SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
Commission File No. 000-28251
US Data Authority, Inc.
(Exact name of small business issuer as specified in its charter)
Florida 65-0693150
(State of Incorporation) (IRS Employer Identification No.)
3500 NW Boca Raton Boulevard, Building 811,
Boca Raton, Florida 33431
(Address of Principal Executive Offices)
(561) 368-0032
(Issuer's Telephone Number, Including Area Code)
SUNVEST RESORTS, INC.
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Check whether the issuer (1) filed all reports required to be filed by
section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the issuer was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No ____
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares
outstanding of each of the issuer's classes of common equity as of the
latest practicable date.
Common stock, par value $.02 per share, 25,000,000 shares issued and
outstanding as of August 14, 2000.
Transitional Small Business Disclosure Format (Check one): Yes __ No X
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
US Data Authority, Inc.
Balance Sheets
(Unaudited)
Assets
June 30, 2000 December 31, 1999
Cash and Equivalents $1,225,144
Accounts receivable 27,481
Deferred income taxes 296,000
Other 46,581
Goodwill 125,485
Fixed assets-net 619,092
Assets from discontinued operations 0 12,645,700
--------- ----------
Total Assets 2,339,783 12,645,700
========= ==========
Liabilities and Shareholders' Deficit
Notes and mortgages payable 40,520 0
Accounts payable and accrued
liabilities 599,439 0
Liabilities from discontinued
operations 0 0
639,959 15,589,100
------- ----------
Shareholders equity:
Common Stock $.02 par value
100,000,000 authorized
25,000,000 issued and
outstanding 500,000 180,000
Capital in excess of par 2,574,950 699,600
Accumulated deficit (1,375,126) (3,823,000)
Total shareholders' equity 1,699,824 (2,943,400)
--------- ---------
Total liabilities and
shareholders' equity 2,339,783 12,645,700
========= ==========
Refer to the Notes to Consolidated Financial Statements
US Data Authority, Inc.
Statements of Operations (Unaudited)
For the three months
ended June 30,
2000 1999
--------------------
Revenue 27,761 0
Cost of sales 396,893 0
Operating expenses:
General and administrative 378,804 0
-------
Other income 7,060 0
Loss from continuing operations -----
before income taxes (740,876) 0
Income tax benefit 296,000 0
Loss from continuing operations (444,876) 0
-------
Income (loss) from discontinued operations (108,343) (19,429)
Net income (loss) (553,219) (19,429)
======= =======
Basic and diluted (loss) per share $.01 ---
Refer to the Notes to Consolidated Financial Statements
US Data Authority, Inc.
Statements of Operations (Unaudited)
For the six months
ended June 30,
2000 1999
-------------------
Revenues 27,781 0
Cost of Sales 396,893 0
-------
Operating expenses:
General and administrative 378,804 0
-------
Other income 7,060 0
-------
Loss from continuing operations
before income taxes (740,876) 0
Income tax benefit 296,000 0
Loss from continuing operations (444,876) 0
-------
Income (loss) from discontinued operations 234,853 46,666
------- ------
Net Income (loss) (210,023) 46,666
======= ======
Basic and diluted (loss) per share $.01 ---
Refer to the Notes to Consolidated Financial Statements
US Data Authority, Inc.
Statements of Cash Flows (Unaudited)
For the six months
ended June 30,
2000 1999
-------------------
Cash flows from operating activities
net (loss) from continuing operations (444,876)
net income from discontinued operations 234,853 46,666
------- ------
Adjustments to reconcile net income to cash
provided by operating activities:
(Increase) decrease in assets:
Depreciation & amortization 27,658
Fixed assets (430,596)
Accounts receivable (55, 136)
Deferred taxes (296,000)
Other 112,352
-------
Cash used (641,722)
-------
Net cash used in discontinued operations (414,323) (531,256)
------- -------
Increase (decrease) in liabilities:
Notes payable 140,520
Accounts Payable 371,270
Sale of common stock 1,020,350
---------
Cash provided 1,532,140 0
---------- ------
Net increase in cash 266,072 (484,590)
Cash at beginning of period 959,072 858,800
Cash at end of period 1,225,144 374,210
========= =======
Refer to the Notes to Consolidated Financial Statements
US Data Authority, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
June 30, 2000
Note 1. - Basis of Presentation:
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles
for the interim financial information and with the instructions to Form
10-QSB. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating
results for the three-month period ended June 30, 2000, are not
necessarily indicative of the results that may be expected for the year
ended December 31, 2000.
Note 2. - Organization and Coverage of the Statements:
US Data Authority, Inc. (the "Company") has engaged in the real estate
business since 1996 under the name "SunVest Resorts, Inc." In late
April 2000, the Company distributed all of its assets (subject to
liabilities) to its shareholders and, on May 1, 2000, effected a merger
of US Data Authority, Inc. ("Former USDA"), a privately-held Florida
corporation engaged in providing integrated communication and Internet
services, into itself. On June 23, 2000, the Company changed its name
to US Data Authority, Inc.
The merger was accounted for financial purposes as a "purchase." As a
result, and due to the disposition by the Company of its real estate
business as of May 1, 2000, (a) the balance sheet of the Company as of
December 31, 1999, reflects the real estate operations which have been
discontinued, (b) the Statements of Operations for the three months
ended June 30, 2000 reflect results of the discontinued real estate
operations for the month of April 2000 and the results of the Internet
provider business of Former USDA for the months of May and June 2000,
(c) the Statements of Operations for the six months ended June 30,
2000, reflect the results of the discontinued real estate operations
for the four months of January through April 2000, and the results of
the Internet provider operations of Former USDA for the months of May
and June 2000, and (d) the Statements of Cash Flows reflect the
combined results of the discontinued real estate operations for the
four months of January through April 2000, and the Internet provider
operations of Former USDA for the months of May and June 2000.
