vice President.
5.9 HEADINGS.
--------
The headings and numbering of paragraphs in this Agreement are for convenience
only and shall not be construed to define or limit any of the terms herein or
affect the meaning of interpretation hereof.
- 25 -
<PAGE>
5.10 ENTIRE AGREEMENT.
----------------
This Amended and Restated Private Network Satellite Services Agreement,
including all Exhibits hereto, constitutes the entire agreement between the
parties hereto and supersedes all prior oral or written agreements, including
but not limited to the Private Network Satellite Services Agreement entered into
as of December 7, 1995, and Amendment No. 1 thereto, dated as of May 29, 1997,
and Amendment No. 2, thereto dated as of June 30, 1997, and any and all
representations, statements, negotiations, understandings, proposals, and
undertakings with respect to the subject matter hereof.
IN WITNESS WHEREOF, THE PARTIES HAVE ENTERED INTO THIS PRIVATE NETWORK SATELLITE
SERVICES AGREEMENT, EFFECTIVE AS OF THE DATE FIRST WRITTEN ABOVE.
AMSC SUBSIDIARY SKYSITE SKYSITE
CORPORATION COMMUNICATIONS COMMUNICATIONS
CORPORATION CORPORATION
/s/ R.L. GOLDSMITH /s/ PHILIP A. KERNAN, JR. /s/ ROBERT J. WUSSLER
- ------------------------ ------------------------- -------------------------
Signature Signature Signature
E.V.P & C.O.O President Chairman USD1
- ------------------------ ------------------------ ------------------------
Title Title Title
R.L. GOLDSMITH Philip A. Kernan, Jr. ROBERT J. WUSSLER
- ------------------------ ------------------------ ------------------------
Name Name Name
March 4, 1998 25 February 1995 2/26/98
- ------------------------ ------------------------ ------------------------
Date Date Date
- 26 -
<PAGE>
EXHIBIT 10.7
DISTRIBUTOR AGREEMENT
BETWEEN
WESTINGHOUSE ELECTRIC CORPORATION
COMMUNICATIONS SYSTEMS DIVISION
POST OFFICE BOX 746
BALTIMORE, MARYLAND 21203
AND
SKYSITE COMMUNICATIONS CORPORATION
--------------------------------------
POST OFFICE BOX 7549
--------------------------------------
BURBANK, CALIFORNIA 91510-7549
--------------------------------------
--------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
RECITALS PAGE 1
ARTICLE 1 APPOINTMENT PAGE 1
ARTICLE 2 DISTRIBUTOR OBLIGATIONS PAGE 1
ARTICLE 3 RELATIONSHIP OF THE PARTIES PAGE 2
ARTICLE 4 TERMS AND CONDITIONS PAGE 2
ARTICLE 5 TERMINATION PAGE 4
ARTICLE 6 TERMINATION FOR DEFAULT PAGE 4
ARTICLE 7 LIMITATION OF LIABILITY PAGE 5
ARTICLE 8 FORCE MEJEURE PAGE 5
ARTICLE 9 TRADEMARKS AND TRADENAMES PAGE 5
ARTICLE 10 DISTRIBUTOR'S FINANCIAL CONDITION PAGE 6
ARTICLE 11 INDEMNITY AND INSURANCE PAGE 6
ARTICLE 12 CONFIDENTIALITY PAGE 6
ARTICLE 13 INTELLECTUAL PROPERTY RIGHTS PAGE 6
ARTICLE 14 TRAINING PAGE 6
ARTICLE 15 GENERAL PAGE 7
EXHIBIT A EQUIPMENT LIST PAGE 9
EXHIBIT B TERRITORY PAGE 10
EXHIBIT C TRAINING PAGE 11
EXHIBIT D RETURN PRODUCT AUTHORIZATION POLICY PAGE 12
EXHIBIT E LIMITED WARRANTY PAGE 13
</TABLE>
2/28/95 Rev-1A
<PAGE>
DISTRIBUTOR AGREEMENT
This AGREEMENT is made by and between Westinghouse Electric Corporation, a
corporation organized and existing under the laws of Pennsylvania, by and
through its Communications Systems Division, having offices at Baltimore,
Maryland (hereinafter referred to as "Westinghouse") and Skysite Communications
Corporation, corporation organized and existing under the laws of Delaware
having offices at 11500 Sherman Way North Hollywood, CA 91605 (hereinafter
referred to as "Distributor").
WITNESSETH
WHEREAS, Westinghouse is the manufacturer of the Series 1000 Mobile
Satellite Telephone System the components of which are identified on the
Westinghouse Series 1000 Mobile Satellite Telephone System Equipment List in
Exhibit A hereto and hereinafter called "the Products";
WHEREAS, Westinghouse desires to appoint the Distributor as its distributor
of the products in the Territory specified in Exhibit B (hereinafter called "the
Territory:); and
WHEREAS, Distributor is desirous of accepting such appointment;
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein, the parties agree as follows:
1. Appointment.
-----------
(a) Subject to the terms and conditions hereof, Westinghouse hereby
appoints Distributor and Distributor accepts appointment, on a non-
exclusive basis, as an authorized distributor of the Series 1000
Mobile Telephone System for the Territory described in Exhibit B,
subject to the terms and conditions set forth in this Agreement,
including the exhibits hereto.
(b) Subject to availability and pursuant to the terms herein, Westinghouse
will sell the Products to Distributor for resale to Distributor's
customers;
(c) Westinghouse reserves the unrestricted right to appoint other
distributors and to itself sell Products within the Territory
described in Exhibit B.
2. Distributor Obligations. The Distributor shall:
-----------------------
(a) maintain to the reasonable satisfaction of Westinghouse, an adequate
service organization to ensure adequate sales representation,
competent technical assistance, prompt handling of inquiries, orders
and shipments, careful attention to customers' complaints of all
Products covered by the Agreement;
(b) take part fully and actively in advertising or promotional campaigns
and programs prepared or conducted by Westinghouse and any "Mobile
Terminal/Telephone" trade show held in the Territory specified in
Exhibit B.
(c) maintain inventory of the Products (including spare parts) necessary
to satisfy all sales requirements at levels approved by Westinghouse;
(d) provide at its own cost and to the reasonable satisfaction of
Westinghouse, adequate sales and warehousing facilities for Products;
(e) advertise Products and distribute the literature, pamphlets, catalogs,
and other merchandising aids made available to Distributor by
Westinghouse in such manner as to keep the "Mobile Telephone" trade
within the Territory informed of the kind, quality and capability of
all Products;
1
<PAGE>
(f) submit to Westinghouse for timely written approval prior to the
release or publication of any signs, proofs or printed matter
containing a trade name, trademark, service mark or slogan of
Westinghouse;
(g) maintain an acceptable credit standing with Westinghouse;
(h) pay each invoice promptly according to its terms.
(i) Comply with Westinghouse's Product Return policies and procedures as
in effect from time to time, Westinghouse's current Return Product
Authorization Policy being attached hereto as Exhibit D.
(j) Obtain written approval with respect to the form and substance of all
sales contracts under which Distributor resells all products it
purchases hereunder.
(k) Conduct business in a manner that will reflect favorably at all times
on Distributor, Westinghouse and the Products.
(l) Comply with all applicable federal, state, provincial and local laws,
ordinances and regulations, including but not limited to those with
respect to its promotion and sale of Products.
3. Relationship of the Parties.
---------------------------
(a) The Distributor is in no way the legal representative or agent of
Westinghouse and has no authority to assume or create any obligation
on behalf of Westinghouse with respect to such Products or otherwise.
Nothing contained in this Agreement shall be deemed to create the
relationship of principal and agent, employe and employer, joint
venturers, or partners between Westinghouse and the Distributor.
(b) It is understood and agreed that the Distributor shall sell the
Products listed in Exhibit A, and upon such warranties and other terms
and conditions contained herein and that the Distributor shall not
make, or attempt to make, any guarantee, warranty, representation,
promise or other commitment on behalf of Westinghouse with respect to
any Product purchased by the Distributor under this Agreement and
thereafter sold by it.
(c) This Agreement does not constitute a franchise or establish a
franchise relationship, nor does it grant a trademark or any other
express or implied license and Distributor has paid no franchise or
other fee for this appointment.
(d) Distributor shall be solely responsible for all investments made and
expenses incurred in connection with the establishment and operation
of its business and Westinghouse shall have no obligation to
Distributor in connection with any such investments or expenses.
(e) If Distributor breaches any of the obligations contained in this
paragraph 3, Distributor shall indemnify and hold harmless
Westinghouse from any and all liability of Westinghouse arising from
said breach.
(f) Distributor represents and warrants that it has the legal authority to
enter into this Agreement and has all appropriate licences, etc. to do
business in compliance with all laws and regulations.
4. Terms and Conditions.
--------------------
(a) Orders. Products shall be delivered under this Agreement in accordance
with Distributor's written Orders, which must -
(1) identify the type and quantity of Products to be purchased;
and
(2) be received by Westinghouse at least ten (10) days prior to
the requested delivery date.
<PAGE>
Distributor may place orders by facsimile, but such orders must be
acknowledged by Westinghouse within five (5) business days. It is the
Distributor's responsibility to notify Westinghouse of any orders for
which acknowledgment is not received within the aforementioned five (5)
business day period. Products shall be purchased solely upon the terms
and conditions contained in this Agreement. Any different terms and
conditions in Distributor's purchase order forms or other writings shall
not be binding on the parties.
(b) Prices. Prices to Distributor for purchased Products shall be as shown in
-------
the Westinghouse Series 1000 Mobile Satellite Telephone System Price List
(to be provided) in effect at the time of shipment to Distributor. All sales
by Westinghouse shall be pursuant to the terms contained herein and no other
terms shall apply unless specifically agreed upon by Westinghouse in
writing.
(c) Taxes. Prices do not include any federal, state, provincial, or local
------
property, license privilege, sales, use, excise, gross receipts, value
added, import duties or other large taxes which may now or hereafter be
applicable to, measured by, or imposed upon, or with respect to the Products
covered by this Agreement, the property, its sale, its value or its use or
any service performed in connection therewith. Such taxes are for the
account of Distributor and the Distributor agrees to pay or reimburse any
such taxes which Westinghouse or its contractors or suppliers are required
to pay.
(d) Shipment. Delivery will be F.O.B. Westinghouse's shipping point. All
---------
shipments hereunder will reference Distributor's Order number on the packing
slip. Unless otherwise instructed by Distributor Westinghouse will select
the carrier and ship the Products to Distributor. Alternatively, Distributor
may arrange for its representative to receive the Products at a designated
facility. Title and risk of loss for Products purchased under this Agreement
shall pass to Distributor upon delivery to the carrier at the Westinghouse
shipping point.
(e) Delivery Dates. Delivery dates as set forth in any purchase order or
---------------
confirmation thereof are only estimates. Westinghouse shall not be liable to
Distributor, and Distributor shall not be relieved of its obligation to
accept any shipment, by virtue of any delay in or failure of delivery.
(f) Delivery Location. Westinghouse will ship to Distributor at its locations
------------------
identified in exhibit F hereto, which must be in the United States.
(g) Allocation of Available Inventory. Westinghouse may allocate available
----------------------------------
inventory of Products among its customers, but in such a manner as
Westinghouse, may, in its sole discretion, deem appropriate.
(h) Acceptance of Purchase Orders. All purchase orders for Products are subject
------------------------------
to acceptance by Westinghouse, and Westinghouse shall have the right at any
time, in its sole discretion, to reject or to decline to fill any purchase
order, either in whole or in part.
(i) Payment. Payment shall be in accordance with the terms of Westinghouse
--------
invoice and payment shall be made in U.S. dollars by wire transfer, check or
other instrument acceptable to Westinghouse. Any invoiced amount which is
not paid when due will bear interest at the rate of eighteen percent (18%)
per annum, to the extent permitted by applicable law. All exchange, interest
banking, collection, or other charges shall be at the sole expense of
Distributor.
(j) Warrant. Westinghouse provides end users a written limited warranty
--------
specifically applicable to the Series 1000 Mobile Telephone System, the
current version of which is attached hereto as Exhibit E. Westinghouse may,
at its sole option, change the duration and terms of such warrant at any
time or times. Such warranty shall establish exclusively the extent of
Westinghouse's responsibility for any failure of or defect in the Products.
3
<PAGE>
WESTINGHOUSE MAKES NO WARRANTIES WITH RESPECT TO THE PRODUCTS OF ANY
KIND WHATSOEVER, EXPRESS OR IMPLIED, EXCEPT AS SPECIFICALLY PROVIDED
IN WESTINGHOUSE'S WRITTEN LIMITED WARRANTY AS IN EFFECT FROM TIME TO
TIME. THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR ANY
PARTICULAR PURPOSE ARE HEREBY DISCLAIMED AND EXCLUDED. WESTINGHOUSE
SHALL NOT BE LIABLE TO DISTRIBUTOR OR ANY THIRD PARTIES FOR ANY
SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES.
(k) To the extent Westinghouse is deemed to have any liability hereunder,
no such liability shall ever be in excess of the value of the goods
sold hereunder, or one million US dollars, whichever is less.
(l) Liability Insurance. Westinghouse confirms that product liability
--------------------
insurance written by an insurance company licensed to do business in
the United States and Canada in the amount of not less than $1,000,000
combined single limit is maintained with respect to the Products.
Except to the extent of such product liability coverage, Distributor
shall have no claim or right against Westinghouse with respect to any
suits or claims against Distributor by any third persons resulting
from the occurrence of an event within the scope of coverage of such
insurance (without reference to the dollar amount of coverage), and
Westinghouse shall bear no responsibility or liability to Distributor
with respect to any such suits or claims by any third parties or any
liabilities, losses, expenses or damages incurred or suffered by
Distributor as a result thereof.
5. Termination. This Agreement shall continue in effect unless and until
------------
terminated by Westinghouse or the Distributor for any reason or no reason
upon thirty (30) days prior written notice. Such written notice of
termination shall be delivered or sent by registered mail to the other
party at the address set forth in Paragraph 15 below.
(a) all orders in effect on the date of termination pursuant to this
paragraph shall be canceled. Westinghouse will however accept orders
from Distributor on C.O.D. terms for additional Products which
Distributor is contractually obligated to furnish to its customers and
does not have in its inventory, if Distributor notifies Westinghouse
of any and all such obligations in writing within five (5) days of
receipt of the termination notice. All such orders shall be priced in
accordance with the pricing in effect at the time such orders are
received by Westinghouse;
(b) WESTINGHOUSE SHALL NOT BE LIABLE IN ANY MANNER WHATSOEVER BECAUSE OF
SUCH TERMINATION OR EXPIRATION, EVEN THOUGH THEREAFTER WESTINGHOUSE
OR ANOTHER DISTRIBUTOR MAY COMPLETE ANY TRANSACTION INITIATED BY
DISTRIBUTOR;
(c) NEITHER PARTY SHALL BE LIABLE TO THE OTHER FOR DAMAGES IN ANY FORM,
BY REASON OF A TERMINATION PURSUANT TO THIS PARAGRAPH OF THIS
AGREEMENT;
(d) Distributor shall discontinue immediately all advertising of or
reference to Products upon termination or expiration of this Agreement
and, at the request of Westinghouse, shall deliver to Westinghouse
(F.O.B. point of destination, freight prepaid) all promotional,
training or other product documentation or material in the
Distributor's possession at the time of such termination;
(e) within fifteen (15) days of termination of this Agreement, the
Distributor shall promptly remit to Westinghouse any and all moneys
then due Westinghouse hereunder and shall promptly remit any further
moneys which may become due Westinghouse after the date of such
termination.
6. Termination for Default. This Agreement may be terminated for default by -
------------------------
(a) Westinghouse if Distributor fails to make any payment when due in
accordance with the terms of this Agreement;
4
<PAGE>
(b) either party in the event of a material breach of this Agreement by
the other party if such breach is not cured within ten (10) days after
written notice; or
(c) Westinghouse, in the case Distributor shall become insolvent, or file
a voluntary petition in bankruptcy, or shall enter upon voluntary
liquidation, or a petition in bankruptcy shall be filed against the
Distributor or in the event of the appointment of a receiver for the
business of Distributor, or an assignment by Distributor for the
benefit of creditors.
In the event Westinghouse terminates this Agreement for default,
Distributor shall immediately discharge the accounting payment and other
obligations set forth in Paragraph 5(e) above, cease using the Westinghouse
name, remove all signage and return it as well as all promotional and
training information to Westinghouse (F.O.B. point of destination, freight
prepaid).
7. Limitation of Liability. The remedies of Distributor set forth in this
-----------------------
Agreement are exclusive and not withstanding any other provision in this
Agreement or any statutory provisions, the liability of Westinghouse with
respect to any claims of Distributor arising from the Products sold under
this Agreement or anything done in connection herewith such as the
performance thereof, or from the manufacture, sale, delivery, or resale or
use of any Product covered by or furnished under this Agreement, whether in
contract, in tort (including Westinghouse's negligence or strict liability)
or otherwise, shall not exceed the actual amount paid by Distributor to
Westinghouse for such Product. Westinghouse, its contractors and suppliers
of any tier, shall not be liable beyond such amount in contract, in tort
(including Westinghouse's negligence or strict liability) or otherwise for
special or consequential damages, including, but not limited to, damage or
loss of other property, loss of profits or revenue, loss of use of
equipment, cost of capital, cost of purchased or temporary equipment
(including additional expenses incurred in using existing facilities),
claims of customers of Distributor or for any special, indirect, third
party, incidental or consequential damages whatsoever.
8. Force Majeure. Westinghouse shall not be liable for failure to perform or
-------------
for delay in performance due to fire, flood, strike or other labor
difficulty, act of God, act of any governmental authority or of the
Distributor, riot, embargo, fuel or energy shortage, car shortage, faulty
castings or forgings, wrecks or delay in transportation, inability to
obtain necessary labor, materials or manufacturing facilities from usual
sources or due to any other cause beyond its reasonable control. In the
event of delay in performance due to any such cause, the date of delivery
or time for completion will be extended by a period of time reasonably
necessary to overcome the effect of such delay.
9. Trademarks and Tradenames.
-------------------------
(a) Distributor may not use the name "Westinghouse", or any name of the
equipment identified in Exhibit A or any abbreviation or modification
thereof except for the limited purpose of identifying itself as an
authorized distributor of the Equipment. Distributor shall not grant
this privilege to any third parties or affiliated companies.
Distributor may not use the name "Westinghouse" or any other trademark
or tradename of Westinghouse in any promotional, advertising and other
materials or as a part of its firm or corporate title in signs or
letterheads, without prior written approval of Westinghouse.
(b) Effective upon the date of termination of this Agreement, Distributor
shall immediately discontinue the use of said trademarks and
tradenames in any manner except for use in catalogs or other printed
material which reference the names and/or trademarks of more than one
company. Such material may be used until the next reissue of such
catalogs or printed material but in no event after six (6) months
following termination. During such period, Distributor shall inform
its customers that it no longer handles the Products.
5
<PAGE>
10. Distributor's Financial Condition. Distributor shall maintain and employ,
---------------------------------
in connection with its business under this Agreement, such working capital
and net worth as may be required by Westinghouse's reasonable opinion to
enable Distributor to carry out and perform all of Distributor's
obligations under this Agreement. Distributor shall make available to
Westinghouse such financial reports and data as Westinghouse may from time
to time request to determine Distributor's financial condition.
Westinghouse reserves the right at all time, either generally or with
respect to any specific purchase order, to change or limit the amount or
duration of credit allowed to Distributor. Westinghouse may, at its option,
require that all shipments to Distributor be made of a C.O.D. basis or
other arrangement protecting Westinghouse's interest. Distributor shall
execute and deliver such security agreements, financing statements and
other agreements, instruments, UCC forms and other documents as
Westinghouse shall request to protect Westinghouse's interest in the
Products and all proceeds thereof.
11. Indemnity and Insurance.
-----------------------
(a) Distributor shall indemnify and hold harmless Westinghouse from all
liabilities, losses, costs, damages, judgment and expenses including
attorney's fees and costs, arising out of or related to any breach of
this Agreement by Distributor or other activities of Distributor,
including its officers, employees and agents.
(b) During the term of this Agreement, Distributor shall maintain in full
force and effect fire and extended coverage insurance covering all its
inventory of Products and parts and accessories therefor in an amount
not less than the purchase price thereof. Such policy shall name
Westinghouse as an additional insured and shall provide that it will
not be cancelled or modified without at least thirty (30) days prior
written notice to Westinghouse. Upon execution of this Agreement,
Distributor shall furnish Westinghouse with certificates of insurance
evidencing the existence of such coverage.
12. Confidentiality. Distributor shall not use or disclose to others any
---------------
confidential or proprietary information of Westinghouse acquired in
connection with this Agreement unless authorized in writing by
Westinghouse.
13. Intellectual Property Rights. Westinghouse shall (a) at its own expense,
----------------------------
defend or at its option settle, any claim, suit or proceeding brought
against Distributor for infringement of any United States patent or
copyright in connection with any Products supplied by Westinghouse to
Distributor under this Agreement; and (b) pay any final judgment entered
against Distributor on such issue in any such claim, suit or proceeding
defended by Westinghouse; subject to the conditions that Distributor should
provide Westinghouse notice of any such claim, suit or proceeding promptly
after Distributor shall receive notice or obtain knowledge thereof, and, at
Distributor's expense, provide full information and assistance as requested
by Westinghouse in such defense. Westinghouse may, in the event of any such
claim, suit or proceeding, modify or replace the affected Products to
eliminate the alleged infringement or give Distributor a refund of the
price of the affected Products in lieu of any other obligations or
responsibilities hereunder. Notwithstanding the foregoing, Westinghouse
shall have no liability for any costs or expenses incurred without
Westinghouse's prior written authorization, and in no event shall
Westinghouse's total liability to Distributor under this provision exceed
the aggregate sum paid by Distributor to Westinghouse for the affected
Products. The foregoing states the entire responsibility of Westinghouse
with respect to any alleged intellectual property right infringement or
violation in connection with the Products, and Westinghouse shall in no
event be liable for loss of use or for incidental, indirect or
consequential damages, whether in contract or in tort, by virtue of any
such infringement or violation. No sale under this Agreement shall convey
any license by implication, estoppel or otherwise under any proprietary or
patent rights of Westinghouse except for the right to resell Products in
accordance with this Agreement.
14. Training. An operator's manual shall be included with each purchase of a
--------
complete Westinghouse Mobile Satellite Telephone System. Distributor hereby
agrees that it shall provide the necessary training to its customers. On a
quarterly basis, as deemed necessary, Westinghouse will provide training in
a centralized area of the territory listed in Exhibit B. In addition,
Westinghouse shall provide limited training in support of the operator's
manual as specified in Exhibit C.
