<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 23, 1997
REGISTRATION NO. _______________
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM SB-2
Registration Statement Under The Securities Act of 1933
---------------------
WORLD WIRELESS COMMUNICATIONS, INC.
(Name of Small Business Issuer in Its Charter)
<TABLE>
<CAPTION>
<S> <C> <C>
Nevada 8911 87-0549700
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
150 Wright Brothers Drive, Suite 560
Salt Lake City, Utah 84116
Telephone: 801/575-6600
Facsimile: 801/576-6621
David D. Singer, CEO and President
150 Wright Brothers Drive, Suite 560
Salt Lake City, Utah 84116
Telephone: 801/575-6600
Facsimile: 801/535-2450
(Name, address and telephone number of agent for service)
---------------------
Copies to:
Joseph Chicco, Esquire
Connolly Epstein Chicco Foxman
Engelmyer & Ewing
1515 Market Street - 9th Floor
Philadelphia, PA 19102
Telephone: 215/851-8410
Facsimile: 215/851-8383
---------------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
---------------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
================================================================================
<PAGE>
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
==================================================================================================
Title of Each
Class of Proposed Maximum Proposed Maximum Amount of
Securities to Amount to be Offering Price Aggregate Offer- Registration
be Registered Registered Per Share ing Price Fee
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------
Common Stock, $.001
par value ...... 3,809,031(1) $ 11.625(2) $ 44,279,985(2) $ 13,417(2)
- --------------------------------------------------------------------------------------------------
Common Stock, $.001
par value ...... 190,969(3) $ 2.00(4) $ 381,532 (5) $ 116.00
- --------------------------------------------------------------------------------------------------
Total ......... 4,000,000 $ 13,533(2)
==================================================================================================
</TABLE>
(1) These shares are being offered by certain stockholders of the Company.
(2) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457 under the Securities Act of 1933. Pursuant to Rule
457(c), the proposed maximum offering price per share and registration fee
are based upon the mean between the bid ($11.25) and asked ($12.00) prices
of the Registrant's Common Stock on October 17, 1997, as reported on the OTC
Electronic Bulletin Board.
(3) These shares are issuable upon the exercise of outstanding stock options
issued in connection with an acquisition.
(4) 223 shares are issuable at an option exercise price of $0.18. The remaining
shares are issuable at an exercise price of $2.00.
(5) Based upon the exercise price of options.
<PAGE>
CROSS REFERENCE SHEET
Pursuant to Item 502(f) of Regulation S-B
Between Registration Statement and Form of Prospectus
<TABLE>
<CAPTION>
Item Number and Heading Caption in Prospectus
- ----------------------- ---------------------
<S> <C>
1. Front of Registration Statement and Outside
Front Cover of Prospectus .......................... Outside Front Cover of Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus ......................................... Inside Front and Outside Back Cover Pages of
Prospectus
3. Summary Information and Risk Factors ............... Prospectus Summary -- The Company, -- Risk
Factors, -- Summary Financial Information; Risk
Factors
4. Use of Proceeds .................................... Use of Proceeds
5. Determination of Offering Price ..................... Not Applicable
6. Dilution .......................................... Dilution
7. Selling Security Holders ........................... Principal and Selling Stockholders
8. Plan of Distribution ................................. Inside Front Cover; Plan of Distribution
9. Legal Proceedings .................................... Business of the Company -- Legal Proceedings
10. Directors, Executive Officers, Promoters and
Control Persons ...................................... Management
11. Security Ownership of Certain Beneficial Owners
and Management ..................................... Management; Principal and Selling Stockholders
12. Description of Securities ........................... Description of Securities
13. Interests of Named Experts and Counsel ............... Not Applicable
14. Disclosure of Commission Position on
Indemnification ...................................... Description of Securities
15. Organization With Last Five Years .................. Certain Relationships and Related Transactions
16. Description of Business .............................. Business of the Company
17. Management's Discussion and Analysis or Plan ......... Management's Discussion and Analysis
18. Description of Property .............................. Business of the Company -- Offices and Other
Facilities
19. Certain Relationships and Related Transactions ...... Organization and Capital Transactions
20. Market for Common Equity and Related
Stockholder Matters ................................ Outside Front Cover of Prospectus; Risk Factors;
Market Information
21. Executive Compensation .............................. Management -- Executive Compensation
22. Financial Statements ................................. Financial Statements
23. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure .............. Not Applicable
</TABLE>
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This Prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
PROSPECTUS -- SUBJECT TO COMPLETION, DATED OCTOBER 23, 1997
WORLD WIRELESS COMMUNICATIONS, INC.
4,000,000 Shares
Common Stock, $.001 Par Value
This Prospectus relates to the public offering of 3,809,031 outstanding
shares of Common Stock (the "Outstanding Shares") of World Wireless
Communications, Inc. (the "Company") by certain shareholders of the Company (the
"Selling Shareholders"). This Prospectus also relates to the offer and sale by
the Company of up to 190,969 shares of Common Stock (the "Option Shares")
presently reserved for issuance upon the exercise of outstanding stock options
issued in connection with the Company's acquisition of Digital Radio
Communications Corporation in February 1997, and may be used by persons who
acquire Option Shares in the resale of such Option Shares. To that extent, such
persons are included within the term "Selling Shareholders" as used herein. The
Outstanding Shares and the Option Shares, to the extent offered for resale by
persons acquiring them from the Company, are hereinafter referred to,
collectively, as the "Shares".
The Shares may be offered and sold by the Selling Shareholders from time to
time as market conditions permit in transactions in the over-the-counter market,
in negotiated transactions, or a combination of such methods of sale, at fixed
prices which may be changed, at market prices prevailing at the time of sale, at
prices relating to prevailing market prices or at negotiated prices. The Selling
Shareholders may effect such transactions to or through broker/dealers, and such
broker/dealers may receive compensation in the form of discounts, concessions or
commissions from the Selling Shareholders and/or the purchasers of the Shares
for whom such broker/dealers may act as agents or to whom they sell as
principals, or both (which compensation as to a particular broker/dealer might
be in excess of customary commissions). To the extent required, information
regarding the Shares to be offered and sold, the names of the Selling
Shareholders, the public offering price, the names of any such broker/dealer or
agent and any applicable commissions or discount with respect to any particular
offer is set forth herein or will be set forth in an accompanying Prospectus
supplement. See "Plan of Distribution".
None of the proceeds from the sale of the Outstanding Shares by the Selling
Shareholders will be received by the Company. Proceeds, if any, to the Company
from the sale of Option Shares by the Company will be a maximum of $381,532
based upon an option exercise price of $0.18 with respect to 223 Option Shares,
and $2.00 with respect to the remaining 190,746 Option Shares. The expenses of
registering all Shares, estimated to be approximately $150,000, will be borne by
the Company.
THE SHARES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE SHARES ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK. PURCHASERS OF
SHARES SHOULD CAREFULLY CONSIDER THE MATTERS DESCRIBED UNDER "RISK FACTORS"
BEGINNING AT PAGE 5, AND "DILUTION".
The Company's Common Stock is traded "over-the-counter". Dealer "bid" and
"asked" prices for the Common Stock are quoted on the OTC Electronic Bulletin
Board maintained by the National Association of Securities Dealers, Inc. (the
"OTC Bulletin Board") under the symbol "WWWC". On October 17, 1997, the closing
bid and asked prices for the Common Stock were $11.25 and $12.00, respectively.
See "Market Information". The Company intends to apply to have the Common Stock
approved for quotation on the SmallCap Market of The Nasdaq Stock Market, Inc.
under the symbol "WWWC" following the date of this Prospectus.
The date of this Prospectus is ------------ , 1997.
<PAGE>
PROSPECTUS SUMMARY
This summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and financial statements
appearing elsewhere in this Prospectus. Unless otherwise indicated, all
references to and information concerning "the Company" includes World Wireless
Communications, Inc. and its wholly-owned subsidiaries, and historical
information, except for the financial statements, presents the operations of the
Company and its subsidiaries on a combined basis, unless otherwise indicated.
The Company
World Wireless Communications, Inc. (the "Company") and its subsidiaries
design, develop and manufacture wired and wireless communications products,
systems and technology, and provide contract manufacturing services to the
electronics industry. The Company's executive offices are located at 150 Wright
Brothers Drive, Suite 560, Salt Lake City, Utah 84116, and its telephone number
at that address is 801/575-6600.
The Company was incorporated in Nevada on November 15, 1995, to acquire
from an affiliated company certain assets which previously had been used in the
business of Micro Security, Inc., a publicly traded company which had undergone
reorganization, and eventually was liquidated, in bankruptcy court. The
Company's acquisition of these assets, which related to a computer hardware
device, the SecuriKey(R), that is used to prevent unauthorized duplication of
software, was completed in March 1996. Until the last quarter of 1996, sales of
this device represented a substantial majority of the Company's revenues.
In October 1996, the Company began offering contract manufacturing services
through a newly-formed subsidiary, ECA Electronic Contract Assembly, Inc.
("ECA"). On February 12, 1997, a majority of the shareholders of Digital Radio
Communications Corporation ("DRCC") accepted an offer to merge DRCC into a
newly-formed subsidiary of the Company. Upon consummation of this merger, DRCC
shareholders exchanged each of their common shares for 0.557349 shares of the
Company's Common Stock, which resulted in the Company issuing 1,798,100 shares,
and options to purchase an additional 201,900 shares at a weighted-average price
of $1.90 per share. Since its acquisition of DRCC, the Company's strategy has
been to concentrate on the development, manufacture and sale of proprietary
wireless technology and products.
In the first half of 1997, the Company realized revenues from contract
design and development services (43%), contract manufacturing and assembly
services (37%), the sale of certain wireless technology (15%) and sales of
SecuriKey(R) related products (5%). The Company's first sales of proprietary
wireless products occurred in the third quarter of this year.
The Offering
The Shares being offered hereby consist of 3,809,031 Outstanding Shares
which were acquired by the Selling Shareholders or their predecessors in
interest either in direct private placements by the Company, in exchange for
shares of DRCC in connection with the Company's acquisition of DRCC in February
1997, or upon the exercise of options granted in connection with the DRCC
acquisition in exchange for previously outstanding DRCC options (hereinafter
sometimes referred to as "DRCC Conversion Options"), and 190,969 shares reserved
for issuance upon the exercise of outstanding DRCC Conversion Options. The
Outstanding Shares are being offered and will be sold for the accounts of
Selling Shareholders, and the Company will not receive any proceeds from sales
of the Outstanding Shares. All expenses of registering the Shares will be paid
by the Company. See "Plan of Distribution".
3
<PAGE>
Summary Consolidated Historical and Pro Forma Financial Information
The following table sets forth summary historical financial data of the
Company for the period indicated and summary pro forma financial data giving
effect to the acquisition of DRCC for the period indicated. This information
should be read in conjunction with the consolidated financial statements of the
Company and notes thereto and the pro forma consolidated financial statements
and notes thereto contained elsewhere in this Prospectus.
Historical Operating Data:
<TABLE>
<CAPTION>
Cumulative
Six Months From Incep-
Ended June 30, Year Ended December 31, tion Through
1997 1996 1996 1995 June 30, 1997
-------------- ------------ ------------ ------------ --------------
<S> <C> <C> <C> <C> <C>
Sales ..................... $ 1,875,494 $ 339,283 $ 618,505 $ 426,825 $ 2,920,824
Gross profit ............... 805,397 20,179 (43,679) (189,469) 951,187
Net loss .................. (1,562,697) (288,049) (899,924) (88,668) (2,551,289)
Loss per common share ...... $ (0.19) $ (0.09) $ (0.25) $ (0.10) $ (0.30)
Shares used in per share
calculations ............ 8,421,370 3,049,484 3,601,750 854,640 8,421,370
</TABLE>
Pro forma Operating Data:
For the Six For the Year
Months Ended Ended December
June 30, 1997 31, 1996
--------------- ---------------
Sales ..................... $ 2,010,079 $ 2,004,983
Gross profit ............... 851,777 336,433
Net loss .................. (1,790,337) (2,826,035)
Loss per common share ...... $ (0.21) $ (0.52)
Shares used in per share
calculations ............ 8,330,116 5,399,850
Balance Sheet Data:
June 30, 1997
--------------
Working capital ............ $ 1,050,582
Total assets ............... 6,654,713
Long-term liabilities ...... 600,549
Stockholders' equity ...... 5,150,784
Risk Factors
Purchase of the Company's Common Stock involves a high degree of risk.
Persons considering a purchase of Shares should carefully consider all of the
information contained in this Prospectus and, in particular, the facts set forth
under the caption "Risk Factors" below.
4
<PAGE>
RISK FACTORS
Prospective investors should carefully consider all of the information
contained in this Prospectus before deciding whether to purchase Shares and, in
particular, the factors set forth below. Information contained in this
Prospectus contains "forward-looking statements" which can be identified by the
use of forward-looking terminology such as "believes", "expects", "may",
"should" or "anticipates" or the negative thereof or other variations thereon or
comparable terminology or by discussions of strategy. No assurance can be given
that the future results covered by the forward-looking statements will be
achieved. The following factors include, among other things, cautionary
statements with respect to certain forward-looking statements, including
statements of certain risks and uncertainties that could cause actual results to
vary materially from the future results referred to in such forward-looking
statements.
Limited Operating History; History of Operating Losses. The Company has had
a limited operating history, and has a cumulative net operating deficit of
approximately $2,551,289 from inception through June 30, 1997. In the first six
months of 1997, the Company incurred a net operating loss, on a pro forma basis,
of $1,790,337, and the Company anticipates reporting a loss from operations in
the second half of the year.
As a new enterprise, the Company is likely to remain subject to risks and
occurrences which management is unable to predict with any degree of certainty,
and for which it is unable to fully prepare. While the Company expects its
revenues to increase as new products are introduced and contract design and
development services are expanded, significant additional expenses will be
incurred in developing and marketing its products and in providing its contract
services. Growth in the Company's business could be expected to be accompanied
by strains on the Company's administrative, financial and operating resources.
The Company's ability to manage growth effectively will require it to continue
to expand and improve its operational, financial and management controls, and to
train, motivate and manage its employees. In any event, there is no assurance
that the Company will achieve revenue growth sufficient to offset anticipated
increases in costs, nor is there any assurance that the Company will be
successful in overcoming problems associated with unforeseen costs and
competition, technical problems associated with new products and technology, and
other risks which all business ventures face and which could be especially acute
for a relatively new company attempting to establish and expand its business in
a highly competitive industry characterized by rapid technological development
and change.
For all of the foregoing reasons, as well as the factors described below,
any purchase of Shares should be considered a speculative investment involving a
significant risk of loss.
Need for Additional Capital. The Company has been dependent on equity
funding from outside investors to allow it to conduct operations, and may
require additional funding in the future. Unless the Company is able to continue
to raise funds through such equity or other financing until such time, if ever,
as it is able to operate profitability, the Company could be required to curtail
or cease operations. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations". There is no assurance that the Company
will be able to obtain additional financing which may be required in the future,
or as to the terms of any financing which is obtained. In this regard,
prospective purchasers of Shares should note that as recently as August 1997,
the Company sold 500,000 shares of "restricted" (i.e., unregistered) Common
Stock at a price of $2.00 per share, which was substantially below the "bid" and
"asked" prices quoted for the Common Stock in the over-the-counter market at the
time of such sale. See "Organizational and Other Transactions -- Principal
Capital Transactions".
Dependence on New Products and Technology. A substantial majority of the
Company's revenues through June 30, 1997, on a pro-forma consolidated basis,
have resulted from contract manufacturing services and design and development
engineering services performed for other companies. Revenues from product sales
during this period (approximately 5% of total sales) were derived from a
hardware device, the SecuriKey(R), which is not in a product category which fits
the Company's present long term strategy of focusing on technology and products
relating to wireless transmission of voice, video and data. A substantial
portion of the Company's research, development, engineering and marketing effort
in the first half of 1997 was devoted to the development of proprietary wireless
products, including a line of products that are designed for use in short and
long distance telemetry, remote data collection, wireless security and similar
applications. The first commercial sales of products in this line occurred in
September 1997. The Company's investment in, and expectations for,
5
<PAGE>
this product line are large relative to the Company's existing resources and
prior revenues, but there is no assurance that the Company will be able to
recoup its investment or generate any profits from this line of products, or any
of its existing or proposed products. See "Business -- Existing Products" and
"-- Proposed Products". In particular, prospective purchasers of Shares should
understand that total sales of the products described under the caption
"Business -- Existing Products" have been very limited to date, and that the
products described under the caption "Business -- Proposed Products" are still
in development and testing stages and are not available for sale commercially.
The Company has received only limited indications that any of its proposed
products will be commercially acceptable and, even if one or more of such
products are offered for sale and achieve a degree of commercial success, there
is no assurance that this will result in the Company operating profitably.
Major Customers; Non-Recurring Sales. For the year ended December 31, 1996,
on a pro forma basis, 52.8% of the sales of the Company, or $1,058,398, were to
three customers, each of which accounted for 10% or more of total sales. In the
six month period ended June 30, 1997, also on a pro forma basis, $1,164,000
(57.9%) of sales were to Kyushu Matsushita Electric Co., including a technology
transfer ($300,000) and contract design and development services ($864,000),
both of which are non-recurring items. Sales to Alton Dean, Inc., for contract
manufacturing services, represented an additional 12.7% of sales ($255,322) in
the first half of 1997. See "Business -- Contract Design and Development". The
loss of either of these customers or failure to replace contract work which is
being completed with new contract work from these or other customers would have
a material impact on the Company's business. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations".
Competition. The market for wireless communications products is intensely
competitive, with many providers who have greater technical, financial and
marketing resources than the Company, and certain of whom are among the premier,
"high tech" leaders of the industrial world. The Company's strategy includes
entering into license agreements or other forms of "strategic partnership"
arrangements with larger companies in order to exploit their strengths, rather
than to confront them in the marketplace. There is no assurance that this
strategy will succeed, or that the Company will be able to overcome the
competitive disadvantages it faces as a small company with limited capital and
without a history of successfully developing and marketing proprietary wireless
technology, devices or products. In addition to present "mainstream"
competitors, the Company anticipates that numerous potential competitors with
high levels of technical and financial resources are, like the Company,
constantly searching for market niches and specialty products in the
communications industry. See "Business of the Company -- Competition".
Possible Loss of Services of Officers and Key Employees. The ability of the
Company to successfully conduct its business affairs is dependent upon the
capabilities of current officers and key employees. At the present time,
however, only one executive officer and/or key employee of the Company, Philip
Bunker, who is President of DRCC and a director of the Company, has a fixed term
employment agreement with the Company, and his contract is scheduled to expire
on November 1, 1997. If the Company is unable to retain the services of its key
executive and technical employees, its operations could be adversely affected.
There is no assurance that the Company will retain the services of its key
employees, or, if so, as to the terms on which it may be able to do so. The
Company does not presently carry any "key man" insurance on any employee, and
none of its present executive officers or key employees is subject to any
"restrictive covenants" that would prevent such employee from joining a
competitor after leaving the Company's employ. See "Management -- Directors and
Executive Officers".
Intellectual Property Rights. The Company is the assignee of a patent
application on technology relating to, among other technical matters, a method
and apparatus for de-modulating "spread spectrum" wireless signals. At the
present time, the Company has no other patent applications pending, and owns no
patents. The Company uses confidentiality agreements with its customers and
other parties to protect trade secrets and other proprietary data, and claims
copyrights on circuit boards and software used in its products. The use of such
agreements and other measures employed by the Company to protect sensitive
information may not be sufficient, however, to prevent other persons from
obtaining and using the Company's technology or developing other technology
which embodies the companies' technology.
To the extent the Company does not have patents on its products, there can
be no assurance that another company will not replicate one or more of the
Company's products, nor is there any assurance that any patents
6
<PAGE>
that are obtained will provide meaningful protection or significant competitive
advantages over competing products. There can be no assurance that any patent
rights that the Company has or may obtain in the future will provide the Company
with competitive advantages or will not be challenged by other companies or
individuals. Furthermore, there can be no assurance that other companies or
individuals will not independently develop similar products, duplicate the
Company's products or design around any of the Company's patents.
The Company's spread spectrum de-modulation technology patent application
is the subject of litigation now pending in the State of Utah, Salt Lake County
Court, in which a former joint venturer with the Company has claimed, among
other things, an ownership interest in the technology. See "Business -- Legal
Proceedings".
The Company presently holds a number of trademarks and/or services marks
relating to the SecuriKey(R) product line. The Company intends to pursue
registration of trademarks associated with its key products as they are
developed and become available for commercial use, and to protect its legal
rights concerning the use of its trademarks. The Company intends to rely upon
common law trademark rights to protect any unregistered trademarks. Common law
trademark rights, however, do not provide the Company with the same level of
protection afforded by a United States federal registration of a trademark. For
example, unlike a registered trademark, common law trademark rights are limited
to the geographic area in which the trademark is actually used.
Product Liability and Other Possible Future Claims. The Company may be
subject to substantial product liability costs if claims arise out of problems
associated with the products which it manufactures. The Company is insured
against such contingencies, but there can be no assurance that the coverage
provided by such policies ($1 million per occurrence, $2 million total) would be
adequate to cover all potential product liability claims and costs in the
future.
In addition, in providing its contract design and development services, the
Company typically is required to warrant that the technology that it develops
under contract will not infringe upon the intellectual property rights of third
parties, and to indemnify its customers from any loss or exposure arising from
any such infringement. Since the technology developed under the Company's design
and development contracts could be incorporated into products which are mass
produced and distributed, the potential loss in the event of an infringement
could be very high, and the Company has no insurance which would cover any such
loss or damages. The Company has not had an indemnification claim made against
it under any of these contracts, but there is no assurance that such a claim
will not be made in the future.