For more detailed information regarding the discontinuation of the real
estate operations, see the Company's Quarterly Report on Form 10-QSB
for the quarter ended March 31, 2000, filed with the SEC on May 12,
2000. For the audited results of Former USDA's operations since its
inception in January 1999 through December 31, 1999, see the Company's
Report on Form 8-K, filed with the SEC on May 4, 2000. For unaudited
results of Former USDA's operations for the first four months of 2000,
i.e. before the merger, see the Company's Report on Form 8-K/A, filed
with the SEC on June 13, 2000.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Overview
We are a "Tier II network provider" offering dedicated Internet access,
virtual private networking, co-location services, application service
provider services, virtual Internet service provider services and
related services to primarily business customers. We sell these
electronic commerce services by utilizing bandwidth available on
backbones (i.e. fiber optic cables) owned by AT&T and Cable & Wireless,
as well as our own network equipment.
We have begun implementing our business plan to sell these services in
late April 2000, when Former USDA received a $2.4 million private
placement. During this approximately three-month period, we have been
building the foundation for our business by hiring the sales and
marketing team and installing the equipment and making operational the
Company's own Network Operating Center in Boca Raton (which contains a
Network Access Point - "NAP") and the first (in Chicago) of the 39
additional nationwide NAPs to be located at 39 of AT&T's nationwide
Network Operations Centers. We plan to make 12 additional NAPs
operational by the end of August 2000, and all remaining of the 40 NAPs
operational by the end of 2000, at which time we will be able to offer
connectivity to customers all across the country.
In summary, currently we are at the stage where implementation of our
business model to sell Tier II network services at reasonable prices
has begun and is poised for very rapid growth. As discussed below,
full implementation of the model will require additional capital.
Results of Operations
For the two months of continuing operations (i.e. since May 1, 2000),
the Company incurred a net loss of $740,876, or approximately $.03 per
share. Such loss was attributable to dramatically increased cost of
goods sold and general and administrative expenses. Cost of goods sold
consisted primarily of the costs of installing equipment, furniture and
fixtures at the Company's Network Operating Center in Boca Raton.
General and administrative expenses consisted of costs incurred in
hiring administrative, management and sales and marketing personnel,
legal and accounting fees, limited advertising and other marketing
expenses and outsourced programming. These expenses were incurred
while the Company has been placing in operation the NAPs, the opening
of which is, by and large, a prerequisite to any significant sales and
revenue realization. Management expects losses to continue at least
throughout the rest of 2000, as revenue realization lags behind the
availability of connectivity to customers at the Company's 40 NAPs and
as such NAPs come on line throughout the last two quarters of 2000.
Liquidity and Capital Resources
The Company's operations have been utilizing cash from the proceeds of
the $2.4 million private placement into Former USDA before the merger
on May 1, 2000. As of June 30, 2000, the Company had $1,225,144 in
cash on hand. Together with the proceeds from a $5.0 million capital
lease entered by the Company with Cisco System Capital Corporation on
June 30, 2000, the existing cash resources, management estimates, will
be sufficient to fund the Company's operations through the third
quarter of 2000.
The Company is currently negotiating the terms of $3.0 million equity
infusion by means of a private placement with several groups of
individual investors, some of whom have participated in the $2.4
million private placement into Former USDA. Management also expects
that negotiations currently being conducted with The CIT Group, Inc.,
will result in the acquisition of a $1.2 million equipment line of
credit to the Company to lease servers manufactured by Intel
Corporation. Management believes that the proceeds of the equity
infusion and the line of credit will be sufficient to fund the
Company's operations through late 2000. Full implementation of the
Company's business plan, management estimates, will require
approximately $20 million in additional capital. There is no assurance
that the Company's efforts to obtain additional liquidity and capital
resources will be successful.
Forward-looking Statements
The foregoing discussion contains statements which constitute forward-
looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act
of 1934, as amended. These statements include all statements that are
not statements of historical fact regarding the intent, belief or
expectations of the Company and its management with respect to, among
other things: (1) trends affecting our operations, financial condition
and business; (2) our growth and operating strategies; (3) our ability
to achieve our sales objectives; (4) the continued and future
acceptance of and demand for our products and services by our
customers; and (5) our ability to raise additional capital if and when
needed. The words "may," "will," "anticipate," "believe," "intend,"
"plan," "allow," "strategy" and similar expressions are intended to
identify forward-looking statements. Such forward-looking statements
are not guarantees of future performance and actual results may differ
materially from those projected in the forward-looking statements as a
result of risks related to (a) our ability to achieve, manage or
maintain growth and execute our business strategy successfully; (b) our
ability to sell our products and services customers; (c) our ability to
respond to competition; and (d) the volatility associated with
Internet-related companies. The Company undertakes no obligations to
update or revise forward-looking statements to reflect changed
assumptions, the occurrence of unanticipated events or changes to
future operating results.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
There are no material pending legal proceedings to which the Registrant
or any of its property is the subject.
Item 2. Changes in Securities.
(a) None.