6
<PAGE>
15. General.
--------
(a) This Agreement shall inure to the benefit of and be binding upon
Distributor and its successors and assigns, but shall not be
assignable by Distributor without the prior written consent of
Westinghouse. Any purported assignment or delegation of performance
without the prior written consent of Westinghouse shall be null, void
and of no effect.
(b) Distributor shall give Westinghouse notice of any proposed transaction
affecting the ownership of ten percent (10%) or more of Distributor's
capital stock, if Distributor shall be a corporation, the interest or
any portion thereof of any partner, if Distributor shall be a
partnership, or the ownership of all or any part of the business, if
Distributor shall be an individual proprietorship.
(c) Except as hereinafter provided, all questions or controversies arising
out of or in any manner relating to this Agreement shall be submitted
to arbitration in Baltimore, Maryland according to the rules of the
American Arbitration Association, and the award or decision made by
the arbitrator or arbitrators therein shall be binding upon the
parties. A judgment consistent therewith may be entered in any court
of competent jurisdiction. Nothing herein contained shall be construed
as in any way affecting Westinghouse's right to institute and
prosecute a lawsuit in any court of competent jurisdiction to effect
the collection of any monies due to Westinghouse from Distributor or
to protect trademark rights or copyrights. The arbitrability of any
issue shall be determined in accordance with the Federal Arbitration
Act.
(d) If applicable, any exporting of Products from the United States or re-
exporting of Products from Canada is by Distributor and not
Westinghouse. Distributor shall be responsible, at its own risk and
expense, for any export license or permit and any other approval or
documentation which may be required for or in connection with the
export and/or re-export of any Products.
(e) This Agreement supersedes any and all prior agreements between the
parties and constitutes the complete, final and exclusive
understanding of the parties with respect to the subject matter. All
prior negotiations, representations or promises, whether oral or
written, of either party shall be deemed to have been merged herein.
(f) No amendment, change or attempted waiver of this Agreement shall be of
any effect unless set forth in writing and duly signed on behalf of
the party against whom it is thought to be enforced. Failure of
Westinghouse to enforce at any time any of the provisions of this
Agreement or any right it may have with respect thereto or to exercise
any option herein provided shall in no way be considered to be a
waiver of such provisions or rights or in any way affect the validity
of this Agreement. The exercise by Westinghouse of any of its rights
hereunder or any of its options hereunder under the terms or covenants
herein shall not preclude or prejudice Westinghouse from thereafter
exercising the same or any other right it may have under this
Agreement irrespective of any previous action or proceeding taken by
Westinghouse hereunder.
(g) If any part of this Agreement shall be invalidated for any reason,
such part shall be deleted and the remainder shall be unaffected and
shall continue in full force and effect.
(h) Any failure on the part of either party to enforce at any time for any
period of time any provision of this Agreement shall not be deemed or
construed to be a waiver of such provision or of the right of that
party thereafter to enforce any provision or any other provision of
this Agreement.
7
<PAGE>
(i) All written notices hereunder shall be sent by registered mail or confirmed
facsimile, postage pre-paid to the parties hereto at the following
addresses. (Either party may change its address by written notice).
Westinghouse: Westinghouse Electric Corporation
Communications Division
Post Office Box 746
Baltimore, Maryland 21203
Attention: Director of Sales & Marketing, Mail Stop 8419
Distributor: Skysite Communications Corporation
-----------------------------------------------
Post Office Box 7549
-----------------------------------------------
Burbank, CA 91510-7549
-----------------------------------------------
-----------------------------------------------
Attention: Mr. Tom D. Soumas, Jr.
------------------------------------
(j) The titles of the various articles of this Agreement are for convenience
only and shall not be deemed to restrict or limit the meanings of anything
stated in such Articles.
(k) If not otherwise terminated this Agreement shall expire on December 31st of
the current year, unless renewed, in writing, at the sole discretion of
Westinghouse.
(l) This Agreement shall be governed by and construed according to the laws of
the State of Maryland.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed on
this 21st day of February, 1996.
Skysite Communications Corporation WESTINGHOUSE ELECTRIC CORPORATION
Communications Systems Division
By: /s/ Tom D.Soumas, Jr. By: /s/ [SIGNATURE ILLEGIBLE]
------------------------------- ------------------------------
Tom D.Soumas, Jr. General Manager
8
<PAGE>
EXHIBIT 10.8
Mitsubishi Electronics America, Inc./Skysite Communications Corporation
Agreement
This Agreement is made and entered into as of the 7/th/ day of November, 1997 by
and between Mitsubishi Electronics America, Inc., a corporation duly organized
and existing under the laws of Delaware, with offices at 12007 Sunrise Valley
Drive, Suite 220, Reston, Virginia 20191 (hereinafter "MELA") and Skysite
Communications Corporation, a Delaware corporation having its principal place of
business at 11500 Sherman Way, North Hollywood, California 91605 ("Skysite").
WITNESSETH:
WHEREAS, MELA sells a line of mobile satellite communications terminals and
accessories including, but not limited to, the OmniQuest phone; and
WHEREAS, Skysite desires to buy such products from MELA for resale to dealers
and other resellers; and
WHEREAS, all sales of products to Skysite shall be governed by this Agreement.
NOW, THEREFORE, in consideration of the mutual promises and covenants
hereinafter set forth, the parties hereby agree as follows:
I. Definitions
1.1 "Products" means only those mobile satellite communications terminals and
accessories bearing the Mitsubishi trademark described in Exhibit A attached to
and made a part of this Agreement, as amended by MELA from time to time upon
notice to Skysite.
1.2 "Territory" means the United States of America, Puerto Rico, the U.S.
Virgin Islands, and U.S. coastal waters up to 200 miles on or over ocean areas
outside the territory of any foreign country.
II. Appointment of Skysite
2.1 MELA hereby appoints Skysite, and Skysite hereby accepts appointment, on
a non-exclusive basis, as an authorized Distributor of Products in the
Territory, subject to the terms and conditions set forth in this Agreement,
including the exhibits hereto. MELA reserves the unrestricted right to appoint
other Distributors and to itself sell Products within the Territory.
III. Obligations and Warranties
III.A SkySite's Obligations and Warranties
Skysite shall:
1
<PAGE>
3A.1 Use its best efforts to promote the sale of Products and the goodwill of
MELA throughout the Territory in accordance with MELA'S marketing policies and
procedures as provided to Skysite;
3A.2 Maintain adequate facilities and sufficient qualified personnel to enable
Skysite to perform its obligations under this Agreement;
3A.3 Sell Products within the Territory exclusively to end users and/or retail
dealers pursuant to agreements with such dealers which establish their limited
right to resell Products within the Territory only to bona fide end users;
3A.4 Purchase and maintain on site a sufficient inventory of the Products to
satisfy promptly the orders of its customers;
3A.5 Provide such reports as MELA may reasonably request, including but not
limited to monthly point-of sales reports by the tenth day of each month for the
preceding month;
3A.6 Make reasonable efforts to handle to the customer's satisfaction all
matters relating to the sale of Products in the Territory and immediately report
to MELA each charge, complaint or claim received by Skysite involving any
Products;
3A.7 Conduct business in a manner that will reflect favorably at all times on
Skysite, MELA and the Products; and
3A.8 Comply with all applicable federal, state and local laws, ordinances and
regulations in connection with its promotion and sale of Products.
III.B MELA's Obligations and Warranties
MELA shall:
3B.1 Provide the Products to Skysite at the prices and on the terms and
conditions specified in this Agreement and Exhibit A;
3B.4 Make reasonable efforts to handle complaints or claims from customers
regarding the Products passed on to MELA by Skysite;
3B.6 Comply with all applicable federal, state and local laws, ordinances and
regulations in connection with MELA's sale of Products to Skysite.
<PAGE>
IV. Terms of Sale to Skysite
4.1 Skysite shall purchase Products solely upon the terms and conditions
contained in this Agreement. Any different terms and conditions in Skysite's
purchase order forms or other writings shall not be binding upon the parties.
4.2 Payment for Products purchased by Skysite shall be in accordance with the
invoices therefor, without deduction of any kind that has not been authorized in
advance by credit memorandum from MELA. All prices are F.O.B. MELA's Rancho
Dominguez, California shipping point and are subject to change by MELA at any
time upon thirty (30) days notice to Skysite. Price quotations based on
estimated quantities are subject to increase in the event actual quantities
purchased are less than the estimated or projected quantities.
4.3 MELA shall notify Skysite in the event of an announced reduction in the
price of Products and the effective date of such reduction. In the event that a
decrease in price for the Products becomes effective after MELA accepts an order
from Skysite for the Products but priot to shipment of the Products which are
the subject of such order, the price of the Products ordered shall be the price
in effect at the time of shipment. Within ten (10) days of Skysite's receipt of
MELA's notice of a price reduction, Skysite shall provide MELA with a list of
Products in its inventory purchased from MELA within thirty (30) days prior to
the date of such reduction. Subject to MELA's verification of the listed
Products, MELA shall issue to Skysite a credit memorandum covering the
difference in price of such Products.
4.4 Title and risk of loss or damage to all Products sold by MELA to Skysite
shall pass to Skysite upon delivery of Products by MELA to the carrier. MELA
shall, if not otherwise directed by Skysite, without incurring any liability,
exercise its own discretion in selecting the method of shipment and the carrier.
Skysite shall have the responsibility to file any claims with the carrier.
4.5 Prices do not include any taxes, levies, duties and fees of any kind,
nature or description whatsoever applicable to the sale of any Products by MELA
to Skysite, and Skysite shall forthwith pay to MELA all such sums upon demand,
except for any such taxes as to which Skysite shall provide MELA, at the time of
the submission of its purchase order, documentation acceptable to MELA and the
appropriate taxing authority establishing exemption therefrom. The parties
acknowledge that no such taxes, levies, duties and fees are currently due or
pending.
4.6 Delivery dates as set forth in any purchase order or confirmation thereof
are only estimates. MELA shall not be liable to Skysite, and Skysite shall not
be relieved of its obligation to accept such shipment, by virtue of any delay in
or failure of delivery.
4.7 MELA may allocate available inventory of Products among its customers, but
in such a manner as MELA, may, in its sole discretion, deem appropriate.
3
<PAGE>
4.8 All purchase orders for Products are subject to acceptance by MELA, and
MELA shall have the right at any time, in its sole discretion, to reject or to
decline to fill any purchase order, either in whole or in part.
4.9 MELA shall have the right, at any time, to effect changes in, or
discontinue the sale or availability of, any or all of the Products, as well as
any parts or components thereof without notice or liability to Skysite upon
thirty (30) days notice to Skysite.
4.10 MELA provides end users a written limited warranty specifically applicable
to each model of Products. A copy of MELA's current limited warranty is attached
hereto as Exhibit B and made a part hereof. MELA may, at its sole option, change
the duration and terms of such warranties at any time upon written notice to
Skysite. Such warranties shall establish exclusively the extent of MELA's
responsibilities for any failure of or defect in Products.
4.11 MELA shall make the final determination, in its sole discretion, whether
any Product is covered by the End User Limited Warranty. Without limiting MELA's
discretion to make such final determination, MELA may determine that a Product
is ineligible for service under such warranty if: (a) the Product has been
altered or repaired other than with authorization from MELA and in accordance to
its approved procedures; (b) the Product has been subjected to misuse, abuse,
accident, improper maintenance or negligence; or (c) the Product has had a
serial number or any part thereof altered, defaced or removed. If MELA
determines that a warranty claim was improperly made, MELA shall so advise
Skysite, and, in such event, Skysite shall pay to MELA upon invoicing by MELA
(x) for service performed, at MELA's then-current rates, (y) for replacement
parts, if any, at MELA's then-current prices and (z) for freight and handling
for returning the Product to Skysite.
4.12 MELA MAKES NO WARRANTIES WITH RESPECT TO THE PRODUCTS OF ANY KIND
WHATSOEVER, EXPRESS OR IMPLIED, EXCEPT AS SPECIFICALLY PROVIDED IN MELA'S
WRITTEN LIMITED WARRANTIES AS IN EFFECT FROM TIME TO TIME. THE IMPLIED
WARRANTIES OF MECHANTABILITY AND FITNESS FOR ANY PARTICULAR PURPOSE ARE HEREBY
DISCLAIMED AND EXCLUDED. MELA SHALL NOT BE LIABLE TO SKYSITE OR ANY THIRD
PARTIES FOR ANY INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES.
V. Minimum Volume Commitment, Prices and Marketing Funds
5.1 During the initial term of this Agreement, Skysite shall purchase and take
delivery of the OmniQuest phones in the quantities, at the prices and pursuant
to the schedule set forth in Exhibit A to this Agreement (the "Minimum Volume
Commitment"). Upon execution of this Agreement, Skysite shall deliver to MELA
its purchase order for the Minimum Volume Commitment (MVC).
5.2 MELA shall provide Skysite with a number of OmniQuest units equal to 1% of
the Minimum Volume Commitment as "hot swap" consigned inventory to be used by
Skysite in its over the counter exchange program for claims covered under MELA's
limited warranty.
4
<PAGE>
5.3 The initial prices for the Products shall be those specified in Exhibit A
to this Agreement. MELA reserves the right to increase or decrease any prices
for the Products at any time, with notice to Skysite after the effective date of
such increase or decrease. Skysite acknowledges that the prices specified in
Exhibit A are based on Skysite's commitment to comply with the MVC and that the
prices shall be adjusted if Skysite does not meet this commitment. In the event
that Skysite does not comply with the MVC, MELA shall have the right to
determine price adjustments for all Products purchased thereafter pursuant to
this Agreement during such term based upon the number of Products actually
purchased by Purchaser, as provided in the manufacturer's price list. In the
event MELA increases prices for the products for reasons other than
non-compliance with MVC, then Skysite may within 30-days of such increase reduce
the MVC for all periods thereafter.
5.4 Skysite may reschedule the delivery of a shipment of OmniQuest phones
under any purchase order with a minimum of ten days' notice to MELA prior to the
originally scheduled shipment date under such purchase order. A purchase order
may only be rescheduled once, up to a maximum of 60 days after the originally
scheduled shipment date. In addition, Skysite may, in a single instance with
respect to each purchase order, request an increase in the quantity of Product
to be delivered, on no less than ten days' prior notice to MELA and MELA shall
use every reasonable effort to accommodate such change.
5.5 MELA shall provide Skysite with a marketing credit of $100 per OmniQuest
unit purchased by and delivered to Skysite under this Agreement. Skysite shall
use these marketing funds to support the OmniQuest phone and to assist Skysite
in selling the phones to dealers and resellers. In addition, Skysite shall
receive a 10% rebate on all OmniQuest phones in excess of the Minimum Volume
Commitment purchased by and delivered to Skysite before October 31, 1998. MELA
shall specify these monies as credits on its invoices to Skysite.
5.6 In the event Skysite fails to purchase the Minimum Volume Commitment,
Skysite shall pay to MELA as liquidated damages, and not as a penalty, an amount
equal to $200.00 times the number of units which Skysite fails to purchase. The
Minimum Volume Commitment shall be reduced by the number of units ordered by
Skysite which MELA fails to deliver for reasons not attributable to Skysite or
force majeure.
VI. Training
6.1 MELA shall include an operator's manual with each unit mobile satellite
phone and push-to-talk microphone purchased by Skysite under this Agreement. In
addition, MELA shall, at no additional charge to Skysite, provide such training
as MELA determines to be reasonably necessary to support Skysite's level of
purchases of Products and to train Skysite's personnel in the operation, use and
maintenance of the Products. All costs associated with attending training
classes, such as transportation, lodging, and meals, shall be at Skysite's sole
cost. The number, location, size and scheduling of classes shall be in MELA's
sole discretion.
5
<PAGE>
VII. Export Control
7.1 MELA is selling the Products to Skysite for resale and use within the
United States. If Skysite chooses to export any Product (or any technology
related thereto), Skysite shall be responsible for complying with the United
States Export Administration Act as amended from time to time, with the Export
Administration Regulations promulgated from time to time thereunder and with all
other export laws and regulations of the United States and all amendments,
modifications or additions thereto, including all laws and regulations relating
to re-export. Skysite shall indemnify and hold MELA harmless from any liability,
damages, costs and expenses arising from or connected with a breach of Skysite's
obligations under this Article.
7.2 Skysite shall execute any documents reasonably requested by MELA (including
written assurances of non-reexportation) including but not limited to Exhibit D
attached, for the purpose of complying with the United States laws and
regulations referred to in Section 7.1.
VIII. Skysite's Financial Condition
8.1 Skysite shall make available to MELA such publicly available financial
reports and data as MELA may from time to time reasonably request to determine
Skysite's financial condition. MELA shall provide Skysite with a 30 day,
non-interest bearing line of $200,000 line of credit to be used solely for the
purchase of Products under this Agreement; provided, however, MELA reserves the
right at all times, either generally or with respect to any specific purchase
order, to change or limit the amount or duration of credit allowed to Skysite.
MELA may, at its option, require that all shipments to Skysite be made on a
C.O.D. basis or other arrangement protecting MELA's interest. Skysite shall
execute and deliver such security agreements, financing statements and other
agreements, instruments, UCC forms and other documents as MELA shall request to
protect MELA's interest in the Products and all proceeds thereof.
IX. Indemnity and Insurance
9.1 Skysite shall indemnify and hold harmless MELA from all liabilities,
losses, costs, damages, judgments and expenses, including attorney's fees and
costs, arising out of or related to any breach of this Agreement by Skysite or
other activities of Skysite, including its officers, employees and agents under
this Agreement.
9.2 During the term of this Agreement, Skysite shall maintain in full force and
effect fire and extended coverage insurance covering all its inventory of
Products and parts and components therefor in an amount not less than the
purchase price thereof. Such policy shall name MELA as an additional insured and
shall provide that it will not be canceled or modified without at least 30 days
prior written notice to MELA. Upon execution of this Agreement, Skysite shall
furnish MELA with certificates of insurance evidencing the existence of such
coverage.
6
<PAGE>
X. Trademarks
10.1 Skysite acknowledges that Skysite has no rights or interests in any trade
name or trademark used on or affixed to any Products or owned, used or claimed
by MELA. Skysite shall not use any trademark or trade name as part of its
corporate or business name. Skysite shall have the right to use such trademarks
and trade names as appear on the Products and on MELA's promotional materials
therefor in any manner approved by MELA. Skysite shall not remove, alter or
obliterate any trademarks or country of origin markings which appear on
Products.
XI. Confidentiality
11.1 The terms of the Confidentiality Agreement, dated November 7/th/, 1997,
between Skysite and MELA shall apply to this Agreement as though fully
incorporated herein. A copy of the Confidentiality Agreement is attached as
Exhibit C to this Agreement.
XII. Term and Termination
12.1 Unless sooner terminated in accordance with this Article 12, this
Agreement shall have an initial term of one (1) year from the date first above
written. Thereafter, this Agreement shall be renewed automatically for
successive for one-year terms.
12.2 Either party may terminate this Agreement at any time during the initial
or any renewal term with cause or without cause by giving the other party notice
of termination (a) immediately if with cause and (b) not less than 30 days prior
to the effective date of termination if without cause.
12.3 This Agreement shall terminate automatically without any notice if either
party: (a) ceases to function as a going concern; (b) is adjudged insolvent or
bankrupt; (c) institutes or has instituted against it any proceeding seeking
relief, reorganization or arrangement under any laws relating to bankruptcy; (d)
makes an assignment for the benefit of creditors; (e) has appointed a receiver,
liquidator or trustee of any of its property or assets; or (f) liquidates,
dissolves or winds up its business.
12.4 Immediately upon termination of this Agreement: (a) except for the sale in
the ordinary course of business of inventory not repurchased by MELA, Skysite
shall cease to represent itself as an authorized Distributor for the Products
and shall discontinue all conduct or representations which might lead Skysite's
customers or the public to believe that Skysite is authorized by MELA to sell
Products; and (b) all amounts payable by Skysite to MELA shall become
immediately due and payable.
12.5 In the event MELA terminates this Agreement without cause, MELA shall, at
Skysite's request, repurchase from Skysite all or any part of Skysite's
inventory of Products, at the lower of the then prevailing price to Distributors
for such Products or the net price paid by Skysite for the Products, upon
condition that Skysite pay all transportation and other costs connected with
shipping
7
<PAGE>
such Products to MELA. Within five (5) days following receipt of notice of
termination, Skysite shall furnish MELA a schedule of such Products which are
new, undamaged and in their original packaging. MELA shall have the right for
thirty (30) days following receipt of Skysite's inventory schedule to inspect
Skysite's inventory. MELA shall give notice of its election to repurchase all or
part of such scheduled inventory after completion of MELA's inspection of such
inventory or after expiration of the inspection period if no inspection is
conducted.
12.6 Termination of this Agreement shall not release Skysite from the
obligation to apply all sums which may be owing to MELA, whether then or
thereafter due, or operate to discharge any liability that has been incurred by
Skysite prior to any such termination. Neither party shall be liable to the
other for damages of any nature, whether direct, indirect, incidental,
consequential or otherwise, as a result of the termination of this Agreement,
including but not limited to any claims for lost profits, loss of goodwill or
expenditures made or omitted in reliance on the continuation of this
Agreement.
XIII. No Agency
13.1 The relationship between MELA and Skysite is that of vendor and purchaser.
This Agreement does not establish a franchise, joint venture, agency or
partnership between the parties, nor does it create an employer-employee
relationship. Skysite is an independent contractor and shall not have authority
or power to bind MELA, to create any liability binding upon MELA, to incur any
obligation on behalf of MELA nor to represent that MELA is in any way
responsible for Skysite's acts or omissions. Skysite shall be solely responsible
for all investments made and expenses incurred in connection with the
establishment and operation of its business, and MELA shall have no obligation
to Skysite in connection with any such investment or expenses.