Government Regulations. The Company's wireless communications products are
subject to compliance with regulations pertaining to transmission as adopted by
the Federal Communications Commission ("FCC"). Currently, the Company's product
line operates under Part 15 of the FCC Telecommunications Code, which allows
companies to transmit data without a license in certain radio frequencies, or an
exemption granted by the FCC. None of the products that the Company presently
offers or is in the process of developing would require a user of the product to
obtain a license from the FCC. The availability of Part 15 to wireless
communications products requires that the product undergo testing by an
independent laboratory for such criteria as non-interference with other
communications products, physical antennae hook-up, non-intentional radiation
and transmission power, a process that can be expected to take 30 to 60 days and
cost approximately $20,000. At the present time, none of the Company's radios
has been tested by an independent laboratory for compliance with Part 15. See
"Business -- Regulation".
Possible Delisting -- Penny Stock Regulations. At the present time, the
Company's Common Stock is not listed on The Nasdaq Stock Market, Inc. or on any
exchange. Although dealer prices for the Company's Common Stock are listed on
the OTC Bulletin Board, trading has been limited since such quotations first
appeared in October 1996. See "Market Information". The Company intends to apply
to have its Common Stock approved for quotation on the Nasdaq SmallCap Market
effective on or about the date of this Prospectus. There is no assurance,
however, that approval will be received or, if received, that the Company will
meet the requirements for continued listing on the SmallCap Market. Under Nasdaq
rules, in order to maintain a listing on the Nasdaq SmallCap Market, a company
must have, among other things, either $2,000,000 in net tangible assets, a
market capitalization of $35,000,000 or more, or $500,000 net income in its last
fiscal year or two of its last three fiscal years. In addition, the listed
security must have a minimum bid price of $1.00 per share. Further, Nasdaq
reserves the right to withdraw or terminate a listing on the Nasdaq SmallCap
Market at any time and for any reason in its discretion. If the Company were
unable to obtain or to maintain a listing on the Nasdaq SmallCap Market,
quotations, if any, for "bid" and "asked" prices of the Common Stock would in
the "pink sheets"
7
<PAGE>
published by the National Quotation Bureau, Inc. or on the NASD's OTC Electronic
Bulletin Board where the Common Stock has been quoted prior to the date of this
Prospectus. In such event, an investor could find it more difficult to dispose
of or to obtain accurate quotations of prices for the Common Stock than would be
the case if the Common Stock were quoted on the Nasdaq SmallCap Market.
Irrespective of whether or not the Common Stock is included in the Nasdaq
system, there is no assurance that the public market for the Common Stock will
become more active or liquid in the future. In that regard, prospective
purchasers should consider that this offering is being made without underwriting
arrangements typically found in an initial public offering of securities. Such
arrangements generally provide for the issuer of the securities to sell the
securities to an underwriter which, in turn, sells the securities to its
customers and other members of the public at a fixed offering price, with the
result that the underwriter has a continuing interest in the market for such
securities following the offering.
The Securities Enforcement and Penny Stock Reform Act of 1990 requires
additional disclosure relating to the market for penny stocks in connection with
trades in any stock defined as a "penny stock". Commission regulations generally
define a penny stock to be an equity security that has a market price of less
than $5.00 per share and is not listed on The Nasdaq Stock Market, Inc. or a
major stock exchange. The regulations require the delivery, prior to any
transaction involving a penny stock, of a disclosure schedule explaining the
penny stock market and the risks associated therewith. The Company now
anticipates that, following the offering, the Common Stock will meet one or both
of the principal exceptions to "penny stock" classification, i.e., the
exceptions applicable to Nasdaq-listed securities and to securities with a bid
price in excess of $5.00. If the Common Stock does not meet an exception to
these regulations, i.e., if the Common Stock should fail to qualify for
quotation on Nasdaq and fail to maintain a price of $5.00 or more per share, the
Company's securities would become subject to Rule 15g-9 promulgated under the
Securities Exchange Act of 1934. Under such rule, broker/dealers who recommend
such securities to persons other than established customers and accredited
investors (generally, individuals with net worth in excess of $1,000,000 or
annual incomes exceeding $200,000 or $300,000 together with their spouses) must
take a special written suitability determination for the purchaser and receive
the purchaser's written agreement to a transaction prior to sale. In such event,
the market liquidity for the Shares could be adversely affected because the
regulations on penny stocks could limit the ability of broker/dealers to sell
the Company's securities and thus the ability of purchasers of the Company's
securities to sell their securities in the secondary market.
Market Overhang. As of October 15, 1997, the Company had 10,035,518 shares
of Common Stock outstanding, of which approximately 7,489,758 shares, or
approximately 75% of the total outstanding, were "restricted securities" which
had not been registered with the Securities and Exchange Commission or any state
securities agency and as to which future sales were restricted. The remaining
shares of the Company's outstanding Common Stock are not restricted and, with
the exception of 710,000 shares owned by persons who may be deemed "affiliates"
of the Company, are immediately saleable, without restriction, by their owners
and constitute the "public float" for the Common Stock. The sale of Shares
offered hereby will increase, and if all Shares were sold would increase
dramatically (i.e., from 1,835,760 shares to 5,038,316 shares), the "public
float" of Common Stock, i.e., the number of shares available for immediate and
unrestricted resale. A substantial increase in the public float could negatively
impact the market price for the Company's Common Stock.
In addition to the possible sale of shares in this offering, a substantial
portion of the Company's restricted securities are saleable under Rule 144,
promulgated by the Securities Exchange Commission under the Securities Act of
1933, upon the seller's compliance with the holding period, manner of sale and
other conditions and limitations of that Rule. Rule 144 also requires that
specified information concerning the Company must be available at the time any
such sale is made. Following this offering, the Company will be subject to
reporting requirements of the Securities Exchange Act of 1934, compliance with
which also will satisfy Rule 144 "public information" requirements. See "Market
Information -- Shares Saleable Under Rule 144".
Increases in Operating Costs: Availability of Supplies. An increase in
operating costs could adversely affect the ability of the Company to achieve
profitability. Factors such as inflation, increased labor and employee benefit
costs and the availability of qualified management and hourly employees may
adversely affect operation costs. Many of these costs are beyond the control of
the Company. In addition, the dependence on frequent deliveries of materials,
such as electronic component pieces, could subject the Company to shortages or
interruptions, which could adversely affect its business. See "Business -- Raw
Material and Supplies".
8
<PAGE>
NASD Inquiry. On August 5, 1997, the Company was notified by NASD
Regulation, Inc., the market regulation arm of the National Association of
Securities Dealers, Inc. (the "NASD"), that it was reviewing trading activity in
the Company's Common Stock. Based upon the information which NASD Regulation has
requested, and conversations between the Company's counsel and NASD Regulation's
representatives, the Company believes that the NASD review relates to trading in
the Company's Common Stock in the first quarter of 1997, and that the principal
purpose of the review is to determine whether any of such trading involved
purchases or sales of Common Stock by persons who, at that time, had material,
non-public information. The Company is cooperating with NASD Regulation in its
inquiry. At this point, the Company cannot determine what effect, if any, this
inquiry will have on the Company or the market for its Common Stock.
Control of DRCC's Board of Directors under Shareholders Agreement. In
connection with its acquisition of DRCC, the Company and DRCC entered into a
Shareholders Agreement with Philip Bunker, Jeffrey G. Ballif and William E.
Chipman, Sr., who at that time were executive officers, substantial shareholders
and, in the case of Messrs. Chipman and Bunker, directors of DRCC. That
agreement provided, among other things, for the registration under the Act of
all shares of Common Stock issued to former DRCC shareholders, or issuable upon
exercise of DRCC Conversion Options which were granted, in connection with the
DRCC acquisition. That registration is being effected by the registration
statement of which this Prospectus is a part. The Shareholders Agreement also
provided for the election of David Singer and Messrs. Bunker and Chipman (or,
alternatively, of designees selected by Messrs. Bunker and Chipman) as directors
of DRCC, to constitute a majority of its Board of Directors, so long as the
Company owns any capital stock of DRCC. As a result of this Shareholders
Agreement, control of the composition of the Board of Directors of DRCC is, for
all practical purposes, permanently subject to the control of Messrs. Bunker or
Chipman, and the Company's Board of Directors, elected by its stockholders, has
no ability to control the composition of DRCC's Board of Directors,
notwithstanding the fact that DRCC is a wholly-owned subsidiary of the Company.
Limited Liability of Officers and Directors. The Articles of Incorporation
and the Bylaws of the Company limit a director's personal liability to the
Company or its shareholders for monetary damages for any actions taken or any
failure to take action to the fullest extent permitted by Nevada law or any
other applicable law as now in effect or as it may hereafter be amended.
Furthermore, the Company is obligated under its Articles of Incorporation and
Bylaws to indemnify its directors, officers' employees, agents or fiduciaries to
the fullest extent permitted or required by Nevada law. Each of these provisions
could reduce the legal remedies available to the Company and its shareholders
against such individuals. See "Disclosure of Commission Position on
Indemnification for Securities Act Liabilities".
Future Issuance of Stock by the Company. The Company has 50,000,000 shares
of Common Stock authorized, of which 10,035,518 shares were outstanding at
October 15, 1997, and an additional 598,969 shares have been reserved for
issuance upon the exercise of outstanding options. The Company also has
authorized 1,000,000 shares of Preferred Stock, none of which are presently
outstanding. Although the Board of Directors of the Company has no present
intention to do so, it has the authority, without action by the shareholders, to
issue authorized and unissued shares of Common Stock or Preferred Stock.
Preferred Stock, if and when issued, could have rights superior to those of the
Common Stock, particularly in regard to voting, the payment of dividends and
upon liquidation of the Company. See "Description of Capital Stock".
Factors Inhibiting Takeover. Certain provisions of the Company's Articles
of Incorporation and the Nevada General Corporation Law may be deemed to have
"anti-takeover" effects in that they could delay, defer or prevent a takeover
attempt that a shareholder might consider to be in the Company's or the
shareholder's best interests. For example, the ability of the Company's Board of
Directors to designate series of Preferred Stock without any vote or action by
the Company's stockholders could be considered an "anti-takeover" device, since
the terms of Preferred Stock which might be issued could contain terms which
could contain special voting rights or increase the costs of acquiring the
Company. See "Description of Capital Stock -- Anti-Takeover Provisions".
9
<PAGE>
DILUTION
At June 30, 1997, after giving retroactive effect to (a) the sale of
500,000 shares of Common Stock at a price of $2.00 per share in August 1997 and
(b) the sale after June 30, 1997, of 10,931 shares of Common Stock at prices
from $.09 to $2.00 per share upon the exercise of DRCC Conversion Options, but
to no other post June 30, 1997 transactions, the net tangible book value of the
Company's Common Stock was approximately $.26 per share. To the extent that a
purchaser pays more than $0.26 per share of Common Stock, the purchaser will
incur dilution in the net tangible book value of his/her investment. For
example, if Shares were purchased at the "asked" price quoted for the Company's
Common Stock on October 17, 1997 (i.e., $12.00), the dilution in the purchaser's
investment would be approximately $11.74 or approximately 98%. Similarly,
purchasers of Option Shares from the Company will incur dilution in their
investment equal to the difference between their DRCC Conversion Option exercise
price and $0.26 per share.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of Outstanding
Shares. If all Option Shares are sold, the Company will receive total proceeds
of $381,532 (average price of $2.00 per share). Such proceeds, if received,
would be added to the Company's general corporate funds.
10
<PAGE>
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA OF
WORLD WIRELESS COMMUNICATIONS, INC.
AND PRO FORMA FINANCIAL DATA
The following table sets forth selected consolidated historical financial
data of the Company and selected consolidated pro forma financial data giving
effect to the acquisition of DRCC. The selected historical financial data for
the years ended December 31, 1996 and 1995 are derived from audited consolidated
financial statements of the Company. The historical data presented for the six
months ended June 30, 1997 and 1996 are derived from unaudited financial
statements and include, in the opinion of management, all adjustments
(consisting only of normal recurring adjustments) necessary to present fairly
the data for the period. The results of operations for the six months ended June
30, 1997 are not necessarily indicative of the results to be expected for the
entire year. This data should be read in conjunction with the consolidated
financial statements and notes thereto and other financial information which are
included elsewhere in this Prospectus.
The unaudited pro forma consolidated financial statements present the
acquisition of DRCC by the Company using the purchase method of accounting as if
the acquisition had been consummated at January 1, 1996. Such information is
derived from, and should be read in conjunction with, the separate historical
consolidated financial statements of the Company and DRCC and notes thereto and
other financial information appearing elsewhere herein. The unaudited pro forma
consolidated statements of operations have been included for comparative
purposes only and do not purport to be indicative of the results of operations
which actually would have been obtained if the acquisition had been consummated
at January 1, 1996 or the results of operations which may be obtained in the
future. In addition, future results may vary significantly from the results
reflected in these pro forma statements of operations due to normal market and
industry activities.
Historical Operating Data:
<TABLE>
<CAPTION>
Six Months Year Ended Cumulative
Ended June 30, December 31, From Inception
---------------------------------- -------------------------------- Through June
1997 1996 1996 1995 30,1997
---------------- --------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
Sales ........................... $ 1,875,494 $ 339,283 $ 618,505 $ 426,825 $ 2,920,824
Cost of sales ..................... 1,070,097 319,104 662,184 237,356 1,969,637
------------ ----------- ----------- ---------- ------------
Gross profit ..................... 805,397 20,179 (43,679) 189,469 951,187
Research and development ......... 588,938 -- 92,932 -- 681,870
General and administrative ...... 1,476,596 294,992 732,636 278,137 2,487,369
Amortization of goodwill ......... 279,963 -- -- -- 279,963
Interest expense .................. 22,597 13,236 30,677 -- 53,274
------------ ----------- ----------- ---------- ------------
Total expenses .................. 2,368,094 308,228 856,245 278,137 3,502,476
------------ ----------- ----------- ---------- ------------
Net loss ........................ $ (1,562,697) $ (288,049) $ (899,924) $ (88,668) $ (2,551,289)
============ =========== =========== ========== ============
Loss per common share ............ $ (0.19) $ (0.09) $ (0.25) $ (0.10) $ (0.30)
============ =========== =========== ========== ============
Shares used in per share
calculations .................. 8,421,370 3,049,484 3,601,750 854,640 8,421,370
============ =========== =========== ========== ============
</TABLE>
11
<PAGE>
Pro Forma Operating Data:
<TABLE>
<CAPTION>
For the Six For the
Months Ended Year Ended
June 30, December 31,
1997 1996
-------------- --------------
<S> <C> <C>
Sales ....................................... $ 2,010,079 $ 2,004,983
Cost of sales .............................. 1,158,302 1,668,550
------------ ------------
Gross profit .............................. 851,777 336,433
Research and development .................. 682,205 533,057
General and administrative ............... 1,568,569 1,822,457
Amortization of goodwill .................. 368,743 753,598
Interest expense ........................... 22,597 67,074
------------ ------------
Total expenses ........................... 2,642,114 3,176,186
------------ ------------
Loss before income taxes .................. (1,790,337) (2,839,753)
Benefit from income taxes .................. -- (13,718)
------------ ------------
Net loss .................................... $(1,790,337) $(2,826,035)
============ ============
Loss per common share ..................... $ (0.21) $ (0.52)
============ ============
Shares used in per share calculations ...... 8,330,116 5,399,850
============ ============
</TABLE>
Historical Balance Sheet Data:
<TABLE>
<CAPTION>
December 31,
--------------------------
June 30, 1997 1996 1995
--------------- ------------ -----------
<S> <C> <C> <C>
Cash ............................................. $ 707,120 $ 37,278 $ 29,682
Receivables .................................... 824,636 130,509 30,621
Inventory ....................................... 422,206 159,881 60,656
------------ ---------- ---------
Current Assets ................................. 1,953,962 327,668 120,959
Equipment, net .................................... 1,067,069 327,022 300,840
Goodwill, net .................................... 3,488,028 -- --
Other assets .................................... 145,654 8,352 4,141
------------ ---------- ---------
Total Assets ................................. $ 6,654,713 $ 663,042 $ 425,940
============ ========== =========
Trade accounts payable ........................... $ 355,899 $ 61,997 $ 31,256
Accrued liabilities .............................. 146,925 55,788 827
Notes payable and capital lease obligation, current
portion ....................................... 137,952 85,566 284,000
Non-compete obligation ........................... 102,604 -- --
Accrued settlement obligation ..................... 160,000 -- --
------------ ---------- ---------
Current Liabilities ........................... 903,380 203,351 316,083
Notes payable and capital lease obligation ...... 54,084 44,808 44,500
Deferred taxes ................................. 546,465 -- --
Common stock .................................... 9,525 5,663 1,132
Additional paid-in capital ........................ 7,692,548 1,397,812 152,893
Deficit accumulated during the development
stage .......................................... (2,551,289) (988,592) (88,668)
------------ ---------- ---------
Total Liabilities and
Stockholders' Equity ........................ $ 6,654,713 $ 663,042 $ 425,940
============ ========== =========
</TABLE>
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
When used in this discussion, the words "expect(s)", "feel(s)",
"believe(s)", "will", "may", "anticipate(s)" and similar expressions are
intended to identify forward-looking statements. Such statements are subject to
certain risks and uncertainties, which could cause actual results to differ
materially from those projected. Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the date
hereof. Readers are also urged to carefully review and consider the various
disclosures elsewhere in this Prospectus which discuss factors which affect the
Company's business, including the discussion under the caption "Risk Factors".
This discussion should be read in conjunction with the Company's
Consolidated Financial Statements, respective notes and Selected Consolidated
Financial Data included elsewhere in this prospectus. This discussion contains
both historical and forward looking-statements. The Company commenced contract
manufacturing operations during October 1996 and acquired Digital Radio
Communications Corporation ("DRCC") during February 1997. Accordingly, the six
month period ended June 30, 1997 includes the results of operations from these
sources while the comparable period ended June 30, 1996 does not.
Results of Operations
Six months ended June 30, 1997 and 1996
Net sales of $1,875,494, increased by $1,536,211 for the six months ended
June 30, 1997 compared to June 30, 1996. The increase was primarily attributable
to a $300,000 one time sale of technology, a $864,000 partial fulfillment of a
non-recurring technology development contract by DRCC and contract assembly work
of approximately $493,079. The non-recurring sale of technology and technology
development contract involved one customer, and accounted for 62% of the
Company's sales in the six months ended June 30, 1997. Had the acquisition of
DRCC occurred on January 1, 1996, pro forma sales for the six months ended June
30, 1997 would have been $2,010,079.
With the acquisition of DRCC, the marketing and operating focus of the
Company shifted to sales from design and development contracts, and away from
security key product sales. Sales of security key products (the only product or
service offered for sale as of June 30, 1996) actually declined by $239,006, to
$100,277 for the period ended June 30, 1997 when compared to the period ended
June 30, 1996.
Cost of sales increased by $750,993 for the six months ended June 30, 1997
compared to June 30, 1996. The increase was largely due to engineering costs
associated with the non-recurring technology sale discussed above and to direct
costs of manufacturing. Gross profit increased by $785,218 for the six months
ended June 30, 1997 compared to June 30, 1996, from $319,104 to $1,070,097,
primarily due to the one time sale of technology and the partial fulfillment of
the non-recurring technology development contract discussed above. Pro forma
gross profit for the six months ending June 30, 1997 would have been $851,777.
The Company's net loss of $(1,562,697) reflects an increase in net loss of
$(1,274,648) for the six months ended June 30, 1997 compared to June 30, 1996.
The increase was due primarily to $588,938 in research and development costs in
the six months ended June 30, 1997, and a $1,181,604 increase in selling,
general and administrative expense from $294,992 to $1,476,596. The increase in
general and administrative expense was attributable to the additional overhead
associated with DRCC's operations, staffing of the Company's contract
manufacuring operations and, at the corporate level, the hiring of a chief
executive officer, chief financial officer, controller and sales personnel.
Amortization of goodwill added $279,963 to the Company's net loss for the
six months ended June 30, 1997. This represents goodwill of $3,767,991 recorded
as a result of the DRCC acquisition, which is being amortized over sixty months.
Interest expense of $22,597 increased by $9,361 for the six months ended
June 30, 1997 compared to June 30, 1996. The increase resulted from equipment
related long-term debt, capital lease obligations incurred in starting contract
manufacturing operations and DRCC indebtedness.
13
<PAGE>
Total expenses in the six months ended June 30, 1997 increased to
$2,368,094 from $308,228 in the year earlier period. Pro forma general and
administrative expenses for the six months ended June 30, 1997 would have been
$2,642,114.
Years Ended December 31, 1996 and 1995
The Company's sales of $618,505 for the year ended December 31, 1996,
represented an increase of $191,680 over sales in the prior year. The increase
was primarily due to 1996 being a full twelve month operating year and the
commencement of contract manufacturing services in 1996. Pro forma sales for the
year ended December 31, 1996 would have been $2,004,983, reflecting the impact
of DRCC's sales for that period. Pro forma gross profit for the same period
would have been $336,433 compared with a historical gross loss of $(43,679),
reflecting the impact of DRCC's $380,112 contribution to gross profit on a pro
forma basis.
Operating expenses in the year ended December 31, 1996, increased to
$856,245 from $278,137 for 1995, primarily from costs associated with the hiring
of a full time CEO and the beginning of building a sales and management team,
including managers for the Company's contract manufacturing operations The above
factors also were the principal cause of the increase in the Company's 1996
operating loss to $(899,924) compared to a loss of $(88,668) during 1995.
For the year ended December 31, 1996, pro forma expenses would have been
$3,176,186 compared to historical expenses of $856,245 for the same period. Of
total pro forma expenses, $753,598 is the result of a single pro forma
adjustment, the amortization of goodwill, which would have been recorded in 1996
had DRCC been acquired by the Company effective January 1, 1996.