(b) None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
At the Annual Meeting of Shareholders, which took place on June 22,
2000, three matters were voted upon: (a) election of seven directors,
(b) approval of an Amendment of the Company's Articles of Incorporation
(to change the name of the Company to US Data Authority, Inc. and
increase the number of authorized shares of common stock to 100,000,000
and authorize 30,000,000 shares of preferred stock) and (c) approval of
the Company's 2000 Stock Incentive Plan. Management solicited proxies
for the meeting, there was no solicitation in opposition to
management's nominees for directors and all such nominees were elected.
A total of (a) 21,663,543 votes were cast in favor, 698 shares voting
against and 236 shares abstaining, the proposal to amend the Articles
of Incorporation and (b) 21,648,314 votes were cast in favor, 16,091
shares voting against and 272 shares abstaining, the proposal to
approve the 2000 Stock Incentive Plan.
Item 5. Other Information.
Effective June 22, 2000, Ronald H. Leventhal, formerly the Company's
Executive Vice President, was elected President, and Dominick F.
Maggio, formerly the Company's President, was elected Executive Vice
President and Chief Operating Officer.
Item 6. Exhibits and Reports on Form 8-K.
A. Exhibits:
10.1 Master Agreement to Lease Equipment between Cicso Systems
Capital Corporation, as Lessor, and the Registrant, as
Lessee, dated as of June 30, 2000.
27 Financial Data Schedule
B. Reports on Form 8-K
Registrant filed reports on Form 8-K during the quarter ended June 30,
2000, as follows:
* Report on Form 8-K filed on May 4, 2000, where the Registrant
reported about the merger of Former USDA into the Company and with
which audited financial statements of Former USDA for the year ended
December 31, 1999, were filed.
* Report on Form 8-K/A filed on June 13, 2000, with which were filed:
* Statement of Discontinued Operations for the four months ended
April 20, 2000;
* Statement of Cash Flows for the four months ended April 30, 2000;
* Statement of Profit and Loss for Former USDA for the four
months ended April 30, 2000; and
* Statement of Cash Flows for Former USDA for the four months
ended April 30, 2000.
SIGNATURES
Pursuant to the requirements 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.
SUNVEST RESORTS, INC.
Date: August 14, 2000 BY: /S/ Ronald H. Leventhal
Ronald H. Leventhal
President, Principal Executive,
Financial and Accounting Officer
Exhibit 10.1
Master Agreement to Lease Equipment between Cicso Systems Capital
Corporation, as Lessor and the Registrant, as Lessee, dated as of June
30, 2000.
No. __________
MASTER AGREEMENT TO LEASE EQUIPMENT
THIS MASTER AGREEMENT TO LEASE EQUIPMENT (together with the Appendix
and Addendum, if any, hereto, this "Agreement") is entered into as of
June 30, 2000 by and between CISCO SYSTEMS CAPITAL CORPORATION
("Lessor"), having its principal place of business at 170 West Tasman
Drive, Mailstop SJCLP1/2, 3rd Floor, San Jose, California 95134 and US
DATA AUTHORITY, INC., a Florida Corporation ("Lessee"), having its
principal place of business at 3500 NW Boca Raton Boulevard, Building
811, Boca Raton, Florida 33431.
I. THE LEASE
1.1 Lease of Equipment. In accordance with the terms and
conditions of this Agreement, Lessor shall lease to Lessee, and Lessee
shall lease from Lessor, the personal property described in the lease
schedule(s) (each, a "Schedule") to be entered into from time to time
into which this Agreement is incorporated (each Schedule, together with
this Agreement, a "Lease"), together with all substitutions,
replacements, repairs, parts and attachments, improvements and
accessions thereto (the "Equipment"). Capitalized terms not otherwise
defined in this Agreement have the meanings specified in the applicable
Schedule. Each Lease shall constitute a separate, distinct, and
independent lease and contractual obligation of Lessee. Except as
expressly set forth in any Lease, Lessor shall at all times retain the
full legal title to the Equipment, it being expressly agreed by both
parties that each Lease is an agreement of lease only.
1.2 Equipment Procurement. Lessee has ordered or shall order the
Equipment pursuant to one or more purchase orders or purchase contracts
(together, "Purchase Order") to or with Cisco Systems, Inc., or a
Cisco-approved reseller or any other vendor (together, "Vendor"), in
accordance with the term sheet between lessee and Lessor dated June 13,
2000, which Purchase Order shall be promptly delivered to Lessor.
Subject to Lessor's acceptance of such Equipment, as evidenced by its
preparation and delivery to Lessee for signature of a Schedule relating
to such Equipment, Lessee shall be deemed to have assigned to Lessor
all Lessee's right, title and interest in and to the Equipment and the
Purchase Order; provided that Lessor shall have no obligations under
the Purchase Order. Lessee shall execute and return to Lessor (a) each
Schedule within five days of Lessee's receipt of same, and (b) each
Certificate of Acceptance within five days of receipt and acceptance of
the applicable Equipment. If for whatever reason the lease transaction
in respect of the Equipment is not consummated, (i) Lessee shall remain
solely liable to pay Vendor in accordance with the Purchase Order, and
(ii) upon receipt of satisfactory evidence of such payment by Lessee,
Lessor shall assign to Lessee, without warranty, its right, title and
interest in and to the Equipment and the Purchase Order.