XIV. Intellectual Property Rights
14.1 Subject to the conditions set forth in this article, MELA shall, at its
own expense indemnify and defend or at its option settle any claim, suit or
proceeding brought against Skysite for infringement of any United States patent
or copyright in connection with any Products supplied by MELA to Skysite under
this Agreement. Subject to the limitations set forth in this section, MELA shall
pay any final judgment entered against Skysite on such issue in any such claim,
suit or proceeding defended by MELA. MELA's obligation under this section shall
be subject to the conditions that Skysite provide MELA notice of any such claim,
suit or proceeding promptly after Skysite shall receive notice or obtained
knowledge thereof, and, at Skysite's expense, provide full information and
assistance as reasonably requested by MELA in such defense. MELA reserves the
right in the event of any such claim, suit or proceeding to modify or replace
the affected Products to eliminate the alleged infringement or to give Skysite
a refund of the price of the affected Products, in which event, MELA shall have
no further liability to Skysite except for its obligation to indemnify and
defend Skysite against third party claims as set forth in this Section 14.1
8
<PAGE>
14.2 Notwithstanding the foregoing, MELA shall have no liability for or any
responsibility with respect to any infringement arising out of: (a) the
combination of any Products with any other product whether or not furnished to
Skysite by MELA; or (b) modification of any Products unless such modification
was made by MELA. MELA shall not be liable for any costs or expenses incurred
without MELA's prior written authorization, and in no event shall MELA's total
liability to Skysite under, or as a result of compliance with, this section
exceed the aggregate sum paid to MELA by Skysite for the affected Products. The
foregoing states the entire responsibility of MELA and the exclusive remedy of
Skysite with respect to any alleged intellectual property right infringement or
violation in connection with Products, and MELA shall in no event be liable for
loss of use or for incidental, indirect or consequential damages, whether in
contract or in tort, by virtue of any such infringement or violation. No sale
under this Agreement shall convey any license by implication, estoppel or
otherwise under any proprietary or patent rights of MELA except for the right to
resell Products in accordance with this Agreement.
XV. Arbitration
15.1 Except as hereinafter provided, all disputes arising out of or in any
manner relating to this Agreement which the parties do not resolve in good faith
within ten days after either party notifies the other of its desire to arbitrate
such dispute or controversy shall be settled by arbitration by a single
arbitrator in accordance with the then standard prevailing commercial rules, as
modified or supplemented by this article, of the American Arbitration
Association ("AAA"). The arbitration shall be held in Washington, D.C. The
arbitration award shall be in writing and shall specify the factual and legal
bases of such award. The arbitration award shall be final and binding, and a
judgment consistent therewith may be entered by any court of competent
jurisdiction. The parties agree that the arbitration award shall be treated
confidentially, and the parties shall not, except as otherwise required by law
or court order, disclose the arbitration award to any third party, excluding
personnel in their affiliated companies and their attorneys and accountants with
a need to know, provided that such recipients agree to be bound by the same
restrictions as are contained in this Agreement. The arbitrator shall not have
the power to render an award of punitive damages. To the extent of any conflict,
this article shall supersede and control AAA rules.
15.2 Nothing in this article shall be construed to preclude or in any way
prohibit MELA from (1) seeking any provisional remedy, such as injunction or a
temporary restraining order, to enforce Articles X and XI of this Agreement or
(2) instituting or prosecuting to judgment any lawsuit in any court of
competent jurisdiction to collect any moneys due from Skysite.
15.3 Except as provided in this section, neither MELA nor Skysite shall have
the right to take depositions or obtain discovery of documents or other
information which is relevant to the subject matter of any arbitration which is
required under Section 15.1 of this Agreement. After the appointment of the
arbitrator, MELA and Skysite shall agree on (1) a reasonable number of and
schedule for depositions which the parties may take and (2) a reasonable scope
and schedule for the production of documents or other information which is
relevant to the subject matter of the arbitration. If MELA and Skysite cannot
reach agreement on the number of depositions, the scope of
9
<PAGE>
production of documents or other information and the schedule therefor, the
arbitrator shall make such determination(s). All discovery shall be completed no
later than 30 days prior to the arbitration hearing. The arbitrator shall have
the power to enforce any discovery agreed upon by the parties or otherwise
required to be taken pursuant to this section by imposing the same terms,
conditions, sanctions and penalties as can be or may be imposed in like
circumstances in a civil action by the Washington, D.C. Court, except the power
to order the arrest or imprisonment of a person.
15.4 No later than 30 days prior to the arbitration hearing, each party shall
produce to the other party and the arbitrator lists of the witnesses, documents
and other information which such party intends to use at the arbitration
hearing.
XVI. General Provisions
16.1 A "Force Majeure Event" shall mean any one or a set of the following
circumstances which prevent or materially hinder or impede Company's performance
under this Agreement: (a) riot, strike or other similar concerted labor
difficulty; (b) war, insurrection, rebellion or civil disturbance; (c)
governmental action, inaction or authority; (d) fire, flood, freezing, storm or
other violence of nature; or (e) any other circumstance or set of circumstances,
whether similar or dissimilar to the foregoing, which is beyond the reasonable
control of MELA. MELA shall not be liable for any delay or failure of
performance which is caused by a Force Majeure Event.
16.2 Skysite shall not assign or otherwise transfer this Agreement or any
interest in this Agreement or rights under this Agreement without the prior
written consent of MELA. Any such purported assignment or transfer shall be
null, void and of no effect.
16.3 No waiver of, or the failure of either party to require strict compliance
with, any provision of this Agreement in any respect shall be deemed to be a
waiver of such party's right to insist upon strict compliance with such
provision or with all other provisions of this Agreement. No waiver by either
party of any breach of or default under this Agreement shall constitute a waiver
of any other or subsequent breach or default. No waiver shall be binding unless
duly executed in writing by the party against whom the waiver is sought to be
enforced.
16.4 This Agreement supersedes any and all prior understandings and agreements,
whether oral or written, entered into between Skysite and MELA with respect to
the subject matter of this Agreement and each party acknowledges that there are
no warranties, representations, covenants or understandings of any kind, nature
or description whatsoever made by either party to the other, except as are
expressly set forth in the Agreement.
16.5 This Agreement shall not be subject to change or modification, except by
Agreement in writing duly executed by the parties.
16.6 If and to the extent that any provision of this Agreement shall be
determined by any legislature or court of competent jurisdiction to be in whole
or in part invalid or unenforceable, such provision or
10
<PAGE>
part shall be deemed to be surplusage and to the extent not so determined to be
invalid or unenforceable, each remaining provision of this Agreement shall
remain in full force and effect.
16.7 All notices, demands and requests which may be given or which are required
to be given by either party to the other must be in writing. All notices,
demands and requests by the Buyer or Seller shall be sent by express, registered
or certified mail, return receipt requested, postage prepaid, or by overnight
courier service such as Federal Express, and addressed as follows, or to such
other address as a party may specify by duly given notice:
IF TO MELA: Mitsubishi Electronics America, Inc.
12007 Sunrise Valley Drive, Suite 220
Reston, VA 20191
Attn: General Manager
Telecommunications and Network Systems Division
IF TO SKYSITE: Skysite Communications Corporation
11500 Sherman Way
North Hollywood, CA 91605
Attn: CEO
Notices, demands and requests by the Seller or Buyer when given in the manner
aforesaid through the mail will be deemed sufficiently served or given for all
purposes hereunder three (3) business days (days national banks are open for
business) after the date such notice, demand or request is so mailed, whether or
not actually received and the next business day after sending by overnight
courier. The parties shall notify the other (in the manner set forth above) of
any change in address, such notice to be effective ten (10) days after given.
16.8 All headings contained in this Agreement are for convenience of reference
and shall have no effect in the interpretation of any language contained in this
Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day and year
first above written.
MITSUBISHI ELECTRONICS SKYSITE COMMUNICATIONS
AMERICA, INC. CORPORATION
Name: Kiyoshi Sayamoto Name: Philip A. Kernan, Jr.
----------------------------------- --------------------------------
Title: Vice President & General Manager Title: President & CFO
---------------------------------- -------------------------------
Signature: /s/ Kiyoshi Sayamoto Signature: /s/ Philip A. Kernan, Jr.
------------------------------ ---------------------------
Date: November 6, 1997 Date: 21 November 1997
----------------------------------- --------------------------------
11
<PAGE>
EXHIBIT 10.9
[LOGO OF IRIDIUM] IRIDIUM(R) SERVICE PROVIDER AGREEMENT
(Including ICRS Option)
THIS IRIDIUM SERVICE PROVIDER AGREEMENT is dated as of December 1, 1997,
----------------
and is by and between Iridium U.S., L.P. D/B/A Iridium North America ("INA"),
and SkySite Communications Corporation, ("Service Provider").
----------------------------------
Whereas, INA has been authorized by Iridium LLC., a Delaware, USA, limited
liability company, ("Iridium"), to provide IRIDIUM(R) mobile communications
services, including IRIDIUM Cellular Roaming Services ("ICRS"), in the Service
Area (as defined herein); and
Whereas, in accordance with the terms of this Agreement, Service Provider
wishes to be authorized by INA to sell and market such IRIDIUM Services on a
non-exclusive basis, to various parties in the Service Area (as defined herein),
and to sell or lease and maintain the equipment units of the IRIDIUM Subscriber
Unit Segment necessary for utilizing such IRIDIUM Services, and INA wishes to
authorize Service Provider to extend such IRIDIUM Services; and
Whereas, Service Provider and Iridium recognize and acknowledge that the
provision of ICRS by Service Provider is subject to its exercise of the option
set forth in Article 6, ICRS Option, hereof; and
-----------
NOW, THEREFORE, in consideration of the mutual agreements and
understandings herein contained, the parties hereto agree as follows:
1. Certain Definitions
-------------------
In addition to terms defined throughout this Agreement, as used herein, the
following terms shall have the following respective meanings:
"$" means U.S. Dollars.
-
"Affiliate" of any Person means any other Person, directly or indirectly
---------
controlling or controlled by or under direct or indirect common control with
such Person. For the purposes of this definition, (i) "control" when used with
respect to any Person means the power to direct the management and policies of
such Person, directly or indirectly, whether through the ownership of voting
securities, by contract, or otherwise; (ii) the terms "controlling" and
"controlled" have meanings correlative to the foregoing; and (iii) a Person
shall be deemed to be controlled by any other Person which owns more than 15% of
such Person's outstanding Common Stock or other equity securities or which has
the right, contractually or otherwise, to select more than 15% of the members of
such Person's board of directors.
Revised: 12/1/1997 Iridium Service Provider Agreement Page 1 of 13
SkySite Communications Corporation
<PAGE>
"Confidential Information" means all confidential information of INA,
------------------------
Service Provider, or Iridium including without limitation: this Agreement
and its terms and conditions; all manuals and training materials provided
by any party; the names, addresses, and telephone numbers of all
Subscribers or prospective Subscribers and all lists or other records
containing any such information; all financial and business information
relating to any party, including without limitation all market analyses and
market expansion plans, all revenue and profit analyses and all commission
structures and statements; all technical information relating to INA,
Iridium, IRIDIUM Services, including without limitation all implemented or
planned product and service improvements or changes; information provided
to Service Provider by INA or provided to INA by Service Provider which
either party has designated as confidential; and all other information not
generally known to the public relating to INA's business, Service
Provider's business, IRIDIUM Services, Subscribers and prospective
Subscribers.
"Commencement Date" means date of commercially available service, intended
------------------
to be September 23, 1998.
"Correspondent" means an Administration or Recognized Private Agency as
--------------
prescribed in the Regulations of the International Telecommunications Union
as amended from time to time or other entity which operates a
telecommunications installation outside Service Area which provides
services incidental to the provisions of the IRIDIUM Services.
"Default" shall include but not be limited to: (i) the insolvency or
--------
initiation of bankruptcy or receivership proceedings by or against either
party hereto; (ii) the execution of an assignment for the benefit of
creditors or the seeking of relief by either party hereto under any
applicable bankruptcy, organization, moratorium or similar debtor relief
laws (it being understood that the execution of any third party financing
agreement(s) shall not constitute an event of Default hereunder); (iii) the
failure of Service Provider to pay any sum owed to INA hereunder within 60
days after receipt of invoice, and the continuance thereof for 10 days
after written notice has been given by INA to Service Provider; (iv) the
failure by Service Provider or INA, as the case may be, to materially
perform or observe any term, condition or covenant to be performed by such
party hereunder, which failure has not been cured within 60 days after
receipt of written notice; (v) the appointment of a receiver for Service
Provider or INA or any of its respective assets or properties, which has
not been dismissed, vacated or stayed within 30 days of such appointment;
or (vi) the assignment of this agreement by either party hereto, if not
performed pursuant to paragraph 12 hereto.
"ESN" means the electronic serial number that is "burned" in a cellular
----
telephone set by the manufacturer or by Iridium.
Revised: 12/1/1997 Iridium Service Provider Agreement Page 2 of 13
SkySite Communications Corporation
<PAGE>
"Government" means any nation or government, any state or other political
-----------
subdivision thereof, any ministry thereof, any wholly-owned Person thereof,
and any entity exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government.
"ICRS" means Iridium Cellular Roaming Services, as specified by Iridium
-----
from time to time.
"ICRS Option" means the option offered to Service Provider as set forth in
------------
Article 6, ICRS Option, of this Agreement.
----------------------
"IRIDIUM Services" means the IRIDIUM(R) mobile communication services as
----------------
specified in Exhibit C hereto and, as used in this Agreement, includes ICRS
provided that Service Provider has exercised the ICRS Option.
"IRIDIUM System Practices" hereinafter ("ISP") means the set of
------------------------- ---
guidelines, recommendations, rules, and other instructions related to
technical and business matters associated with operation and use of the
IRIDIUM Communications System, and the provision of IRIDIUM Services,
including the mandatory ISP's set forth in Exhibit A hereto, in each case,
however, as the same may be expressly amended, revised or supplemented in
writing by Iridium from time to time and delivered by INA to Service
Provider.
"ISU" and "IRIDIUM(R) Subscriber Unit" means the individual equipment units
--- --------------------------
used by IRIDIUM subscribers for purposes of initiating and receiving
communications through the IRIDIUM Communications System and, as used in
this Agreement, includes terrestrial mobile equipment units capable of
accessing ICRS provided Service Provider has exercised the ICRS Option.
"MIN" means the mobile identification number which is assigned by Iridium
-----
to registered customers of ICRS.
"Person" means an individual, a partnership, a corporation, an association,
-------
a joint stock company, a trust, a joint venture, an unincorporated
organization or a Government.
"PSTN" means a Public Switch Telephone Network.
-----
"SIM" means a Subscriber Information Module which contains customer
----
information and, when used with an IRIDIUM(R) certified ISU enables access
to the IRIDIUM Services.
"Service Area" means the geographic region(s) of the United States of
-------------
America, Puerto Rico and Bermuda.
Revised: 12/1/1997 Iridium Service Provider Agreement Page 3 of 13
SkySite Communications Corporation
<PAGE>
"Subscriber" means the Person who enters an agreement with Service
----------
Provider for the right to access and use the IRIDIUM Services.
"Tail Charges" mean the costs imposed by the PSTN for delivery and/or
------------
receipt of communications to or from the IRIDIUM(R) system.
2. Appointment as Service Provider
-------------------------------
INA hereby appoints Service Provider as an authorized non-exclusive
Service Provider of IRIDIUM Services subject to the terms and conditions
provided herein, and Service Provider hereby accepts such appointment.
Pursuant to such appointment, Service Provider shall with respect to the
Service Area, and only in and with respect to such Service Area, use its
reasonable efforts to market and sell access to and usage of IRIDIUM
Services to Subscribers pursuant to the terms of this Agreement and to
such terms and conditions as provided in the applicable mandatory ISP's.
3. Service Provider Obligations
----------------------------
A. Subject to the provisions of Article 4.A., Service Provider shall
obtain and maintain, at its own expense, all regulatory and legal
authorizations, licenses, approvals certifications and permits,
Governmental or otherwise, necessary for Service Provider and its
employees to provide IRIDIUM Services in the Service Area and to
perform its duties hereunder, including Authorization to carry
(including transborder), operate and use ISUs.
B. Service Provider shall be solely responsible for and indemnify INA
for all taxes, tariffs and surcharges, if any, arising from the
provision of IRIDIUM Services by Service Provider to its customers in
the Service Area.
C. Service Provider shall provide quarterly reports to INA regarding the
marketing and sales activities undertaken pursuant to its obligations
to market and sell IRIDIUM Services in the Service Area.
D. Service Provider shall perform all accounting, billing and
collections activities necessary respecting its customers and shall
be solely responsible for all expenses related to the performance of
such services.
E. Service Provider shall provide the IRIDIUM Services specified in the
applicable mandatory ISP's.
F. Service Provider shall provide its IRIDIUM satellite services
Subscribers with only IRIDIUM(R) approved ISU's and Service Provider
shall provide such equipment pursuant to the procedures and
conditions specified in the mandatory ISP's set forth. Service
Provider shall provide warranty
Revised: 12/1/1997 Iridium Service Provider Agreement Page 4 of 13
SkySite Communications Corporation
<PAGE>
and repair services for IRIDIUM approved ISU's, as provided for in the
applicable mandatory ISP's.
G. Service Provider shall comply with the applicable mandatory ISP's. Any
proposed change or addition to the mandatory ISP's shall be subject to
the mutual agreement of INA and the Service Provider, except as
provided in this paragraph. In the event a proposed change or addition
to the mandatory ISP's is determined by Iridium to be required to
avoid or correct any degradation or impairment of the IRIDIUM
Communications System or the IRIDIUM services, Service Provider agrees
to (i) comply with such change or addition or (ii) promptly notify INA
of Service Provider's decision not to comply, in which event INA shall
have the option to terminate this Agreement by providing written
notice to Service Provider. Service Provider shall not knowingly or
willfully engage in actions to discredit, dishonor, reflect adversely
upon or in any manner injure the reputation of INA, Iridium or the
IRIDIUM Services.
H. The Service Provider shall provide a 15 month rolling forecast of
subscribers and minutes of use upon execution of this agreement, whose
initial forecast is specified in Exhibit D. This forecast will be
updated at the commencement date and every 3 months thereafter and
will be provided to INA as a notice in accordance with Paragraph 14 of
this agreement.
4. INA Obligations
---------------
A. INA will use reasonable efforts to provide and maintain the
availability of and access to the IRIDIUM Services for the Service
Provider and its Subscribers including, if Service Provider has
exercised the ICRS Option hereunder, appropriate and necessary ICRS
billing, signaling and network access.
B. In accordance with the applicable ISP's, INA shall provide Service
Provider with the number of SIMS and, if Service Provider has
exercised the ICRS Option, the number of MIN/ESN pairs as are
reasonably required by the Service Provider. Service Provider may
request a further allocation of SIMS and, if applicable, MIN/ESN pairs
and INA may provide such SIMS and MIN/ESN pairs as INA in its
determination, after discussion with Service Provider, considers to be
reasonable with respect to the availability of SIMS and MIN/ESN pairs
and the size of Service Provider's anticipated Subscriber base.
C. All SIMS and MIN/ESN pairs provided to Service Provider hereunder
remain the property of INA or Iridium (as applicable) and do not
become the property of the Service Provider or the Service Providers
Customers. The risks and financial liabilities associated with the
SIMS and MIN/ESN pairs distributed pursuant to this Agreement shall
pass from INA to the
Revised: 12/1/1997 Iridium Service Provider Agreement Page 5 of 13
Skysite Communications Corporation
<PAGE>
Service Provider upon the receipt of the SIM and MIN/ESN pairs by the
Service Provider. These risks and financial liabilities may include, but
are not necessarily limited to authorized or fraudulent usage.
D. Subject to the applicable ISP's, INA shall provide to Service Provider,
or arrange for the provision of, Iridium approved ISU's, including ICRS
terrestrial mobile terminal equipment if Service Provider has exercised
the ICRS Option. Service Provider is not required to purchase ISUs from
INA, but any ISUs purchased must be Iridium-approved. If INA, however,
does provide Iridium-approved ISUs to Service Provider, such ISUs shall
be provided under a separate written agreement.
5. Activations and Deactivations
-----------------------------
The Service Provider shall comply with all applicable procedures governing
the activation and deactivation of IRIDIUM Services and equipment as set
forth in the applicable mandatory ISP's, and INA may in its discretion, with
believed justification, and with reasonable notice to Service Provider,
refuse to activate any Service or any SIM or MIN/ESN pair or deactivate or
suspend all or part of any Service or SIM or MIN/ESN pair.
6. ICRS Option
-----------
Service Provider is hereby granted the option to offer the ICRS. Service
Provider may exercise this option on the Commencement Date of this
Agreement, or such later date as the Parties may otherwise agree in writing,
by signing on the ICRS Option Acceptance line, below, which signature shall
constitute a binding commitment on the part of Service Provider to provide
ICRS in accordance with the applicable terms of this Agreement, including
the applicable provisions of the IRIDIUM System Practices set forth in
Exhibit A hereto.
7. Term of Agreement; Renewal
--------------------------
This Agreement shall become effective as of the date first noted above and
continue for a period of three (3) years after the Commencement Date (the
"initial term"), unless terminated as provided herein. It shall
automatically be renewed for successive one-year periods unless either party
gives at least six (6) months advance written notice of its intention not to
renew.
8. Intellectual Property
---------------------
Service Provider acknowledges that neither this Agreement nor the ISP convey
or condition any right(s) to use any trademark, trade name, or service mark
of Iridium or of INA. Any such right(s) shall only be conveyed and construed
according to a separate written agreement.
Revised: 12/1/1997 Iridium Service Provider Agreement Page 6 of 13
SkySite Communications Corporation
<PAGE>
9. Relationship of Parties
-----------------------
A. Both parties hereto agree that the relationship arising from the
appointment pursuant to this Agreement shall not constitute nor be
construed as: (i) a principal/agent relationship, whether general,
special or limited nature; (ii) a joint venture; (iii) a partnership;
(iv) an employment relationship; or (v) a franchise. Both parties agree
that neither party shall have any authority to incur any obligation on
behalf of the other party.
B. Service Provider acknowledges and agrees that INA shall not be liable
to Service Provider, nor shall Service Provider make any claim against
INA or Iridium, for injury, loss or damage sustained by reason of any
unavailability, delay, faultiness (such as degradation of service) or
failure of the facilities and services to be provided by INA or Iridium
pursuant to or as a result of this agreement or for any injury, loss or
damage sustained by the presence or use of the IRIDIUM Services or any
ISU. Service Provider further agrees that it will include in each and
any agreement to provide IRIDIUM Services an explicit commitment on the
part of the Subscriber to waive any right to make any claim against
Iridium or INA for injury, loss or damage sustained by reason of any
unavailability, delay, faultiness or failure of the facilities and
services to be provided by INA or Iridium or by reason of the presence
or use of the IRIDIUM Services or any ISU.
C. SERVICE PROVIDER HEREBY AGREES THAT INA, IRIDIUM, AND ANY GATEWAY
OPERATOR SHALL NOT BE LIABLE FOR ANY CONSEQUENTIAL, SPECIAL, INDIRECT OR
INCIDENTAL DAMAGES IN ANY WAY ARISING FROM THIS AGREEMENT. SERVICE
PROVIDER ALSO HEREBY AGREES THAT THE TOTAL LIABILITY OF INA TO SERVICE
PROVIDER FOR DAMAGES, LOSSES OR EXPENSES IN ANY WAY ARISING FROM THIS
AGREEMENT SHALL NOT EXCEED AN AMOUNT EQUAL TO THE LAST THREE MONTHS OF
PAYMENTS UNDER THIS AGREEMENT. Service Provider agrees that a similar
provision will be included in its agreement with its subscribers.