Liquidity and Capital Resources
The Company's financial condition though improved is still tentative. The
improvement is a result of the Company's issuance of Common Stock for
approximately $3,195,250 during the six months ended June 30, 1997, which
accounts for the $669,842 increase in cash. The Company raised an additional
$1,000,000 from the sale of Common Stock during August 1997.
At this time, the Company's sales and profitability are not at a level
which will provide the funds necessary for its operations, capital expenditures
and anticipated growth. Consequently, additional financing probably will be
needed during the next two to six months. In manangement's opinion, it will be
necessary for the Company to satisfy this need by raising additional equity
capital. The Company does not have any commitment for equity or any other
financing at the present time, and there is no assurance that management will be
able to obtain the required capital.
Of the $3,195,250 raised from the issuance of Common Stock during the first
six months of 1997, approximately $1,899,478 was used for operations, $131,157
for the DRCC acquisition, $404,382 for equipment purchases and net debt and
capital lease reductions of $90,391. The net of the above items comprises the
net cash increase of $669,842 compared to a net cash decrease of $22,550 for the
same period during 1996.
Receivables have increased by $694,127 to $824,636. Approximately 52%, or
$432,000, of the increase is due to the technology development contract
discussed above, another 8.5% or $70,000 is from development services, with the
balance primarily coming from contract manufacturing customers.
Inventories have increased by $262,325 to $422,206 as of June 30, 1997,
compared to $159,881 for the same period June 30, 1996. The increase is due to
the acquisition of inventory for the contract manufacturing business and the
building of some of the Company's new radio products.
The increase in equipment of $740,047 reflects purchases of $404,382 during
the six months ended June 30, 1997, and $427,006 of DRCC equipment recorded as
part of the DRCC acquisition, less depreciation of approximately $91,341.
Amortization of goodwill increased the Company's net loss by $279,963
during the first six months of 1997, representing amortization of goodwill of
$3,767,991 booked in the DRCC acquisition, which is being amortized over sixty
months.
14
<PAGE>
Most of the $700,029 increase in current liabilities to $903,380 from
$203,351 is due to the acquisition of DRCC. The non-compete obligation of
$102,604 represents the present value of four monthly payments of $27,500
commencing September 15, 1997. This obligation stems from DRCC. The $160,000
increase in other long-term obligations represents the proposed settlement of a
lawsuit over certain technology. This lawsuit and settlement also are from DRCC.
Deferred income taxes of $546,465 are a result of the acquisition of DRCC.
The combined increase in Common Stock and Additional Paid in Capital of
$6,298,598 is due to the issuance of common stock for $3,195,250 in cash and the
booking of the DRCC acquisition in the amount of $3,103,348.
Outlook
The statements contained in this Outlook are based on current expectations.
These statements are forward looking and actual results may differ materially.
Management believes that, as deregulation of natural gas and other
utilities continues, multiple utility suppliers will be serving a given city or
neighborhood. Consequently, it will become more difficult and time consuming for
utility companies to read meters as they will generally not be the provider to
every user in the city or neighborhood which will increase the cost
effectiveness of reading utility meters remotely. Management believes that the
Williams Telemetry Network, described elsewhere in this Prospectus, is a viable
alternative to the current practice of manually reading meters. Additionally,
management believes that William's position as an affiliate of a major
transporter of natural gas in the United States positions it to successfully
market its telemetry network, which currently is designed to use collector and
repeater radios supplied by the Company to gather and transmit data.
Management believes that the Company's relationship with Williams will
result in significant increases in sales of its radio products for use in the
Williams Telemetry Network. Significant increases in sales, however, would lead
to working capital requirements which would not be provided for from funds
generated by the initial sales of the products. The Company is currently
investigating the prospects of a private placement and ultimately a secondary
public offering to meet its working capital and operating needs. However, there
is no assurance that sufficient capital or any capital will be raised from such
endeavors.
Additionally, management estimates the Company's current manufacturing
facilities would not be adequate to handle substantial increases in demand for
its products. Management is currently looking into two solutions: (1)
out-sourcing a portion of the manufacturing overload or, (2) expanding its
in-house manufacturing capacity through leasing or purchasing additional
building space and equipment. If a portion of manufacturing is out-sourced the
Company may lose some control over the following areas; cost, timeliness of
deliveries and quality. However, by out-sourcing a portion of its manufacturing,
the Company could avoid delays and expense associated with the expansion of its
own facilities. The magnitude of any expansion of the Company's manufacturing
capabilities that is required would be a direct function of the sales increase
and manufacturing overload, both of which are unknown at this time. However,
management estimates that between $2 million and $5 million may be required for
this purpose. At the present time, the Company does not have any commitment for
or source of these funds.
The Company anticipates an increase in revenues from additional contracts
for design and development services, although no new contracts have been signed.
It is management's intent to model such contracts after the KME contract,
discussed elsewhere in this Prospectus, whereby the Company receives fees during
the early stages of the agreement and is entitled to royalties or gross profit
splits based upon its customer's sales of products into which the technology has
been incorporated. It is management's intent that the fees received will cover
the Company's costs. However, these fixed fee arrangements may not cover all of
the Company's costs incurred in fulfilling any such contract. Royalties or gross
profit splits resulting from sales of products using the technology developed
under the contract would enhance the Company's profitability if and when
received.
15
<PAGE>
In anticipation of obtaining additional design and development contracts,
management must continually recruit and hire additional RF (radio frequency),
software, firmware and digital engineers. It is extremely difficult,
time-consuming and expensive to find engineers qualified in those fields. There
is no assurance the Company will be able to locate and hire such qualified
engineers. Associated with the hiring of each engineer is the need for test and
development equipment, software and work stations, which increases the Company's
cash requirements.
In summary, while management is cautiously optimistic about the Company's
future, it is fully aware that anticipated revenue increases from product sales,
design and development contracts and royalty income are by no means assured, and
that if such increases do materialize, the requirements for capital are
substantial, for which there is no present commitment.
16
<PAGE>
BUSINESS
Background
The Company and its subsidiaries are principally engaged in the design,
development and manufacture of wireless communications technology, systems and
products. The Company also provides contract manufacturing services to the
electronics and wireless communications industry.
Prior to its acquisition of DRCC in February 1997, a substantial majority
of the Company's revenues were derived from sales of SecuriKey(R), a small
hardware device that prevents the unauthorized use of software protected by a
SecuriKey system, and related software products. At the time of its acquisition
by the Company, DRCC was in the process of developing a number of proprietary
wireless communications products, and provided wireless design, development and
manufacturing services on a contract basis. With the acquisition of DRCC, the
Company's business focus shifted to the design, development and manufacture of
wireless communication technology, systems and products, although the Company
continues to provide contract manufacturing services. Sales of SecuriKey
products did not contribute materially to revenues in the first half of 1997
(approximately 5%) and are not expected to contribute materially to revenues in
the future.
Wireless Communications Products
Electronic communications devices take many forms, including mobile
telephone, broadcast television and radio products. The central problem in
modern communications is developing the means to transmit large volumes of data
over long distances without losing or distorting the information in the most
cost effective manner. Wireless communications, using radio transmission rather
than transmission over a wire or cable, is an increasingly important segment of
the communications industry.
As illustrated below, wireless communication devices fall under various
names (television, radio, cellular, microwave, among others), but all utilize
the electromagnetic spectrum. This spectrum is the range of all electromagnetic
waves differentiated according to the frequency of the particular wave. An
electronic communication device is usually named according to the wave frequency
at which the device operates. Frequency is the number of cycles per second in a
wave and is measured in hertz (Hz). One hertz is one cycle per second. The
radiowave spectrum ranges from a few kilohertz (Khz) to 40 gigahertz (Ghz), or
40,000 megahertz (Mhz). Portions of the radiowave spectrum are dedicated to
specific uses, as follows:
Wireless Device Frequency
- --------------- ---------
AM radio 535 - 1635 Khz
Analog cordless phones 44 - 49 MHz
TV channels (VHF) 54 - 88 MHz
FM radio 88 - 108 MHz
TV channels (VHF) 174 - 216 MHz
TV channels (UHF) 470 - 806 MHz
RF wireless modems 800 MHz
Cellular phones 806 - 890 MHz
Digital cordless phones 900 MHz
Personal communication services 900 - 929 MHz
Nationwide pagers 929 - 932 MHz
Two-way pagers 932 - 940 MHz
Satellite phones uplink 1610 - 1626.5 MHz
Satellite phones downlink 2483.5 - 2500 MHz
Satellite TV, large dish 4 - 6 GHz
Satellite TV, small dish 11.7 - 12.7 GHz
Wireless "cable" TV 28 - 29 GHz
Existing Products
The Company's wireless communications products are designed to transmit
and receive voice, video and data in applications where a hard-wired system is
cost prohibitive or simply more expensive. The Company's
17
<PAGE>
principal line of existing products is a series of low speed digital radios
(LSDRs) and related devices. These products are suitable for use in a telemetry
network which has been developed by Williams Wireless, Inc., doing business as
"Williams Telemetry Services" (hereinafter "Williams"), a subsidiary of The
Williams Companies, Inc. The initial sales of products in this line were made to
Williams in September 1997.
The Williams Telemetry Network is a fixed wireless network intended by
Williams principally for use by utility companies to collect gas, water and
electric usage data, and to closely monitor usage on a "real time" basis when
required. A wireless monitoring unit mounted on a meter or other device to be
monitored gathers data and transmits it to a local WinGate(TM) collection point,
which then relays the data to a centralized operating center. While automated
meter reading is the most immediate potential application for the Williams
Telemetry Network, its possible uses also include alarm monitoring, a reliable
back up to telephone reporting and other, similar applications.
As described elsewhere in this Prospectus, the Company's initial sales of
wireless communications products occurred in September 1997, and sales to date
have been extremely limited. A number of the Company's wireless communications
products were introduced as part of the Williams Telemetry Network for the first
time in mid-September 1997 at the Automated Meter Reading Association Trade Show
in Chicago. At the present time, Williams is conducting Beta tests of its
telemetry system with a number of national companies, and the Company has been
advised that Williams intends to launch commercial operations of the service in
the third quarter of 1998. Products which the Company has developed for use in
this system, and which currently are being used and/or tested by Williams,
include devices called Telemetry Interface Modules, or TIM(TM)s, which operate
at the point of data origination. For example, in the Williams Telemetry Network
the TIM(TM)s units are designed to be mounted on meters and other devices to be
monitored. The function of these TIM(TM)s is to gather and transmit data to a
data collection and forwarding point called a WinGate(TM) unit, which includes a
wireless receiver/transmitter. The WinGate(TM) unit forwards the data to an
operating center via a wide area network. Once the data arrives at the operating
center, it is recorded and stored in a computer system.
The TIM(TM)s are short range (up to 800 feet) transmitters which transfer
data at rates up to 9600 bits per second, and function over the entire
industrial temperature range (-40oF to 185oF). The Company has two TIM(TM)s
models available, which differ primarily in frequency coverage, modulation type
and power.
The WinGate(TM) units utilize Low Speed Digital Radio ("LSDRs") which are
matched to the TIM(TM)s units from which they receive data. In this context,
"low speed" refers to speed of transmission which, for the Company's LSDRs,
ranges from 1200 to 9600 bits per second ("bps"). By contrast, the Company's
High Speed Digital Radio (HSDR) now under development, which is discussed below
under "Proposed Products", transmits at speeds between 2 million and 4 million
bps (2Mbps to 4Mbps). The Company presently has a number of LSDR models
available, two of which (the LSDR 100 and the LSDR 300) have been sold to
Williams for use and/or testing in the Williams Telemetry Network. Like the
TIM(TM)s units, the various LSDR models differ primarily in frequency coverage,
modulation type, range and power.
The Company's LSDRs are designed to provide a wireless communication link
for multiple locations, with a range of up to 35 miles under "unobstructed" line
of sight conditions. The products are intended for use primarily in remote
monitoring systems in which data must be transmitted from multiple locations and
collected at one central location, e.g., to monitor data such as capacity,
temperatures and flow rates from underground or above ground fuel tanks and oil
and gas pipeline meters. Radios can be spread out over numerous locations to
transmit data large distances within a line of sight and the data will be
collected and processed in one central location for processing. Data and power
requirements for the radios are low, allowing the radios to run on battery or
solar energy. LSDR communications do not require a license from the FCC and
there is no FCC restriction on the type of data being transmitted.
An important feature of certain of the Company's LSDR products involves the
use of spread spectrum (meaning a wide frequency bandwidth) solutions to
facilitate the wireless transmission of data. Spread spectrum wireless devices
are required to modulate and demodulate a signal that is "spread" across a wide
bandwidth to reduce interference and provide enhanced security. "High power"
systems (from 0.10 to 1.0 watts) which operate in the ISM (Industrial,
Scientific and Medical) bands (902 - 928 MHz, 2400 - 2483.5 MHz, and 5725 - 5850
MHz) can only use spread spectrum techniques. Under Part 15 of the FCC
Telecommunications Code, these ISM
18
<PAGE>
bands do not require the customer to pursue costly and time consuming FCC
licensing approval and eliminate usage charges involved with transmitting data
via cellular networks. Thus, they are desirable for many wireless applications,
including telemetry systems for use in data collection, high-speed wireless
communication links between buildings on corporate and other campuses, wireless
speaker connections and other peripheral applications.
Other Existing Products. The Company also continues to market its
SecuriKey(R) line of products. See "Organizational and Capital Transactions --
Purchase of Assets of Micro Security, Inc." These sales represented less than 5%
of revenues in the first half of 1997, and are not expected to be material in
the future.
Proposed Products
The Company currently has a number of products in various stages of
development, the two most significant of which are a High Speed Digital Radio
and a Low Cost Spread Spectrum Radio.
High Speed Digital Radio (HSDR): The Company has developed a pre-production
working prototype High Speed Digital Radio. HSDR can be used as a wireless link
to transmit digitized information (data, voice or video) to and from locations
within a "line of sight" at high speeds (i.e., up to 2.048Mbps). This
transmission rate is faster than "T1" wired lines at the present time. T1 is a
data transmission standard at which 1.544 megabits are transmitted per second.
Furthermore, HSDR is a private network so users avoid the access delays caused
by excessive traffic and high costs of using T1 lines.
HSDR technology can be adapted to a variety of applications, depending upon
the user's communication requirements. One HSDR application for data sensitive
companies is to set up data links to off-site data storage and back-up
facilities which are capable of handling large volumes of information. This
application provides a user with an inexpensive real time back-up system in the
event of a disaster or other malfunction to the main or primary line of
transmission.
HSDR also can be used as a "short hop" teleconferencing and/or
video-conferencing system. The private network can connect two or more line of
sight locations with telephone service and/or video service allowing unlimited
access and usage with the cost of local and long distance telephone charges. The
installation of a private communication link is very cost effective because of
the low installation cost and lack of additional usage charges. Moreover, HSDR
can be used to establish a wireless Local Access Network (LAN) to interconnect
multiple computers that need to share information.
HSDR operates at frequencies classified under Part 15 of the Federal
Communications Commission ("FCC") Telecommunication Code, and, as a result of
this classification, no license is required nor is there any restriction on the
type of data being transmitted.
Low Cost Spread Spectrum Radio (LCSSR): The Company has developed
proprietary technology for a low cost, spread spectrum radio which the Company
believes can be sold in quantity for less than $20 per radio. As a result, the
LCSSR has the potential of substantially reducing the cost of such consumer
products as cordless telephones, wireless speakers, wireless telephone jack
extensions, wireless keyboards, wireless printer connections, security devices
and wireless toys. An LCSSR device was the principal product involved in the
Company's design and development contract with Kyushu Matsushita Electric Co.,
discussed below under the caption "Contract Design and Development".
Contract Design and Development
The Company's business has included providing engineering, design and
development services to client specifications on a fee for services basis. At
the present time, the Company is not seeking design and development service
contracts except in "partnering" situations in which the Company would have an
ownership interest in the products and/or technology which are the subject of
the contract. The two most significant such contracts, entered into in 1997 with
Kyushu Matsushita Electric Co. and Williams Wireless, Inc., are described below.
Kyushu Matsushita Electric Co. Contract: In April 1997, DRCC entered into
a contract with Kyushu Matsushita Electric Co., Ltd. ("KME") to develop low
cost spread spectrum radio technology for use in certain
19
<PAGE>
KME products. Under the terms of the contract, KME agreed to pay the Company
$1,296,000 for its services in three installments of $432,000, subject to the
Company's satisfaction of certain performance goals. The Company received the
initial installment in May 1997, and the second installment and one-half of the
third installment in September 1997, following KME's evaluation of certain
prototypes furnished by the Company. The Company expects to receive the second
half of the third installment in the fourth quarter of 1997, following KME's
evaluation of final working samples.
As part of its development contract with KME, the Company granted KME a
world-wide, non-exclusive license to use or authorize the use of any patents,
copyrights, technical know-how and other intellectual property rights embodied
in the Company's LCSSR technology in the manufacture of KME products, and agreed
not to license others to use technology which is developed under its contract
with KME in connection with any telephone-related products for a period of two
years from the first shipment of KME products using the technology. In
consideration for these rights and the Company's services, KME agreed to pay
royalties to the Company on sales of KME products using the technology above a
prescribed minimum amount of sales for a period of two years from the initial
shipments of any such products. The Company is unable to predict the amount of
any royalties which it may receive under this license, or whether it will
receive any royalties.
Williams Wireless, Inc. Contract: In September 1997, the Company entered
into a Technical Development and Marketing Alliance Agreement (the "TDMA
Agreement") with Williams Wireless, Inc., pursuant to which the Company has
agreed to assist and cooperate with Williams in developing and manufacturing
"Telemetry Radio Products", which are generally defined in the agreement as
wireless radios for transmitting and/or receiving data as part of the Williams
Telemetry Network. The TDMA Agreement followed a letter of understanding entered
into by the parties in June 1997, and a relationship between the companies which
pre-dated the letter of understanding in the course of which the Company
developed a "proof of concept" radio for use in Williams' information gathering
network.
Under the TDMA Agreement, Williams may, but is not required to, contract
with the Company for specific system engineering and design services to create
Telemetry Radio Products. The Company would have the exclusive right to
manufacture any Telemetry Radio Products which were designed exclusively for use
in Williams' network, so long as the Company met prescribed quality and other
performance criteria. Williams would "own" such products, but the technology
used in creating the products (including components that the Company has
patented or for which it holds a copyright, and all drawings, specifications,
prototypes and circuit boards relating thereto) would remain the property of the
Company. The Company also has a non-exclusive right to market Williams'
information gathering service on terms mutually agreeable to the parties, based
upon a "standard" Williams marketing agreement which is in the process of
development.
As indicated above under the caption "Existing Products", the Company has
designed and developed a number of LSDR products and related devices that have
been sold to Williams for use in the Williams Telemetry Network. While these
products meet the definitions of "Telemetry Radio Products" used in the TDMA
Agreement, since they were developed outside the Agreement, the Company retains
all property rights to such products. Sales prices to Williams for existing
products were negotiated between the Company and Williams. Such terms relating
to further products which Williams may call upon the Company to develop under
the TDMA Agreement would be negotiated at that time.
Contract Manufacture and Assembly
The Company performs assembly and manufacturing services for other
manufacturers and vendors of medical, communications, computer graphics and
consumer electronic products at its Salt Lake City manufacturing facility. In
the current fiscal year, the Company has provided manufacturing and assembly
services for such customers as Alton Dean, Infinity Group, Evans & Sutherland,
Wavephore and TSI.
Markets and Distribution
The principal markets for the Company's wireless communications products
are original equipment manufacturers ("OEM's") which utilize the Company's
products and technology in their own equipment and products, and value added
resellers and systems integrators ("VAR/Integrators") which use the Company's
products, along with hardware and software from other vendors, in systems which
they design and sell to meet their customers' data processing, transmission,
collection, storage, security and other related needs.
20
<PAGE>
Marketing to OEM's and VAR/Integrators involves establishing and increasing
prospective customers' awareness of the Company's products and technology. This
is accomplished through direct mail and print advertising, and through
promotional activities which include direct contacts with trade journal editors,
industry analysts and other opinion makers. More direct sales activity includes
research to identify specific OEM's and VAR/Integrators whose products and
services make them potential buyers of the Company's products and technology,
and direct sales efforts to introduce the Company to the potential customers.
Early contacts, if successful, are likely to involve very detailed technical
discussions between the Company's and the prospective customer's engineers and
researchers. The Company's objective at this stage is to demonstrate how its
existing products and technology and/or its capacity to custom design and
develop products can benefit the customer. The prospective customer's objective,
of course, is to find sources of such products and technology.
The Company also markets its wireless products through a manufacturer's
representative. This is a relatively new phenomenon for the Company since it
only recently reached the point at which it has had fully developed products
commercially available. Although it has only one representative at the present
time, the Company expects to add additional representatives as its product line
expands.
The Company's contract design and development capabilities are an integral
part of its overall product and technology marketing effort. All of the
Company's design and development contract revenues in 1997 have resulted from
contracts in which technology was customized and/or further developed to meet
its client's specific product needs, with the Company generally retaining
ownership or partial ownership of technology developed under the Contract and
the right to manufacture and sell to others products which employ that
technology but which are outside the client's applications. As indicated above,
the Company is not seeking design and development contracts on a purely "fee for
services" basis at the present time.
The Company's marketing activities as relate to its contract manufacturing
and assembly capabilities have been limited, and consist primarily of direct
selling efforts directed to past and existing customers, and to prospective
customers who contact the Company or are located in the Company's immediate
geographic area. In the foreseeable future, the Company expects to concentrate
its available marketing resources in the marketing of proprietary products and
technology, rather than its contract manufacturing and assembly service
capabilities.