1.3 Term of Lease. The Original Term of each Lease shall begin on
the Commencement Date as specified in the applicable Schedule and,
subject to Sections 3.5 and 4.2, shall terminate on the date specified
in the applicable Schedule. If so provided in the applicable Schedule,
the Original Term for any Lease may be succeeded by one or more
1.4 Extended Terms. Subject to Sections 3.5 and 4.2 and any
express provisions of the Schedule, no Lease may be terminated by
Lessor or Lessee, for any reason whatsoever, prior to the end of the
Original Term or any pending Extended Term. Rental Payments. Lessee
shall pay Lessor Rent for the Equipment in the amounts and at the times
specified in the applicable Schedule. All Rent and other amounts
payable by Lessee to Lessor hereunder shall be paid to Lessor at the
address specified above, or at such other place as Lessor may designate
in writing to Lessee from time to time.
1.5 Return of Equipment. Upon expiration of the Lease Term,
Lessee shall immediately return the Equipment to Lessor in the
condition and at the place provided in Section 3.3.
II. DISCLAIMERS AND WARRANTIES; INTELLECTUAL PROPERTY
2.1 Disclaimers; Warranties. Lessee represents and acknowledges
that the Equipment is of a size, design, capacity and manufacture
selected by it, and that it is satisfied that the Equipment is suitable
for its purposes. LESSEE LEASES THE EQUIPMENT AS IS, AND, NOT BEING
THE MANUFACTURER OF THE EQUIPMENT, THE MANUFACTURER'S AGENT OR THE
SELLER'S AGENT, LESSOR MAKES NO WARRANTY OR REPRESENTATION, EXPRESS OR
IMPLIED, AS TO THE MERCHANTABILITY, FITNESS FOR ANY PARTICULAR PURPOSE,
DESIGN OR CONDITION OF THE EQUIPMENT. LESSOR SHALL NOT BE RESPONSIBLE
FOR ANY LOSS OR DAMAGE RESULTING FROM THE INSTALLATION, OPERATION OR
OTHER USE, OR DEINSTALLATION OF THE EQUIPMENT, INCLUDING ANY DIRECT,
INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES OR LOSS. Lessee shall
look solely to the manufacturer or the supplier of the Equipment for
correction of any problems that may arise with respect thereto, and all
transferable manufacturer and supplier warranty rights are, to the
extent such rights have been transferred to Lessor, hereby assigned
without representation or warranty by Lessor to Lessee for the Lease
Term, which warranties Lessee is authorized to enforce if and when
there exists no Event of Default. Any such enforcement shall be at
Lessee's sole cost and expense.
2.2 Intellectual Property. Lessee acknowledges that neither this
Agreement nor any Lease conveys any explicit or implicit license for
the use of software or other intellectual property of Cisco Systems,
Inc. or its affiliates relating to the Equipment and that such license
rights, to the extent they exist, are contained in separate
documentation entered into between Lessee and Cisco Systems, Inc. or
other persons. LESSOR MAKES NO WARRANTIES OR REPRESENTATIONS
WHATSOEVER WITH RESPECT TO THE INTELLECTUAL PROPERTY RIGHTS, INCLUDING
ANY PATENT, COPYRIGHT AND TRADEMARK RIGHTS, OF ANY THIRD PARTY WITH
RESPECT TO THE EQUIPMENT, WHETHER RELATING TO INFRINGEMENT OR
OTHERWISE. Lessor shall, when reasonably requested in writing by
Lessee, provided there exists no Event of Default and an indemnity
satisfactory to Lessor is delivered by Lessee, and at Lessee's cost and
expense, enforce rights of indemnification, if any, for patent,
copyright or other intellectual property infringement obtained from the
manufacturer under any agreement for purchase of the Equipment. If
notified promptly in writing of any action brought against Lessee based
on a claim that the Equipment infringes a United States patent,
copyright or other intellectual property right, Lessor shall promptly
notify the manufacturer thereof for purposes of exercising, for the
benefit of Lessee, Lessor's rights with respect to such claim under any
such agreement.
III. LESSEE OBLIGATIONS
3.1 Net Lease; Payments Unconditional. EACH LEASE IS A NET LEASE,
AND ALL COSTS, EXPENSES AND LIABILITIES RELATING TO THE EQUIPMENT,
INCLUDING IN RESPECT OF TAXES, INSURANCE AND MAINTENANCE, SHALL BE
BORNE SOLELY BY LESSEE. LESSEE'S OBLIGATION TO PAY ALL RENT AND OTHER
SUMS THEREUNDER, AND THE RIGHTS OF LESSOR IN AND TO SUCH PAYMENTS,
SHALL BE ABSOLUTE AND UNCONDITIONAL, AND SHALL NOT BE SUBJECT TO ANY
ABATEMENT, REDUCTION, SETOFF, DEFENSE, COUNTERCLAIM, INTERRUPTION,
DEFERMENT OR RECOUPMENT, FOR ANY REASON WHATSOEVER.
3.2 Use of Equipment. Lessee shall use the Equipment solely in
the conduct of its business, in a manner and for the use contemplated
by the manufacturer thereof, and in compliance with all Requirements of
Law of every Governmental Authority having jurisdiction over the
Equipment or Lessee and with the provisions of all policies of
insurance carried by Lessee pursuant to Section 3.6.
3.3 Delivery; Installation; Return; Maintenance and Repair;
Inspection. Lessee shall be solely responsible, at its own expense,
for (a) the delivery of the Equipment to Lessee, (b) the packing,
rigging and delivery of the Equipment back to Lessor, upon expiration
or termination of the Lease Term, in good repair, condition and working
order, ordinary wear and tear excepted, at the location(s) within the
continental United States specified by Lessor, and (c) the
installation, de-installation, maintenance and repair of the Equipment.