D. Service Provider agrees to provide access to and usage of IRIDIUM
Services to subscribers only pursuant to a form of agreement to provide
services which has been approved in writing by INA. Such form of
agreement shall contain the substance of Article 9.B. and 9.C. above and
any other provision specified in this Agreement. In particular, such
form of agreement shall also contain the following provisions: (1) a
provision that the subscribers shall comply with all applicable laws and
regulations in its use of the IRIDIUM Services and (2) a provision that
the subscribers shall not use or permit the use of IRIDIUM Services for
foul or profane expressions or to impersonate another person with
fraudulent or malicious
Revised: 12/1/1997 Iridium Service Provider Agreement Page 7 of 13
SkySite Communications Corporation
<PAGE>
intent or in such a way as to annoy, abuse, threaten or harass any
person.
10. Payment
-------
A. Price. Service Provider shall pay INA for all IRIDIUM Services
-----
utilized and all related charges associated with such Services at
rates specified in Exhibit B. Service Provider acknowledges that the
rates specified in Exhibit B, are subject to change upon 30 days
advance written notice from INA.
B. Billing/Method of Payment. INA shall provide Service Provider with a
-------------------------
monthly invoice which invoice shall account for all sums due arising
from the provision of IRIDIUM Services to Service Provider hereunder
and Service Provider shall pay the full amount of such invoice by
electronic funds transfer or by any other method which has been
mutually agreed to by the parties in writing, within sixty days of
receipt of such invoice.
C. Late Payment/Priority of Payments. Any amounts remaining unpaid after
---------------------------------
sixty days of receipt invoice shall be subjected to an additional
late fee which shall be equivalent to 18% per annum of the overdue
balance. All payments made by Service Provider shall be applied in
the following priority: (i) late fees; (ii) overdue amounts and then;
(iii) remaining balance.
D. Billing Disputes. Service Provider shall notify INA of any disputed
-----------------
items within 60 days of receipt of invoice; notwithstanding the
foregoing, Service Provider shall remain liable for all charges
including disputed items.
11. Fraud
-----
A. Service Provider shall be responsible for all credit risk relating to
its Subscribers and shall be liable for all charges arising from SIM
use and all other ISU Equipment assigned to Service Provider pursuant
to this Agreement, provided however, that INA shall at all times
exercise its reasonable efforts, in accordance with applicable
mandatory ISP's, to detect and inform Service Provider of any
perceived fraudulent use of SIMS or ISU equipment assigned to Service
Provider and to take appropriate steps to suspend or terminate any
SIM or deactivate other ISU equipment involved in such perceived
fraudulent use.
B. If Service Provider has exercised the ICRS Option in accordance with
the terms of this Agreement, Service Provider shall be responsible
for all credit risk relating to its ICRS Subscribers and shall be
liable for all charges arising from SIM and/or MIN/ESN use and all
other ISU equipment assigned to Service Provider pursuant to this
Agreement; provided however, that INA shall at all times exercise its
reasonable
Revised: 12/1/1997 Iridium Service Provider Agreement Page 8 of 13
SkySite Communications Corporation
<PAGE>
efforts, in accordance with applicable mandatory ISP's, to detect and
inform Service Provider of any perceived fraudulent use of SIMS and
MIN/ESN pairs or ISU equipment assigned to Service Provider and shall
suspend or terminate any SIM and MIN/ESN pairs or deactivate other
ISU equipment involved in such perceived fraudulent use.
12. No Assignment of Rights or Delegation of Obligations
----------------------------------------------------
Service Provider shall not assign any of its rights or delegate any of its
obligations hereunder to any Person without the prior written consent of
INA, which will not be unreasonably withheld.
13. Representations and Warranties
------------------------------
A. INA and Service Provider acknowledge that they have read this
Agreement and understand and accept the terms, conditions and
covenants contained herein.
B. Service Provider acknowledges that INA's ability to provide IRIDIUM
Services is conditioned upon the grant of operating licenses by
governmental authorities and the continuing validity of such
licenses. Service Provider shall cooperate with and support the
efforts of INA to obtain and maintain such licenses. INA makes no
representation or warranty concerning such licenses and shall have no
responsibility to Service Provider for any inability to provide
IRIDIUM Services because of the failure to obtain or maintain, or
invalidity of, such licenses at any time or from time to time.
C. Each party warrants that it has the necessary authority to lawfully
enter into and perform its duties pursuant to this Agreement. Service
Provider also warrants that it will comply with all applicable laws
and regulations.
14. Notices
-------
All notices and other communications provided for in this Agreement shall
be in writing and shall be sufficiently given if made (i) by hand
delivery, (ii) by reputable express courier service (charges prepaid) or
(iii) by telecopier or (iv) by registered or certified mail (postage
prepaid and return receipt requested) (a) if to INA, at the following
address: 8440 South River Parkway, Tempe, Arizona 85284, or at such other
----------------------------------------------
address as INA shall have furnished in writing to Service Provider and (b)
if to Service Provider, at the following address: 11500 Sherman Way, North
------------------------
Hollywood, California 91605, or at such other address as Service Provider
---------------------------
shall have furnished in writing to INA. All such notices and other
communications shall be deemed to have been duly given: when delivered by
hand, if personally delivered; five business days after being
deposited with a reputable express courier service (charges prepaid);
seven business days after
Revised: 12/1/1997 Iridium Service Provider Agreement Page 9 of 13
SkySite Communications Corporation
<PAGE>
being deposited in the mail, postage prepaid, if delivered by mail; and
when receipt acknowledged (by a facsimile machine or otherwise), if
telecopied.
15. Confidential Information
------------------------
A. Each party agrees that, during and after the term of this Agreement,
neither such party, its Affiliates, employees, agents, or Persons
otherwise associated with such party, shall directly or indirectly,
without the express prior written consent of the other party use,
furnish, give away, reveal, divulge, make known, sell or transfer in
any way Confidential Information of the other party, other than for
the performance of duties hereunder.
B. Each party acknowledges that any Confidential Information that has
been disclosed to it by the other party has been disclosed solely for
the performance of its duties hereunder and such party agrees that
all Confidential Information is the exclusive property of the
disclosing party.
C. Each party agrees that if it is served with any form of legal process
to obtain any Confidential Information, such party shall, if
permitted by law, before taking any action, immediately notify the
other party which shall, in addition to such party's efforts, if any,
have the right to seek to quash such process, and such party agrees
to take no action inconsistent with that of the other party.
16. Termination
-----------
A. Right to Terminate.
------------------
Either party may terminate this Agreement at any time with immediate
effect by giving notice to the other party if that party is in
Default as defined in this Agreement. The termination of this
Agreement shall have no effect on obligations which continue, or
which are to be performed, after such termination.
B. Post Termination Obligations
----------------------------
1. Upon termination of this agreement, whether by exercise of the
Right to Terminate or by expiration hereof without renewal,
Service Provider shall promptly discontinue all use of
advertising matter, slogans, trademarks, trade names or other
marks identified with INA or Iridium LLC, shall immediately
return to INA all procedures manuals and related materials
provided to Service Provider, and shall not do business under
INA or Iridium LLC names or any confusingly similar names or
marks.
2. In consideration of the value of the specialized, technical
knowledge of the IRIDIUM Service to be imparted by INA to
Revised: 12/1/1997 Iridium Service Provider Agreement Page 10 of 13
SkySite Communications Corporation
<PAGE>
Service Provider from time to time, Service Provider agrees that it's
director and officer employees, key program employees or any of their
immediate relatives, either alone or in any combination, for a period
of two (2) years following the termination of this agreement for any
reason, or for the remainder of the Initial Term, whichever is later,
shall not directly or indirectly compete with INA in the satellite
based mobile communication business, including but not limited to: (i)
entering into any agreement or understanding or any employment, agency
or other relationship with respect to any mobile satellite
communication service; (ii) inducing, influencing or suggesting that
any Subscriber or prospective Subscriber switch to another mobile
satellite communication service or (iii) soliciting, enticing, hiring,
employing or attempting to employ any employee or the agent or Reseller
of INA or soliciting or entering into any agreement with any employee,
other agent or Reseller of INA which interferes with or alters the
employee's, other agent's or Reseller's relationship with INA. The
geographical scope of this provision shall be co-extensive with the
Service Area. Notwithstanding the foregoing, if this Agreement is
terminated by virtue of non-renewal, the non-compete provisions
specified above shall expire two (2) years after the advance written
notice of intention not to renew and Subscriber list have been properly
provided to INA as required elsewhere is this Agreement.
3. Service Provider shall promptly deliver to INA a list of all IRIDIUM
Subscribers then active or who have been active within the previous six
(6) months, including the name and last known mailing address of each
such Subscriber. In addition, when this Agreement will terminate by
virtue of non-renewal, the list of all Subscribers as specified above
shall be provided to INA within fifteen (15) days of the written notice
of intention not to renew.
17. Descriptive Headings
--------------------
The descriptive headings in this Agreement are inserted for convenience
only and do not constitute a part of this Agreement.
18. Severability
------------
Whenever possible, each provision of this Agreement shall be interpreted in
such manner as to be effective and valid under applicable law, but if any
provision of this Agreement is held to be prohibited by or invalid under
applicable law, such provision shall be ineffective only to the extent of
such prohibition or invalidity, without invalidating the remainder of this
Agreement.
19. Dispute Resolution/Arbitration
------------------------------
Revised: 12/1/1997 Iridium Service Provider Agreement Page 11 of 13
SkySite Communications Corporation
<PAGE>
A. In the event of any dispute arising under this Agreement, including any
allegation of breach and any failure to reach mutual agreement
hereunder, the parties shall refer the matter for consideration and
solution by the responsible executives of the parties. Either party may
commence such proceedings by delivering to the other party a written
request for such a meeting. Such request shall describe the dispute and
identify the requesting party's responsible executive for purposes of
resolving the dispute. The party receiving such a request shall have
seven (7) calendar days to designate its responsible executive for the
dispute in writing to the requesting party. The responsible executives
shall meet within thirty (30) calendar days, at such time and place as
may be mutually agreed to by the parties. The responsible executives
shall use their reasonable efforts to resolve the dispute within
fourteen (14) days following their meeting. If the responsible
executives are unable to resolve the dispute they shall propose a
mechanism for resolving the dispute. Such mechanism may include
mediation or any other means of resolution. If the responsible
executives are unable to agree on a mechanism for dispute resolution or
if the agreed upon mechanism does not result in a binding decision
within a reasonable time, the dispute shall be settled by arbitration
pursuant to paragraph 19 (B) of this Agreement.
B. Any arbitration of disputes shall be conducted in Washington, D.C. in
accordance with the Commercial Arbitration Rules of the American
Arbitration Association.
C. The arbitration award shall be final and binding on the parties and
shall be enforced in accordance with its terms. The arbitration fee
shall be borne by the party as designated by the arbitration award. In
the course of such arbitration, this Agreement shall be continuously
performed except with respect to the part hereof which is the subject
of, or which is directly and substantially affected by, the
arbitration. In any such arbitration proceeding, any legal proceeding
to enforce any arbitration award and any other legal action between the
parties pursuant to or relating to this Agreement or the transactions
contemplated hereby, both parties expressly waive the defense of
sovereign immunity and any other defense based on the fact or
allegation that it is an agency or instrumentality of a sovereign
state. Any award of the arbitrators shall be enforceable by any court
having jurisdiction over the party against whom the award has been
rendered and such award shall be enforceable in accordance with the
United Nations Convention on the Reciprocal Enforcement of Arbitral
Awards (1958).
20. Choice of Law
-------------
This Agreement shall be governed in accordance with the internal laws,
without regard to conflict of laws principles, of the State of Arizona in the
United States of America.
Revised: 12/1/1997 Iridium Service Provider Agreement Page 12 of 13
SkySite Communications Corporation
<PAGE>
21. Entire Agreement; Rights of Third Parties
-----------------------------------------
This Agreement and all the Exhibits hereto, including without limitation
the Additional Terms and Conditions of Exhibit E, constitutes the entire
agreement between the parties hereto and supersedes any understandings,
agreements, or representations by or between such parties, written or oral,
made at any time prior to the Commencement Date, that may relate in any way
to the subject matter hereof. Without in any way limiting the generality of
the foregoing, this Agreement supersedes all agreements, letters of intent
and other written and oral agreements that may have been entered into by
Service Provider and INA prior to the date hereof that relate in any way to
the provision of IRIDIUM(R) Services. This Agreement is not intended to
confer upon any Person other than the parties hereto any rights or remedies
hereunder. In no event shall INA or Service Provider be liable for any
delay or failure to perform its obligations hereunder due to any causes
beyond its reasonable control. This agreement may not be modified except by
a written agreement signed by the parties hereto.
Iridium U.S., L.P. SkySite Communications Corp.
Keith W. Bubb Philip A. Kernan, Jr.
- ------------------------------------- -----------------------------
By: By:
/s/ Keith W. Bubb /s/ Philip A. Kernan, Jr.
- ------------------------------------- -----------------------------
Signature: Signature:
Director, Gateway Business Operations President & CFO
- ------------------------------------- -----------------------------
Title: Title:
ICRS Option Acceptance
-----------------------------
By:
-----------------------------
Signature:
-----------------------------
Title:
Revised: 12/1/1997 Iridium Service Provider Agreement Page 13 of 13
SkySite Communications Corporation
<PAGE>
IRIDIUM SERVICE PROVIDER AGREEMENT
EXHIBIT E:
ADDITIONAL TERMS AND CONDITIONS
<PAGE>
Exhibit E
Additional Terms and Conditions
The following terms and conditions are made a part of the Iridium Service
Provider Agreement between INA and SkySite Communications Corporation
-------------------------------------------
to which it is appended. When this Exhibit is signed by both parties, the terms
hereof shall supersede and control over any provisions of the Iridium Service
Provider Agreement that are inconsistent herewith.
A. Ethical Responsibilities of the Parties: INA and SkySite shall each
refrain from doing anything that would tend to discredit, dishonor,
reflect adversely upon, or in any manner injure the reputation of the
other or adversely affect the other, except that a party's enforcement
of its rights and performance of its duties and obligation contained in
this Agreement shall not be deemed a violation of the provisions of
this paragraph. Each party shall be governed in all its dealings under
this Agreement by the highest standards of honesty, integrity and fair
dealing. Each party shall comply with all applicable federal, state and
local laws ordinances and regulations in performing its duties and
obligations contained in this Agreement.
B. Notwithstanding the provisions of Section 7, the initial term hereof
will continue for a period of three (3) years after execution of this
Agreement.
C. This Agreement may be cancelled by SkySite Communications Corporation,
without further obligation except for those obligations which are
outlined in Article 16.B1, either (a) without cause, by providing
written notice to INA, on or before February 1, 1998; or (b) if the
Commencement Date does not occur before November 23, 1998.
IRIDIUM U.S., L.P. SERVICE PROVIDER
Keith W. Bubb Philip A. Kernan, Jr.
- ------------------------------------- -------------------------------
By: By:
/s/ Keith W. Bubb /s/ Philip A. Kernan, Jr.
- ------------------------------------- -------------------------------
Signature: Signature:
Director, Gateway Business Operations President & CFO
- ------------------------------------- --------------------------------
Title: Title:
<PAGE>
ADDENDUM TWO
SATELLITE MINUTES COMMITMENT PLAN ADDENDUM
This Satellite Minutes Commitment Plan (the "Plan") is dated as of 10
--
August, 1998 and is by and between Iridium U.S., L.P., d/b/a Iridium North
- ------
America ("INA") and Project 77, Inc. ("Service Provider").
----------------
RECITALS
Whereas, INA and Service Provider have entered into a service provider
agreement, dated November, 1997 (the "Service Provider Agreement") to provide
-------- ----
Iridium satellite services and the parties now desire to modify the pricing
structure set forth therein;
Whereas, Service Provider desires to obtain favorable pricing rates based
upon outbound minutes of domestic and international Iridium homed satellite use
purchased and paid for by Service Provider ("Satellite Minutes") specifically
excluding any promotional or other free minutes of use and INA desires to obtain
a firm commitment from Service Provider for its Satellite Outbound Minutes over
a fifteenth month period; and
Whereas, INA and Service Provider desire to enter into this Plan upon the
terms and conditions set forth herein.
AGREEMENT
Now, therefore, in consideration of the mutual agreements and
understandings herein contained, the parties hereto agree as follows:
1. Commitment Plan. INA is offering a volume pricing plan based upon Service
---------------
Provider's level of commitment. The purpose of this Plan is to grant
favorable pricing to Service Provider for cultivating additional Satellite
Minutes through increased sales and Iridium subscribers. In addition, this
Plan is designed to hold Service Provider accountable to its commitment and
discouraging Service Provider from making unrealistic or impractical
commitments, thereby gaining a market pricing advantage relative to other
service providers.
2. Commitment. During the term of this Plan, Service Provider hereby agrees
----------
to commit to the (Initial One of the following):
Entry Level Program and a minimum gross revenue of $500,000.00.
-----
Second Level Program and a minimum of 1,000,000 Satellite Minutes.
-----
/s/PM Third Level Program and a minimum of 3,000,000 Satellite Minutes.
-----
Service Provider shall be entitled to the pricing and rebate structure and
obligated to the assessment set forth below associated with the program selected
above.
8/7/98 INA Proprietary & Confidential Page 1 of 4
<PAGE>
Entry Level Program.
- -------------------
Pricing. Service Provider shall be charged the standard rates for
Satellite Minutes (the "Standard Rate") which are contained in Exhibit B to the
---------
Service Provider Agreement.
Commitment. Service Provider shall guaranty INA minimum gross revenue from
Satellite Minutes equal to $500,000.00 during the term of this Plan.
Assessment. If Service Provider fails to purchase at least $500,000.00 of
Satellite Minutes, Service Provider shall pay to INA the difference between the
gross revenue received from Service Provider for Satellite Minutes and
$500,000.00 thirty days after the end of the term of this Plan.
Termination. If Service Provider fails to purchase at least $500,000.00 of
Satellite Minutes, INA shall have the option of terminating the Service Provider
Agreement, in its sole and absolute discretion.
Second Level Program.
- --------------------
Pricing. Service Provider shall be charged the Standard Rate of Satellite
Minutes less a five percent (5%) discount. Once Service Provider reaches the
first price breakpoint by purchasing 2,000,000 Satellite Minutes during the term
of this Plan, INA shall increase the applicable discount off of the Standard
Rate to seven percent (7%) for Satellite Minutes purchased thereafter. Once
Service Provider reaches the second price breakpoint by purchasing 3,000,000
Satellite Minutes during the term of this Plan, INA shall increase the
applicable discount off of the Standard Rate to ten percent (10%) for Satellite
Minutes purchased thereafter.
Commitment. Service Provider agrees to purchase a minimum of 1,000,000
Satellite Minutes during the term of this Plan.
Rebates. If Service Provider reaches the first price breakpoint by
purchasing 2,000,000 Satellite Minutes during the term of this Plan, INA shall
credit Service Provider with a rebate. The rebate shall be calculated by taking
two percent (2%) of Service Provider's Blended Rate (defined below) and
multiplying the product thereof by one million (1,000,000). If Service Provider
purchases 3,000,000 Satellite Minutes during the term of this Plan, INA shall
credit Service Provider with a second rebate. The second rebate shall be
calculated by taking three percent (3%) of Service Provider's Blended Rate and
multiplying the product thereof by one million (1,000,000).
Assessment. If Service Provider's Satellite Minutes are less than 1,000,000
at the end of term of this Plan, Service Provider shall pay INA an assessment
for each unused Satellite Minute within thirty days from the end of this Plan.
The assessment shall be equal to the difference between 1,000,000 and Service
Provider's Satellite Minutes multiplied by $1.00. For example, assume a Service
Provider's Satellite Minutes are 800,000 at the end of this Plan. In this case
the difference between the Service Provider's Satellite Minutes and its
commitment is 200,000. Therefore, the Service Provider's assessment will be
equal to $200,000.00 ([1,000,000 - 800,000] * $1.00).
8/7/98 INA Proprietary & Confidential Page 2 of 4
<PAGE>
Third Level Program.
- --------------------
Pricing. Service Provider shall be charged the Standard Rates for
Satellite Minutes less a ten percent (10%) discount. Once Service Provider
reaches the first price breakpoint by purchasing 4,000,000 Satellite Minutes
during the term of this Plan, INA shall increase the applicable discount off of
the Standard Rate to twelve percent (12%) for Satellite Minutes purchased
thereafter. Once Service Provider reaches the second price breakpoint by
purchasing 5,000,000 Satellite Minutes during the term of this Plan, INA shall
increase the applicable discount off of the Standard Rate to fifteen percent
(15%) for Satellite Minutes purchased thereafter.
Commitment. Service Provider agrees to purchase a minimum of 3,000,000
Satellite Minutes during the term of this Plan.
Rebate. If Service Provider reaches the first price breakpoint by
purchasing 4,000,000 Satellite Minutes during the term of this Plan, INA shall
credit to Service Provider a rebate. The rebate shall be calculated by taking
two percent (2%) of Service Provider's Blended Rate (defined below) and
multiplying the product thereof by one million (1,000,000). If Service Provider
reaches the second price breakpoint by purchasing 5,000,000 Satellite Minutes
during the term of this Plan, INA shall credit to Service Provider a second
rebate. The second rebate shall be calculated by taking three percent (3%) of
Service Provider's Blended Rate and multiplying the product thereof by one
million (1,000,000).
Assessment. If Service Provider's Satellite Minutes are less than
3,000,000 at the end of the term of this Plan, Service Provider shall pay INA an
assessment for each unused Satellite Minute thirty days from the end of this
Plan. The assessment shall be equal to the difference between 3,000,000 and
Service Provider's Satellite Minutes multiplied by $1.00.
3. Evaluation. INA shall evaluate Service Provider's performance six months
----------
from the Commencement Date and thereafter on a quarterly basis. If, in
INA's sole and absolute discretion, INA determines that Service Provider
will not be able to meet its commitment obligations contained herein, INA
reserves the right to reduce or eliminate the pricing discount granted to
Service Provider to recover the assessment described above. INA's decision
not to modify the discount applied shall not effect Service Provider's
commitment or the assessment due for failure to meet its commitment.