Competition
The Company has a number of current competitors in all aspects of its
business, many of which competitors have substantially greater financial,
marketing and technological resources than the Company, and which include such
industrial giants as Panasonic, Motorola, Sony and AT&T. The Company intends to
compete with these companies by concentrating on certain product or service
niches within the overall market. However, most of the Company's competitors
offer products which have one or more features or functions similar to those
offered by the Company, and many have the resources available to develop
products with features and functions, competitive with or superior to those
offered by the Company. There can be no assurance that such competitors will not
develop superior features or functions in their products or that the Company
will be able to maintain a lower cost advantage for its products.
A key element of the Company's competitive strategy is to align itself with
major manufacturers by developing proprietary products or technology that can be
incorporated into its "partner manufacturers'" products. In addition to being
compensated for its services relative to the development of the partners'
products, the Company would share in the success of products which used the
Company's component or technology through a royalty or similar arrangement. The
Company believes that its agreements with KME and Williams, described above
under the caption "-- Contract Design and Development", illustrate the manner in
which the Company can "partner" with much larger, established companies to
access mass markets for its proprietary wireless communications products and
technology.
Facilities
The Company's executive offices and principal administrative offices and
manufacturing facilities are located in approximately 20,079 square feet of
space at 150 Wright Brothers Drive in Salt Lake City, Utah, which is leased at a
monthly cost of $11,266 for base rental and allocable common area maintenance
charges. The Company also pays for certain utility expenses. The lease for these
premises expires May 31, 1998.
21
<PAGE>
The Company's principal engineering facility is located in the Utah Valley
Business Park, American Fork City, Utah. This facility is leased at a monthly
cost of $9,849 for base rental and allocable common area maintenance charges.
The Company also pays for certain utility expenses. The Company's lease for the
facility expires June 30, 1998. This facility, which occupies approximately
9,685 square feet, was leased by DRCC prior to the Company's acquisition of
DRCC, and housed DRCC's manufacturing facilities. After the acquisition, the
Company consolidated DRCC's manufacturing operations with those of the Company
at the Company's Salt Lake City facility.
The Company owns most of its manufacturing equipment, although a portion is
leased. The aggregate lease payments for leased equipment in 1997 are expected
to be approximately $143,375.
The Company believes that its facilities are satisfactory for its present
scale of operations. The Company presently is considering a number of options to
increase its manufacturing capacity, including, at a minimum, consolidating its
existing manufacturing and engineering facilities into a single larger facility
during 1998. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Outlook".
Employees
As of October 10, 1997, the Company had 67 employees, of whom one was
part-time. Of these employees, 16 were classified as executive or administrative
personnel; 17 engineering; 24 production and manufacturing, including contract
manufacturing; and 10 sales and marketing. The Company's employees do not belong
to a collective bargaining unit, and the Company is not aware of any labor union
organizing activity. The Company considers its employee relations to be
satisfactory.
Patents and Intellectual Property
The Company believes that reliance upon trade secrets, copyrights and
unpatented proprietary know-how in conjunction with the development of new
products is at least as important as patent protection in its business since
most patents provide fairly narrow protection, and are of limited value in areas
of rapid technological change. Further, patents require public disclosure of
information which may otherwise be subject to trade secret protection. The
Company has no patents or patents pending on existing or proposed products or
technology, except for its spread spectrum demodulation technology. Generally,
the Company enters into confidentiality and invention assignment agreements with
its employees, and includes provisions in contracts with its development
contract customers intended to protect its proprietary technology, "know how"
and other trade secrets. The Company also claims copyright protection for its
circuit boards and software. However, there can be no assurance that the
Company's proprietary technology will be protected or remain a trade secret, or
that others will not develop or propose similar technology. See "Risk Factors --
Intellectual Property Rights".
Certain aspects of the Company's spread spectrum demodulation technology
and the related patent application were developed by DRCC at a time when DRCC
was party to a joint venture agreement with Digital Scientific, Inc. ("DSI"), an
otherwise unrelated party. This joint venture was formed in October 1995 to
further develop, commercialize and market an original and proprietary method of
demodulating a spread spectrum signal. Under the terms of the agreement, each
party owned fifty (50%) percent of the joint venture. The Company has terminated
the joint venture, and DSI has initiated litigation claiming that the Company's
termination of the joint venture was invalid, and that it is entitled to certain
rights in the Company's spread spectrum technology and to damages. See "Legal
Proceedings" below.
The Company has registered the trademarks SECURIKEY(R), SECURIDATA(R) and
SECURIMAC(R). The Company intends to pursue registration on all trademarks
associated with its key products, and to protect its legal rights concerning the
use of its trademarks. See "Risk Factors -- Intellectual Property Rights".
Legal Proceedings
Pending Litigation: DRCC is a defendant in civil action commenced by
Digital Scientific Inc. in the Third Judicial Court, Division I, in and for Salt
Lake County, Utah, on July 2, 1997. DSI's Complaint alleges that DRCC breached
its joint venture agreement with DSI, described above under the caption "Patents
and Intellectual Property", and related duties to DSI arising out of the joint
venture agreement and a related marketing
22
<PAGE>
agreement. The Complaint also alleges that Matsushita Electric Corporation of
America ("MEC"), Recoton Corporation ("Recoton") and an employee of MEC, who
also are named as defendants in the action, interfered with DSI's contract with
DRCC and that MEC and Recoton converted to their own use and profit certain
technology that was the property of the DRCC/DSI joint venture. The Complaint
seeks unspecified money damages against all defendants, and punitive damages
against DRCC. Among other items of damage, DSI claims that it is entitled to
participate in revenues, profits, etc. derived from sales or licenses involving
the Company's spread spectrum demodulation technology.
The Company has not filed an Answer to the Complaint, as settlement
discussions between DRCC and DSI commenced shortly after the Complaint was
served, and have resulted in a tentative agreement to settle the litigation on
terms which provide that DRCC and DSI would acknowledge termination of the joint
venture effective December 31, 1996; DRCC and DSI each would have a right in the
Company's spread spectrum demodulation technology as disclosed in the Company's
pending patent application and incorporated in certain prototypes developed by
DRCC prior to the termination of the joint venture; the Company would issue
40,000 shares of Common Stock to DSI and grant DSI the right to sell the shares
back to the Company for a limited period of time at a price of $4.00 per share;
and DSI would release DRCC and the other defendants from all claims.
While the settlement has not been finalized, the Company believes that
agreement has been reached on all essential points, and that the litigation will
be settled on the basis described above. The Company has accrued a $160,000
charge to cover its potential obligation arising from DSI's right to sell back
to the Company the 40,000 shares of Common Stock that the Company would issue as
part of the settlement.
Unasserted Claim: Although action has not been initiated, the Company's
former Chief Financial Officer has threatened litigation against the Company
following his resignation from that office and as a director of the Company in
October 1997. The resignation was the result of a dispute over compensation
involving, among other things, a claim by the former officer and director that
the Company had agreed to grant him options to purchase 275,000 shares of the
Company's Common Stock at a price of $2.00 per share in connection with his
employment, and had later disaffirmed such obligation. Because of the number of
shares involved in this unasserted claim, and the difference between the current
market price for the Company's Common Stock and the exercise price of the
options claimed, the expense to the Company for financial reporting purposes
would be material if the former officer should initiate and prevail in
litigation over these claims. The Company intends to vigorously defend any such
action.
23
<PAGE>
MANAGEMENT
Executive Officers and Directors
The current executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
David D. Singer ............... 48 Chairman of the Board of Directors, President, Chief
Executive Officer and a Director
William E. Chipman, Sr. ...... 51 Chief Financial Officer and Director of Mergers and
Acquisitions
Brian W. Pettersen ............ 40 Executive Vice President and a Director
Jonathan D. Rahn ............ 53 Secretary and a Director
Philip A. Bunker ............ 45 President of DRCC and a Director
David Andrus .................. 44 Director of Development Engineering
</TABLE>
David D. Singer - Mr. Singer was appointed President of the Company in
November 1996, and became a Director in February 1997. From 1977 to 1983, Mr.
Singer was President of CSL Energy Controls, Inc., a company specializing in
third party energy conservation. From 1983 to 1985, Mr. Singer was a special
consultant to the General President of the Sheetmetal Workers Association. From
1985 to 1988, Mr. Singer was Vice President First Municipal Division, Bank One
Leasing Corporation. From 1988 to 1991, Mr. Singer was President of Highland
Energy Group. From 1991 to 1996, Mr. Singer was President and Chief Operation
Officer of Navtech Industries, Inc., an electronic assembly company. Mr. Singer
holds a Bachelor's Degree in Electrical Engineering from the Lawrence Institute
of Technology.
William E. Chipman, Sr. - Mr. Chipman has served as Director of Mergers and
Acquisitions for the Company, with the primary responsibility for seeking
acquisition opportunities, and negotiating and implementing acquisitions by the
Company, since the DRCC acquisition, and has served as acting Chief Financial
Officer of the Company since October 22, 1997. Mr. Chipman was the Chief
Financial Officer and a director of DRCC from August 1994 to February 1997 when
the Company acquired DRCC. From 1992 to 1994, Mr. Chipman served as CFO of MHB
Technology, Inc., a technology holding company specializing in contract
manufacturing, security access products and high speed modems. Mr. Chipman
received a Bachelor's Degree in Business Administration from Merrimac College.
Brian W. Pettersen - Mr. Pettersen has served as Executive Vice President
and Director of the Company since February 1997. From 1980 to 1992, Mr. Petersen
served as Trading Manager for Covey & Co., a retail full service securities
brokerage firm. From 1992 to 1995, Mr. Pettersen served as a Wholesale Trader
for the Paulson Investment Company. From 1995 to the present, Mr. Pettersen has
served as President of Utah Internet Services, a full service Internet provider.
Mr. Pettersen received a Bachelor's Degree in Marketing from the University of
Utah in 1979.
Jonathan D. Rahn - Mr. Rahn has served as Secretary and a Director of the
Company since its inception. From July 1996 to the present, Mr. Rahn has served
as Executive Vice President and a Director for PacificHealth Laboratories, Inc.
He is also the President and sole stockholder of J.R. Consultants, Inc., an
independent consulting firm. Mr. Rahn has over 30 years experience in
accounting and financial analysis. Mr. Rahn is a licensed Certified Public
Accountant in the Commonwealth of Pennsylvania, and received a Bachelor's
Degree in Economics from The Wharton School of Business of the University of
Pennsylvania.
Philip A. Bunker - Mr. Bunker was a co-founder, and is President and Chief
Executive Officer, of DRCC, and has served as a Director of the Company since
its acquisition of DRCC. From 1982 to 1986, Mr. Bunker was Vice President of
CAECO, Inc. ("CAECO"), a semiconductor circuit design software company. While
at CAECO, Mr. Bunker and his engineering team developed a computer-aided
program used in advanced integrated
24
<PAGE>
circuit design programs such as Motorola's 68020 and 68030 and National's 32000
microprocessors. CAECO was subsequently sold to Mentor Graphics. From 1986 to
1991, Mr. Bunker was the President of Desert Digital, a company that was
acquired by DRCC in 1992. Mr. Bunker received a Bachelor's Degree in Electrical
Engineering from the University of Utah.
David Andrus - Mr. Andrus joined the Company has Director of Development
Engineering in April 1997. Prior to joining the Company, Mr. Andrus owned and
operated Innovatronics Engineering, a Radio Frequency and Data Communications
Consulting Firm which he formed in 1987. Mr. Andrus received a Bachelor's
Degree in Electrical Engineering from California State Polytechnic Institute.
Other Significant Employees
In addition to its Executive Officers and Employees, the Company believes
that the following employees will make significant contributions to the Company:
Jeffrey G. Ballif ...... 31 Manager of Digital and Software Services
Stuart Biddulph ......... 59 Director of Engineering
Lance King ............ 36 Director of Marketing
Jeffrey G. Ballif - Mr. Ballif was a co-founder of DRCC and, since 1992,
has been one of its principal project leaders. He has directed and/or
participated in a variety of embedded system hardware and software design
projects for the DRCC and, since the Company's acquisition of DRCC in February
1997, for the Company. Projects and responsibilities have included: modem
firmware modifications, fax modem debugging, telephone line switching product
design, digital modem design and firmware data modems to meet European
requirements. Prior to 1992, Mr. Ballif was an engineer at Desert Digital. Mr.
Ballif received a Bachelor's Degree in Electrical Engineering from Brigham Young
University.
Stuart Biddulph - Mr. Biddulph is the Company's Director of Research and
Engineering. He was Vice President of Engineering of DRCC prior to its
acquisition by the Company. Prior to joining DRCC in June 1996, Mr. Biddulph
was Director of Engineering at Comsat RSI Plexus Corporation, a position held
since 1995. From 1989 to 1995, Mr. Biddulph was a Project Manager for Sattel
Technologies, Inc. Mr. Biddulph is responsible for the day-to-day engineering
operations of the Company. He received a Bachelor's Degree in Physics degree
from Brigham Young University.
Lance King - Mr. King is the Company's Director of Marketing, and was the
Director of Marketing of DRCC prior to its acquisition by the Company. Mr. King
served as Director of Marketing of MHB Technology, Inc. from 1992 to 1994,
prior to which he was Vice President of Sales and Marketing for Intelligent
Modem Corp.
Corporate Governance Standards
The Company intends to apply to have its Common Stock approved for
quotation on The Nasdaq Stock Market, Inc. SmallCap Market. Issuers whose
securities are quoted on the SmallCap Market are required to comply with certain
corporate governance standards, including a requirement that at least two
directors of the issuer be "independent" directors, and that the issuer have an
audit committee, a majority of the members of which are "independent" directors.
The Company expects to be in compliance with these requirements prior to the
effective date of the registration statement of which this Prospectus is a part.
Compensation of Executive Officers
David D. Singer, the Company's Chairman, President and Chief Executive
Officer, has been functionally employed in those positions since October 1996,
although he was not formally appointed to those positions by the Board of
Directors until February 1997. Mr. Singer's current annual salary is $120,000.
He does not have a fixed term employment contract with the Company.
25
<PAGE>
The table below sets forth information concerning compensation paid in 1996
to Mr. Singer and to Gary Peterson, who served as the Company's President and
Chief Executive Officer until October 28, 1996. Except as indicated in the table
below, no executive officer of the Company received compensation of $100,000 or
more in 1996.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation
-----------------------------------------
Other Annual
Compensation
Name and Principal Positi Year Salary ($) Bonus ($) ($)
- ------------------------- ------ ------------ ----------- --------------
<S> <C> <C> <C> <C>
Gary Peterson, ......... 1996 $29,047 -0- (2)
President(1)
David D. Singer, ...... 1996 $27,512 -0- (2)
President(1)
Long Term Compensation
-------------------------------------------------------------
Awards Payouts
----------------------------------- ------------------------
All
Restricted Securities Other
Stock Underlying LTIP Compen-
Name and Principal Positi Award(s)($) Options/SARS(#) Payouts($) sation($)
- ------------------------- ---------------- ----------------- ------------ ----------
<S> <C> <C> <C> <C>
Gary Peterson, ......... -0- 54,000 -0- -0-
President(1)
David D. Singer, ...... 156,750(3) -0- -0- -0-
President(1)
</TABLE>
- ------------
(1) Mr. Peterson was President and Chief Executive Officer of the Company
through October 28, 1996. Mr. Singer was acting President and Chief
Executive Officer of the Company from October 1996 to February 3, 1997, when
he was formally appointed President, Chief Executive Officer and Chairman of
the Board of Directors.
(2) Neither of the executive officers named received compensation reportable as
"Other Compensation" in 1996 which exceeded 10% of such officer's salary.
(3) Mr. Singer received 475,000 shares of Common Stock, valued at the time of
issuance at $.33 per share, in connection with his employment as President
and Chief Executive Officer of the Company. These shares vested immediately,
and Mr. Singer is entitled to all rights as a stockholder with respect to
these shares.
The following tables set forth certain information regarding options
granted to Mr. Peterson in 1996, and options owned by Mr. Peterson at December
31, 1996:
Option/SAR Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Number of Percent of Total
Securities Options/SARs Exercise
Underlying Granted to or Base
Options/SARs Employees in Price Expiration
Name Granted (#) Fiscal Year ($/Sh) Date
- ---------------------- -------------- ----------------- --------- -----------
<S> <C> <C> <C> <C>
Gary Peterson ...... 54,000 26% $.33 6/30/98
</TABLE>
<PAGE>
Aggregated Option/SAR Exercises in 1996 Last Fiscal Year and
Option/SAR Values at 12/31/96
<TABLE>
<CAPTION>
Number of Securities Underlying
Unexercised Value of Unexercised
Shares Options/SARs at Fiscal Year-End In-The-Money Options/SARs at
Acquired (#)(1) December 31, 1996 ($)
on ------------------------------ -----------------------------
Exercise Value
Name (#) Realized($) Exercisable Unexercisable Exercisable Unexercisable
- ---------------------- ---------- ------------- ------------- --------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Gary Peterson ...... -0- -0- 54,000 -0- 1,080 -0-
</TABLE>
For the purpose of computing the value of "in-the-money" options at
December 31, 1996, in the above table, the fair market value of the Common
Stock at December 31, 1996, is deemed to be $.35 per share, which was the fair
market value of such shares as determined by the Board of Directors. Mr. Singer
held no options at December 31, 1996.
Directors' Compensation
None of the Company's directors received compensation for their services as
directors in 1996, and the Company has no formal plan to compensate directors
for their services.
26
<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
The Company had 10,035,518 shares of Common Stock outstanding at October
15, 1997. The following table sets forth certain information regarding the
ownership of the Company's Common Stock as of October 15, 1997, and adjusted,
assuming the sale of all Shares, to reflect such ownership by (i) each of the
Company's executive officers and directors, (ii) all executive officers and
directors as a group; and (iii) each other person known to the Company to be the
beneficial owner of more than 5% of the outstanding shares of Common Stock.
<TABLE>
<CAPTION>
Amount and Nature of
Beneficial Ownership Adjustments for Offering
-------------------------------- --------------------------------------------------
Ownership
As of Shares Assuming the Sale
Name and Address of October 15, Percent Registered of All Shares
Beneficial Owner 1997(1) of Class(2) for Sale No. of Shares(1) Percentage(2)
- -------------------------------------- ---------------- ------------- ------------------ ---------------- -------------
<S> <C> <C> <C> <C> <C>
(i) Directors and Executive
Officers
David D. Singer, President, Chief..... 475,000 4.7% -0- 475,000 4.7%
Executive Officer and Director
2873 South Ursula Court
Aurora, CO 80014
William E. Chipman, Sr., Chief ...... 480,345(3) 4.8% 480,345 -0- -0-
Financial Officer and Director
of Mergers and Acquisitions
150 Wright Brothers Drive
Suite 560
Salt Lake City, UT 84116
Brian W. Pettersen, Executive Vice 314,000(4) 3.1% -0- 314,000 3.1%
President and Director
2025 East Lincoln Circle
Holladay, UT 84124
Jonathan D. Rahn, Director ......... 360,500(5) 3.6% -0- 360,500 3.6%
413 Gatewood Road
Cherry Hill, NJ 08003
Philip A. Bunker, Secretary ......... 317,099(6) 3.2% 317,099 -0- -0-
and Director
946 East 880 North
Orem, UT 84057
David Andrus, Director of ......... -0- -0- -0- -0- -0-
Development Engineering
212 North 2520 West
Provo, UT 84601
(ii) All Directors and Executive . 1,946,944(7) 19.4% 797,444 1,149,500 11.5%
Officers as a Group
(6 Persons)
(iii) Other 5% Beneficial Owners
Michael Lauer ........................ 2,538,000(8) 25.3% 1,967,500(3) 570,500 5.7%
200 Park Avenue
Suite 3900
New York, NY 10166 ..................
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
Amount and Nature of
Beneficial Ownership Adjustments for Offering
-------------------------------- --------------------------------------------------
Ownership
As of Shares Assuming the Sale
Name and Address of October 15, Percent Registered of All Shares
Beneficial Owner 1997(1) of Class(2) for Sale No. of Shares(1) Percentage(2)
- -------------------------------------- ---------------- ------------- ------------------ ---------------- -------------
<S> <C> <C> <C> <C> <C>
Lancer Partners LP ............... 1,095,650(9) 10.9% 1,043,750 51,900 *
200 Park Avenue
Suite 3900
New York, NY 10166
Lancer Offshore, LP ............ 873,750(9) 8.7% 773,500 100,000 *
200 Park Avenue
Suite 3900
New York, NY 10166
Abraham J. Salaman ............ 638,250(10) 6.4% -0- 638,250 6.4%
c/o Trinity American Corp.
800 Kings Highway North
Suite 500
Cherry Hill, NJ 08034
Daniel and Roslyn Maxwell ...... 520,000(11) 5.1% -0- 520,000 5.1%
5970 Cilma Drive
West Valley City, UT 84128
</TABLE>
- ------------
* Less than one percent.
(1) Unless otherwise indicated, this column reflects shares owned beneficially
and of record and as to which the named party has sole voting power and sole
investment power. This column also includes shares issuable upon the
exercise of options or similar rights which are exercisable within 60 days
from the date of this Prospectus.
(2) In computing the percentage of shares beneficially owned by any person,
shares which the person has the right to acquire upon the exercise of
options or other rights held by such person within 60 days from the date of
this Prospectus are deemed outstanding. Such shares are not deemed to be
outstanding in computing the percentage ownership of any other person.
(3) Includes 17,316 shares issuable upon the exercise of DRCC Conversion
Options.
(4) Includes 95,000 shares owned jointly with his wife and 204,000 shares
issuable upon the exercise of options granted in December 1996 and January
1997 in recognition of past services.
(5) These shares are held directly and of record or in brokerage accounts by JR
Consultants, Inc., a company controlled by Mr. Rahn.