During the Lease Term, Lessee shall ensure that the Equipment is
covered by a maintenance agreement, to the extent available, with the
manufacturer of the Equipment or other party reasonably acceptable to
Lessor. Lessee shall, at its expense, keep the Equipment in good
repair, condition and working order, ordinary wear and tear excepted,
and at the expiration or termination of the Lease Term with respect to
any of the Equipment, have such Equipment inspected and certified
acceptable for maintenance service by the manufacturer. If any of the
Equipment, upon its return to Lessor, is not in good repair, condition
and working order, ordinary wear and tear excepted, and so inspected
and certified, Lessee shall be obligated to pay Lessor for the out-of-
pocket expenses Lessor incurs in bringing such Equipment up to such
status, but not in excess of the Casualty Value for such Equipment,
promptly after its receipt of an invoice for such expenses. Lessor
shall be entitled to inspect the Equipment at reasonable times.
3.4 Taxes. Lessee shall pay, and hereby indemnifies Lessor on a
net, after-tax basis, against, and shall hold it harmless from, all
license fees, assessments, and sales, use, property, excise and other
taxes and charges, other than those measured by Lessor's net income,
now and hereafter imposed by any Governmental Authority upon or with
respect to any of the Equipment, or the possession, ownership, use or
operation thereof, or any Lease, or the consummation of the
transactions contemplated by any Lease. Notwithstanding the foregoing,
to the extent required of it by applicable law and in reliance upon
Lessee's disclosure of the location of such Equipment, Lessor shall
file personal property tax returns, and shall pay personal property
taxes payable with respect to the Equipment. Lessee shall pay to
Lessor the amount of all such personal property taxes within 15 days of
its receipt of an invoice for such taxes. For any Lease that is
specified as an FMV Lease in the applicable Schedule, Lessee
acknowledges that it is the intent of Lessor, and a material inducement
to Lessor to enter into such Lease, to obtain all state and Federal
income tax benefits of ownership with respect to the Equipment under
such Lease, including entitlement to annual accelerated cost recovery
deductions.
3.5 Loss of Equipment. Lessee assumes the risk that, and shall
promptly notify Lessor in writing if, any item of Equipment becomes
lost, stolen, damaged, destroyed or otherwise unfit or unavailable for
use from any cause whatsoever (an "Event of Loss") after it has been
delivered to a common carrier for shipment to Lessee. Unless the item
is damaged and is reparable within a reasonable period of time in the
judgment of Lessor (in which event Lessee shall promptly cause such
item to be repaired and restored to the condition and value it had
prior to such Event of Loss, at its own cost and expense), Lessee shall
pay to Lessor on the Rent payment date following Lessor's receipt of
such notice (or, if none, 30 days after such Event of Loss), an amount
equal to the Rent payment or payments due and payable with respect to
such Equipment on or prior to such date, plus a sum equal to the
Casualty Value of such Equipment as of such date. Upon making such
payment, the Rent for such Equipment shall cease to accrue, the term of
the Lease as to such Equipment shall terminate and (except in the case
of loss, unrecovered theft or complete destruction) Lessor shall be
entitled to recover possession of such Equipment in accordance with the
provisions of Section 3.3 above. If Lessor has received the foregoing
amount, Lessee shall be entitled to the proceeds of any recovery in
respect of such Equipment from insurance or otherwise, provided that if
the Equipment is subject to an FMV Lease, Lessee shall be entitled to
receive such proceeds only up to the Casualty Value therefor, any
excess amount to be paid to Lessor.
3.6 Insurance. Lessee shall obtain and maintain for the Lease
Term at its own expense, property damage and liability insurance and
insurance against loss or damage to the Equipment as a result of fire,
explosion, theft, vandalism and such other risks of loss as are
normally maintained on equipment of the type leased hereunder by
companies carrying on the business in which Lessee is engaged, in such
amounts, in such form and with such insurers as shall be satisfactory
to Lessor. Each insurance policy shall name Lessee as insured and
Lessor and its assignees as additional insureds and loss payees thereof
as their interest may appear, and shall provide that it may not be
cancelled or altered without at least 30 days' prior written notice
thereof being given to Lessor (or 10 days', in the event of non-payment
of premium).
3.7 Indemnity. Except with respect to the gross negligence or
willful misconduct of Lessor, Lessee hereby indemnifies, protects,
defends and holds harmless Lessor from and against any and all claims,
liabilities (including negligence, tort and strict liability), demands,
actions, suits, and proceedings, losses, costs, expenses and damages,
including reasonable attorneys' fees and costs (collectively,
"Claims"), arising out of, connected with, or resulting from any Lease
or any of the Equipment, or any ancillary or related software or other
intangibles, whether arising before, during or after the Lease Term
(but not Claims relating to events occurring after Lessee has returned
the Equipment to Lessor in accordance with Section 3.3), including
Claims relating to the manufacture, selection, purchase, delivery,
possession, condition, use, operation, return or other disposition of
the Equipment. Each of the parties shall give the other prompt written
notice of any Claim of which it becomes aware.