4. Rebate Calculation. Service Provider's Blended Rate shall be equal to the
------------------
weighted average of the Standard Rate for Satellite Minutes during the
applicable period. The "applicable period" shall mean the period between
the billing cycle immediately following Service Provider's Satellite
Minutes exceeding the prior price breakpoint and the billing cycle
immediately following Service Provider's Satellite Minutes exceeding the
current price breakpoint. Service Provider shall, within thirty (30) days
of a written request therefor, reimburse INA for the full amount of any
rebate credited hereunder which should not have been credited to Service
Provider as the result of any re-calculation, for any reason, of the total
amount of Service Provider's Satellite Minutes. INA shall apply a rebate or
reimbursement of a rebate to Service Provider's invoice for the billing
cycle following of the close of the billing cycle in which the commitment
is exceeded or the recalculation is made.
5. Term. This Plan shall be effective for fifteen (15) months from the
----
Commencement Date or December 31, 1999 whichever is later. If the Service
Provider Agreement is
8/7/98 INA Proprietary & Confidential Page 3 of 4
<PAGE>
terminated prior to such date, this Plan shall terminate and Service
Provider shall pay to INA the assessment calculated above using Service
Provider's actual performance through the billing cycle immediately
following the termination date and a minimum forecast analysis prepared by
INA, in its sole and absolute discretion, for such time period. The
assessment shall be paid thirty (30) days after the end of the billing cycle
following the termination date.
6. Revisions. Upon thirty days written notice to Service Provider, INA reserves
---------
the right to revise the terms of this Plan in its sole and absolute
discretion depending on market conditions during the term of this Plan. If
there is a cumulative pricing increase of five percent (5%) or more during
any six months period, Service Provider shall have the option to revise its
commitment election; provided, however, Service Provider shall not be
entitled to revise its election if it could not reasonably expect to meet
its commitment had the pricing increase not occurred.
7. Amendment. Unless otherwise modified herein, the terms and conditions set
---------
forth in the Service Provider Agreement shall remain in full force and
effect. All capitalized terms not defined herein shall have the meaning
assigned in the Service Provider Agreement.
Dated effective as of the date first written above.
Iridium U.S., L.P. Project 77, Inc.
-------------------------------
By: /s/ Jim Walz By: /s/ Philip A. Kernan, Jr.
----------------------------- ----------------------------
Jim Walz
Title: President Title: President
8/7/98 INA Proprietary & Confidential Page 4 of 4
<PAGE>
AMENDMENT TO ADDENDUM TWO
SATELLITE MINUTES COMMITMENT PLAN ADDENDUM
The following terms and conditions are made a part of Addendum Two to the
Iridium Service Provider Agreement between INA and Service Provider, to which it
is appended. When this Amendment is signed by both parties, the terms hereof
shall supersede and control over any provisions of Addendum Two that are
inconsistent herewith.
A. Section 3, Evaluation. Section 3 is deleted in its entirety and replaced
-----------
with the following:
"3. Evaluation. INA shall evaluate Service Provider's performance six months
-------------
from the Commencement Date and thereafter on a quarterly basis. The initial six
month's performance review will be undertaken for all service providers as a
group, and if a substantial majority of service providers have been unable to
meet their program commitment levels, INA, at its sole and absolute discretion,
may make reasonable and non-discriminatory adjustments to the rates and
commitment levels applicable to service providers, including Service Provider. A
decision by INA not to modify the Program Level applied shall leave in effect
Service Provider's commitment and the assessment due for failure to meet its
commitment.
If during the initial six month's performance review, in INA's sole and absolute
discretion, INA determines that a general adjustment of rates and commitment
levels is unnecessary but that Service Provider has not reached 300,000
Satellite Minutes, INA shall adjust Service Provider's commitment to a lower
level Program hereunder. INA shall have sole and absolute discretion as to which
lower level Program hereunder Service Provider's commitment will be adjusted. In
the case of such Program adjustment, Service Provider shall reimburse, as set
forth in Section 4 below, INA five percent (5%) of all Service Provider's
actual charges incurred under this Agreement as of the date of such Program
adjustment ("Recapture of Discount")."
B. Section 4. Rebate Calculation. Section 4 is amended to add the following:
------------------
"The process provided herein shall apply to Rental Service Provider's payment of
the Recapture of Discount calculated pursuant to Section 3."
Created on 08/08/98 12:33 PM INA Proprietary & Confidential Page 1 of 2
<PAGE>
EXHIBIT 10.10
In commercial confidence
THE UNDERSIGNED,
. PTT Telecom BV, a private company with limited liability under Dutch law
with its registered office at Prinses Beatrixlaan 23, The Hague, duly
represented for the present purposes by Rik Luchies, International Sales
Manager U.S.A. & Canada, of Station 12, the satellite division of PTT
Telecom, hereafter called `Station 12',
and
. SkySite Communications Corporation, a corporation duly organised and
existing under the laws of California, having its statutory office at 11500
Sherman Way, North Hollywood 91605, California, U.S.A., duly represented
for the present purposes by Mayo Overbeck, National Sales Director,
hereafter called `the Service Provider',
WHEREAS:
. Station 12 offers mobile satellite services including but not limited to
services based on the Inmarsat mini-M service;
. based on the Inmarsat mini-M service, Station 12 has developed special
subscription-offerings, which offerings are marketed by Station 12 under
the brand name of `Altus';
. Station 12 is willing to use third parties referred to as service providers
and agents to market and sell the Altus subscriptions;
. the Service Provider is able and willing to promote, stimulate and offer
end-users the aforementioned Altus subscriptions;
PARTIES HAVE AGREED AS SET FORTH BELOW:
CLAUSE 1 / DEFINITIONS
- ----------------------
mini-M Service : the telecommunication service as described in Appendix 1
----------
offered by Station 12 and enabling communication from,
to and between Terminals, through Inmarsat satellite(s)
and a land earth station;
Altus Subscription : a special offering developed by Station 12, which
offering comprises a Connection and a SIM-card;
Connection : the possibility of using the mini-M Service;
Terminal : movable transmitting and receiving equipment suitable
for use of the Mini-M Service;
End-user : a natural or legal person who has concluded a contract
with the Service Provider for an Altus subscription;
Value Added Services : the services defined in Appendix 2;
----------
SP Services : the services which the Service Provider itself may
develop and provide;
1
<PAGE>
In commercial confidence
Facilities : special telecommunication features incorporated in the
mini-M Service, as described in Appendix 2;
----------
Forward ID Terminal : a unique identification number issued by or on behalf of
the Inmarsat organisation to a terminal manufacturer,
which number is linked to a Terminal;
Forward ID SIM-Card : a unique identification number issued by or on
behalf of the Inmarsat organisation to a SIM-Card
manufacturer, which number is linked to a SIM-Card;
SIM-Card : a subscriber identity module, which has to be used
with a Terminal and which enables use of the Mini-M
Service through such Terminal;
CLAUSE 2/SUBJECT
- ----------------
2.1 Subject to the terms and conditions set out in this contract, Station 12
grants the Service Provider the right and the Service Provider accepts the
right to provide Altus Subscriptions as described in Appendix 2, either
----------
directly or indirectly through intermediaries, to End-users. The Service
Provider shall pay all charges relating to Altus Subscriptions and Value
Added Services it has purchased from Station 12. In the event that the
Service Provider offers its own SP Services to End-users, the Service
Provider warrants that these services shall not in any way affect the
proper functioning of the mini-M Service.
2.2 The Service Provider shall act in its own name, fat its own account and at
its own risk. The Service Provider is not allowed to legally represent
Station 12 in any way whatsoever,
2.3 The trading area of the Service Provider is defined in the covering letter
attached to this contract on the understanding that the Service Provider
shall not be allowed to restrict in any way the possibilities for End-users
to apply to Station 12 and/or the possibilities for End-users in the
European Economic Area to apply to other service providers of Station 12
for the supply of Altus Subscriptions, without enlisting the Service
Provider. Station 12 has the right to offer Altus Subscriptions in the
trading area of the Service Provider itself, either directly or indirectly
through its agents or otherwise.
2.4 Station 12 is entitled to conclude similar contracts with parties other
than the party to this contract.
CLAUSE 3/PROVISION OF ALTUS SUBSCRIPTIONS
- ------------------------------------------
3.1 Station 12 shall supply the Service Provider with Altus Subscriptions and
Value Added Services, which the letter can provide to End-users, possibly
together with a Terminal or with SP Services.
3.2 Station 12 shall offer various types of Altus Subscriptions. The range and
content of subscriptions shall be subject to change by Station 12. Station
12 shall inform the Service Provider accurately in advance of its range of
subscriptions and any combinations thereof. The different types of
subscriptions offered by Station 12 are listed in Appendix 1 and 2.
----------------
3.3 The Service Provider shall offer the full range of Altus Subscriptions and
shall ensure that its offerings meet market demand.
2
<PAGE>
In commercial confidence
3.4 The contracts concerning Altus Subscriptions shall be concluded with End-
users by the Service Provider in its own name and at its own expense and
risk, directly or indirectly through intermediaries. The Service Provider
shall be fully responsible and liable to Station 12 for all third parties
used by the Service Provider.
3.5 Altus Subscriptions can be terminated after a minimum period of one year,
subject to a period of notice of one month. In the event that termination
has not taken place one month before expiry of the minimum period, the
agreement for the Altus Subscription shall automatically be extended for
subsequent one-year periods. The extended agreement can only be terminated
at the end of the then current one-year period, subject to a period of
notice of one month. The Service Provider shall terminate the Altus
Subscriptions via Station 12, using the form contained in Appendix 2.
----------
3.6 All intellectual property rights relating to the mini-M Service, the Altus
Subscriptions and the Value Added Services - including but not limited to
any such rights to specifications, documentation and other information
supplied by Station 12 - shall remain vested in Station 12 or the party
from whom Station 12 has obtained a licence. The Service Provider shall
acquire no powers in relation to these rights other than those expressly
stated in this contract.
CLAUSE 4/SIM-CARDS
- ------------------
4.1 Altus Subscriptions shall be sold and used in combination with Station 12
SIM-cards. The Service Provider is not allowed to offer Altus Subscriptions
otherwise, unless it has obtained Station 12's prior written consent
thereto. The SIM-cards shall be supplied to the Service Provider solely for
the purpose of delivering Altus Subscriptions to End-users,
4.2 The Service Provider shall ensure it has sufficient SIM-cards available so
that it will be able to meet the forecasted demand which will mutually be
agreed. The Service Provider shall fulfil this obligation by ordering the
agreed amount of cards in good time, according to the ordering procedure
for SIM-cards as described in Appendix 2.
----------
4.3 The Service Provider shall owe Station 12 an advance amount for each SIM-
card as specified in Appendix 2. The Service Provider shall be reimbursed
----------
for this advance amount if certain conditions, detailed in Appendix 2, are
met. ----------
4.4 The Service Provider shall be and remain fully responsible and liable to
Station 12 for the SIM-cards and the use thereof, delivered to the Service
Provider. This obligation remains in effect, also after the SIM-card has
been provided to an End-user. The Service Provider shall, as part of this
obligation, ensure safe storage of the cards to prevent theft and/or misuse
and shall protect the cards from harmful influences (e.g. corrosive
substances, static discharges, direct sunlight and chemicals),
4.5 SIM-cards may be exchanged in certain cases. The conditions for such
exchange as well as the procedure to be followed in that event, are
detailed in Appendix 2. Appendix 2 also contains warranty provisions
---------- ----------
applicable to SIM-cards.
4.6 Station 12 remains the owner of the SIM-cards.
4.7 The Service Provider may not, in any way, alter the lay-out of the SIM-
card.
3
<PAGE>
In commercial confidence
4.8 Station 12 shall be entitled, at its own cost, to exchange SIM-cards
already supplied to the Service Provider, if deemed necessary by Station 12
for technical reasons (including but not limited to alterations) relating
to the SIM-Card and/or the mini-M Service. Reasonable costs incurred by the
Service Provider in relation to such exchange shall be refunded by Station
12.
CLAUSE 5 / ACTIVATION OF ALTUS SUBSCRIPTION
- -------------------------------------------
The Service Provider shall comply with the service activation procedure as
described in Appendix 2.
----------
CLAUSE 6 / TARIFFS AND DISCOUNTS
- --------------------------------
6.1 The Service Provider shall owe all amounts for the Altus Subscriptions,
Value Added Services, Facilities and administrative services purchased by
the Service Provider from Station 12. The tariffs for the Altus
Subscriptions are laid down in the covering letter, Separate tariffs for
Value Added Services, Facilities and administrative services are stated in
Appendix 2. The recommended prices for Altus Subscriptions at end-user
----------
level are stated in Appendix 1.
----------
6.2 The Service Provider shall receive the standard fees detailed in the
covering letter attached to this contract.
6.3 Station 12 may amend the tariffs for the Altus Subscriptions, detailed in
the covering letter, the separa writing of any amendment as soon as
possible, taking into account a period of at least one month.
6.4 The stated tariffs are exclusive of Value Added Tax (VAT) and any other
statutory duties which may be payable.
6.5 The Service Provider shall be liable to Station 12 for all charges relating
to use by End-users of the Altus Subscription purchased by the Service
Provider, from the moment on which the Altus Subscription to which the
amounts relate, is activated. Appendix 2 describes the relevant procedures
----------
in this respect.
CLAUSE 7 / PAYMENT OF FEES TO SERVICE PROVIDER
- ----------------------------------------------
7.1 Fees due to the Service Provider shall be paid to the Service Provider in
accordance with the provisions relating thereto in Appendix 2.
----------
7.2 Station 12 shall be entitled to set off any amount due to Station 12 by the
Service Provider against any fee or any other amount due by Station 12 to
the Service Provider.
CLAUSE 8 / PAYMENT OF ALTUS SUBSCRIPTIONS TO STATION 12
- -------------------------------------------------------
8.1 Station 12 shall invoice the Service Provider monthly in accordance with
the procedure described in Appendix 2 for all amounts owed by the Service
----------
Provider. Amounts due for Altus Subscriptions shall be payable in US
Dollars.
4
<PAGE>
In commercial confidence
8.2 Invoices for the Altus Subscriptions shall contain itemised details of each
individual Altus Subscription. The details to be itemised and the manner of
their presentation are laid down in Appendix 2. The itemised information
----------
shall in any event be sufficient to enable the Service Provider to invoice
each End-user separately. The Service Provider shall use the itemised
information only for the purpose for which it is provided and, unless
obliged by law, shall not disclose such information to parties other than
the relevant End-user,
8.3 The Service Provider shall pay the amounts stated on the invoices referred
to in Clause 8.1 within thirty days of the date of invoice through a bank
transfer to a bank account held and specified by Station 12.
8.4 If payment is not made within the period specified in clause 8.3. the
Service Provider shall be deemed in default in which case Station 12 shall
be legally entitled to charge interest and costs for late payment.
8.5 The information registered by Station 12 shall be decisive in determining
the amounts payable by the Service Provider unless the Service Provider can
prove that such information is incorrect. Station 12 shall compile the
information with the care which may be expected in such circumstances.
8.6 In the event that the Service Provider disputes (part of) an invoice, the
Service Provider shall submit written objections to such invoice within
thirty days of the date of invoice. The submission of an objection shall
not entitle the Service Provider to defer payment of the undisputed part of
the invoice. It an objection is submitted after an invoice has been paid,
Station 12 shall set off any excess amount - if the objection results in
modification of the invoice - against the amounts billed on the first
possible invoice after determination of the excess amount.
8.7 From the date this contract comes into effect to six months after it
expires or terminates, the Service Provider shall provide at its own
expense an irrevocable and unconditional bank guarantee payable on demand
in favour of Station 12 which shall be issued by a bank approved by Station
12, or shall provide some other form of security as may be agreed by
parties. Station 12 shall determine the amount of the initial bank
guarantee. The amount for which a bank guarantee is required may be
modified by Station 12 once every three months. The Service Provider is
obliged to provide Station 12 with a bank guarantee for the modified amount
as soon as possible after such request.
CLAUSE 9 / TAKING CONNECTIONS OUT OF SERVICE
- --------------------------------------------
9.1 Station 12 is entitled to take a Connection, provided to the Service
Provider, out of service if the Service Provider fails to pay amounts owed
in respect of one or more Altus Subscriptions and is in default by virtue
of Clause 8.4 and disconnection is justified by the default, or if the
Service Provider fails in any other way to fulfil its obligations under
this contract to such an extent that Station 12 can not be expected to
allow the Connection to remain operational- Station 12 shall be entitled to
take a Connection out of service without notifying the party in default, if
an End-user misuses its Connection to such an extent that Station 12 can
not be reasonably expected to maintain the Connection concerned. Station 12
shall inform the Service Provider forthwith it this situation arises.
5
<PAGE>
In commercial confidence
9.2 At the request of the Service Provider, Station 12 shall take a Connection
Out of service, temporarily or otherwise, according to the procedure
described in Appendix 2. Station 12 shall charge the Service Provider a
----------
barring fee, specified in Appendix 2, which barring fee is due for every
--------
request for disconnection made by the Service Provider.
9.3 The provisions of Clause 9.2 shall also apply if Terminals are lost or in
the event of fraud. In such cases Station 12 shall take the Connection out
of service directly at the request of the Service Provider and no usage-
related charges shall be payable from the moment on which the Connection
concerned is confirmed to be taken out of service.
9.4 The fixed monthly tariffs shall continue to be payable while a Connection
is out of service until the Service Provider terminates its contract with
the End-user. If the contract is terminated within a one-year contract
period as referred to in Clause 3.5, the fixed monthly tariffs shall be
payable for the remainder of the then current one-year period.
9.5 If an Altus Connection is taken out of service under the provisions of
Clause 9.1, it shall be activated again after the Service Provider has
paid the amounts owed to Station 12. If a Connection is taken out of
service under the provisions of Clause 9.2 or 9.3, it shall be activated
again in accordance with the procedure detailed in Appendix 2.
----------
Clause 10 / Chances to the mini-M Service and to Value Added Services
- ---------------------------------------------------------------------
10.1 Station 12 has the right to change, modify and improve the mini-M Service
and/or Value Added Services at any time. Station 12 shall not temporarily
restrict or discontinue the offered mini-M Service and/or Value Added
Services without good reason and shall, in the event of restriction or
discontinuation, resume the mini-M Service and/or Value Added Services
immediately after the changes, modifications or improvements have been
made. Station 12 shall notify the Service Provider in advance of planned
changes, modifications or improvements which may affect use of the mini-M
Service, Value Added Services and/or Terminals. If timely notification is
not possible due to the urgent nature of the changes, modifications or
improvements, Station 12 shall immediately inform the Service Provider and
parties shall consult on the consequences of such late notification. The
Service Provider shall not be entitled to any compensation from Station 12
on the grounds of restriction or temporary discontinuation of the mini-M
Service and/or Value Added Services.
10.2 Station 12 shall inform the Service Provider in good time of changes in
the geographical cover of the mini-M Service and of changes in the
technical characteristics and features and Facilities of the mini-M
Service and/or Value Added Services, in so far as the changes are
significant to the Service Provider or End-users. In the event that
changes restrict the scope of usage of all or some End-users or
necessitate the modification of Terminals, Station 12 shall consult with
the Service Provider as early as possible in connection with the nature of
the changes.
10.3 Facilities which can be made available to End-users in combination with
Connections shall be introduced in the mini-M Service. Station 12 shall
inform the Service Provider in good time of the introduction of new
Facilities.
6
<PAGE>
In commercial confidence
CLAUSE 11 / MAINTENANCE AND FAULTS
- ----------------------------------
11.1 Station 12 shall be responsible for the maintenance of the mini-M Service.
The Service Provider shall report faults to Station 12 as quickly as
possible after discovering them. Station 12 shall use its reasonable
endeavours to clear faults in the functioning of the mini-M Service as
soon as possible after they are discovered or reported. The procedure for
the exchange of information between Station 12 and the Service Provider in
this respect, is described in Appendix 2.
----------
11.2 The costs of fault clearance shall be borne by Station 12 unless the fault
is caused by malfunctioning Terminals, or misuse of Terminals, in which
case Station 12 shall be entitled to charge the Service Provider for the
cost of the investigation and work involved in clearing the fault.
CLAUSE 12 / MARKETING PLAN, SALES SYSTEM, CO-MARKETING, SERVICE MARKS
- ---------------------------------------------------------------------
12.1 At least two months before the start of a calendar year, the Service
Provider shall submit to Station 12 a marketing plan which covers the
following year. The Service Provider shall update the marketing plan
during the calendar year if so requested by Station 12. The marketing plan
shall conform with the requirements laid down in Appendix 3.
----------
12.2 The direct and indirect sales system of the Service Provider shall be
subject to special requirements. The Service Provider shall meet these
requirements by complying to the quality criteria described in Appendix 4.
----------
12.3 The Service Provider shall promote the sale of Altus Subscriptions and the
Value Added Services of Station 12 effectively and to the best of its
ability and shall advertise these services by suitable means.
12.4 Station 12 shall support the Service Provider with co-marketing.
12.5 As long as the Service Provider is a party to the contract, it shall have
the right to use the trade marks, service marks, trade names, brand names
and logo's of Station 12 and/or its parent company contained in Appendix 6
----------
for the purpose of providing Altus Subscriptions and acquiring new End-
users. The Service Provider shall comply with any instructions which
Station 12 may give for the use of the marks and related designations and
logos. The same right and obligation shall apply to any new marks which
Station 12 and/or its parent company may introduce in connection with
Altus Subscriptions or the mini-M Service.
CLAUSE 13 / END-USER TARIFFS AND GENERAL CONDITIONS
- ---------------------------------------------------
Station 12 has established recommended tariffs for all its services, but
the Service Provider is free to establish its own tariffs and general
conditions on the understanding that it shall publish its tariffs and
other general conditions and supply them to any person requesting them.
The Service Provider shall inform Station 12 of its tariffs and other
general conditions, as well as all changes made to them, after they have
taken effect.
7
<PAGE>
In commercial confidence
CLAUSE 14 / CONTRACTS WITH END-USERS
- ------------------------------------
14.1 The Service Provider warrants that all contracts for Altus Subscriptions
and Value Added Services which the Service Provider or a party acting on
its behalf concludes with End-users include the provisions of this
contract which affect or concern End-users. The contracts shall in any
event include provisions on the following matters:
. regulations regarding use of the mini-M Service or the Value Added
Services in so far as these have been imposed by or on behalf of
Inmarsat and/or the government of the country where the agreement for
the mini-M Service is concluded and of the country where the mini-M
Service is used, including but not limited to licensing regulations
and transborder restrictions in the region and the obligation to use
only Terminals approved according to legal and/or regulatory
requirements;
. the binding nature of the data kept by Station 12 with regard to the
charges for the Altus Subscription, the Value Added Services and
relating to the Forward ID Terminal and the Forward ID SIM-Card;
. the submission of complaints by End-users to the Service Provider and
not to Station 12; a statement that the mini-M Service is not suitable
for maritime distress and safety purposes ("GMDSS").