(6) Includes 283,052 shares owned jointly with his wife, a total of 16,731
shares owned of record by his wife for his minor children under the Utah
Uniform Gift to Minors Act, as to which Mr. Bunker disclaims beneficial
ownership, and 17,316 shares issuable upon the exercise of options received
in conversion of DRCC options in connection with the Company's acquisition
of DRCC ("DRCC Conversion Options").
(7) Includes 34,712 shares issuable upon the exercise of DRCC Conversion
Options, and 204,000 shares issuable upon other options granted by the
Company.
(8) Of these shares, 400,000 are owned by Mr. Lauer in street name; 873,750 are
held directly and of record by Lancer Offshore, Inc.; 1,095,650 are held
directly and of record by Lancer Partners, LP; and 168,600 are held directly
and of record by Lancer Voyager. Mr. Lauer is believed to control the voting
and disposition of these shares by virtue of being the investment manager
for these entities. He is also the general partner of Lancer Partners LP.
(9) Michael Lauer is deemed to be an indirect beneficial owner of these shares.
28
<PAGE>
(10) Includes 363,250 shares owned directly and of record by Trinity American
Corp. (113,250 shares) and Cherry Hill, Inc. (250,000 shares). Also
includes 275,000 shares owned of record by Robsal, Inc. which Mr. Salaman
has the right to vote, but as to which he disclaims any other beneficial
interest.
(11) Includes 370,000 shares owned directly and of record by Roslyn Maxwell,
Daniel Maxwell's wife, and 150,000 shares issuable upon the exercise of
options granted to Mr. Maxwell in December 1996 in recognition of past
services.
Selling Shareholders not named above, and the number of shares of
Outstanding Shares owned by each such Selling Shareholder prior to the offering,
is set forth in the table below. Unless otherwise indicated, all shares owned by
the Selling Shareholders listed are being registered for sale and, if sold,
would reduce the Selling shareholder's ownership interest in the Company to
zero.
<TABLE>
<CAPTION>
NO. OF
NAME OUTSTANDING SHARES
---- ------------------
<S> <C>
Jeffrey G. Ballif .......................................... 222,419(1)
Robert Kresge ............................................. 5,460
Robert Short ............................................. 36,982
Penny Warr & Dorothy Warr ................................. 1,394
Albert Walla ............................................. 2,231
Smith Barney, Inc. custodian FBO Robert K. Beardall ...... 5,460
Russell J. Verducci ....................................... 2,231
Dennis A. Joaquin & Jeff M. Joaquin ..................... 1,673
Vito Catalano ............................................. 1,115
Ronald Z. Plotkin and Kenneth Mendelson .................. 1,115
Hans Rech & Rose Marie Rech .............................. 3,346
Salvatore J. Galletto .................................... 4,462
Patricia A. McDonald ....................................... 1,115
Michael McGlone .......................................... 1,115
Xiaoming Xiong ............................................. 558
Yixing Qi ................................................ 558
William Hungerville ....................................... 10,039
Timothy Alsdorf .......................................... 1,115
Frank Michel ............................................. 4,462
Michael Plaza & Carol Plaza .............................. 2,231
Barbara A. Schwartz & John H. Rech JTWROS ............... 1,115
Thomas D. Rech & Valerie Rech ........................... 1,115
Jerald W. Davidson & Marian Davidson ..................... 2,231
Louis H. Merzario ....................................... 1,115
Jose D. Clemente, Jr. .................................... 1,115
Andreas F. Pozzi .......................................... 1,004
Maurice Shmueli .......................................... 112
Ronald L. Piasecki ....................................... 40,000
Jeff Walker ................................................ 558
Richard T. Mallen ....................................... 11,154
Tony Mei ................................................ 558
Nelson Wai ................................................ 558
Winn B. Pierce & Janet Pierce .............................. 167
Lon R. Hunsaker Trust .................................... 167
Mike Woodard & Debbie Woodard ........................... 558
Russell Woodard & Jana Lee Woodard ........................ 335
Halina Mjerezjewska ....................................... 2,231
Howard A. Berger & Dorothy G. Berger, JTWROS ............ 1,115
XLCR, Inc. ................................................ 2,625
Gail Isaksen ............................................. 1,115
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
NO. OF
NAME OUTSTANDING SHARES
---- ------------------
<S> <C>
Vito Catalano, C/F Matthew Healy ................................. 557
Vito Catalano, C/F Joseph Healy ................................. 558
Ronald T. Steinberg, Robert Steinberg, Arthur Steinberg
& Mitchell Steinberg, JTWROS .................................... 1,115
Bill B. Cowser ................................................... 1,701
Craig Wise C/F Kyle Chipman ....................................... 1,115
Craig A. Wise ................................................... 5,577
Loomis J. Grossman, Jr. .......................................... 6,065
Joyce A. Demorest ................................................ 2,231
Henry P. Juco ................................................... 1,115
Bruce Ender ...................................................... 558
Rodney M. Juco ................................................... 1,115
Pensco Pension Service for Aileen Belarmino ..................... 558
Vincent P. Sharrock ............................................. 558
John F. Folan ................................................... 2,231
Paul J. Fiorello ................................................ 1,115
Pensco Pension Service for Johannes C. Kaashoek .................. 1,115
Richard A. Grossman ............................................. 6,065
Harald Justnes, Jr. ............................................. 2,231
Russel J. Redgate ................................................ 2,500
Robert L. Weeks ................................................ 217,516
Charter Small Business Network .................................... 26,771
Stephen R. Field ................................................ 1,115
William G. Schwartz ............................................. 6,065
Robert Beyersdorier, Jean Beyersdorier ........................... 223
Daniel B. French ................................................ 18,195
Douserv Group Holdings Co. ....................................... 12,129
Stephen C. Sadtler ............................................. 35,695
John C. Decas ................................................... 4,462
Decas Companies Pension Plan .................................... 3,346
Martin H. Garvey ................................................ 30,000
Craig Wise C/F Ryan Chipman .................................... 1,115
Kent Huff ...................................................... 5,577
Dianne Gill ...................................................... 1,115
Gibbs V. Bray ................................................... 4,183
Paine Webber CF Domina H. Suprenant .............................. 1,115
Vera Rose Burd ................................................... 2,231
Robert Abreu ................................................... 1,115
James Hurley ................................................... 1,115
Dennis Saluti ................................................... 2,231
Thomas R. Reilly ................................................ 2,231
Herbert T. Etzold ................................................ 1,115
Edward Turi & Lisa Turi .......................................... 6,693
J. P. Ranch ...................................................... 71,526
Capital Holdings Partnership .................................... 86,132
Prudential Securities Agreement CF SRF ........................... 120
Robert L. Field & Stephen R. Field, Ttees ........................ 22,586
SRF TTEE of the Profit Sharing Plan of the Law Office of SRF ... 1,360
Michael S. Davis ................................................ 5,577
W. H. Highleyman TTEE Sombers Assoc., Inc. Profit Sharing Plan ... 1,115
Alix Michel ...................................................... 2,231
Jay Rosenberg ................................................... 5,577
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
NO. OF
NAME OUTSTANDING SHARES
---- ------------------
<S> <C>
James A. Burke .......................................... 1,115
Nava Sarver ............................................. 4,462
Donald Lyman & Gloria Lyman .............................. 3,718
Karen McGuire ............................................. 112
Robert J. Witt .......................................... 2,231
Chris Watkins ............................................. 3,000
Kim D. Isaacson .......................................... 3,135
David Politis ............................................. 10,513
Stephen Cowser .......................................... 139
Jack Berg ................................................ 279
George Denny ............................................. 40,000
Houise Trader Investments ................................. 6,163
Kevin & Tracey Tolbert .................................... 3,083
Stan & Beth Tolbert ....................................... 3,083
----------
TOTAL .............................................. 1,078,719
</TABLE>
- ------------
(1) Does not include Option shares, as set forth in the table below.
Holders of DRCC Conversion Options, and the number of Option Shares which
has the right to purchase upon the exercise of such options, are as follows:
<TABLE>
<CAPTION>
NO. OF
NAME OUTSTANDING SHARES
---- ------------------
<S> <C>
Jeffrey G. Ballif ........................................... 13,943
Stuart Biddlph .............................................. 39,041
Lance King ................................................. 37,926
David Politis .............................................. 8,366
Arthur Larsen .............................................. 334
Bob Kresge ................................................. 1,116
Charlotte Hankins ........................................... 781
Christina Piep .............................................. 112
Floyd Bailey ................................................. 112
Glade Johnson .............................................. 10,597
Judy Harris ................................................. 558
Judy Sperry ................................................. 10,039
Lesie Carter ................................................. 112
Megan Green ................................................. 112
Nancy Croft ................................................. 224
Rich Sawyer ................................................. 3,012
Rob Carrier ................................................. 223
Shayne Miller .............................................. 893
Solomone Liukaina ........................................... 502
Stephen Cowser .............................................. 27,887
Thu Lam .................................................... 112
Tondra Duran ................................................. 335
--------
TOTAL ....................................................... 156,337
--------
</TABLE>
31
<PAGE>
PLAN OF DISTRIBUTION
Outstanding Shares will be sold for the account of Selling Shareholders,
and none of the proceeds from the sale of Outstanding Shares will be received by
the Company. Option Shares will be sold by the Company upon the exercise of DRCC
Conversion Options. If all DRCC Conversion Options were exercised, the Company
would receive $381,532 in payment for Option Shares.
Outstanding Shares may be offered and sold, and Option Shares acquired by
holders of DRCC Conversion Options may be resold, from time to time as market
conditions permit in transactions that may take place in the over-the-counter
market, including block trades, ordinary brokers' transactions, privately
negotiated transactions or through sales to one or more broker/dealers for
resale of such securities as principals, at market prices prevailing at the time
of sale, at prices related to such prevailing market prices or at negotiated
prices. Usual and customary or specifically negotiated brokerage fees or
commissions may be paid by these holders in connection with such sales. The
Company will bear all expenses (other than underwriting discounts and selling
commissions, state and local transfer taxes, and fees and expenses of counsel or
other advisors to the Selling Stockholders) in connection with the registration
of the Shares.
With limited exceptions in the case of resales of Option Shares, the
registration statement of which this Prospectus forms a part must be current at
any time during which a Selling Stockholder sells any Shares. Any material
changes which the Company, in its sole discretion, determines should be
disclosed prior to the sale of Shares will be set forth in an accompanying
supplement to this Prospectus (the "Prospectus Supplement"). The names of any
participating brokers or dealers, any applicable commissions or discounts and
the net proceeds to the Selling Stockholders from such sale will be set forth in
the applicable Prospectus Supplement as required.
In connection with sales of Shares pursuant to the Registration Statement
of which this Prospectus is a part, a Selling Shareholder offering such Shares
and brokers and dealers who participate in the offer and sale of the Shares may
be deemed "underwriters" as such term is defined in the Securities Act. In
addition, persons using this Prospectus in the offer and sale of the Shares will
be deemed to be engaged in a "distribution" of the Shares as such term is
defined in Regulation M under the Exchange Act, and will be required to comply
with Regulation M with respect to contemporaneous market activity and other
provisions of such Regulation.
32
<PAGE>
MARKET INFORMATION
"Bid" and "asked" prices for the Company's Common Stock have been quoted on
the Nasdaq OTC Electronic Bulletin Board since October 4, 1996, prior to which
there was no public market for the Common Stock. Since October 4, 1996, actual
trading of the Common Stock has been limited and, based upon sales figures
furnished to the NASD by broker dealers who have quoted prices for the Company's
Common Stock, the total trading volume between October 4, 1996, and October 15,
1997, was 843,100 shares. The table below sets forth for the periods indicated
the high and low bid quotations as furnished by the NASD. These quotations
reflect inter-dealer prices, without retail mark-up, markdown, or commission and
may not necessarily represent transactions. The bid and asked prices for the
Common Stock on October 17, 1997, were $11.25 and $12.00, respectively.
High Low
-------- ---------
1996
----
Fourth quarter ......... $ 2.00 $ 2.00
(beginning 10/4/96)
1997
----
First quarter ......... $11.00 $ 2.00
Second quarter ......... $11.00 $ 9.00
Third quarter ......... $12.25 $ 8.125
Fourth quarter ......... $12.00 $11.00
(through October 17, 1997)
At October 15, 1997, the Company had 194 holders of record of its Common
Stock.
Outstanding Options
The Company has outstanding options to purchase a total of 598,969 shares
of Common Stock at prices ranging from $0.18 to $ 2.00 per share, and expiring
between June 30, 1998, and December 20, 2001. See "Description of Securities --
Other Outstanding Options".
Shares Saleable Under Rule 144
At October 15, 1997, the Company had outstanding 7,489,758 shares that were
"restricted securities" as defined in Rule 144, promulgated by the Securities
and Exchange Commission. Of these shares, 1,022,140 shares currently are
saleable, and the balance will become saleable prior to August 8, 1998, under
Rule 144, upon the seller's compliance with the manner of sale and other
conditions and limitations of that Rule. Rule 144 also requires that specified
information concerning the Company must be available at the time any such sale
is made. Following this offering, the Company will be subject to reporting
requirements of the Securities Exchange Act of 1934, compliance with which also
will satisfy Rule 144 "public information" requirements. Shares registered for
sale by Selling stockholders are restricted securities which are not currently
saleable under Rule 144, but which would become saleable under that Rule by the
holders of such securities in 1998.
ORGANIZATIONAL AND OTHER TRANSACTIONS
Organization, Initial Capitalization and Purchase of Assets of Micro Security,
Inc.
The Company was formed in November 1995 to acquire certain assets that had
been used in the business of Micro Security, Inc. ("Micro"). Contemporaneously
with its organization, the Company entered into an agreement to acquire the
Micro assets from Chocolate Leasing LLC ("Chocolate"), a limited liability
company that had previously acquired those assets. The individuals principally
responsible for organizing the Company were Abraham Salaman and Lynn Dixon, and
the organizers of Chocolate were Gary Christensen, Gary Peterson, Dan Maxwell
and Brian Pettersen. Messrs. Christensen, Peterson, Maxwell, Pettersen, Salaman
and Dixon all may be considered "founders" or "promoters" of the Company.
33
<PAGE>
In connection with the purchase and sale of Micro assets, Mr. Christensen
received $269,000 in redemption of his interest, and Messrs. Maxwell, Peterson
and Pettersen received shares of the Company's Common Stock (450,000, 105,000
and 105,000 shares, respectively) in consideration for their interests, through
Chocolate, in the Micro assets, which assets had been acquired by them at a net
cash cost of $122,000 during 1995.
Also in connection with the Company's organization and initial
capitalization, and the purchase of Micro assets, the Company issued 132,140
shares of Common Stock to Robsal, Inc. and Elvena, Inc., corporations controlled
by or otherwise associated with Messrs. Salaman and Dixon, for cash (107,140
shares) and for services (25,000 shares) at a price of $.047 per share. The
Company also issued 320,000 shares of Common Stock to Jonathan D. Rahn, who also
may be considered a founder or promoter of the Company, for services at a price
of $.047 per share, and borrowed $275,000 from Robsal, Inc., Elvena, Inc., three
other corporations controlled by Messrs. Salaman and Dixon and/or their adult
children (Cherry Hill, Inc., BRRD, Inc. and Stamatt, Inc.), Mr. Salaman's nephew
and three other investors. These short term borrowings and accrued interest
thereon were converted into 1,892,860 shares of Common Stock (an effective price
of approximately $.15 per share) in March 1996.
Mr. Dixon served as the initial President and sole director of the Company
until Mr. Peterson became a director, President and Chief Executive Officer,
and Mr. Rahn became Secretary/Treasurer and a director, of the Company on
November 16, 1995. Mr. Peterson remained President and a director of the
Company until October 28, 1996. Mr. Maxwell presently is employed by the
Company in a supervisory engineering and manufacturing position. Mr. Pettersen
serves as Executive Vice President of the Company and is a Director. Mr. Rahn
serves as Secretary of the Company and is a Director. None of the Company's
other founders/ promoters is or has been employed by the Company.
Employment of David Singer
In October 1996, the Company entered into an agreement with David Singer in
connection with which Mr. Singer assumed the duties of Chief Executive Officer
of the Company, and the Company agreed to acquire a corporation which had been
organized by Mr. Singer and a business associate of his to engage in the
contract manufacturing and assembly in exchange for 500,000 shares of Common
Stock. Since the corporation formed by Mr. Singer did not have assets or
operations at the time of the agreement, the shares acquired by Mr. Singer in
this transaction (475,000 shares) were treated, for accounting purposes, as
being issued for services, and were valued at approximately $.33 per share.
Principal Capital Transactions
In October 1996 through January 1997, the Company sold 2,357,857 shares of
Common Stock to a total of 33 investors for cash (1,800,000 shares at $.33 per
share, and 557,857 shares at $.35 per share), 11,000 shares in payment of
accrued interest on a note at a price of $.45, and 5,629 shares in conversion of
a note at $.35 per share. Purchasers included Lynn Dixon and Elvena, Inc.
(245,629 shares); Trinity American Corp., a corporation owned and controlled by
Mr. Salaman (113,250 shares), J.R. Consultants, Inc., a corporation owned and
controlled by Mr. Rahn (75,500 shares), a number of other entities and
individuals related to Messrs. Salaman and Dixon and other investors.
During 1997, the Company issued a total of 2,000,000 shares of Common Stock
raising a total of $4,000,000 (average cost of $2.00 per share) in direct
private placements of Common Stock or units of securities consisting of Common
Stock and Warrants, all of which were subsequently exercised. Michael Lauer,
certain of his associates, and a number of institutional investors for which Mr.
Lauer is the investment manager and/or general partner, were the purchasers of
these securities. Mr. Lauer also purchased 400,000 shares of Common Stock in the
financing transactions described in the preceding paragraph.
DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of 50,000,000 shares of
Common Stock, $.001 par value, of which 10,035,518 shares were outstanding as of
October 15, 1997, and 1,000,000 shares of Preferred Stock, $.001 par value, of
which no shares are outstanding.
34
<PAGE>
Common Stock
Holders of Common Stock are entitled to one vote for each share of Common
Stock owned of record on all matters to be voted on by stockholders, including
the election of directors. Holders of Common Stock do not have cumulative voting
rights and, accordingly, the holders of more than 50% of the outstanding shares
can elect the entire Board of Directors. The holders of Common Stock are
entitled, upon liquidation or dissolution of the Company, to receive pro rata
all assets remaining available for distribution to stockholders. The Common
Stock has no preemptive or other subscription rights, and there are no
conversion rights or redemption provisions. All outstanding shares of Common
Stock are validly issued, fully paid, and nonassessable.
Preferred Stock
The Company's Board of Directors has the authority by resolution to issue
up to 1,000,000 shares of preferred stock in one or more series and fix the
number of shares constituting any such series, the voting powers, designations,
preferences and relative, participating, optional or other special rights and
qualifications, limitations or restrictions thereof, including the dividend
rights, dividend rate, terms of redemption (including sinking fund provisions),
redemption price or prices, conversion rights and liquidation preferences of the
shares constituting any series, without any further vote or action by the
stockholders. For example, the Board of Directors is authorized to issue a
series of preferred stock that would have the right to vote, separately or with
any other series of preferred stock, on any proposed amendment to the Company's
Articles of Incorporation or on any other proposed corporate action, including
business combinations and other transactions.
1997 Stock Option Plan
On October 1, 1997, the Company's Board of Directors approved the 1997
Stock Option Plan (the "Plan"), subject to shareholder approval of the Plan, and
reserved 1,500,000 shares of Common Stock for issuance upon options granted
under the Plan. As of the date of this Prospectus, no options had been granted
under the 1997 Plan.
The purposes of the Plan are to provide incentives and rewards to those
employees who are in a position to contribute to the long-term growth and
profitability of the Company; to assist the Company to attract, retain and
motivate personnel with experience and ability; and to make the Company's
compensation program more competitive with those of other employers. The Company
anticipates it will benefit from the added interest which such personnel will
have in the success of the Company as a result of their proprietary interest.
The Plan presently is administered by the Board of Directors, but the Board
may establish a Stock Option Committee (the "Committee"), which consists of at
least three directors, to administer the Plan. References to the "Committee"
herein include the Board of Directors so long as it continues to administer the
Plan directly.
The Committee is authorized to select from among eligible employees,
directors, advisors and consultants those individuals to whom options are to be
granted and to determine the number of shares to be subject to, and the terms
and conditions of, the options. The Committee also is authorized to prescribe,
amend and rescind terms relating to options granted under the Plan and the
interpretation of options. Generally, the interpretation and construction of any
provision of the Plan or any options granted thereunder is within the discretion
of the Committee.
The Plan provides that options may or may not be Incentive Stock Options
within the meaning of Section 422 of the Internal Revenue Code ("ISOs"). Only
employees of the Company are eligible to receive ISOs, while employees and
non-employee directors, advisors and consultants are eligible to receive
options which are not ISOs, i.e. "Non-Qualified Options."
The acquisition of shares upon exercise of an ISO will not result in
recognition of income at the time. However, the excess of the fair market value
of the shares acquired over the exercise price will constitute an item of tax
preference, to be included in the optionee's computation of his "alternative
minimum tax" for federal income tax purposes. If the optionee does not dispose
of the shares issued to him upon the exercise of an ISO within one years of such
issuance or within two years from the date of the grant of the ISO, whichever is
later, any gain or loss realized by the optionee on a later sale or exchange of
such shares generally will be a
35
<PAGE>
long-term capital gain or long-term capital loss. If the optionee sells the
shares during such period, the optionee will recognize ordinary income for the
year in which disposition occurs equal to the amount, if any, by which the
lesser of the fair market value of such shares on the date of exercise of such
ISO or the amount realized from such sale exceeded the amount paid for such
shares.