3.8 Lessee Negative Covenants. Without the prior written consent
of Lessor, which consent as it pertains to clauses (b) and (d) below
shall not be unreasonably withheld, Lessee shall not: (a) assign,
transfer, or otherwise dispose of any Equipment, the Lease or any
rights or obligations thereunder; (b) sublease any of the Equipment or
permit the Equipment to be controlled by any other person; (c) create
or incur, or permit to exist, any Lien with respect to any of the
Equipment; (d) cause or permit any of the Equipment to be moved from
the location specified in the applicable Schedule; or (e) cause or
permit any of the Equipment to be moved outside the United States.
3.9 Identification. Lessee shall place and maintain permanent
markings provided by Lessor on the Equipment evidencing ownership,
security and other interests therein, as specified from time to time by
Lessor.
3.10 Alterations and Modifications. Lessee shall not make any
additions, attachments, alterations or improvements to the Equipment
without the prior written consent of Lessor, not to be unreasonably
withheld. Any addition, attachment, alteration or improvement to any
item of Equipment shall belong to and become the property of Lessor
unless, at the request of Lessor, it is removed prior to the return of
such item of Equipment by Lessee. Lessee shall be responsible for all
costs relating to such removal and shall restore such item of Equipment
to the condition and value otherwise required hereunder.
3.11 Personal Property. Lessee acknowledges and represents that
the Equipment shall be and remain personal property, notwithstanding
the manner by which it may be attached or affixed to realty, and Lessee
shall do all acts and enter into all agreements necessary to ensure
that the Equipment remains personal property. If requested by Lessor
with respect to any item of Equipment, Lessee shall obtain and deliver
to Lessor equipment access agreements, satisfactory to Lessor, from all
persons claiming any interest in the real property on which such item
of Equipment is installed or located.
3.12 Financial Statements. Subject to the term of any Schedule,
Lessee shall promptly furnish to Lessor such financial or other
statements regarding the condition and operations of Lessee and any
Guarantor, and information regarding the Equipment, as Lessor may from
time to time reasonably request.
3.13 Lessee Representations. Lessee hereby represents and
warrants as of the date hereof and of each Schedule entered into
hereunder, as follows:
(a) With respect to this Agreement, and each Schedule,
certificate evidencing acceptance of equipment, assignment of purchase
order, insurance letter, proposal letter, UCC financing statement, or
other document now or hereafter executed by Lessee in connection with
any Lease (collectively, "Lease Documents"), (i) the execution,
delivery and performance thereof by Lessee or its attorney-in-fact have
been duly authorized by all necessary corporate, partnership or company
action; (ii) the person executing such documents is duly authorized to
do so; and (iii) such documents constitute legal, valid and binding
obligations of Lessee, enforceable in accordance with their terms.
(b) There are no actions, suits or proceedings pending or, to
the best of Lessee's knowledge, threatened, against or affecting Lessee
or any of its Subsidiaries before any Governmental Authority or
arbitrator which (i) purport to affect or pertain to this Agreement or
any Lease, or (ii) if determined adversely to Lessee or any such
Subsidiary, would result in a Material Adverse Change.
(c) Lessee and its Subsidiaries possess all approvals,
authorizations, permits, franchises, licenses, patents, trademarks,
trade names, service marks, and copyrights, free from burdensome
restrictions, that are reasonably necessary for the ownership,
maintenance and operation of their respective businesses and the
maintenance and operation of the Equipment, and neither Lessee nor any
of its Subsidiaries is in material violation of any right of others
with respect to the foregoing.
(d) Lessee and its Subsidiaries have filed all federal and
other material tax returns and reports required to be filed and have
paid all federal and other material taxes, assessments, fees and other
governmental charges levied or imposed upon them or their properties,
income or assets and otherwise due and payable, except those which are
being or will be contested in good faith by appropriate proceedings and
for which adequate reserves have been provided in accordance with GAAP.
Lessee has not received any notice of any proposed tax assessment
against Lessee or any of its Subsidiaries that would, if made, result
in a Material Adverse Change.
(e) There exists no Event of Default hereunder.
IV. DEFAULT AND REMEDIES
4.1 Events of Default. The occurrence of any of the following
shall constitute an "Event of Default" hereunder and under each Lease:
(a) Lessee fails to pay any Rent or other amount due under any Lease
within five days after it becomes due and payable; (b) any
representation or warranty of Lessee made in any Lease Document proves
to have been false or misleading in any material respect as of the date
when it was made; (c) Lessee fails to maintain insurance as required
herein or breaches any of clauses (a), (b) or (e) of Section 3.8;
(d) Lessee fails to perform any other covenant, condition or agreement
made by it under any Lease, and such failure continues for 20 days;
(e) bankruptcy, receivership, insolvency, reorganization, dissolution,
liquidation or other similar proceedings are instituted by or against
Lessee, any Guarantor or any partner of a partnership Lessee or
Guarantor, or all or any part of such person's property, under the
Bankruptcy Code or other law of the United States or of any other
competent jurisdiction, and, if such proceeding is brought against such
person, it consents thereto or fails to cause the same to be discharged
within 45 days after it is filed; (f) Lessee materially defaults under
any agreement with respect to the purchase or installation of any of
the Equipment; or (g) Lessee or any guarantor of any Lease, or any of
their respective Subsidiaries or other Affiliates, defaults under any
other instrument or agreement with Lessor or Cisco Systems, Inc.