14.2 The Service Provider shall manage its databases of End-users in conformity
with the requirements laid down in the Data Protection Act, if applicable,
or any other Act on this subject which may apply to the Service Provider.
Within the framework of this Act and in relation to its End-users the
Service Provider shall reserve the right to make their names and addresses
known to Station 12. The Service Provider shall reserve the right to make
known the names and addresses of its End-users to Station 12 or to other
Service Providers of Station 12 in the case of expiry or termination of
this contract as described in Clause 22.2. The Service Provider shall give
Station 12 the names and addresses of its End-users and provide all
necessary co-operation if Station 12 needs these details to comply with a
legal requirement. Station 12, shall use the names and addresses
exclusively for the purposes described above.
14.3 The Service Provider shall take adequate measures to ensure the
confidentiality of data concerning End-users. The Service Provider shall
specifically ensure that no information concerning communication conducted
by End-users is disclosed, except in cases where the law explicitly
requires the disclosure of such information,
14.4 The Service Provider shall indemnify Station 12 against claims by End-
users resulting from inadequate observance of the provisions of Clauses
14.1, 14.2 and 14.3.
14.5 The Service Provider shall hold End-users liable, in law and otherwise,
for fulfilment of the obligations to which End-users are subject under
their contracts with the Service Provider, if Station 12 reports any non-
observance of such obligations to the Service Provider and the non-
observance directly damages the interests of Station 12.
CLAUSE 15 / TERMINALS
- ---------------------
The Service Provider can purchase Terminals from Station 12, in which case
a separate agreement for the sale/purchase of Terminals shall be concluded.
However, the Service Provider is free to choose the Terminals it wishes to
offer End-users, provided these Terminals meet the conditions laid down by
low and by Inmarsat.
8
<PAGE>
In commercial confidence
CLAUSE 16 / LIABILITY
- ---------------------
16.1 Station 12 shall not be liable except in the following cases and only to
the maximum amount stated below per case:
- direct damage arising from death or personal injury resulting from the
non-functioning or incorrect functioning of the mini-M Service and/or
any Value Added Service, which nonfunctioning or incorrect functioning
is imputable to Station 12: an amount not exceeding US Dollars
500,000.- per event or connected series of events;
- direct damage to tangible property of the Service Provider resulting
from the nonfunctioning or incorrect functioning of the mini-M Service
and/or any Value Added Service, which non-functioning or incorrect
functioning is imputable to Station 12, costs of repair or replacement,
with a maximum of US Dollars 500,000.- per event or connected series of
events.
If one of the above occurrences results in more then one claim and the
combined claims exceed the maximum amount stated for such occurrence, the
claim shall be settled proportionately.
16.2 Station 12 shall not be entitled to invoke an exclusion or limitation
under Clause 16.1 if the damage concerned has arisen through an act or
omission it perpetrated intentionally or recklessly in the knowledge that
the damage was likely to occur.
16.3 The Service Provider shall indemnify Station 12 against all claims by
third parties, including but not limited to End-users, arising from the
non-functioning or incorrect functioning of Terminals, equipment, other
products, SP Services or other services supplied or provided by the
Service Provider or arising from circumstances imputable to the Service
Provider, whether or not these circumstances relate to the mini-M Service
and/or any Value Added Service.
16.4 If an End-user has caused damage to Station 12 for which the Service
Provider is not liable to Station 12 under this contract, the Service
Provider shall endeavour to recover the costs involved from the End-user
at Station 12's written request and expense.
CLAUSE 17 / FORCE MAIEURE
- -------------------------
17.1 The obligations of parties under this contract shall be legally suspended
if performance is made temporarily or permanently impossible by
circumstances which are beyond the reasonable control of the party
invoking them.
17.2 The circumstances referred to in Clause 17.1 shall in any event be deemed
to exist if The authority of Station 12 to allocate numbers is withdrawn
or suspended and if the licences or permits required for the future
installation, maintenance or use of a land earth station of Station 12 can
not be obtained or can not be obtained on time.
9
<PAGE>
In commercial confidence
CLAUSE 18 DISSOLUTION OF THE CONTRACT
- -------------------------------------
In addition to The grounds on which an agreement may be dissolved in law,
either party shall, at any time, be entitled to dissolve this contract
with immediate effect by written notice to the other party and without
application to a court of law in the following cases:
- if the other party has applied for or has been granted suspension of
payments or if the other party has been declared bankrupt or a petition
of bankruptcy has been filed; or
- if the other party has invoked force majeure and the force majeure
lasts for more than a period of one (1) month or as soon as it is
established by both parties that it will last for more than a period of
one (1) month; or
- if the other party fails to meet any of its obligations under the terms
of this contract and does not or is not able to remedy such failure
within fourteen (14) days of a written notice to such effect, or,
if the notifying letter contains a longer remedy period, within the
remedy period stated in such letter, unless the failure, given its
special nature or minor importance, does not justify the dissolution of
the contract and the consequences flowing therefrom
CLAUSE 19 / TERMINATION ON SPECIAL GROUNDS
- -------------------------------------------
19.1 Station 12 has the right to terminate the contract taking into account a
notice period of fourteen (14) days, if a significant change occurs or has
occurred in the ownership of the Service Provider, a parent company or a
holding company or if the Service Provider transfers its business
activities.
19.2 Station 12 has the right to terminate the contract taking into account a
notice period of fourteen (14) days, if the Service Provider, the parent
company, holding company or a company associated with the Service Provider
intends to operate a land earth station itself.
19.3 Station 12 has the right to terminate the contract forthwith if the
Service Provider no longer meets the criteria determined by Station 12 and
laid down in Appendix 7 and/or if the turnover of Altus Subscriptions
----------
generated by the Service Provider justifies termination. Station 12 shall
have the right to terminate the contract only after having informed the
Service Provider in writing that it is in default and the Service Provider
has failed to meet its obligations within a reasonable term, which term
shall be determined by Station 12 taking into account the nature of the
obligation concerned.
19.4 Termination under this Clause shall be effected by means of a written,
extra-judicial declaration by the party entitled to do so.
CLAUSE 20 / DURATION OF THE CONTRACT
- -------------------------------------
The contract shall take effect on the date on which it is signed by both
parties and shall, subject to the provisions of Clause 18 and 19, remain
in force for an initial period of two years, Unless the contract has been
terminated by either party in writing three months before the expiry of
the initial period, the contract shall automatically be extended for
subsequent one-year periods. The extended agreement can only be
terminated at the end of the then current one-year period, subject to a
period of notice of three months.
10
<PAGE>
In commercial confidence
CLAUSE 21 / CHANGED CIRCUMSTANCES, REGULATIONS IMPOSED BY INMARSAT AND THE DUTCH
- --------------------------------------------------------------------------------
GOVERNMENT
- -----------
21.1 If circumstances occur which are of such a nature that the other party can
not reasonably and fairly be expected to allow this contract to remain in
effect unaltered, each party shall be obliged to consult the other with a
view to altering the contract in accordance with the changed situation. If
parties can not reach agreement on such an alteration, each party shall
have the right to dissolve the contract forthwith without giving a period
of notice and without any liability for compensation.
21.2 Station 12 shall inform the Service Provider of any regulations which the
Dutch government or Inmarsat impose on Station 12 if Station 12 can not
comply with the regulations without the co-operation of the Service
Provider or End-users. In these circumstances the Service Provider shall
be obliged to cooperate in observing these regulations and shall impose
obligations to this effect on End-users, if necessary.
21.3 Station 12 is legally bound to comply with a request of low enforcement
agencies relating to the lawful interception of telecommunication, in
addition to which Station 12 is legally bound to put the Service Provider
under the obligation to render its assistance in complying with such
request. The Service Provider shall render its assistance in this respect
and shall indemnify Station 12 against claims by third parties for
compensation of damage related to such lawful interception to the extent
that the claim for damages is based on the assistance rendered by the
Service Provider.
CLAUSE 22 / OTHER OBLIGATIONS OF THE SERVICE PROVIDER
- ------------------------------------------------------
22.1 When the contract expires or is terminated, the Service Provider shall
immediately:
- remove all means of advertising which have been supplied in connection
with this contract for the mini-M Service, Altus Subscriptions and Value
Added Services of Station 12 and return them if they belong to Station
12;
- discontinue all forms of advertising relating to the mini-M Service,
Altus Subscriptions and Value Added Services of Station 12 and
discontinue all use of all trade marks, service marks, trade names,
brand names and logo's of Station 12 and/or its parent company,
irrespective of their form;
- return all SIM-cards which have not been supplied to End-users as well
as SIM-cards of End-users whose contracts have been terminated or
dissolved;
- refrain from representing itself as a service provider of Station 12. In
the event that the Service Provider breaches this obligation, the
Service Provider forfeits an immediately payable penalty of US Dollars
25,000,-.
22.2 On expiry or termination of this contract by either party, for whatever
reason, the following provisions shall apply. Expiry or termination of
this contract shall automatically, at the same time, lead to (in most
cases premature) termination of Altus Subscriptions. With regard to
premature termination of Altus Subscriptions, the Service Provider shall
immediately owe Station 12 the pro rata part for the remaining contract
period of each Altus Subscription of the fixed yearly fee, which fee was
paid to the Service Provider in advance for the total contract year of an
Altus Subscription. Without prejudice and in addition to this obligation,
the Service Provider shall also have the following obligations with regard
to the Altus Subscriptions:
11
<PAGE>
In commercial confidence
- the Service Provider is obliged to provide Station 12, within one (1)
week after the date on which the party terminating the contract has given
notice, with a data file of the Altus Subscriptions in force containing
i.a. the following information arranged by subscription; End-user name,
address, Forward ID Terminal, Forward ID SIM-Card and other relevant
information (including payment records). In the event that the Service
Provider does not comply with this obligation, the Service Provider
forfeits an immediately payable penalty, which penalty shall be
calculated as follows. The penalty due is the total of all subscriptions
registered in the name of the Service Provider multiplied by an amount of
US Dollars 875.- per subscription, In the event that only part of the
data file is provided, the full penalty, as described in this paragraph,
shall be due to Station 12. For every week that the Service Provider
fails to comply with this obligation, the Service Provider forfeits an
additional immediately payable penalty of US Dollars 100.- per
subscription registered in the name of the Service Provider.
- Within one (1) week after the date on which the party terminating the
contract has given notice, the Service Provider is obliged to inform
Station 12 in writing concerning settlement of the Altus Subscriptions in
force at the moment on which this contract comes to an end. There are two
possibilities in this respect:
a. the Service Provider and Station 12 may agree on the transfer,
including the conditions relating to such transfer, of all Altus
Subscriptions to Station 12. If agreement is reached, transfer of all
Altus Subscriptions to Station 12 has to be effected at least 1 (one)
week before the moment on which this contract comes to an end. If
transfer takes place in accordance with the agreed conditions, the
Service Provider shall not owe Station 12 the monthly subscription
charges for the remaining contract periods of such transferred Altus
Subscriptions;
b. in the event that transfer does not take place in accordance with the
agreed conditions or in the event that no agreement on the transfer or
the conditions relating to it, is reached, the Service Provider shall
owe Station 12 the monthly subscription charges for the remaining
contract periods of its Altus Subscriptions.
CLAUSE 23 / APPLICABLE LAW/ COMPLAINTS AND DISPUTES
- ----------------------------------------------------
23.1 This contract shall be governed by Dutch law,
23.2 The Service Provider shall deal with all complaints received from End-
users about use of the mini-M Service, Altus Subscription and/or Value
Added Services, the amount of charges payable and any other matter. If
complaints can not be dealt with without the co-operation of or provision
of information by Station 12, Station 12 shall cooperate or provide the
necessary information.
23.3 Disputes arising from or in connection with this contract shall be
submitted to the civil court of law having jurisdiction in The Hague, the
Netherlands.
12
<PAGE>
In commercial confidence
CLAUSE 24 / NON-DISCLOSURE
- --------------------------
24.1 Parties shall treat confidentially all mutual information which comes to
their knowledge in connection with this contract regarding their
businesses, their products, their services and their End-users and shall
not divulge the information or use it for purposes other than those for
which it was provided without the prior written permission of the party
which has an interest in the confidentiality of the information, except
where the information can not reasonably be deemed confidential because of
its nature and/or purport. Parties shall comply with the non-disclosure
obligations set out in Appendix 8.
----------
24.2 Parties shall ensure that the same confidentiality is observed by their
staff and by third parties used by them.
24.3 Clause 24.1 and 24.2 shall continue to apply if this contract expires or
is terminated. On expiry or termination, parties shall return all
documents and papers obtained from the other party, which they may
reasonably assume to be of a confidential nature.
CLAUSE 25 / ASSIGNMENT
- ----------------------
Station 12 shall be entitled to assign or transfer any right and/or
obligation under this contract without consent of the Service Provider.
The Service Provider may not assign or transfer any right and/or
obligation under this contract without the prior written consent of
Station 12, which consent shall not be unreasonably withheld.
CLAUSE 26 / FINAL PROVISIONS
- ----------------------------
26.1 Parties shall consult one another about matters which may be significant
in connection with this contract, including but not limited to any
publicity undertaken jointly or individually.
26.2 Both parties shall refrain from making any statements which suggest a more
far-reaching form of co-operation with the other party than is justified
on the basis of this contract. In addition, the parties shall refrain from
actions which may reasonably be expected to harm the good name of the
other party among potential End-users or other third parties, especially
where statements are concerned which can reasonably be expected to come to
the knowledge of third parties.
26.3 Any claims between parties shall become due immediately upon expiry or
termination of this contract.
26.4 This contract forms the entire contract between the parties with respect
to the subject matter of this contract and replaces any and all other
agreements, proposals, representations, statements or understandings,
whether verbal or written, between the parties in relation to the subject
matter hereof
13
<PAGE>
In commercial confidence
26.5 This contract consists of the cover contract (preamble and articles 1 to
26 inclusive), the covering letter and the appendices, Amendments to the
cover contract and to the covering letter shall be binding only if they
have been recorded in writing and signed by both parties, unless it is
expressly stipulated in the cover contract that a particular provision may
be amended unilaterally. The appendices may be amended by Station 12
unilaterally from time to time. In case of any inconsistencies or
contradictions between any of the documents which form part of this
contract, the order of precedence shall be as follows:
- covering letter
- cover contract
- appendices
DRAWN UP ACCORDINGLY AND SIGNED IN DUPLICATE IN THE HAGUE, ON SEPTEMBER 15 1997.
For PTT Telecom B.V./Station 12 For SkySite
/s/ RIK LUCHIES /s/ MAYO OVERBECK
- ------------------------------- -----------------------------
Rik Luchies Mayo Overbeck
International Sales Manager National Sales Director
U.S.A. & Canada
Signature:
/s/ PHIL KERNAN
-----------------------------
Phil Kernan
President & CFO
Signature:
/s/ CHARLES MAYNARD
-----------------------------
Charles Maynard
CEO
14
<PAGE>
EXHIBIT 10.11
[LOGO OF CUE]
DISTRIBUTION AGREEMENT
This Agreement is made and entered into between CUE Paging Corporation, a
Delaware corporation, with its principal offices at 5 Corporate Park, Irvine,
California, 92606 ("CUE"), and Skysite Comm. Corp, with its principal place of
business at 11500 Sherman Way, North Hollywood, CA 91605 ("Distributor").
Whereas CUE is engaged in the business of providing communication services; and
Whereas Distributors wishes to purchase Airtime and Pagers from CUE to offer
paging services.
Now therefore, in consideration of the foregoing and the representations and
warranties contained in this Agreement, the parties agree as follows:
1. SERVICE AREA. CUE grants to Distributor the non-exclusive right to purchase
Airtime and pagers from CUE for the purpose of providing paging service in
the Service Area specified in Schedule "A".
2. REGIONAL PAGING DEFINITION. Regional paging coverage is defined in Schedule
"B".
2.1 PAGING DEFINITION. Airtime purchased pursuant to this Agreement may be used
only for personal messaging services to CUE pagers and may not be used for
data services. Capacity for data services must be purchased pursuant to the
CUE Data Distribution Agreement.
3. SERVICE ESTABLISHMENT. Distributor agrees to pay to CUE a fee of $6.00 each
time a Distributor activities a pager.
4. SUPPLY OF PAGERS. CUE agrees to supply Distributor with pagers which
operate on the CUE Network at prices specified in Schedule "B", F.O.B.
Irvine, California.
4.1 PAYMENT FOR PAGERS. Pagers shall be shipped against a letter of credit,
check , credit card or C.O.D.
5. PRICES. All prices referred to in this Agreement and the exhibits hereto,
are stated in terms of United States Dollars, F.O.B. Irvine, California,
USA.
6. SUPPLY OF AIRTIME. CUE agrees to supply Distributor with airtime at prices
specified in Schedule "B".
7. PAYMENT FOR AIRTIME. Airtime charges shall be billed monthly in advance
and payment shall be due thirty (30) days after the bill is rendered.
Interest will accrue at the rate of one and three-quarters percent (1-3/4%)
per month (or the maximum permitted by law, whichever is lower) upon any
unpaid amounts beginning thirty (30) days after invoice date.
<PAGE>
7.1 If Distributor fails to pay for airtime within the above terms, CUE will
cease activation of any new pagers and swaps.
8. PRICE INCREASES. The prices CUE charges for equipment, airtime and other
services provided under this Agreement may be increased on 30 days written
notice.
9. VOICE MAIL SERVICES. Distributor may purchase the Voice Mail Services
described in Schedule "C" on the terms and conditions stated therin.
10. GOVERNMENT REGULATIONS. Services provided under this Agreement by both
parties shall be in accordance with all applicable rules and regulations
of the Federal Communications Commission and any other applicable
Regulatory Commission.
11. SERVICE. Each party shall make reasonable efforts to provide continuous,
uninterrupted and errorless services to the other hereunder, but in no
event shall the providing party be liable to the receiving party for
damages incurred by it or its subscribers on account of any failure to
provide such services.
12. NO REPRESENTATION OR WARRANTIES. Distributors shall not make any
representation or warranties, either expresses or implied in regard to the
nationwide and regional services or pagers provided by CUE hereunder. The
nationwide and regional services and/or pagers shall carry only such
warranties as shall be provided in writing by CUE. CUE MAKES NO WARRANTIES,
EITHER EXPRESS OR IMPLIED, INCLUDING WARRANTIES AS TO MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO THE NATIONWIDE AND
REGIONAL SERVICES OR THE PAGERS PROVIDED HEREUNDER.
13. INDEPENDENT CONTRACTORS. The respective parties hereto are independent
contractors and nothing herein shall be deemed to create a relationship of
partnership, joint venture, principal and agent or franchisee. This
Agreement does not entitle either party to make commitments of any kind for
the account of the other party as agent or otherwise or to assume or create
any obligations, expressed or implied, on behalf of the other party, or to
bind the other party in any respect and each party agrees to and will
indemnify and hold the other party harmless in this regard.
14. LIMITATION ON LIABILITY. In no event shall CUE's aggregate liability
arising under this Agreement or relating to any services or other subject
matter of this Agreement exceed the amount paid by Distributors to CUE
under this Agreement regardless of the form of any claim or action
asserted against CUE. In no event shall CUE be liable for any
consequential, special, indirect or punitive damages, even if CUE has been
advised of the possibility thereof.
15. TERMINATION. If Distributor violates any provisions of this Agreement, or
fails to perform, any obligations hereunder and if upon being given written
notice by CUE of such violations, Distributor does not correct any such
violations, within thirty (30) days, CUE will have the right to cancel
this Agreement.
<PAGE>
15.1 If CUE violates any provision of this Agreement or fails to perform any
obligations hereunder and if upon being given written notice by
Distributor of such violations CUE does not correct any such violation
within thirty (30) days, then Distributor shall have the right to cancel
this Agreement.
15.2 Notwithstanding the above, the Agreement shall automatically terminate, at
the option of CUE, if:
(a) The Distributor becomes insolvent or makes an assignment for the
benefit of creditors, or application for, consent to, or sufferance of the
appointment of a trustee, receiver or similar officer for a significant
portion of their respective property or assets, or commencement of any
proceeding by or against either party seeking reorganization,
rehabilitation, liquidation or other relief under the bankruptcy,
insolvency or similar debtor-relief statutes under the laws of the United
States or any state thereof, as now existing or hereafter amended;
(b) Payment due to CUE for pagers or airtime remains unpaid thirty (30)
days after such payment is due;
15.3 Upon termination of this Agreement by Distributor, Distributor shall have
the obligation to make payment to CUE for airtime charges, services
rendered and equipment furnished by CUE to the Distributor through the
date of termination.
15.4 Upon the termination of this Agreement by CUE, CUE may terminate its
services. Should CUE terminate its services, in no event shall CUE be
liable, either in tort, equity, contract or otherwise, for (i) loss of
use, revenue or profits; (ii) costs of capital or of substitute use of
performance; (iii) direct, indirect, incidental, special or consequential
damages; or (iv) any other loss or claim for any similar types of damages
to Distributor's subscribers or to any other third parties.
15.5 In the event a petition for relief in bankruptcy is filed by or against
Distributor, Distributor shall pay CUE all post-petition charges according
to the terms of this Agreement. If at any time prior to assumption of this
Agreement by Distributor pursuant to Section 365 or other applicable
provisions of the Bankruptcy Code, Distributor defaults in making any
payment when due for post-petition charges, CUE may give notice to
Distributor to cure such defaults and to provide assurance of due
performance of Distributor's obligations under the terms of this
Agreement. Such adequate assurance of due performance shall be the payment
by Distributor of a deposit with CUE equal to two months' average charges
under this Agreement based on the charges to Distributor in the preceding
six (6) months period. Distributor and CUE agree that upon the expiration
of fifteen (15) days from the receipt of the notice, if Distributor has
not cured such defaults and provided adequate assurance of performance,
CUE may suspend and discontinue all administrative activity otherwise
provided to Distributor under this Agreement until such time as the
defaults are cured and adequate assurance of performance is furnished by
Distributor. Distributor further agrees to consent to a Motion for Relief
from Stay under 11 U.S.C. 362 to permit CUE to exercise its right of
termination hereunder. Distributor and CUE further agree that if
Distributor defaults in paying any post-petition charge when due and if
the default is not cured within fifteen (15) days from the receipt of the
3
<PAGE>
notice, CUE's rights under this Agreement will be adequately protected only
by Distributor's curing such defaults and providing adequate assurance of
due performance as more fully set forth above. Finally, following
assumption of the Agreement by Distributor, CUE shall have all rights and
remedies provided by the Agreement.