In the case of Non-Qualified Options, the optionee generally will recognize
ordinary income upon exercise of the Non-Qualified Option in an amount equal to
the difference between the option price, assuming that the option price equaled
the fair market value of the Company's Common Stock at the time of grant, and
the fair market value of the shares on the date of exercise. When the shares are
sold, the grantee will generally recognize capital gain or loss equal to the
difference between (i) the selling price of the shares, and (ii) the sum of the
option price and the amount included in his income when the option is exercised.
The terms of options granted under the Plan are determined by the Committee
at the time the option is granted. Each option is evidenced by a written option
document, which, together with the provisions of the Plan itself determines such
terms as: when options under the Plan become exercisable; the exercise price of
options granted under the Plan, which may not be less than 100% of the fair
market value of the Common Stock on the date of the grant in the case of ISOs
(110% in the case of optionees who own 10% or more of the Company's Common Stock
on the date of grant); the term of the option; vesting provisions; and special
termination provisions.
An option is not transferrable by the optionee, other than by will or the
laws of descent and distribution, and is exercisable only by the optionee during
his lifetime or, in the event of his death, by a person who acquires the right
to exercise the option by bequest or inheritance or by reason of the optionee's
death.
Other Options
The Company has outstanding options to purchase 190,969 shares of Common
Stock at prices ranging from $0.18 per share to $2.00 per share (average
exercise price of $2.00 per share) issued in connection with the DRCC
acquisition in order to convert DRCC options granted prior to the Company's
acquisition of DRCC. The DRCC "conversion options" are subject to the terms and
conditions of DRCC's Omnibus Stock Option Plan (the "DRCC Plan") pursuant to
which the options originally were granted. The terms of the DRCC Plan are
substantially the same as the Company's 1997 Stock Option Plan.
The Company also has outstanding options to purchase 258,000 shares at a
price of $.33 per share, and 150,000 shares at a price of $.35 per share, which
were granted to the former President and CEO (Gary Peterson) and other members
of management of the Company (Brian Pettersen and Dan Maxwell) in late 1996 and
early 1997 in recognition of their prior service.
The options described above are fully vested, or will vest prior to
December 20, 1997, and expire between February 1, 1999 and December 20, 2001 in
the case of the DRCC conversion options, and on June 30, 1998, in the case of
the 408,000 options granted in December 1996 and January 1997.
"Anti-Takeover" Provisions
Although the Board of Directors is not presently aware of any takeover
attempt or interest involving the Company, the Articles of Incorporation and
Bylaws of the Company and the Nevada General Corporation Law (the "NGCL")
contain certain provisions which may be deemed to be "anti-takeover" in nature
in that such provisions may deter, discourage or make more difficult the
assumption of control of the Company by another corporation or person through a
tender offer, merger, proxy contest or similar transaction or series of
transactions.
Authorized but Unissued Shares: The authorized capital stock of the Company
is 50,000,000 shares of Common Stock and 1,000,000 shares of Preferred Stock.
These shares of capital stock were authorized for the purpose of providing the
Board of Directors of the Company with as much flexibility as possible to issue
additional shares for proper corporate purposes, including equity financing,
acquisitions, stock dividends, stock splits, employee stock option plans, and
other similar purposes which could include public offerings or private
placements. Other than with respect to shares of Common Stock reserved for
issuance upon the exercise of options, as described above, the Company has no
agreements, commitments or immediate plans for the sale or issuance
36
<PAGE>
of the additional shares of Common Stock or Preferred Stock at this time.
However, shares of Preferred Stock could be issued quickly with terms calculated
to delay or prevent a change in control of the Company without any further
action by the stockholders. Stockholders of the Company do not have preemptive
rights with respect to the purchase of these shares. Therefore, such issuance
could result in a dilution of voting rights and book value per share of the
Common Stock of the Company. No shares of Preferred Stock have been issued, and
the Company has no present plan to issue any such shares.
No Cumulative Voting: Neither the Company's Articles of Incorporation nor
its Bylaws contain provisions for cumulative voting. Cumulative voting entitles
each stockholder to as many votes as equal the number of shares owned by him
multiplied by the number of directors to be elected. A stockholder may cast all
these votes for one candidate or distribute them among any two or more
candidates. Thus, cumulative voting for the election of directors allows a
stockholder or group of stockholders who hold less than 50% of the outstanding
shares voting to elect one or more members of a board of directors. Without
cumulative voting for the election of directors, the vote of holders of a
plurality of the shares voting is required to elect any member of a board of
directors and present stockholders would be able to elect all of the members of
the board of directors. The Company's founders did not provide for cumulative
voting in the Articles of Incorporation of the Company because of a belief that
each director should represent and act in the interest of all stockholders and
not any special group of stockholders.
Control Share Acquisitions: Sections 78.378 et seq. of the NGCL provide for
notice to shareholders of a "control share acquisition", which is defined as the
acquisition of 20% of the voting power of a Nevada corporation, or of voting
power exceeding one-third of such total voting power by a person who owns 20% or
more of such voting power prior to the acquisition, or a majority or more of
such voting power by a person who already owns one-third or more of the voting
power. Shareholders have the right to demand "fair value" for their shares if a
control share acquisition occurs. The "control share" provisions limit the
voting power of the acquiror in a control share acquisition, and permit a
corporation to recover profits resulting from the sale of control shares in
certain situations. The control share acquisition provisions of the NGCL apply
only to Nevada corporations with a minimum of 100 shareholders of record who
reside in Nevada and, for that reason, do not now apply to the Company.
General Effect of Anti-Takeover Provisions: The overall effect of these
provisions may be to deter a future tender offer or other takeover attempt that
some stockholders might view to be in their best interests at that time. In
addition, these provisions may have the effect of assisting the Company's
current management in retaining its position and place it in a better position
to resist changes which some stockholders may want to make if dissatisfied with
the conduct of the Company's business.
Provisions Relating to Officers and Directors
The Company's Articles of Incorporation contain a provision permitted by
Nevada law which eliminates the personal liability of the Company's directors
for monetary damages for breach or alleged breach of their fiduciary duty of
care which arises under state law. Although this does not change the directors'
duty of care, it limits legal remedies which are available for breach of that
duty to equitable remedies, such as an injunction or rescission. This provision
of the Company's Articles of Incorporation has no effect on directors' liability
for: (1) breach of the directors' duty of loyalty; (2) acts or omissions not in
good faith or involving intentional misconduct or known violations of law; and
(3) approval of any transactions from which the directors derive an improper
personal benefit.
The Company's Articles of Incorporation also contain a provision providing
for the indemnification of directors and officers to the fullest extent
permitted under the NGCL.
Dividend Policy
The Company has never paid and does not presently anticipate paying
dividends on its Common Stock.
Transfer Agent
Interwest Transfer Co., Inc., Suite 100, 1901 E. 4000 South, Salt Lake
City, UT 84117, is the transfer agent and registrar for the Company's Common
Stock.
37
<PAGE>
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES
Section 78.751 of the NGCL, as amended, authorizes the Company to indemnify
any director or officer under certain prescribed circumstances and subject to
certain limitations against certain costs and expenses, including attorneys'
fees actually and reasonably incurred in connection with any action, suit or
proceeding, whether civil, criminal, administrative or investigative, to which
such person is a party by reason of being a director of officer of the Company
if it is determined that such person acted in accordance with the applicable
standard of conduct set forth in such statutory provisions. The Company may also
purchase and maintain insurance for the benefit of any director or officer which
may cover claims for which the Company could not indemnify such person. Insofar
as indemnification for liabilities arising under the Securities Act of 1933 may
be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore unenforceable.
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock offered hereby
will be passed upon for the Company by Connolly Epstein Chicco Foxman Engelmyer
& Ewing.
EXPERTS
The consolidated financial statements of World Wireless Communications,
Inc. and subsidiaries as of December 31, 1996 and 1995, and for the years ended
December 31, 1996 and 1995, included in this Prospectus have been so included in
reliance on the report of Hansen, Barnett & Maxwell, independent accountants,
given on the authority of said firm as experts in auditing and accounting. The
consolidated financial statements of Digital Radio Communications Corporation
and subsidiaries as of December 31, 1996 and 1995, and for the years ended
December 31, 1996 and 1995, included in this Prospectus have been so included in
reliance upon the report of Hansen, Barnett & Maxwell, independent accountants,
given on the authority of said firm as experts in auditing and accounting.
AVAILABLE INFORMATION
The Company has filed a registration statement on Form SB-2 (including all
amendments and supplements thereto, the "Registration Statement") with the
Commission under the Securities Act with respect to the Shares offered hereby.
This Prospectus, which forms a part of the Registration Statement, does not
contain all of the information set forth in the Registration Statement and the
Exhibits filed therewith, certain parts of which have been omitted in accordance
with the rules and regulations of the Commission. Statements contained herein
concerning the provisions of such documents are not necessarily complete and, in
each instance, reference is made to the Registration Statement or to the copy of
such document filed as an Exhibit to the Registration Statement or otherwise
filed with the Commission. Each such statement is qualified in its entirety by
such reference. Copies of the Registration Statement and Exhibits thereto can be
obtained upon payment of a fee prescribed by the Commission or may be inspected
free of charge at the public reference facilities and regional offices referred
to below. Additional information with respect to this offering may be provided
in the future by means of supplements or "stickers" to the Prospectus.
Prior to the date of this Prospectus, the Company has not been subject to
the informational and reporting requirements of the Securities Exchange Act of
1934, as amended (the "Exchange Act"). Following the date of this Prospectus,
the Company will be subject to Exchange Act reporting requirements and, in
accordance therewith, will file reports, proxy statements and other information
with the Securities and Exchange Commission (the "Commission"). Such reports,
proxy statements and other information filed with the Commission by the Company
may be inspected and copied at the public reference facilities maintained by the
Commission at its principal offices at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Commission's regional offices located at
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511, and 7
38
<PAGE>
World Trade Center, Suite 1300, New York, New York 10048. Such reports, proxy
statements and other information may also be obtained from the web site that the
Commission maintains at http://www.sec.gov. Copies of these materials can also
be obtained at prescribed rates from the Public Reference Section of the
Commission at its principal offices in Washington, D.C., set forth above.
39
<PAGE>
WORLD WIRELESS COMMUNICATIONS, INC.
AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
-----
<S> <C>
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS OF WORLD WIRELESS
COMMUNICATIONS, INC. AND DIGITAL RADIO COMMUNICATIONS CORPORATION
Pro Forma Condensed Consolidated Statements of Operations for the Six Months Ended June
30, 1997 ....................................................................................... F-2
Pro Forma Condensed Consolidated Statements of Operations for the Year Ended December
31, 1996 ........................................................................................ F-2
WORLD WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
Report of Independent Certified Public Accountants ............................................. F-3
Consolidated Financial Statements
Consolidated Balance Sheets as of June 30, 1997 (Unaudited), and December 31, 1996 and 1995 .... F-4
Consolidated Statements of Operations for the Six Months Ended June 30, 1997 and 1996
(Unaudited), for the Year Ended December 31, 1996, for the Period from April 10, 1995
(Date of Inception) through December 31, 1995, for the Cumulative Period From April
10, 1995 through June 30, 1997 (Unaudited), and for the Cumulative Period from April 10, 1995
through December 31, 1996 .................................................................... F-6
Consolidated Statements of Stockholders' Equity for the Period from April 10, 1995
(Date of Inception) through December 31, 1995, for the Year Ended December 31, 1996, and for
the Six Months Ended June 30, 1997 (Unaudited) ............................................. F-7
Consolidated Statements of Cash Flows for the Six Months Ended June 30, 1997 and 1996
(Unaudited), for the Year Ended December 31, 1996, for the Period from April 10, 1995
(Date of Inception) through December 31, 1995, for the Cumulative Period From April
10, 1995 through June 30, 1997 (Unaudited), and for the Cumulative Period from April 10, 1995
through December 31, 1996 .................................................................... F-9
Notes to Consolidated Financial Statements ...................................................... F-10
DIGITAL RADIO COMMUNICATIONS CORPORATION AND SUBSIDIARIES
Report of Independent Certified Public Accountants ............................................. F-19
Consolidated Financial Statements
Consolidated Balance Sheets as of December 31, 1996 and 1995 ................................. F-20
Consolidated Statements of Operations for the Years Ended December 31, 1996 and 1995............ F-21
Consolidated Statements of Stockholders' Equity (Deficit) for the Years Ended December
31, 1995 and 1996 .......................................................................... F-22
Consolidated Statements of Cash Flows for the Years Ended December 31, 1996 and 1995............ F-23
Notes to Consolidated Financial Statements ................................................... F-24
</TABLE>
F-1
<PAGE>
WORLD WIRELESS COMMUNICATIONS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
The unaudited pro forma consolidated financial statements present the
acquisition of DRCC by the Company using the purchase method of accounting as if
the acquisition had been consummated at January 1, 1996. Such information is
derived from, and should be read in conjunction with, the separate historical
consolidated financial statements of the Company and DRCC and notes thereto and
other financial information appearing elsewhere herein. The unaudited pro forma
consolidated statements of operations have been included for comparative
purposes only and do not purport to be indicative of the results of operations
which actually would have been obtained if the acquisition had been consummated
at January 1, 1996 or the results of operations which may be obtained in the
future. In addition, future results may vary significantly from the results
reflected in these pro forma statements of operations due to normal market and
industry activities.
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30, 1997
World Digital Pro Forma Pro Forma
Wireless Radio Adjustments Results
---------------- ----------------- ------------- ----------------
<S> <C> <C> <C> <C>
Sales ....................................... $ 1,875,494 $ 134,585 $ 2,010,079
Cost of sales .............................. 1,070,097 88,205 1,158,302
------------ ------------- ------------
Gross profit .............................. 805,397 46,380 851,777
------------ ------------- ------------
Research and development expense ............ 588,938 93,267 682,205
General and administrative expense ......... 1,476,596 91,973 1,568,569
Amortization of Goodwill .................. 279,963 --(A) $ 88,780 368,743
Interest expense ........................... 22,597 -- 22,597
------------ ------------- ---------- ------------
Total expenses .............................. 2,368,094 185,240 88,780 2,642,114
------------ ------------- ---------- ------------
Net loss .................................... $ (1,562,697) $ (138,860) $ (88,780) $ (1,790,337)
============ ============= ========== ============
Net loss per common share .................. $ (0.19) $ (0.21)
============ ============
Weighted average number of common
shares used in per share calculation ...... 8,421,370 8,330,116
============ ============
FOR THE YEAR ENDED DECEMBER 31, 1996
Sales ....................................... $ 618,505 $ 1,386,478 $ 2,004,983
Cost of sales .............................. 662,184 1,006,366 1,668,550
------------ ------------- ------------
Gross profit .............................. (43,679) 380,112 336,433
------------ ------------- ------------
Research and development expense ............ 92,932 440,125 533,057
General and administrative expense ......... 732,636 1,089,821 1,822,457
Amortization of Goodwill .................. -- --(A) $ 753,598 753,598
Interest expense ........................... 30,677 36,397 67,074
------------ ------------- ---------- ------------
Total expenses .............................. 856,245 1,566,343 753,598 3,176,186
------------ ------------- ---------- ------------
Loss from operations ........................ (899,924) (1,186,231) (753,598) (2,839,753)
Benefit from income tax ..................... -- (13,718) -- (13,718)
------------ ------------- ---------- ------------
Net loss .................................... $ (899,924) $ (1,172,513) $ (753,598) $ (2,826,035)
============ ============= ========== ============
Net loss per common share .................. $ (0.25) $ (0.52)
============ ============
Weighted average number of common
shares used in per share calculation ...... 3,601,750 5,399,850
============ ============
</TABLE>
- ------------
(A) To record the pro forma goodwill amortization adjustment to reflect the
Company's amortization expense as if the acquisition had occurred on January
1, 1996. Goodwill is amortized over five years by the straight-line method.
F-2
<PAGE>
HANSEN, BARNETT & MAXWELL
A Professional Corporation
CERTIFIED PUBLIC ACCOUNTANTS
(801) 532-2200
Member of AICPA Division of Firms Fax (801) 532-7944
Member of SECPS 345 East Broadway, Suite 200
Member of Summit International Associates Salt Lake City, Utah 84111-2693
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
World Wireless Communications, Inc.
We have audited the accompanying consolidated balance sheets of World Wireless
Communications, Inc. and subsidiaries (a development stage enterprise) as of
December 31, 1996 and 1995, and the related consolidated statements of
operations, stockholders' equity, and cash flows for the year ended December 31,
1996, for the period from April 10, 1995 (date of inception) through December
31, 1995, and for the cumulative period from April 10, 1995 through December 31,
1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of World Wireless
Communications, Inc. and subsidiaries as of December 31, 1996 and 1995, and the
results of their operations and their cash flows for the year ended December 31,
1996, for the period from April 10, 1995 (date of inception) through December
31, 1995, and for the cumulative period from April 10, 1995 through December 31,
1996, in conformity with generally accepted accounting principles.
HANSEN, BARNETT & MAXWELL
Salt Lake City, Utah
March 7, 1997
F-3
<PAGE>
WORLD WIRELESS COMMUNICATIONS, INC.
AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
December 31,
June 30, ----------------------------
1997 1996 1995
------------- ------------- ------------
(Unaudited)
<S> <C> <C> <C>
Current Assets
Cash ....................................... $ 707,120 $ 37,278 $ 29,682
Trade accounts receivables .................. 704,247 130,509 30,621
Other receivables (net of allowance) ...... 120,389 -- --
Inventory ................................. 422,206 159,881 60,656
Other assets .............................. -- 883 --
----------- ---------- ---------
Total Current Assets ..................... 1,953,962 328,551 120,959
----------- ---------- ---------
Equipment .................................... 1,279,625 448,237 339,693
Less accumulated depreciation ............ (212,556) (121,215) (38,853)
----------- ---------- ---------
Net Equipment .............................. 1,067,069 327,022 300,840
----------- ---------- ---------
Other Assets
Goodwill -- net ........................... 3,488,028 -- --
Non-compete agreement -- net ............... 72,112 -- --
Security deposit and other ............... 20,194 7,469 4,141
Organization costs, net ..................... 3,328 -- --
Investment in joint venture ............... 13,520 -- --
Investment in securities .................. 36,500 -- --
----------- ---------- ---------
Total Other Assets ........................ 3,633,682 7,469 4,141
----------- ---------- ---------
Total Assets ................................. $ 6,654,713 $ 663,042 $ 425,940
=========== ========== =========
(continued)
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
WORLD WIRELESS COMMUNICATIONS, INC.
AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED BALANCE SHEETS (CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
December 31,
June 30, ---------------------------
1997 1996 1995
--------------- ------------ ------------
(Unaudited)
<S> <C> <C> <C>
Current Liabilities
Trade accounts payable ................................. $ 355,899 $ 61,997 $ 31,256
Accrued liabilities .................................... 146,925 55,788 827
Notes payable and capital lease obligation -- current
portion ............................................. 137,952 85,566 284,000
Non-compete obligation ................................. 102,604 -- --
Accrued settlement obligation ........................... 160,000 -- --
------------ ---------- ---------
Total Current Liabilities .............................. 903,380 203,351 316,083
Long-Term Liabilities
Notes payable and capital lease obligation ............ 54,084 44,808 44,500
Deferred income taxes ................................. 546,465 -- --
------------ ---------- ---------
Total Liabilities .................................... 1,503,929 248,159 360,583
------------ ---------- ---------
Stockholders' Equity
Preferred stock -- $0.001 par value; 1,000,000 shares
authorized; no shares issued or outstanding ......... -- -- --
Common stock -- $0.001 par value; 50,000,000 shares
authorized; 9,524,587, 5,663,000 and 1,132,140
shares issued and outstanding, respectively ......... 9,525 5,663 1,132
Additional paid-in capital ........................... 7,692,548 1,397,812 152,893
Deficit accumulated during the development stage ...... (2,551,289) (988,592) (88,668)
------------ ---------- ---------
Total Stockholders' Equity ........................... 5,150,784 414,883 65,357
------------ ---------- ---------
Total Liabilities and Stockholders' Equity ............... $ 6,654,713 $ 663,042 $ 425,940
============ ========== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
WORLD WIRELESS COMMUNICATIONS, INC.
AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Six Months For the
Ended June 30, Year Ended
------------------------------- December 31,
1997 1996 1996
---------------- ------------- --------------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
Sales ................................. $ 1,875,494 $ 339,283 $ 618,505
Cost of Sales ........................ 1,070,097 319,104 662,184
------------ ---------- -----------
Gross Profit ........................... 805,397 20,179 (43,679)
------------ ---------- -----------
Expenses
Research and development expense ...... 588,938 -- 92,932
General and administrative expense ... 1,476,596 294,992 732,636
Amortization of goodwill ............ 279,963 -- --
Interest expense ..................... 22,597 13,236 30,677
------------ ---------- -----------
Total Expenses ..................... 2,368,094 308,228 856,245
------------ ---------- -----------
Net Loss .............................. $ (1,562,697) $ (288,049) $ (899,924)
============ ========== ===========
Net Loss Per Common Share ............ $ (0.19) $ (0.09) $ (0.25)
============ ========== ===========
Weighted Average Number of Common Shares
Used in Per Share Calculation ......... 8,421,370 3,049,484 3,601,750
============ ========== ===========
For the Period For the
From April 10, Cumulative Periods
1995 (Date of From April 10, 1995
Inception) (Date of Inception) Through
Through -------------------------------
December 31, June 30, December 31,
1995 1997 1996
---------------- ---------------- -------------
(Unaudited)
Sales ................................. $ 426,825 $ 2,920,824 $1,045,330
Cost of Sales ........................ 237,356 1,969,637 899,540
---------- ------------ -----------
Gross Profit ........................... 189,469 951,187 145,790
---------- ------------ -----------
Expenses
Research and development expense ...... -- 681,870 92,932
General and administrative expense ... 278,137 2,487,369 1,010,773
Amortization of goodwill ............ -- 279,963 --
Interest expense ..................... -- 53,274 30,677
---------- ------------ -----------
Total Expenses ..................... 278,137 3,502,476 1,134,382
---------- ------------ -----------
Net Loss .............................. $ (88,668) $ (2,551,289) $ (988,592)
========== ============ ===========
Net Loss Per Common Share ............ $ (0.10) $ (0.30) $ (0.31)
========== ============ ===========
Weighted Average Number of Common Shares
Used in Per Share Calculation ......... 854,640 8,421,370 3,209,306
========== ============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
WORLD WIRELESS COMMUNICATIONS, INC.
AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Deficit
Accumulated
Common Stock Additional During the Total
------------------------ Paid-in Development Stockholders'
Shares Amount Capital Stage Equity
------------ --------- ------------ ------------- --------------
<S> <C> <C> <C> <C> <C>
BALANCE -- APRIL 10, 1995 (Date
of Inception) ........................... -- $ -- $ -- $ -- $ --
Shares issued for cash, April 10, 1995,
$0.18 per share ........................... 1,020,000 1,020 338,980 -- 340,000
Shares issued for cash, June through
November 1995, $0.05 to $0.23 per
share .................................... 306,395 306 55,694 -- 56,000
Redemption of shares for $60,000 cash
and a $209,000 promissory note, May
through November 1995, $0.18 per
share .................................... (600,000) (600) (268,400) -- (269,000)
Shares issued for services, November
1995, $0.05 to $0.24 per share ............ 405,745 406 26,619 -- 27,025
Net Loss ................................. -- -- -- (88,668) (88,668)
--------- ------- ---------- ----------- ----------
BALANCE -- DECEMBER 31, 1995................ 1,132,140 1,132 152,893 (88,668) 65,357
Shares issued upon conversion of notes
payable, January 1996, $0.15 per share 1,892,860 1,893 273,107 -- 275,000
Shares issued for cash, less $12,000 in
offering costs, March 1996, $0.70 per
share .................................... 300,000 300 197,700 -- 198,000
Shares issued for services, March 1996,
$0.70 per share ........................... 7,000 7 4,893 -- 4,900
Shares issued for cash, less $5,000 in
offering costs, October to December
1996, $0.33 per share ..................... 1,800,000 1,800 593,200 -- 595,000
Shares issued for services October
through November $0.33 per share ......... 520,000 520 171,080 -- 171,600
Shares issued for interest due on convert-
ible debentures, December 1996, $0.45
per share ................................. 11,000 11 4,939 -- 4,950
Net loss ................................. -- -- -- (899,924) (899,924)
--------- ------- ---------- ----------- ----------
BALANCE -- DECEMBER 31, 1996 ............... 5,663,000 $5,663 $1,397,812 $ (988,592) $ 414,883
========= ======= ========== =========== ==========
(Continued)
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE>
WORLD WIRELESS COMMUNICATIONS, INC.
AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (CONTINUED)
<TABLE>
<CAPTION>
Deficit
Accumulated
Common Stock Additional During the Total
---------------------- Paid-in Development Stockholders'
Shares Amount Capital Stage Equity
----------- --------- ------------ ---------------- --------------
<S> <C> <C> <C> <C> <C>
BALANCE -- DECEMBER 31, 1996 ........................ 5,663,000 $ 5,663 $1,397,812 $ (988,592) $ 414,883
Shares issued for cash, January 15, 1997, $0.35 per
share (unaudited) ................................. 557,857 558 194,692 -- 195,250
Shares issued upon conversion of note payable,
January 15, 1997, $0.35 per share (unaudited) ...... 5,629 6 1,964 -- 1,970
Shares and 500,000 warrants (exercisable at $2.00
per share) issued for cash, February 12, 1997,
$1.69 per share and $0.31 per warrant
(unaudited) ....................................... 500,000 500 999,500 -- 1,000,000
Shares issued and 201,900 stock options granted in
acquisition of Digital Radio Communications
Corporation, February 12, 1997, $1.69 per share
and $0.31 per option (unaudited) .................. 1,798,100 1,798 3,099,580 -- 3,101,378
Shares issued for cash upon exercise of warrants,
March 6, 1997, $2.00 per share (unaudited) ......... 500,000 500 999,500 -- 1,000,000
Shares issued for cash, April 23, 1997, $2.00 per
share (unaudited) ................................. 500,000 500 999,500 -- 1,000,000
Net loss (unaudited) .............................. -- -- -- (1,562,697) (1,562,697)
---------- -------- ----------- ------------ ------------
BALANCE -- JUNE 30, 1997 (Unaudited) ............... 9,524,587 $ 9,525 $7,692,548 $ (2,551,289) $ 5,150,784
========== ======== =========== ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-8
<PAGE>
WORLD WIRELESS COMMUNICATIONS, INC.
AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Six Months For the
Ended June 30, Year Ended
------------------------------- December 31,
1997 1996 1996
---------------- ------------- --------------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
Cash Flows From Operating Activities
Net loss ................................. $ (1,562,697) $ (288,050) $ (899,924)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation and amortization ......... 371,304 40,155 83,094
Allowance provided on other
receivables ........................... 35,000 -- --
Provision for settlement liability ...... 160,000 -- --
Stock issued for services ............... -- 4,900 176,500
Stock issued for interest ............ -- -- 4,950
Changes in operating assets and
liabilities, net of effects of
businesses acquired:
Accounts receivable .................. (262,110) (34,521) (99,888)
Other receivable ..................... (152,898) -- --
Other assets ........................... 2,896 (16,776) (883)
Inventory .............................. (5,840) (12,617) (99,225)
Accounts payable ..................... (80,016) 18,959 30,741
Accrued liabilities .................. (405,117) 39,390 54,965
------------ ---------- -----------
Net Cash Used By Operating
Activities .............................. (1,899,478) (248,560) (749,670)
------------ ---------- -----------
Cash Flows From Investing Activities
Payment for acquisition of subsidiaries
net of cash received -- net ............ (131,157) -- --
Payments for the purchase of property
and equipment ........................ (404,382) (77,327) (90,544)
Payment for other assets ............... -- -- (4,060)
------------ ---------- -----------
Net Cash Used By Investing Activities .... (535,539) (77,327) (94,604)
------------ ---------- -----------
Cash Flows From Financing Activities
Redemption of common stock ............... -- -- --
Proceeds from issuance of common
stock ................................. 3,195,250 116,500 171,500
Offering costs paid ..................... -- (12,000) (17,000)
Proceeds from borrowings ............... 50,000 320,500 805,470
Proceeds from sale and lease back of
equipment .............................. -- 80,500 80,500
Principal payments of debt ............... (120,752) (202,163) (188,600)
Principal payments on capital lease
obligations ........................... (19,639) -- --
------------ ---------- -----------
Net Cash Provided By Financing
Activities .............................. 3,104,859 303,337 851,870
------------ ---------- -----------
Net Increase In Cash ..................... 669,842 (22,550) 7,596
Cash -- Beginning of Period ............ 37,278 29,682 29,682
------------ ---------- -----------
Cash -- End of Period ..................... $ 707,120 $ 7,132 $ 37,278
============ ========== ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
For the Period
From April 10, For the
1995 (Date of Cumulative Period
Inception) From April 10, 1995
Through Date of Inception) Through
December 31, June 30, December 31,
1995 1997 1996
---------------- ---------------- -------------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
Cash Flows From Operating Activities
Net loss ................................. $ (88,668) $ (2,551,289) $ (988,592)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation and amortization ......... 38,853 493,251 121,947
Allowance provided on other
receivables ........................... -- 35,000 --
Provision for settlement liability ...... -- 160,000 --
Stock issued for services ............... 27,025 203,525 203,525
Stock issued for interest ............ -- 4,950 4,950
Changes in operating assets and
liabilities, net of effects of
businesses acquired:
Accounts receivable .................. (30,621) (392,619) (130,509)
Other receivable ..................... -- (152,898) --
Other assets ........................... -- 2,013 (883)
Inventory .............................. (14,799) (119,864) (114,024)
Accounts payable ..................... 31,256 (18,019) 61,997
Accrued liabilities .................. 827 (349,325) 55,792
---------- ------------ -----------
Net Cash Used By Operating
Activities .............................. (36,127) (2,685,275) (785,797)
---------- ------------ -----------
Cash Flows From Investing Activities
Payment for acquisition of subsidiaries
net of cash received -- net ............ (340,000) (471,157) (340,000)
Payments for the purchase of property
and equipment ........................ (49,691) (544,617) (140,235)
Payment for other assets ............... -- (4,060) (4,060)
---------- ------------ -----------
Net Cash Used By Investing Activities..... (389,691) (1,019,834) (484,295)
---------- ------------ -----------
Cash Flows From Financing Activities
Redemption of common stock ............... (60,000) (60,000) (60,000)
Proceeds from issuance of common
stock ................................. 396,000 3,762,750 567,500
Offering costs paid ..................... -- (17,000) (17,000)
Proceeds from borrowings ............... 125,000 980,470 930,470
Proceeds from sale and lease back of
equipment .............................. 44,500 125,000 125,000
Principal payments of debt ............... (50,000) (359,352) (238,600)
Principal payments on capital lease
obligations ........................... -- (19,639) --
---------- ------------ -----------
Net Cash Provided By Financing
Activities .............................. 455,500 4,412,229 1,307,370
---------- ------------ -----------
Net Increase In Cash ..................... 29,682 707,120 37,278
Cash -- Beginning of Period ............ -- -- --
---------- ------------ -----------
Cash -- End of Period ..................... $ 29,682 $ 707,120 $ 37,278
========== ============ ===========
</TABLE>
Supplemental cash flow information and noncash investing and financing
activities -- Note 6
The accompanying notes are an integral part of these financial statements.
F-9
<PAGE>
WORLD WIRELESS COMMUNICATIONS, INC.
AND SUBSIDIARIES
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information With Respect to June 30, 1997 and For the Six Months ended
June 30, 1997 and 1996 is Unaudited)
NOTE 1 -- NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Organization -- On April 10, 1995 a group of investors contributed $340,000
in cash to form a joint venture (the Joint Venture). On the same day, the Joint
Venture acquired substantially all of the assets and operations of Micro
Security Systems, Inc. (Micro), a bankrupt company, at a sheriff's auction for
$340,000 cash. The acquisition was accounted for by the purchase method of
accounting. The purchase price was allocated to the assets acquired based upon
their fair value: $45,857 to current assets and $294,143 to equipment and other
long-term assets. The operations of the acquired business are included in the
accompanying financial statements from the date of acquisition. Due to
circumstances beyond the control of the Joint Venture, Micro continued to
operate under the direction of the court-appointed trustee, using the Joint
Venture's assets, until approximately November 1995. These operations, as far as
they could be identified, have been included in the accompanying financial
statements.
Data Security Corporation (Data Security) was formed on November 15, 1995
under the laws of the State of Nevada. The Joint Venture was reorganized into
Data Security in November 1995 by Data Security issuing 470,000 shares of common
stock and agreeing to pay $269,000 to the owners of the Joint Venture. The
transfer of the net assets and operations to Data Security was a transfer
between enterprises under common control and has been accounted for at
historical cost in a manner similar to that in pooling-of-interests accounting.
The accompanying financial statements have been restated to reflect the common
stock equivalents that would have been issued and redeemed from the dates of the
original transactions with the owners of the Joint Venture based upon the shares
that were exchanged in the transfer.
Principles of Consolidation -- The consolidated financial statements
include the accounts of World Wireless Communication, Inc. and its wholly owned
subsidiaries, ECA Electronic Contract Assembly, Inc. (ECA), and Digital Radio
Communications Corporation, which has subsidiaries, from the date of its
acquisition. Intercompany accounts and transactions have been eliminated in
consolidation. The consolidated entities are collectively referred to herein as
"the Company".
Nature of Business -- The Company and its subsidiaries design, develop and
manufacture wired and wireless communications technology, systems and products,
and provide contract manufacturing services to the electronics and wireless
communications industry.
Prior to the acquisition of Digital Radio the primary operations of the
Company were centered around the design and manufacture of computer security
products, which constituted most of the Company's sales for 1996 and 1995. Sales
of these products were insignificant during 1997 and are not expected to be
significant in the future.
Name Change -- By shareholder action on January 15, 1997, the Company's
name was changed from Data Security Corporation to World Wireless
Communications, Inc.
Business Condition -- The Company is in the development stage with its
primary efforts being spent raising capital and developing markets. It has not
had sales sufficient to meet its operating expenses and to generate income. It
has sustained operating losses in the six months ended June 30, 1997, and for
the years ended December 31, 1996 and 1995, and may require additional capital
to continue operations. Management intends to obtain additional capital through
issuance of common stock and has done so subsequent to both December 31, 1996
and June 30, 1997. During February 1997 the Company acquired Digital Radio.
Management expects the acquisition will enhance the Company's profitability from
operations. However, there is no assurance that profitable operations can be
obtained or sustained.
F-10
<PAGE>
WORLD WIRELESS COMMUNICATIONS, INC.
AND SUBSIDIARIES
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
NOTE 1 -- NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES -- (Continued)
Long-Lived Assets -- Effective January 1, 1996, the company adopted
Statement of Financial Accounting Standards No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of
(SFAS 121). SFAS 121 requires that impairment losses be recorded when indicators
of impairment are present and undiscounted cash flows estimated to be generated
by those assets are less than the assets' carrying amount. The adoption of this
standard in 1996 did not have a material impact on the Company's operating
results, cash flows or financial position.
Segment Information and Concentration of Risk -- Prior to 1997, the Company
operated solely in the electronics industry primarily in the Western United
States. Accordingly, segment information relating to operations in different
industries or geographic areas is not presented in these financial statements.
Beginning in 1997 the Company expanded its operations to include significant
sales nationally and internationally. The concentration of business in one
industry and one geographic area subjects the Company to a concentration of
credit risk relating to trade accounts receivable. The Company generally does
not require collateral from its customers with respect to the Company's trade
receivables.
Accounts Receivable and Major Customers -- A significant portion of the
1996 net sales were concentrated in a few significant customers. Thirty- four
percent of sales in 1996, or $218,269, were to four customers. For the six
months ended June 30, 1997, seventy and six tenths percent of sales, or
$1,419,327 were to two customers under contracts which submit the Company to the
risk that the Company may not be able to continue the current level of revenue
due to loss of contracts. Due to the actual write off of accounts that were
uncollectible at December 31, 1996 and 1995 and at June 30, 1997, an allowance
for doubtful accounts was not required. Management estimates that the remaining
balance of accounts receivable at December 31, 1996 and at June 30, 1997 will be
collected.
Inventory -- Inventory is stated at the lower of cost or market. Cost is
determined using the first-in, first-out method.
Research and Development Expense -- Current operations are charged with all
research, engineering and product development expenses.
Equipment -- Equipment is stated at cost. Depreciation, including
amortization of leased assets, is computed using the straight-line method over
the estimated useful lives of the equipment, which are five to seven years.
Depreciation expense was $82,362 and $38,853 for the year ended December 31,
1996 and for the period from April 10, 1995 through December 31, 1995,
respectively. Depreciation expense for the six months ended June 30, 1997 was
$91,340. Maintenance and repairs of equipment are charged to operations, and
major improvements are capitalized. Upon retirement, sale, or other disposition
of equipment, the cost and accumulated depreciation are eliminated from the
accounts, and gain or loss is included in operations.
Sales Recognition -- Sales are recognized upon delivery of products or
services and acceptance by the customer. As a result of design and technology
contracts the Comapny has a right to receive royalties which will be recognized
upon the related sales by customers.
Net Loss Per Common Share -- Net loss per common share is computed using
the weighted average number of common shares outstanding. Stock options
were-antidilutive at December 31, 1996 and at June 30, 1997, and were not
included in the calculation of net loss per common share.
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 in these financial
statements and accompanying notes. Actual results could differ from those
estimates.
F-11
<PAGE>
WORLD WIRELESS COMMUNICATIONS, INC.
AND SUBSIDIARIES
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
NOTE 1 -- NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES -- (Continued)
Stock Based Compensation -- During 1996, the Company adopted Statement of
Financial Accounting Standards No. 123 (SFAS 123), Accounting for Stock-Based
Compensation. Under the provisions of SFAS 123, the Company can elect to account
for stock-based compensation plans and options using a fair-value-based method,
or it can continue to measure compensation costs for those plans using the
intrinsic method prescribed by Accounting Principles Board Opinion No. 25 (APB
No. 25), Accounting for Stock Issued to Employees. The Company has elected to
continue to account for such plans under the provisions of APB No. 25.
Interim Condensed Financial Statements -- The accompanying consolidated
financial statements at June 30, 1997 and for the periods ended June 30, 1997
and 1996 are unaudited. In the opinion of management, all necessary adjustments
(which include only normal recurring adjustments) have been made to present
fairly the financial position, results of operations and cash flows for the
periods presented. The results of operations for the six month period ended June
30, 1997 are not necessarily indicative of the operating results to be expected
for the full year.
NOTE 2 -- BUSINESS COMBINATION AND ACQUISITION
ECA was incorporated on October 24, 1996 under the laws of the State of
Nevada. ECA had no operations or assets and had made efforts toward the
development of business relating to the assembly of printed circuit boards and
wire/cable harnesses. Effective October 28, 1996, the Company acquired all of
ECA's outstanding common stock and employed two ECA officers, by issuing 500,000
shares of common stock. This business combination was accounted for using the
purchase method of accounting. However, the Company received no assets from the
ECA acquisition. Accordingly, the shares issued were deemed to represent
compensation to the two new officers in the amount of $165,000, or $0.33 per
share, based on prices for which shares of common stock were issued for cash
during the same time period. ECA did not have any operations prior to the
acquisition. Its operations have been included in the accompanying financial
statements from the date of acquisition.
On February 12, 1997, a majority of the shareholders of Digital Radio
Communications Corporation (Digital Radio) accepted an offer from the Company
(World Wireless) to merge Digital Radio into a newly-formed subsidiary of World
Wireless. The Digital Radio shareholders agreed to exchange each of their common
shares for 0.5577349 common shares of World Wireless, which resulted in World
Wireless issuing 1,798,000 shares of common stock. In addition, holders of
Digital Radio stock options exchanged each of their options for 0.5577349 of
World Wireless stock options, which resulted in World Wireless issuing options
to purchase 201,900 shares of common stock exercisable at $2.00 per share.
The merger has been accounted for using the purchase method of accounting.
The purchase price, based upon the fair value of the common shares and stock
options issued, was $3,101,378. Goodwill in the amount of $3,766,175 was
recognized from the acquisition and is being amortized over five years by the
straight-line method.
F-12
<PAGE>
WORLD WIRELESS COMMUNICATIONS, INC.
AND SUBSIDIARIES
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
NOTE 2 -- BUSINESS COMBINATION AND ACQUISITION -- (Continued)
Although the merger agreement was not executed until May 21, 1997, the
acquisition was effective for financial reporting purposes on February 12, 1997,
which was the date of approval by the World Wireless Board of Directors and by a
majority of the Digital Radio shareholders. The accompanying condensed
consolidated financial statements include the accounts and operations of Digital
Radio from February 12, 1997, and includes the shares to be issued at the
closing of the acquisition as though such shares had been issued on that date.
Pro forma results of operations, had the acquisition occurred January 1, 1996,
are as follows:
For the
Six Months For the
Ended Year Ended
June 30, December 31,
1997 1996
-------------- --------------
(Unaudited) (Unaudited)
Sales ........................... $ 2,010,079 $ 2,016,805
Net Loss ........................ (1,790,337) (2,832,443)
Net Loss per Common Share ...... (0.21) (0.52)
NOTE 3 -- INVENTORY
Inventory consists of the following:
December 31,
June 30, -----------------------
1997 1996 1995
----------- ----------- ---------
Materials ............ $ 180,716 $ 20,935 $ --
Work in process ...... 241,940 138,946 60,656
---------- ---------- ---------
Total ............... $ 422,206 $ 159,881 $ 60,656
========== ========== =========
NOTE 4 -- EQUIPMENT
Equipment consists of the following:
December 31,
June 30, ----------------------
1997 1996 1995
------------ ----------- --------
Computer equipment .......$ 174,123 $ 68,440 $ 55,216
Telephone equipment .... 91,786 31,273 22,873
Office equipment ....... 54,364 29,995 26,042
Manufacturing equipment . 852,436 308,458 225,491
Furniture and fixtures . 16,906 10,071 10,071
Software ................ 90,010 -- --
----------- ---------- ---------
Total ...................$1,279,625 $ 448,237 $339,693
=========== ========== =========
NOTE 5 -- OBLIGATION UNDER NON-COMPETE AGREEMENT
In connection with Digital Radio's acquisition of a subsidiary,
Dem-Tronics, in 1995, Digital Radio entered into a non-compete agreement with
the seller. The agreement originally called for a series of yearly minimum
payments to be increased by a contingent amount based on Dem-Tronics' sales
volume. The payment plan was accelerated through a renegotiated agreement in
September 1997 whereby the contingent payments were eliminated and the minimum
payments increased in both amount and frequency of payment. The new agreement is
for $110,000 to be paid in four monthly payments beginning September 15, 1997 of
$27,500 each. Interest on the minimum obligation has been imputed at 10 percent,
resulting in a total present value at June 30, 1997 of $102,604.
F-13
<PAGE>
WORLD WIRELESS COMMUNICATIONS, INC.