4.2 Remedies. If an Event of Default exists, Lessor may exercise
any one or more of the following remedies, in addition to those arising
under applicable law: (a) proceed, by appropriate court action, to
enforce performance by Lessee of the applicable covenants of any or all
of the Leases; (b) terminate any or all Leases by notice to Lessee and
take possession of any or all of the Equipment and, for such purpose,
enter upon any premises where the Equipment is located with or without
notice or process of law and free from all claims by Lessee or any
other person, or require Lessee to assemble the Equipment and deliver
it to Lessor in accordance with Section 3.3; (c) recover any and all
direct and incidental damages, including all accrued and unpaid Rent
and other amounts owing under any Lease, and (i) for any Lease that is
an FMV Lease, the Equipment for which has not been returned to Lessor
in the condition required hereunder, an amount equal to the Casualty
Value thereof; or (ii) for any Lease that is an FMV Lease, the
Equipment for which has been so returned to Lessor, such amounts as are
provided for the lessee breach of a personal property lease under the
Uniform Commercial Code of the jurisdiction specified in Section 5.11
(the "Code"), using the Discount Rate to calculate present values for
such purpose; or (iii) for any Lease that is not an FMV Lease, an
amount equal to the present value, discounted at the Discount Rate, of
the sum of all Rent and other payments remaining to be paid under such
Lease through the Lease Term plus the applicable purchase option amount
specified in Paragraph 7 of the Schedule; and (d) sell or re-lease any
or all of the Equipment, through public or private sale or lease
transactions, and apply the proceeds thereof to Lessee's obligations
under such Leases or otherwise seek recovery in accordance with
applicable provisions of the Code. Lessee shall remain liable for any
resulting deficiency and Lessor may retain any surplus it may realize
in connection with an FMV Lease. The "Discount Rate" shall be the
rate for U.S. Treasury obligations having a constant maturity of three
months, as specified in the Federal Reserve Statistical Release H.15
(or replacement publication) issued most recently prior to the date of
termination of the Lease. Lessee shall pay all costs and expenses
(including reasonable attorneys' fees) incurred by Lessor in retaking
possession of, and removing, storing, repairing, refurbishing and
selling or leasing such Equipment and enforcing any obligations of
Lessee pursuant to any Lease.
V. MISCELLANEOUS
5.1 Performance of Lessee's Obligations. Upon Lessee's failure to
pay any amount or perform any obligation under any Lease when due,
Lessor shall have the right, but shall not be obligated, to pay such
sum or perform such obligation, whereupon such sum or cost of such
performance shall immediately become due and payable thereunder, with
interest thereon at the Default Rate from the date such payment or
performance was made.
5.2 Right to Use. So long as no Event of Default exists, neither
Lessor nor its assignee shall interfere with Lessee's right to use the
Equipment under any Lease.
5.3 Assignment by Lessor. Lessor may assign or transfer any or
all of Lessor's interest in this Agreement, any Lease, any Equipment or
Rents, without notice to Lessee. Any assignee of Lessor shall have all
of the rights, but none of the obligations (unless otherwise provided
in the applicable assignment), of a "Lessor" under this Agreement and
the applicable Lease, and Lessee agrees that it will not assert against
any assignee any defense, counterclaim or offset that Lessee may have
against Lessor or any preceding assignee, and that upon notice of such
assignment or transfer, it will pay all Rent and other sums due under
this Agreement and the applicable Lease to such assignee or transferee.
Lessee acknowledges that any assignment or transfer by Lessor shall not
materially change Lessee's duties or obligations under this Agreement
or any Lease, nor materially increase the burdens or risks imposed on
Lessee or, unless Lessee has consented to the assignment, relieve
Lessor from its material obligations hereunder.
5.4 Further Assurances. Upon the request of Lessor from time to
time, Lessee shall execute and deliver such further documents and do
such further acts as Lessor may reasonably request in order fully to
effect the purposes of this Agreement or any Lease. Lessee hereby
appoints Lessor its attorney in fact, coupled with an interest,
authorized, without any obligation to do so, (a) to sign on Lessee's
behalf and file, record and register financing statements, and
amendments and continuations thereof, and any other documents relating
to liens, security interests or property rights of Lessor, Lessee or
any third person with respect to any Equipment and ancillary property,
in accordance with any Uniform Commercial Code or other code or
statute, and (b) to enforce, in its own name or in the name of Lessee,
claims relating to any Equipment against insurers, manufacturers or
other persons, and to make, adjust, settle, compromise and receive
payments as to such claims.
5.5 Rights and Remedies. Each right and remedy granted to Lessor
under any Lease shall be cumulative and in addition to any other right
or remedy existing in equity, at law, by virtue of statute or
otherwise, and may be exercised by Lessor from time to time
concurrently or independently and as often and in such order as Lessor
may elect. Any failure or delay on the part of Lessor in exercising
any such right or remedy shall not operate as a waiver thereof.
5.6 Notices. Any notice, request, demand, consent, approval or
other communication provided for or permitted in relation to any Lease
shall be in writing and shall be conclusively deemed to have been
received by a party hereto on the day it is delivered to such party at
its address, or received by the party at such facsimile number, as is
set forth in such Lease (or at such other addresses or fax numbers such
party shall specify to the other party in writing), or if sent by
registered or certified mail, return receipt requested, on the fifth
day after the day on which it is mailed, postage prepaid, addressed to
such party.
5.7 Section Headings; Interpretation. Section headings are
inserted for convenience of reference only and shall not affect any
construction or interpretation of any Lease Document. In interpreting
the provisions of any Lease Document, (a) the term "including" is not
limiting; (b) references to "person" include individuals, corporations
and other legal persons and entities; (c) the singular of defined terms
includes the plural and vice-versa; and (d) section and paragraph
references are to the document in which such reference appears, unless
the context otherwise requires.