16. NOTICES. All notices and other communications hereunder shall be in writing
and shall be deemed given if delivered personally or by certified mail,
return receipt requested, or mailed to the parties at the following
addresses:
If to Distributor: Company: Skysite Comm. Corp
------------------------------------
Attention: SUSAN LEWIS
------------------------------------
Address: 11500 Sherman Way, North Hollywood
------------------------------------
CA 91605
------------------------------------
Telephone No. 818-759-7483
------------------------------------
Fax No. 818-759-6999
------------------------------------
Fed. Tax ID No. 95-4553968
------------------------------------
If to CUE: CUE Paging Corporation
Attention: President
5 Corporate Park
Irvine, California 92606
Fax No. (714) 833-9336
17. ASSIGNMENT. This Agreement and the rights granted may not be assigned or
transferred in whole or in part by Distributor without prior written
consent of CUE. This Agreement shall be binding upon and adhere to the
benefit of the parties hereto and their approved successors and assigns.
18. SEVERABILITY. If any of the provisions contained in this Agreement are
deemed invalid, illegal or unenforceable in any respect, the validity,
legality and enforceability of the remaining provisions contained herein
shall not in any way be affected or impaired hereby.
19. MISCELLANEOUS. This Agreement, including all amendments, and schedules:
(a) constitutes the entire Agreement between the parties pertaining to the
subject matter hereof and supersedes all prior agreements and
understandings, both written and oral. Any variation of this Agreement must
be made in writing and signed by both CUE and Distributor;
(b) except as expressly stated herein, is not intended to and shall not
confer upon any other person any rights or remedies hereunder or otherwise
with respect to the subject matter hereof; and
(c) shall be governed by the laws of the State of California.
20. FORCE MAJEURE. CUE shall not be responsible for any delay (whether material
or not) or failure in performance or other duties hereunder due to any
occurrence commonly
<PAGE>
known as force majeure, including, without limitation, acts of God, any
governmental body (de jure or de facto) or public enemy, riots, embargoes,
strikes, or other concerted acts of workmen (whether of CUE or others),
casualties or accidents, deliveries or transportations and shortage of cars,
trucks, fuel, power, labor, or materials, or any other causes,
circumstances, or contingencies within or without the United States of
America, whether of a similar or dissimilar nature to the foregoing, beyond
CUE's control, wich prevent or hinder the transmission of Services or
performance by CUE or any of its obligations hereunder.
CUE shall give Distributor notice in the event of any one or more of the
foregoing occurrences. Upon such notice, CUE may cancel or delay performance
hereunder for so long as such performance is delayed by such occurrence or
occurrences and in such event CUE shall have no liability to Distributor or
its users.
21. PARTIES' STATUS. Distributor is an independent contractor. Neither party is
authorized to act as an agent for, or legal representative of, the other
party nor shall either party have authority to assume or create any
obligation on behalf of, in the name of, or binding upon, the other party.
Distributor shall not represent itself as an agent of CUE.
22. NON-EXCLUSIVE ARRANGEMENT. Distributor recognizes and agrees that CUE and
its Affiliates will be marketing and providing the services to other
Distributors and/or entities and directly to subscribers in the Services
Area covered by this Agreement. CUE may, at its sole discretion, add other
Distributors into such Services Area and directly solicit subscribers in
such Service Area.
23. NON-CONFLICT. Distributor warrants that no obligation provided for herein is
in conflict with any other contractual obligation of Distributor with any
third party.
24. ARBITRATION. If during the term of this Agreement any dispute arises as to
is interpretation or enforcement, the parties shall try to resolve the
dispute in a good faith, expeditious and amicable manner. If the parties are
unsuccessful, however, the parties waive all rights to litigation and agree
to submit the dispute to binding arbitration under the rules and regulations
of the American Arbitration Association. The site of the arbitration shall
be CUE's offices in Irvine, California. Judgement shall be entered upon the
arbitrator's award by petition to the appropriate court should award not be
performed by the party against whom the award is rendered.
25. CONTROLLING DOCUMENT. THE TERMS AND CONDITIONS OF THIS AGREEMENT SUPERSEDE
ANY OTHER AGREEMENT BETWEEN THE PARTIES INCLUDING PRIOR OR CONTEMPORANEOUS
REPRESENTATIONS OF SALES REPRESENTATIVES OR OTHER CUE PERSONNEL; WHETHER
ORAL OR WRITTEN, LATER-ISSUED PURCHASE ORDERS, ACCEPTANCES, CORRESPONDENCE
AND SIMILAR DOCUMENTS. THE ONLY EXCEPTION ARE SUBSEQUENT AGREEMENTS EXECUTED
ON CUE-STANDARD PRINTED FORMS WITHOUT CHANGE, OR SUBSEQUENT AGREEMENTS WHICH
ARE AT VARIANCE WITH THIS AGREEMENT WHICH ARE MADE IN WRITING AND SIGNED BY
A DULY AUTHORIZED OFFICER OF CUE AND A DULY AUTHORIZED OFFICER OF
<PAGE>
DISTRIBUTOR AND WHICH ARE SPECIFICALLY DESIGNATED AS AN AMENDMENT HEREOF.
26. EFFECTIVE DATE. The effective date of this Agreement shall be the date of
execution by CUE's authorized officer. This Agreement shall be of no effect
prior to such execution.
27. TERM OF AGREEMENT. The term of this Agreement shall begin as of the
Effective Date and shall be in effect for a period of five (5) years
thereafter. This Agreement shall renew automatically for succeeding one (1)
year periods unless either party gives at least ninety (90) days written
notice prior to the expiration of the term hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their duly authorized officers.
Skysite Communications Corp.
CUE PAGING CORPORATION "DISTRIBUTOR"
/s/ DAVID E. SCHREIMAN /s/ CHARLES C. MAYNARD
- --------------------------------- -----------------------------------
Signature Signature
DAVID E. SCHREIMAN CHARLES C. MAYNARD
- --------------------------------- -----------------------------------
Printed Name Printed Name
CHIEF FINANCIAL OFFICER CEO
- --------------------------------- -----------------------------------
Title Title
JAN. 26, 1998 1/22/98
- --------------------------------- -----------------------------------
Date Date
/s/ PHILIP A. KERNAN, JR.
-----------------------------------
Signature
PHILIP A. KERNAN, JR.
-----------------------------------
Printed Name
PRESIDENT
-----------------------------------
Title
1/22/98
-----------------------------------
Date
<PAGE>
EXHIBIT 10.12
ARDIS
BULK RESELLER AGREEMENT
-----------------------
Agreement No.:
----------
AGREEMENT dated as of , 1998, between Skysite Communications
-------------
Corporation, a Delaware corporation, ("SKYSITE") with offices at 11500 Sherman
Way, North Hollywood, CA 91605 and ARDIS Company, a New York general partnership
("ARDIS"), with offices at 300 Knightsbridge Parkway, Suite 500, Lincolnshire,
Illinois 60069.
WHEREAS, ARDIS is engaged in providing shared data radio-based
communications network services as authorized by the Federal Communications
Commission; and
WHEREAS, SKYSITE currently provides certain software and other value added
services in the transportation, oil & gas, exploration and media marketplace,
and
WHEREAS, SKYSITE desires to market ARDIS' services in conjunction with the
services which it provides to the transportation, oil & gas, exploration and
media marketplace; and
WHEREAS, ARDIS and SKYSITE desire a non-exclusive relationship to pursue
opportunities within the transportation, oil & gas, exploration and media
marketplace; and
WHEREAS, ARDIS desires to provide, and SKYSITE desires to remarket ARDIS'
services subject to the terms and conditions hereof.
SKYSITE AND ARDIS AGREE AS FOLLOWS:
1. DEFINITIONS - For purposes of this Agreement:
-----------
(a) "Market" shall mean all commercial non-users of ARDIS Services. Such
applications include without limitation transportation, oil & gas,
exploration and media.
(b) "FCC" shall mean the Federal Communications Commission.
(c) "Initial Term" shall mean the period commencing on the date hereof and
ending thirty-six (36) months thereafter.
(d) "Prices" shall mean ARDIS prices, as set forth in Attachment A of
Exhibit I attached hereto.
(e) "Services" shall mean ARDIS' shared data radio-based communications
network services as presently constituted and as may be improved and
enhanced from time to time hereafter and as further defined in
Paragraph 2 of Exhibit I.
(f) "Territory" shall mean the United States and any other countries or
jurisdictions where the Services are provided by ARDIS in accordance
with applicable legal and regulatory requirements.
2. SCOPE OF AGREEMENT
------------------
ARDIS hereby agrees to establish a non-exclusive marketing relationship
with SKYSITE as follows:
(a) ARDIS hereby licenses SKYSITE to be a non-exclusive remarketer of
ARDIS Services within the Market and within the Territory, in
accordance with the ARDIS Airtime User Agreement, Exhibit I, attached
hereto.
Page 1
<PAGE>
(b) SKYSITE shall remarket the Services to SKYSITE's clients primarily in
the transportation, oil & gas, exploration and media marketplace.
(c) SKYSITE shall develop and implement a non-exclusive marketing plan to
facilitate the remarketing of the Services by SKYSITE. Such marketing
plan may include, without limitation:
(i) joint development of product literature describing the Services
and their capabilities;
(ii) joint attendance at trade shows, conferences and related events
within the marketplace;
(iii) joint presentations to prospective clients of the Services;
(iv) joint press releases, advertising and participation at the
ARDIS booth at certain trade shows;
(v) joint marketing projections for the Services;
(vi) joint development activities with terminal hardware vendors;
(vii) previews of ARDIS' future technology and business plan.
(d) Each party may use the other's name and trademarks within the Market
and Territory in sales literature, press releases and other
promotional media subject to prior approval.
(e) SKYSITE and ARDIS agree not to publish or use advertising, sales
promotions or any publicity matters, including the mention of the
existence of this Agreement, without prior written consent, which
consent will not be unreasonably withheld.
3. SKYSITE'S MARKETING AND DEVELOPMENT OBLIGATIONS
-----------------------------------------------
(a) SKYSITE shall be responsible for insuring that all users to whom it
remarkets ARDIS' Services are licensed by the FCC prior to use of
ARDIS' Services. ARDIS shall, however, provide administrative and
consultative support to SKYSITE to facilitate the licensing process.
(b) During the term of this Agreement, SKYSITE will use its best efforts
to meet the following performance milestones within the timeframes
indicated below:
<TABLE>
<CAPTION>
======================================================================
TIME 1998 1999 2000
----------------------------------------------------------------------
<S> <C> <C> <C>
Number of SKYSITE Subscriber 1,000 3,000 5,000
Units Using ARDIS Services by
Year End
======================================================================
</TABLE>
4. PRICING
-------
(a) SKYSITE will pay ARDIS the Prices set forth in Attachment A of Exhibit
I, attached hereto.
(b) The Prices in Attachment A of Exhibit I shall not be increased by
ARDIS during the twelve (12) month period commencing on the date of
this Agreement. Thereafter, the Prices may be increased only upon
ninety (90) days' prior written notice to SKYSITE, provided that the
Prices may be increased not more often than once during any
consecutive twelve (12) month period and by not more than the
percentage increase in the U.S. Department of Labor, Bureau of Labor
Statistics, Consumer Price Index for all Urban Consumers, U.S. City
Average, All Items, 1967 = 100 for the 12-month period immediately
preceding such price increase notification. SKYSITE may discontinue
the services noted for increase within the ninety (90) day notice
period. Otherwise, the new price shall become effective on the date
specified.
Page 2
<PAGE>
(c) The Prices, terms, warranties and benefits granted by ARDIS to SKYSITE
hereunder are and shall remain comparable to the Prices, terms,
warranties and benefits offered, or to be offered, by ARDIS to any
other bulk reseller of the Services for sale to commercial customers
with similar roles and responsibilities. If ARDIS makes any such more
favorable Prices, terms, warranties or benefits available to any other
such party, ARDIS shall promptly notify SKYSITE to such effect, and
such more favorable Prices, terms, warranties and/or benefits shall be
made available to SKYSITE as of the date first made available to any
other party.
(d) The Prices in Exhibit I shall not be increased by ARDIS during the
twelve (12) month period commencing on the date of this Agreement.
Thereafter, the Prices may be increased only upon ninety (90) days'
prior written notice to SKYSITE, provided that the Prices may be
increased not more often than once during any consecutive twelve (12)
month period and by not more than the percentage increase in the U.S.
Department of Labor, Bureau of Labor Statistics, Consumer Price Index
for all Urban Consumers, U.S. City Average, All Items, 1967 = 100 for
the 12-month period immediately preceding such price increase
notification. SKYSITE may discontinue the services noted for increase
within the ninety (90) day notice period. Otherwise, the new price
shall become effective on the date specified.
5. BILLING AND PAYMENTS
--------------------
(a) SKYSITE will be responsible for billing to SKYSITE's end user customers
for all products and services.
(b) ARDIS will provide SKYSITE with the information to bill SKYSITE's end
user customers via a monthly invoice to SKYSITE within ten (10) days'
after the end of the monthly billing period.
(c) Payment to ARDIS will be due within thirty (30) days of invoice to
SKYSITE
6. ORDERING
--------
SKYSITE shall order the Services by executing and delivering to ARDIS an
order form in the format set forth on Attachment B of Exhibit I, the ARDIS
Airtime User Agreement. ARDIS shall process all such orders no later than
three (3) days' after receipt of order.
7. TERM / TERMINATION
------------------
(a) Except as otherwise provided herein, this Agreement shall be in effect
for the Initial Term. This Agreement shall automatically continue after
the Initial Term until terminated by either SKYSITE or ARDIS upon
twelve (12) months' written notice.
(b) Either party may terminate this Agreement upon six (6) months' written
notice for failure of the other party to meet the applicable
performance levels set forth in Paragraph 3(b). Should this contract be
terminated pursuant to this Paragraph, ARDIS shall continue to provide
ARDIS communication services to SKYSITE's then current users of the
Services, provided (i) such users sign the then current standard ARDIS
Airtime User Agreement, or (ii) an appropriate new remarketing
agreement is signed between ARDIS and SKYSITE within thirty (30) days.
(c) Notwithstanding anything to the contrary contained herein, either
SKYSITE or ARDIS may terminate this Agreement (i) upon any material
breach by the other of its obligations under this Agreement, or (ii) if
the other shall dissolve or commit an act of bankruptcy or become
insolvent, by sending such party written notice of termination which
shall state the nature of the breach. Such notice shall be effective
thirty (30) days following the date hereof, unless such breach shall
have been remedied during such thirty (30) day period. Notwithstanding
the foregoing, this Agreement shall terminate immediately if the
authorization held by ARDIS is revoked by the FCC.
Page 3
<PAGE>
8. DEFAULT AND REMEDIES
--------------------
If SKYSITE fails to make any payment of any sum due after thirty (30) days,
ARDIS may add a service charge at the maximum rate permitted by applicable
law. Such additional charge shall be due and payable upon receipt of
invoice.
If SKYSITE fails to make any payment of any sum due or fails to perform as
required by any other provision hereunder, and continues in such failure
for fifteen (15) days' after written notice has been sent by ARDIS to
SKYSITE, SKYSITE shall be deemed in default under this Agreement.
In the event of default, ARDIS has the right to immediately terminate this
Agreement, retain all payments made hereunder, and deny SKYSITE and its
customers any service provided under this Agreement by or through the ARDIS
Network or Systems. Each and all of the rights and remedies of ARDIS
hereunder are cumulative to and not in lieu of each and every other such
right and remedy.
There will be a $50.00 reactivation fee for customers who wish to re-
establish service once ARDIS has suspended or terminated service.
Failure or delay on the part of ARDIS or SKYSITE to exercise any right,
remedy, power or privilege hereunder shall not operate as a waiver thereof.
A waiver, to be effective, must be in writing and signed by the party
making the waiver. A written waiver of a default shall not operate as a
waiver of any other default or of the same type default on a future
occasion.
9. FORCE MAJEURE
-------------
ARDIS and its subcontractors do not assume and shall have no liability
under this Agreement for failure to provide, or delay in providing services
due directly or indirectly to causes beyond the control of ARDIS or its
subcontractors including, but not restricted to, acts of God, or
governmental entities, or of the public enemy, or of SKYSITE, strikes, or
unusually severe weather conditions.
10. TRAINING AND TECHNICAL SUPPORT
------------------------------
(a) ARDIS shall make available to SKYSITE, at no charge, reasonable initial
training on the use of ARDIS Services.
(b) ARDIS shall continue to provide SKYSITE, at no charge, with technical
assistance performed by competent ARDIS employees in connection with
ongoing use of the Services by SKYSITE and its customers. Such
assistance shall include, without limitation, telephone consultation,
updates relating to changes and enhancements to the Services and
diagnostic services.
11. THIRD PARTY LIABILITY
---------------------
SKYSITE agrees to inform its clients and others to whom it remarkets ARDIS'
services, of the applicable terms and conditions of this Agreement, as
expressed in Exhibit III hereof, and warrants that it will not remarket the
Services to anyone without obtaining a signed Agreement which contains the
essence of ARDIS' disclaimer of all third party liability.
12. CONFIDENTIAL INFORMATION
------------------------
(a) SKYSITE and ARDIS agree that they will not disclose each other's
confidential information and trade secrets relative to data, software,
documentation, client names and addresses, and all other proprietary
information to persons other than employees of each other required to
have such disclosure for the furtherance of the purposes of this
Agreement. Both SKYSITE and ARDIS shall take all steps reasonably
calculated to protect such information from unauthorized disclosure.
This obligation shall survive the termination of this Agreement.
Page 4
<PAGE>
(b) Nothing in this Agreement shall cause either party to have any rights
or licenses in any inventions, patents, trade secrets, trademarks
and/or copyrights of the other relating to the subject matter of this
Agreement.
13. INDEPENDENT RELATIONSHIP
------------------------
SKYSITE and ARDIS specifically disclaim any partnership relationship, and
this Agreement shall in no way be construed to make SKYSITE and ARDIS
partners or joint venturers. For the purposes of this Agreement, SKYSITE
and ARDIS shall be deemed to be independent contractors. Furthermore, in
the event SKYSITE elects to sell ARDIS services to the U.S. Government,
U.S. State or Local or any foreign Government, or to a prime contractor
selling to a Government customer, SKYSITE does so at their own option and
risk and agrees not to obligate ARDIS as a subcontractor or otherwise to
such customers. SKYSITE remains solely and exclusively responsible for
compliance with all statutes, regulations, and clauses governing sales to
the U.S. Government, State or Local or any foreign Government, or to a
prime contractor selling to a Government customer. ARDIS makes no
representations, certifications, or warranties whatsoever with respect to
the ability of its goods, or services, or prices to satisfy any such
statutes, regulations, or clauses.
14. EXCLUSIVE REMEDY
----------------
In the event of any failure or delay attributable to the fault of ARDIS or
its subcontractors, or for breach of the warranty, SKYSITE's sole remedy
shall be limited to a refund of SKYSITE's charges for the affected services
during the time of such failure or delay. SKYSITE agrees, however, that no
refund shall be made for a single failure or delay which does not exceed
one hundred dollars ($100.00).
15. LIMITATION OF LIABILITY
-----------------------
(a) Neither party shall be liable for special, incidental, indirect or
consequential damages under this Agreement, even if such party has
been advised of the possibility of such damages.
(b) Except for SKYSITE's obligation to pay amounts owing under this
Agreement, SKYSITE's and ARDIS' total liability for any other claim
arising out of or in any way connected with this Agreement and the
sole remedy regardless of the form of action (whether in contract,
tort or otherwise) shall be actual damages not to exceed $50,000.
16. INTEGRATION
-----------
This Agreement is the entire agreement between the parties with respect to
the subject matter hereof, and no alteration, modification or
interpretation hereof shall be binding unless in writing signed by both
parties.
17. NOTICES
-------
All notices, demands, offers, elections, requests or other communications
required or permitted by this Agreement shall be in writing and shall be
sent by prepaid registered or certified mail, return receipt requested, and
addressed to the parties at the addresses set forth below or to such other
address as shall, from time to time, be supplied by any party to the other
party by like notice, and shall be deemed given on the date mailed. All
such notices shall be addressed to persons listed below:
If to ARDIS: If to SKYSITE:
Sr. Vice President Attn: Contract Manager
Distribution & Operations --------------------------
ARDIS Company Title:
300 Knightsbridge Parkway-Suite 500 -------------------------
Lincolnshire, Illinois 60069 Skysite Communications Corporation
11500 Sherman Way
North Hollywood, CA 91605
<PAGE>
Copy:
Matthew J. Whitehead, II
Secretary and General Counsel
ARDIS Company
300 Knightsbridge Parkway-Suite 500
Lincolnshire, Illinois 60069
18. NO ASSIGNMENTS
--------------
This Agreement shall be binding on the successors and permitted assigns of
the parties hereto. Neither party shall assign this Agreement without the
other's prior written consent.
19. SEVERABILITY
------------
If any provision of this Agreement or the application thereof to any party
or circumstance shall be determined by any court of competent jurisdiction
to be invalid and unenforceable to any extent, the remainder of this
Agreement or the application of such provision to such person or
circumstance, other than those as to which it is so determined invalid or
unenforceable, shall not be affected thereby, and each provision hereof
shall be valid and shall be enforced to the fullest extent permitted by
law.
20. APPLICABLE LAW
--------------
This Agreement shall be construed and enforced in accordance with the laws
of the state of Illinois.
21. COUNTERPARTS
------------
This Agreement may be executed in several counterparts, each of which shall
constitute the same instrument.
22. HEADINGS
--------
The headings in this Agreement are solely for convenience of reference and
shall not affect its interpretation.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
as of the day and year first written.
ARDIS COMPANY Skysite Communications Corporation
By: By: /s/ Charlie Maynard
------------------------------- -------------------------------
(AUTHORIZED SIGNATURE) (AUTHORIZED SIGNATURE)
Charlie Maynard
------------------------------- -------------------------------
(TYPE OR PRINT NAME) (TYPE OR PRINT NAME)
CEO
------------------------------- -------------------------------
(TITLE) (TITLE)
23 Feb 1998
------------------------------- -------------------------------
(DATE) (DATE)
Page 6
<PAGE>
EXHIBIT 21
Subsidiaries
Name of Subsidiary State of Incorporation
- ------------------ ----------------------
U.S. Digital Satellite, Inc. Delaware
Skysite Communications Corp. Delaware
Project 77 Corp. Delaware
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 545,790
<SECURITIES> 9,750
<RECEIVABLES> 228,073
<ALLOWANCES> 19,000
<INVENTORY> 107,967
<CURRENT-ASSETS> 905,266
<PP&E> 194,663
<DEPRECIATION> 72,163
<TOTAL-ASSETS> 2,809,451
<CURRENT-LIABILITIES> 4,963,355
<BONDS> 0
0
4,105,607
<COMMON> 222,980
<OTHER-SE> (6,555,276)
<TOTAL-LIABILITY-AND-EQUITY> 2,809,451
<SALES> 486,642
<TOTAL-REVENUES> 486,642
<CGS> 412,767
<TOTAL-COSTS> 5,218,763
<OTHER-EXPENSES> 330,063
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 183,593
<INCOME-PRETAX> (5,474,951)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,474,951)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,104,867)
<EPS-PRIMARY> (0.34)
<EPS-DILUTED> (0.34)
</TABLE>
<PAGE>
EXHIBIT 99.1
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION
UNITED STATES OF AMERICA )
)
v. )
) CRIMINAL NO. H-97-262-SS
ALAN BRADY BINGHAM )
HAROLD DEAVOURS )
ALTON DANE HUDNALL ) Conspiracy: 18 U.S.C. (S) 371
CONNIE FARRAR ) Wire Fraud: 18 U.S.C. (S) 1343
CHRISTOPHER ROBICHAUX and ) Money Laundering: 18 U.S.C. (S) 1956(a)(1)
GARY WADKINS )
)
Defendants: )
SECOND SUPERSEDING INDICTMENT
-----------------------------
THE GRAND JURY CHARGES:
COUNT ONE
---------
(Conspiracy -- 18 U.S.C. (S) 371)
A. Introduction.
------------
At all times material to this indictment:
- ----------------------------------------
1. Defendants ALAN BRADY BINGHAM, ALTON DANE HUDNALL AND GARY
WADKINS were Texas businessmen.
2. Elderway Investments Limited ("Elderway") and Oldburn Trading
Limited ("Oldburn") were foreign corporations controlled by defendants BINGHAM
and HUDNALL.
3. In 1994, the principal offices of Elderway and Oldburn were
located in Bingham's apartment at 10/33 Draycott Place in London. In 1995, the
offices moved to 1800 West
1
<PAGE>
Loop South, Houston, Texas, and then to 4400 Post Oak Parkway in Houston, Texas.
4. Defendant CONNIE FARRAR was the office manager of Oldburn and
Elderway in 1995 and 1996.
5. Integrated Benefits Services Inc. ("IBS") was a Texas company
controlled by defendant WADKINS. The IBS office was located at 1800 West Loop
South, Houston, Texas.
6. Defendant CHRISTOPHER ROBICHAUX worked for defendant WADKINS at
IBS.
7. Smith Barney Inc. ("Smith Barney") was a large securities
brokerage firm based in New York City with offices all around the United States,
including one in the Transco Tower in Houston, Texas.
8. Defendant HAROLD DEAVOURS was employed by Smith Barney at the
Transco Tower office in Houston. Defendant DEAVOURS' job title was "Financial
Consultant".
B. The Conspiracy.
--------------
1. Beginning around April, 1994, and continuing through in or about
August, 1996, in the Houston Division of the Southern District of Texas, and
elsewhere, the defendants,
ALAN BRADY BINGHAM,
HAROLD DEAVOURS,
ALTON DANE HUDNALL,
CONNIE FARRAR,
CHRISTOPHER ROBICHAUX and
GARY WADKINS
did knowingly combine, conspire, confederate and agree with others known and
unknown to the Grand Jury, to commit the following offense against the United
States:
To use interstate and foreign wire facilities for the purpose of executing
a scheme and artifice to defraud and for obtaining money or property by
means to false and fraudulent pretenses, representations, and promises. In
violation of Title 18, United States Code, Section 1343.
2
<PAGE>
C. The Object of the Scheme to Defraud.
-----------------------------------
1. The object of the scheme to defraud was for the defendants to
obtain and control other people's money and to use the money as the defendant's
saw fit, including for their own benefit.
D. The Manner and Means of the Conspiracy.
--------------------------------------
It was part of the conspiracy that:
1. Defendants BINGHAM, HUDNALL and WATKINS would and did promote an
investment program supposedly operated by Elderway and Oldburn.
2. Defendants BINGHAM, HUDNALL and WATKINS would and did claim that
the investment program generated large profits by using investors' money to
trade financial instruments through Smith Barney.
3. Defendants BINGHAM, HUDNALL, ROBICHAUX and WATKINS would and did
use portions of the investors' money to trade financial instruments, but ended
up losing millions of dollars.
4. Defendants BINGHAM, FARRAR, HUDNALL, ROBICHAUX and WATKINS would
and did cause written reports to be sent to Switzerland that falsely claimed the
trading had resulted in large profits.
5. Defendants BINGHAM, HUDNALL and ROBICHAUX would and did instruct
Smith Barney and Compass Bank to wire transfer millions of dollars of
investors's principal to banks in Liechtenstien for distribution to the
investors, so the investors would think the program was profitable and would
invest even more money.
6. Defendants BINGHAM, DEAVOURS, FARRAR, HUDNALL,
3
<PAGE>
ROBICHAUX and WATKINS would and did induce foreign investors to wire transfer
millions of dollars to Compass Bank, allegedly for the benefit of Smith Barney,
when BINGHAM, DEAVOURS, FARRAR, HUDNALL, ROBICHAUX and WATKINS knew that Smith
Barney was not receiving the money.
7. Each time an investor wire transferred money for participation in
the Elderway/Oldburn Investment program, defendants BINGHAM or ROBICHAUX would
and did sign a letter addressed to defendant DEAVOURS at Smith Barney.
8. Defendants BINGHAM, FARRAR, HUDNALL, ROBICHAUX and WADKINS would
and did cause millions of dollars of additional losses by using the investors'
money to buy houses, to pay $1.5 million dollars to IBS, to invest in failed
business ventures and to pay defendant DEAVOURS a secret monthly salary of
$10,000.
E. The Overt Acts.
--------------
For the purpose of accomplishing the objects of the conspiracy, the
following overt acts, among others, were committed in the Southern District of
Texas and elsewhere:
(1) In or about April, 1994, defendants ROBICHAUX and WATKINS met with
defendant DEAVOURS to talk about Oldburn's trading program.
(2) On or about June 14, 1994, defendant WADKINS opened an account for
Oldburn at Smith Barney.
(3) On or about September 1, 1994, defendants ROBICHAUX and WADKINS caused
Smith Barney to wire transfer $72,895.28 of investors' principal to an
IBS bank account.
(4) On or about September 16, 1994, defendant BINGHAM met with investors
in Switzerland.
(5) On or about September 26, 1994, defendant BINGHAM met with investors
in Switzerland.
4
<PAGE>
(6) On or about September 28, 1994, defendant BINGHAM sent a fax to an investor
in Switzerland falsely claiming that Oldburn had earned a profit by selling
the CMO.
(7) On or about October 15, 1994, defendants BINGHAM and HUDNALL met with
investors in Switzerland.
(8) On or about October 25, 1994, defendant ROBICHAUX opened an account for
Elderway at Smith Barney.
(9) On or about November 8, 1994, defendants BINGHAM and HUDNALL met with
investors in Switzerland.
(10) On or about November 10, 1994, defendants DEAVOURS and ROBICHAUX signed a
"Receipt of Funds" letter in the amount of $1,150,000.
(11) On or about November 30, 1994, defendants DEAVOURS and ROBICHAUX signed a "
Receipt of Funds" letter in the amount of $400,000.
(12) On or about December 8, 1994, defendants DEAVOURS, ROBICHAUX and WADKINS
met with Smith Barney officials and discussed the Fact that Oldburn was no
longer allowed to trade at Smith Barney.
(13) On or about December 12, 1994, defendants BINGHAM, DEAVOURS, HUDNALL,
ROBICHAUX and WADKINS met with Investors in Houston.
(14) On or about December 28, 1994, defendants DEAVOURS and ROBICHAUX signed a
"Receipt of Funds" letter in the amount of $200,000.
(15) On or about January 12, 1995,defendants ROBICHAUX and WADKINS opened a
securities trading account for Oldburn at heritage Capital Corporation in
New York ("Heritage").
(16) On or about January 18, 1995, defendant HUDNALL opened bank accounts for
Oldburn and Elderway at Compass Bank.
(17) On or about January 19, 1995, defendants DEAVOURS and ROBICHAUX signed a "
Receipt of Funds" letter in the amount of $2,000,000.
(18) On or about February 1, 1995, defendant BINGHAM signed false wire transfer
instructions listing Smith Barney as a beneficiary of Elderway's account at
Compass Bank.
(19) On or about February 20, 1995, defendant ROBICHAUX sent a report to
Switzerland that falsely described Oldburn's trading profits.
5
<PAGE>
(20) On or about February 28, 1995, defendants DEAVOURS and ROBICHAUX signed a
"Receipt of Funds" letter in the amount of $300,000.
(21) On or about March 20, 1995, defendant ROBICHAUX sent a report to
Switzerland that falsely described Oldburn's trading profits.
(22) On or about April 6, 1995, defendant ROBICHAUX sent a report to
Switzerland that falsely described Oldburn's trading profits.
(23) On or about Mach 30, 1995, defendants DEAVOURS and ROBICHAUX signed a
"Receipt of Funds" letter in the amount of $200,000.
(24) On or about April 10, 1995, defendants BINGHAM, HUDNALL, DEAVOURS and
ROBICHAUX met with investors in Houston.
(25) On or about April 10, 1995, defendants DEAVOURS and ROBICHAUX signed a
"Receipt of Funds" letter in the amount of $500,000.
(26) On or about May 5, 1995, defendant FARRAR caused a report to be faxed to
Switzerland that falsely described Oldburn's trading profits.
(27) On or about June 13, 1995, defendants BINGHAM and HUDNALL opened a second
account for Elderway at Compass Bank.
(28) On or about June 26, 1995, defendants BINGHAM and DEAVOURS signed a
"Receipt of Funds" letter in the amount of $100,000.
(29) On or about June 30, 1995, defendants BINGHAM and DEAVOURS signed a
"Receipt of Funds" letter in the amount of $350,000.
(30) On or about July 6, 1995, defendants BINGHAM and DEAVOURS signed a "Receipt
of Funds" letter in the amount of $300,000.
(31) On or about July 20, 1995, defendant FARRAR caused a report to be faxed to
Switzerland that falsely described Oldburn's trading profits.
(32) On or about August 28, 1995, defendants BINGHAM and DEAVOURS signed a
"Receipt of Funds" letter in the amount of $500,000.
(33) On or about September 6, 1995, defendant FARRAR caused a report to be faxed
to Switzerland that falsely described Oldburn's trading profits.
(34) On or about September 21, 1995, defendants BINGHAM and DEAVOURS signed a
"Receipt of Funds" letter in the amount of $200,000.
6
<PAGE>
(35) On or about October 27, 1995, defendants BINGHAM and DEAVOURS signed a
"Receipt of Funds" letter in the amount of $250,000.
(36) On or about November 6, 1995, defendants BINGHAM and DEAVOURS signed a
"Receipt of Funds" letter in the amount of $200,000.
(37) On or about November 7, 1995, defendants BINGHAM, DEAVOURS, and HUDNALL met
with investors in Houston.
(38) On or about December 29, 1995, defendants BINGHAM and HUDNALL opened a
securities trading account at Sakura Dellsher, Inc. in Chicago.
(39) On or about January 8, 1996, defendants BINGHAM and HUDNALL opened a third
account for Elderway at Compass Bank.
(40) On or about January 11, 1996, defendants BINGHAM and DEAVOURS signed a
"Receipt of Funds" letter in the amount of $185,000.
(41) On or about March 27, 1996, defendants BINGHAM and DEAVOURS signed a
"Receipt of Funds" letter in the amount of $45,000.
(42) On or about March 27, 1996, defendants BINGHAM and DEAVOURS signed a
"Receipt of Funds" letter in the amount of $47,500.
(43) On or about March 28, 1996, defendants BINGHAM and DEAVOURS signed a
"Receipt of Funds" letter in the amount of $142,376.
(44) On or about April 2, 1996, defendants BINGHAM and DEAVOURS signed a
"Receipt of Funds" letter in the amount of $49,982.50.
In violation of Title 18, United States Code, Section 371.
COUNTS TWO - TWENTY
-------------------
(Wire Fraud -- 18 U.S.C. & 1343)
A. Introduction
------------
1. The allegations of Section A of Count One are repeated and realleged as
if fully set forth herein.
B. The Scheme to Defraud
---------------------
1. From in or about April, 1994, to in or about August, 1996, in the
Houston
7
<PAGE>
Division of the Southern District of Texas, the defendants,
ALAN BRADY BINGHAM,
HAROLD DEAVOURS,
ALTON DANE HUDNALL,
CONNIE FARRAR,
CHRISTOPHER ROBICHAUX and
GARY WATKINS,
each aiding and abetting one another, did knowingly devise and intend to devise
a scheme and artifice to defraud investors, and for obtaining money and property
by means of false and fraudulent pretenses, representations and promises.
C. The Manner and Means of the Scheme.
----------------------------------
1. The manner and means of the scheme and artifice to defraud are set
forth in paragraphs 1 through 8 of Section D of Count One, the allegations of
which are repeated and realleged as if fully set forth herein.
D. The Execution of the Scheme.
---------------------------
For the purpose of executing the aforementioned scheme to defraud and
intending to do so, the defendants did transmit and cause to be transmitted in
interstate and foreign commerce writings, signals and sounds, that is, on or
about the dates set forth below, the defendants, directly and by aiding and
abetting one another, caused investors to transfer the following sums of money
by wire from banks in Europe and elsewhere outside Texas, to Smith Barney, in
Houston, Texas and Compass Bank, in Houston, Texas.
<TABLE>
<CAPTION>
COUNT DATE AMOUNT SENDING BANK RECEIVING BANK
- ----- ---- ------ ------------ --------------
WIRED ($) OR INSTITUTION
--------- --------------
<S> <C> <C> <C> <C>
2 11/7/94 1,149,985.00 Basler Kantonalbank Smith Barney
Switzerland
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
COUNT DATE AMOUNT SENDING BANK RECEIVING BANK
- ----- ---- ------ ------------ --------------
WIRED ($) OR INSTITUTION
--------- --------------
<S> <C> <C> <C> <C>
3 11/29/94 399,985.00 Bank in Liechtenstein Smith Barney
Liechtenstein
4 12/14/94 199,985.00 Bank in Liechtenstein Smith Barney
Liechtenstein
5 1/19/95 1,999,979.00 SGZ Bank Smith Barney
Germany
6 2/27/95 299,985.00 Bank in Liechtenstein Compass Bank
Liechtenstein
7 3/30/95 199,985.00 Banca del Gottardo Compass Bank
Switzerland
8 4/10/95 499,982.50 Banca della Svizzera Italiana Compass Bank
Switzerland
9 6/26/95 199,988.00 Credito Commerciale Compass Bank
Italy
10 6/30/95 349,982.00 Volksbank Willisau AG Compass Bank
Switzerland
11 7/5/95 299,985.00 Volksbank Hochschwarzwald Compass Bank
Germany
12 8/28/95 499,985.00 Banque Nationale de Paris Compass Bank
France
13 9/21/95 199,985.00 Bank in Liechtenstein Compass Bank
Liechtenstein
14 10/27/95 249,985.00 Finter Bank Compass Bank
Switzerland
15 11/6/95 199,819.90 Credit Suisse Compass Bank
Switzerland
16 1/11/96 184,984.00 Sparkasse Moera Compass Bank
Germany
17 3/27/96 44,984.00 Vereinsbank Duisburg Compass Bank
Germany
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
COUNT DATE AMOUNT SENDING BANK RECEIVING BANK
- ----- ---- --------- ------------ --------------
WIRED ($) OR INSTITUTION
--------- --------------
<S> <C> <C> <C> <C>
18 3/27/96 47,485.00 Schaffhauser Kantonalbank Compass Bank
Switzerland
19 3/28/96 142,356.00 Cortal Bank SA Compass Bank
Luxembourg
20 4/2/96 49,982.50 Bank Leumi Compass Bank
Israel
</TABLE>
In violation of Title 18, United States Code, Section 1343 and Title 18,
United States Code, Sections 2(a) and 2(b).
COUNTS TWENTY-ONE - FORTY-NINE
------------------------------
(Money Laundering -- 18 U.S.C. (S) 1956(a)(1)(A)(i))
1. The allegations of Section A and paragraphs 1 through 11 of Section D
of Count One are repeated and realleged as if fully set forth herein.
2. That on or about the dates set forth below, in the Houston Division of
the Southern District of Texas, the defendants,
ALAN BRADY BINGHAM,
ALTON DANE HUDNALL,
CONNIE FARRAR,
CHRISTOPHER ROBICHAUX and
GARY WADKINS,
did knowingly conduct and cause to be conducted the following financial
transactions affecting interstate and foreign commerce, that is, transfers of
money from Smith Barney, in Houston, Texas, and Compass Bank, in Houston, Texas,
to banks in Liechtenstein, involving proceeds of specified unlawful activity,
namely, wire fraud in violation of Title 18, United States Code, Section 1343,
knowing that the property involved in the financial transactions represented the
proceeds of some form of unlawful activity, and with the intent to promote the
carrying on of said specified
10
<PAGE>
unlawful activity:
<TABLE>
<CAPTION>
COUNT DATE AMOUNT WIRED($) SENDING BANK
----- ---- --------------- ------------
<S> <C> <C> <C>
21 9/28/94 50,000.00 Smith Barney
22 10/14/94 100,000.00 Smith Barney
23 11/28/94 79,577.00 Smith Barney
24 12/19/94 120,000.00 Smith Barney
25 12/23/94 101,306.00 Smith Barney
26 1/6/95 102,820.00 Smith Barney
27 1/20/95 295,043.75 Compass Bank
28 2/7/95 441,119.25 Compass Bank
29 2/22/95 538,868.35 Compass Bank
30 3/7/95 509,311.60 Compass Bank
31 3/21/95 596,418.00 Compass Bank
32 4/6/95 691,651.50 Compass Bank
33 4/21/95 756,358.63 Compass Bank
34 5/9/95 832,186.90 Compass Bank
35 5/19/95 606,049.88 Compass Bank
36 6/5/95 1,117,438.14 Compass Bank
37 7/6/95 1,173,576.40 Compass Bank
38 7/21/95 712,205.24 Compass Bank
39 8/7/95 1,224,310.13 Compass Bank
40 7/21/95 743,303.13 Compass Bank
41 9/25/95 893,051.87 Compass Bank
42 10/10/95 1,006,616.71 Compass Bank
43 11/27/95 385,569.18 Compass Bank
44 12/21/95 251,977.25 Compass Bank
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
COUNT DATE AMOUNT WIRED SENDING BANK
----- ---- ------------ ------------
($)
<S> <C> <C> <C>
45 1/9/96 300,000.00 Compass Bank
46 1/22/96 366,000.00 Compass Bank
47 3/7/96 325,479.43 Compass Bank
48 4/2/96 350,000.00 Compass Bank
49 4/25/96 300,000.00 Compass Bank
</TABLE>
In violation of Title 18, United States Code, Section 1956(a)(1)(A)(i) and
Title 18, United States Code, Sections 2(a) and 2(b).
COUNTS FIFTY - FIFTY-TWO
------------------------
(Money Laundering -- 18 U.S.C. (S) 1956(a)(1)(B)(i))
1. The allegations of Section A and paragraphs 1 through 8 of Section D of
Count One are repeated and realleged as if fully set forth herein.
2. That on or about the dates set forth below, in the Houston Division of
the Southern District of Texas, the defendant,
GARY WADKINS,
did knowingly conduct and cause to be conducted the following financial
transactions affecting interstate and foreign commerce, that is, transfers of
money from Smith Barney, in Houston, Texas, and Compass Bank, in Houston, Texas,
to an account at Compass Bank in the name of Sawyer Enterprises, involving
proceeds of specified unlawful activity, namely, wire fraud in violation of
Title 18, United States Code, Section 1343, knowing that the property involved
in the financial transactions represented the proceeds of some form of unlawful
activity, and knowing that the transaction was designed in whole or in part to
conceal and disguise the location, source, ownership and control of the proceeds
of specified unlawful activity:
12
<PAGE>
<TABLE>
<CAPTION>
COUNT DATE AMOUNT TRANSFERRED SENDING BANK
----- ---- ------------------ ------------
($)
<S> <C> <C> <C>
50 11/16/94 200,000.00 Smith Barney
51 11/26/94 150,000.00 Smith Barney
52 1/20/95 165,000.00 Compass Bank
</TABLE>
In violation of Title 18, United States Code, Section 1956(a)(1)(B)(i) and
Title 18, United States Code, Sections 2(a) and 2(b).
COUNT FIFTY-THREE
-----------------
(Criminal Forfeiture -- 18 U.S.C. (S) 982)
1. As a result of their commission of one or more of the felony offenses
alleged in Counts 21 through 52 of this Indictment, which are punishable by
imprisonment for more than one year, the property of the defendants, ALAN BRADY
BINGHAM, ALTON DANE HUDNALL, CONNIE FARRAR, CHRISTOPHER ROBICHAUX and GARY
WADKINS, described in paragraph 3 below is subject to forfeiture under 18 U.S.C.
(S) 982.
2. The property described in paragraph 3 below is subject to forfeiture
because it is involved in and traceable to property involved in violations of 18
U.S.C. (S) 1956.
3. The property subject to forfeiture includes but is not limited to the
following:
(a) CASH OR CURRENCY
(i) funds in the approximate sum of $15 million (counts 21 - 49);
(ii) funds in the approximate sum of $515,000.00 in account number
2667163850 at NationsBank (counts 50 - 52);
(b) SUBSTITUTE ASSETS
(i) If any of the property described in this paragraph, as a result
of any act or omission of the defendants, ALAN BRADY BINGHAM,
ALTON DANE HUDNALL, CONNIE FARRAR, CHRISTOPHER ROBICHAUX and
GARY WADKINS:
13
<PAGE>
- cannot be located upon the exercise of due
diligence;
- has been transferred or sold to, or deposited with,
a third party;
- has been placed beyond the jurisdiction of the
court;
- has been substantially diminished in value; or
- has been commingled with other property which
cannot be divided without difficulty;
then any other property of the defendants, ALAN BRADY
BINGHAM, ALTON DANE HUDNALL, CONNIE FARRAR, CHRISTOPHER
ROBICHAUX and GARY WADKINS, is subject to forfeiture up
to the value of any property described above.
A TRUE BILL:
----------------------------
FOREPERSON OF THE GRAND JURY
JAMES H. PEATLEY
UNITED STATES ATTORNEY
By: --------------------------------
John R. Lewis
Assistant United States Attorney
14