5.8 Entire Lease. This Agreement, together with the other Lease
Documents, constitute the entire agreement between Lessor and Lessee
with respect to the lease of the Equipment. No waiver or amendment of,
or any consent with respect to, any provision of any Lease Document
shall bind either party unless set forth in a writing, specifying such
waiver, consent, or amendment, signed by both parties. TO THE EXTENT
PERMITTED BY APPLICABLE LAW AND NOT OTHERWISE SPECIFICALLY GRANTED TO
LESSEE IN ANY LEASE DOCUMENT, LESSEE HEREBY WAIVES ANY AND ALL RIGHTS
OR REMEDIES CONFERRED UPON A LESSEE UNDER THE CODE OR ANY OTHER
APPLICABLE LAW OR STATUTE, WITH RESPECT TO A DEFAULT BY LESSOR UNDER
THIS AGREEMENT OR ANY LEASE (provided that nothing in the preceding
sentence constitutes a waiver of Lessee's right to assert a breach of
contract or bad faith defense, claim or counterclaim based on any
allegation that Lessor has breached its material obligations under this
Agreement). Each FMV Lease is intended by the parties as a "finance
lease" under the Code.
5.9 Severability. Should any provision of any Lease Document be
or become invalid, illegal, or unenforceable under applicable law, the
other provisions of such Lease Document shall not be affected and shall
remain in full force and effect.
5.10 Attorneys' Fees; Default Interest; Maximum Rates. Lessee
shall reimburse Lessor for all charges, costs, expenses and attorney's
fees incurred by Lessor (a) in defending or protecting its interests in
the Equipment, (b) in the enforcement of this Agreement or any Lease,
and (c) in any lawsuit or other legal proceeding to which this
Agreement or any Lease gives rise. Any nonpayment of Rent or other
amount payable under any Lease shall result in Lessee's obligation to
promptly pay Lessor on such overdue payment, for the period of time
during which it is overdue (including during any grace period),
interest at a rate ("Default Rate") equal to fourteen percent (14%)
per annum. To the extent that any payment of interest (including any
amount deemed imputed interest for purposes of applicable law) under
any Lease Document would otherwise exceed provisions of any law
limiting the highest rate of interest that may be lawfully contracted
for, charged or received by Lessor, such payment amount shall be deemed
reduced to such amount as is equal to or consistent with the highest
rate permitted by applicable law.
5.11 Governing Law and Jurisdiction. THIS AGREEMENT AND THE OTHER
LEASE DOCUMENTS SHALL BE GOVERNED IN ALL RESPECTS BY THE LAWS OF THE
STATE OF CALIFORNIA. LESSOR AND LESSEE WAIVE ALL RIGHTS TO TRIAL BY
JURY IN ANY LITIGATION ARISING FROM ANY LEASE DOCUMENT. LESSEE
CONSENTS TO THE NON-EXCLUSIVE JURISDICTION OF THE STATE COURTS OF
CALIFORNIA, AND THE FEDERAL COURTS SITTING IN THE STATE OF CALIFORNIA,
FOR THE RESOLUTION OF ANY DISPUTES UNDER ANY LEASE DOCUMENT.
5.12 Survival. All obligations of Lessee to make payments to
Lessor under any Lease or to indemnify Lessor, including pursuant to
Section 3.4 or 3.7 above, with respect to a Lease, and all rights of
Lessor hereunder with respect to a Lease, shall survive the termination
of such Lease and the return of the Equipment.
5.13 Security. To secure the payment and performance by Lessee of
all obligations under each Lease, and in addition to any other security
granted under other agreements, Lessee hereby grants Lessor a security
interest in Lessee's right, title and interest, now existing and
hereafter arising, in and to, (a) all Equipment subject to such Lease,
(b) all insurance, warranty, rental and other claims and rights to
payment and chattel paper arising out of such Equipment, (c) all rights
to software used or usable in connection with the Equipment and which
is embedded in the Equipment, and (d) all books, records and proceeds
relating to the foregoing.
5.14 Counterparts; Chattel Paper. Each Lease Document may be
executed in counterparts, and when so executed each counterpart shall
be deemed to be an original, and such counterparts together shall
constitute one and the same instrument. The original of each Schedule
shall constitute chattel paper for purposes of the Code. If there
exist multiple originals of a Schedule, the one marked "Lessor's Copy"
or words of similar import, shall be the only chattel paper.
5.16 Appendix; Addenda. The Appendix and the Addendum, if any,
are a part of and incorporated into this Agreement by this reference.
LESSEE, BY THE SIGNATURE BELOW OF ITS AUTHORIZED REPRESENTATIVE,
ACKNOWLEDGES THAT IT HAS READ THIS AGREEMENT, UNDERSTANDS IT, AND
AGREES TO BE BOUND BY ITS TERMS AND CONDITIONS. EACH PERSON SIGNING
BELOW ON BEHALF OF LESSEE REPRESENTS THAT HE OR SHE IS AUTHORIZED TO
EXECUTE AND DELIVER THIS AGREEMENT ON BEHALF OF LESSEE.
LESSOR: LESSEE:
CISCO SYSTEMS CAPITAL CORPORATION US DATA AUTHORITY, INC.
By: /S/ Wayne Sepos By: /S/Ronald H. Leventhal
(Authorized Signature) President, Principal Executive,
Financial and Accounting
Officer
-21-