AND SUBSIDIARIES
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
NOTE 6 -- ACCRUED SETTLEMENT OBLIGATION
Subsequent to June 30, 1997 the Company reached an informal settlement with
an otherwise unrelated joint venture partner over a suit filed by the partner
against the Digital Radio and its major customers. The suit asserted claims that
the joint venture had an interest in the technology which Digital Radio used in
products sold to those customers. Digital Radio strongly disputed the partners
interest in the technology at issue. The settlement offer was made in an effort
to minimize the time and expense of protracted litigation, as well as to
maintain its good customer relations. The Company has recorded a current
liability of $160,000 as a preliminary estimate for the costs associated with
the proposed settlement. The proposed settlement would release all claims
against the Company and allow the Company unlimited use of the technology.
NOTE 7 -- NOTES PAYABLE AND CAPITAL LEASE OBLIGATIONS
<TABLE>
<CAPTION>
December 31,
June 30, ----------------------------
1997 1996 1995
------------- ------------ -------------
<S> <C> <C> <C>
Payable to stockholders for working capital; no
stated interest; amount was converted to stock in
1996 ................................................ $ -- $ -- $ 125,000
Promissory note incurred in connection with stock
redemption; paid in 1996; interest at 10% per
annum ............................................. -- -- 159,000
Notes payable for equipment; interest at 10%;
collateralized by equipment; paid during 1997 ...... -- 3,404 --
Payable due to shareholder for working capital; no
stated interest; the note was converted to stock in
January 1997 ....................................... -- 1,970 --
Capital lease obligations for equipment purchases,
with various interests rates ranging from 7 to 21
percent. Minimum monthly payments are $4,560 ......... 105,639 -- --
Note payable to a shareholder for equipment;
interest at 15%; due in payments of $7,798
through September 1998; secured by equipment
and personally guaranteed by two stockholders ...... 86,397 125,000 44,500
---------- --------- ----------
Total Notes Payable and Capital Lease
Obligations .......................................... 192,036 130,374 328,500
Less: Current Portion .............................. (137,952) (85,566) (284,000)
---------- --------- ----------
Long-Term Notes Payable and Capital Lease
Obligations ....................................... $ 54,084 $ 44,808 $ 44,500
========== ========= ==========
</TABLE>
F-14
<PAGE>
WORLD WIRELESS COMMUNICATIONS, INC.
AND SUBSIDIARIES
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
NOTE 7 -- NOTES PAYABLE AND CAPITAL LEASE OBLIGATIONS -- (Continued)
The annual maturities of the notes payable at June 30, 1997 and December
31, 1996 were as follows:
June 30, December 31,
1997 1996
---------- -------------
Year Ending:
1997 ...... $ 41,589 $ 85,566
1998 ...... 44,808 44,808
The following is a schedule by years of the future minimum payments
required under capital leases together with the present value of the net minimum
lease payments. There were no future minimum lease payments as of December 31,
1996, future minimum lease payments as of June 30, 1995 were:
Years Ending December 31:
1997 .......................................... $ 27,357
1998 .......................................... 54,714
1999 .......................................... 45,830
2000 .......................................... 9,021
2001 .......................................... 696
---------
Total minimum lease payments ..................... 137,618
Less: Amount representing interest ............... (31,979)
---------
Present value of net minimum lease payments ...... $ 105,639
=========
NOTE 8 -- INCOME TAXES
There was no provision for or benefit from income tax for any period. The
components of the deferred tax asset are shown below:
December 31,
---------------------------
1996 1995
------------ ------------
Operating Loss Carryforwards ...... $ 302,167 $ 22,372
Compensated absences ............... 3,807 --
---------- ---------
Total Deferred Tax Assets ......... 305,974 22,372
Valuation Allowance ............... (305,974) (22,372)
---------- ---------
Net Deferred Tax Asset ............ $ -- $ --
========== =========
The Company had operating loss carry forwards at December 31, 1996 of
$965,725 which expire in 2010 through 2011, if unused.
F-15
<PAGE>
WORLD WIRELESS COMMUNICATIONS, INC.
AND SUBSIDIARIES
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
NOTE 9 -- SUPPLEMENTAL CASH FLOW INFORMATION AND NONCASH INVESTING AND
FINANCING ACTIVITIES
For the Year Ended
For the Six December 31,
Months Ended ------------------
June 30, 1997 1996 1995
--------------- --------- -----
Taxes Paid ......... $ -- $ -- $ --
Interest Paid ...... $ 8,186 $ 30,677 $ --
Supplemental Disclosure of Noncash Investing and Financing Activities --
For the period from April 10, 1995, through December 31, 1995, 1,494,444 shares
of common stock were redeemed for $60,000 in cash and a $209,000 note payable.
Also, 405,575 shares of common stock valued at $27,025 were issued for services.
For the year ended December 31, 1996, $143,000 of debt was issued, of which
$125,000 was to a stockholder, to acquire equipment. Notes payable in the amount
of $275,000 were converted to stock. Stock valued at $176,500 was issued for
services and stock valued at $4,950 was issued for interest due on debentures.
During January, 1997 the Company converted $1,907 in long-term debt into
5,629 shares of common stock at $0.35 per share.
During February 1997, the Company issued 1,798,100 shares of common stock
and 201,900 stock options in exchange for all of the issued and outstanding
common stock of Digital Radio Communications Corporation and Subsidiaries. In
conjunction with the acquisition, liabilities were assumed as follows:
Fair value of assets acquired .................. $ 5,719,387
Common stock issued and acquisition costs incurred (3,101,378)
------------
Liabilities Assumed ........................... $ 2,618,009
============
During June 1997, the Company accrued a $160,000 obligation to a joint
venture partner in connection with the settlement of a dispute. In exchange the
Company would receive a release of certain claims asserted by the joint venture
partner against the Company.
NOTE 10 -- STOCKHOLDERS' EQUITY
On February 12, 1997 the Company issued 500,000 units at $2.00 per unit in
a private placement offering with each unit consisting of one share of common
stock and one warrant. Each warrant entitled the holder to purchase one share of
common stock at $2.00 per share. The 500,000 warrants were exercised on March 6,
1997 and resulted in proceeds of $1,000,000.
NOTE 11 -- STOCK OPTIONS
In December 1996, the Company granted options to an employee, a former
member of the Board of Directors and a consultant to purchase 258,000 shares of
restricted common stock at $0.33 per share. In January 1997, the consultant was
granted an additional option to purchase 150,000 shares at $0.35 per share. The
options may be exercised until June 30, 1998. The exercise price approximated
the market value of the stock at the date of grant.
In connection with the acquisition of Digital Radio, the Company assumed
Digital Radio's stock option plans and granted options to the former
shareholders and employees of Digital Radio to purchase 201,900 shares of common
stock at a weighted average price of $1.90 per share through December 20, 2001.
F-16
<PAGE>
WORLD WIRELESS COMMUNICATIONS, INC.
AND SUBSIDIARIES
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
NOTE 11 -- STOCK OPTIONS -- (Continued)
The Board of Directors have approved the 1997 Stock Option Plan, subject
to shareholder approval, which authorizes the issuance of 1,500,000 options. No
options have been issued under the plan.
The fair value of each option granted is estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1997 and 1996, respectively: dividend yield of
0.0 percent for both periods; expected volatility of 121.1 and 173.1 percent;
risk-free interest rates of 5.2 and 5.0 percent; and expected lives of 2.4 and
1.5 years. A summary of the status of the Company's stock options as of June 30,
1997 and December 31, 1996, and changes during the periods then ended is
presented below:
<TABLE>
<CAPTION>
June 30, 1997 December 31, 1996
------------------------------ ------------------------------
Weighted-Average Weighted-Average
Shares Exercise Price Shares Exercise Price
--------- ------------------ ---------- -----------------
<S> <C> <C> <C> <C>
Outstanding at beginning of period ............... 258,000 $ 0.33 --
Granted .......................................... 351,900 1.30 258,000 $ 0.33
-------- ---------
Outstanding at end of period ..................... 609,900 0.89 258,000 0.33
======== =========
Options exercisable at period-end ............... 550,650 $ 0.91 258,000 $ 0.33
======== =========
Weighted-average fair value of options granted dur-
ing the period $ 0.28 $ 0.24
======== =========
</TABLE>
The Company applies APB Opinion 25, Accounting for Stock Issued to
Employees, and related Interpretations in accounting for its options and plans.
Accordingly, no compensation cost has been recognized from the stock options
granted. Had compensation costs for the Company's options been determined based
on the fair value at the grant dates consistent with the method of SFAS 123, net
loss and loss per share would have increased to the pro forma amounts indicated
below:
Year Ended
Six Months December 31,
Ended June ------------------------------
30, 1997 1996 1995
---------------- -------------- -------------
Net loss:
As reported ...... $ (1,562,697) $ (899,924) $ (88,668)
Pro forma ......... (1,661,229) (961,354) (88,668)
Loss per share:
As reported ...... $ (0.19) $ (0.25) $ (0.10)
Pro forma ......... (0.20) (0.26) (0.10)
NOTE 12 -- SUBSEQUENT EVENTS
On August 8, 1997, 500,000 shares of common stock were issued for
$1,000,000, or $2.00 per share.
The Board of Directors approved a stock option plan in October 1997.
Options to purchase 1,500,000 shares of common stock are authorized under the
plan, subject to shareholders' approval. No options have yet been granted under
the plan, but such is anticipated prior to December 31, 1997.
Subsequent to June 30, 1997, option holders exercised options to purchase
10,931 shares of common stock at a weighted average exercise price of $0.14 per
share.
F-17
<PAGE>
WORLD WIRELESS COMMUNICATIONS, INC.
AND SUBSIDIARIES
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
NOTE 13 -- COMMITMENTS AND CONTINGENCIES
The Company leases office and production facilities in Salt Lake City and
American Fork, Utah. The leases are accounted for as operating leases. Lease
expense under these agreements for 1996 and 1995 were $123,779 and $59,096,
respectively. These lease terms end in May and June 1998. The Company also
assumed lease commitments in the merger with Digital Radio for three vehicles
under operating lease agreements. Future minimum rental payment commitments
under facility and vehicle leases by years as of December 31, 1996 are as
follows:
Facilities Vehicles
------------ ---------
Year Ending December 31:
1997 ........................... $ 253,380 $ 19,238
1998 ........................... 115,424 9,096
---------- ---------
Total Minimum Payments Required ...... $ 368,804 $ 28,334
========== =========
Although action has not been initiated, the Company's former Chief
Financial Officer has threatened litigation against the Company following his
resignation from that office and as a director of the Company in October 1997.
The resignation was the result of a dispute over compensation involving, among
other things, a claim by the former officer and director that the Company had
agreed to grant him options to purchase 275,000 shares of the Company's Common
Stock at a price of $2.00 per share in connection with his employment, and had
later disaffirmed such obligation. Because of the number of shares involved in
this unasserted claim, and the difference between the current market price for
the Company's Common Stock and the exercise price of the options claimed, the
expense to the Company for financial reporting purposes would be material if the
former officer should initiate and prevail in litigation over these claims. The
Company intends to vigorously defend any such action.
F-18
<PAGE>
HANSEN, BARNETT & MAXWELL
A Professional Corporation
CERTIFIED PUBLIC ACCOUNTANTS
(801) 532-2200
Member of AICPA Division of Firms Fax (801) 532-7944
Member of SECPS 345 East Broadway, Suite 200
Member of Summit International Associates Salt Lake City, Utah 84111-2693
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
Digital Radio Communications Corporation
We have audited the accompanying consolidated balance sheets of Digital Radio
Communications Corporation and subsidiaries as of December 31, 1996 and 1995,
and the related consolidated statements of operations, stockholders' equity
(deficit), and cash flows for the years then ended. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Digital Radio
Communications Corporation and subsidiaries as of December 31, 1996 and 1995,
and the results of their operations and their cash flows for the years then
ended in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has a working capital deficiency and a net
capital deficiency at December 31, 1996, and has incurred a loss from operations
and negative cash flows from operating activities during the year ended December
31, 1996. These conditions raise substantial doubt about the Company's ability
to continue as a going concern. Management's plans and subsequent events
regarding those matters are described in Note 1. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
HANSEN, BARNETT & MAXWELL
Salt Lake City, Utah
March 4, 1997, except for the second paragraph of Note 2,
as to which the dateis September 15, 1997
F-19
<PAGE>
DIGITAL RADIO COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
December 31,
------------------------------
1996 1995
-------------- -------------
<S> <C> <C>
Current assets
Cash ..................................................................... $ 1,854 $ 4,981
Trade accounts receivables ............................................. 258,016 290,460
Other accounts receivable ................................................ 82,340 160,000
Inventory ............................................................... 308,496 175,043
Prepaid expenses ......................................................... 15,328 11,748
Deferred income taxes ................................................... 69,738 41,316
------------ ----------
Total current assets ................................................ 735,772 683,548
------------ ----------
Property and equipment ................................................... 611,422 485,642
Less accumulated depreciation .......................................... (192,964) (76,297)
------------ ----------
Net property and equipment .......................................... 418,458 409,345
------------ ----------
Other assets
Capitalized financing costs ............................................. 18,000 --
Purchased technology, net of accumulated amortization .................. -- 9,230
Investment in joint venture, which principally owns a patent, net of
amortization ......................................................... 13,520 16,900
Investment in securities ................................................ 36,500 30,000
Goodwill, net of amortization .......................................... 72,112 33,985
------------ ----------
Total other assets ................................................... 140,132 90,115
------------ ----------
Total Assets ............................................................ $ 1,294,362 $1,183,008
============ ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities
Checks written in excess of cash in bank ................................. $ 2,921 $ 12,992
Trade accounts payable ................................................... 447,612 207,195
Accrued liabilities ...................................................... 430,824 229,921
Accrued income taxes ................................................... 722 16,967
Notes payable ............................................................ 3,405 66,624
Notes payable to related parties ....................................... 162,540 119,503
Obligation under capital leases -- current portion ..................... 73,902 72,753
Obligation under non-compete agreement ................................. 101,475 71,571
------------ ----------
Total current liabilities ............................................. 1,223,401 797,526
------------ ----------
Long-term liabilities
Obligation under capital leases .......................................... 73,562 75,306
Deferred income taxes ................................................... 43,801 39,731
Convertible debentures ................................................... 100,000 --
------------ ----------
Total long-term liabilities .......................................... 217,363 115,037
------------ ----------
Stockholders' equity (deficit)
Preferred stock -- $0.01 par value; 2,000,000 shares authorized; no shares
issued ............................................................... -- --
Common stock -- $0.01 par value; 10,000,000 shares authorized;
3,049,814 shares and 2,550,000 shares issued and outstanding ......... 30,498 25,500
Additional paid-in capital ............................................. 1,028,500 505,672
Receivable from shareholders ............................................. -- (151,000)
Deferred offering costs ................................................ -- (76,840)
Accumulated deficit ...................................................... (1,205,400) (32,887)
------------ ----------
Total stockholders' equity (deficit) ................................. (146,402) 270,445
------------ ----------
Total Liabilities and Stockholders' Equity (Deficit) ..................... $ 1,294,362 $1,183,008
============ ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-20
<PAGE>
DIGITAL RADIO COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
---------------- ------------
<S> <C> <C>
Sales ................................................... $ 1,386,478 $ 1,638,559
Cost of sales .......................................... 1,006,366 1,120,293
------------ ------------
Gross profit ............................................. 380,112 518,266
------------ ------------
Expenses
Research and development expense ........................ 440,125 117,081
General and administrative expenses ..................... 1,089,821 341,427
Interest expense ....................................... 36,397 20,301
------------ ------------
Total expenses ....................................... 1,566,343 478,809
------------ ------------
Income (loss) before income taxes ........................ (1,186,231) 39,457
Provision for (benefit from) income taxes ............... (13,718) 8,669
------------ ------------
Net Income (Loss) ....................................... $ (1,172,513) $ 30,788
============ ============
Net Income (Loss) Per Common Share ..................... $ (0.42) $ 0.01
============ ============
Weighted average number of common shares used in per share
calculation ............................................. 2,818,250 2,212,884
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-21
<PAGE>
DIGITAL RADIO COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Total
Common Stock Additional Stockholders'
----------------------- Paid-In Accumulated Equity
Shares Amount Capital Deficit Other (Deficit)
----------- ---------- ------------- ---------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Balance -- December 31, 1994 ......... 2,200,000 $ 22,000 $ (19,010) $ (63,675) $ -- $ (60,685)
Issuance to acquire EMA Inc.,
$3.12 per share, April 1, 1995 ...... 11,000 110 17,072 -- -- 17,182
Issuance of shares, at $4.00 per
share, December 29, 1995 ............ 5,000 50 9,950 -- -- 10,000
Issuance of shares, at $3.00 per
share, December 30, 1995 and
subscription receivable ............ 334,000 3,340 497,660 -- (151,000) 350,000
Deferred offering costs incurred ... -- -- -- -- (76,840) (76,840)
Net income for year ending
December 31, 1995 .................. -- -- -- 30,788 -- 30,788
---------- --------- ----------- ------------ ---------- ------------
Balance -- December 31, 1995 ......... 2,550,000 25,500 505,672 (32,887) (227,840) 270,445
Issuance for cash, $1.53 per share,
January through April 1996 ......... 71,666 717 109,283 -- -- 110,000
Collection of subscription
receivable ........................ -- -- -- -- 151,000 151,000
Issuance upon exercise of options .... 191,000 1,910 7,335 -- -- 9,245
Issuance for services ............... 20,000 200 27,400 -- -- 27,600
Issuance of shares upon conversion
of debentures ..................... 21,748 217 49,783 -- -- 50,000
Issuance of shares for cash in
private placement offering, net
of $147,519 offering costs ......... 195,400 1,954 329,027 -- 76,840 407,821
Net loss for the year ended
December 31, 1996 .................. -- -- -- (1,172,513) -- (1,172,513)
---------- --------- ----------- ------------ ---------- ------------
Balance -- December 31, 1996 ......... 3,049,814 $ 30,498 $ 1,028,500 $ (1,205,400) $ -- $ (146,402)
========== ========= =========== ============ ========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-22
<PAGE>
DIGITAL RADIO COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995 1996 1995
<TABLE>
<CAPTION>
1996 1995
---------------- ------------
<S> <C> <C>
Cash Flows From Operating Activities
Net income (loss) ................................................ $ (1,172,513) $ 30,788
Adjustments to reconcile net income (loss) to net cash used by
operating activities:
Depreciation and amortization ................................. 144,697 67,135
Compensation paid with common shares ........................... 27,600 --
Compensation paid with notes payable ........................... 43,037 --
Trade receivable collected with investment securities ............ (6,500) (30,000)
Changes in operating assets and liabilities, net of effects of
businesses acquired:
Accounts receivable .......................................... 32,444 (211,568)
Other accounts receivable .................................... (82,340) --
Inventory ................................................... (133,453) (110,501)
Accounts payable ............................................. 240,417 98,186
Accrued liabilities .......................................... 174,966 129,789
Accrued income taxes .......................................... (16,245) 10,100
Other ......................................................... 1,385 2,096
------------ ----------
Net cash used by operating activities ........................... (746,505) (13,975)
------------ ----------
Cash flows from investing activities
Payments for the purchase of property and equipment ............... (62,980) (53,846)
Increase in deposits ............................................. -- (4,090)
Investment in patent ............................................. -- (16,900)
Cash received in acquisitions .................................... -- 60,417
------------ ----------
Net cash used by investing activities .............................. (62,980) (14,419)
------------ ----------
Cash flows from financing activities
Proceeds from issuance of common stock ........................... 527,066 200,000
Collection of receivables from shareholders for common stock ...... 311,000 --
Proceeds from issuance of convertible debentures, net of $18,000 in
financing costs paid ............................................. 132,000 --
Net payment on short-term obligations ........................... (10,071) (26,787)
Principal payments on notes payable .............................. (71,160) (33,150)
Principal payments on obligation under capital lease ............... (55,454) (40,615)
Payments on non-compete obligation ................................. (27,023) (28,800)
Payment of deferred offering costs ................................. -- (76,840)
------------ ----------
Net cash provided by (used in) financing activities ............... 806,358 (6,192)
------------ ----------
Net decrease in cash ................................................ (3,127) (34,586)
Cash -- beginning of year .......................................... 4,981 39,567
------------ ----------
Cash -- end of year ................................................ $ 1,854 $ 4,981
============ ==========
</TABLE>
Supplemental cash flow information and noncash investing and financing
activities -- Note 11
The accompanying notes are an integral part of these financial statements.
F-23
<PAGE>
DIGITAL RADIO COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Organization
Digital Radio Communications Corporation and subsidiaries (the Company),
began business in 1992. On March 15, 1996, its name was changed from Electronic
Technology Corp. It designs and manufactures electronic products, including
radio frequency and infrared systems, embedded control, low power FM
transceivers and antenna technologies. It provides research and design services
on a contract basis for others and it is also engaged in contract manufacture of
electronic components.
Principles of Consolidation
The consolidated financial statements include the accounts of Digital Radio
Communications Corporation and its wholly owned subsidiaries, EMA Inc. and
Dem-Tronics, Inc., since the date of their respective acquisitions, after
elimination of intercompany accounts and transactions. Investments in
unconsolidated joint ventures, which relate primarily to research and
development ventures, are accounted for using the equity method. The Company's
share of losses from its equity investments are included in "Research and
development expense" in the consolidated statements of operations.
Business Condition
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplates continuation of the
Company as a going concern. However, the Company sustained a substantial
operating loss during the year ended December 31, 1996. Further, at December 31,
1996 current liabilities exceeded current assets by $494,037 and total
liabilities exceeded total assets by $152,810. These matters raise substantial
doubt about the Company's ability to continue as a going concern; however the
financial statements do not include any adjustments that might result from the
outcome of this uncertainty. To mitigate these factors, in 1997, the Company
obtained $1,380,000 of short-term debt financing under a bridge loan from World
Wireless Communications, Inc. and obtained additional capital financing by
merging with World Wireless Communications, Inc. Also in the first four months
of 1997, approximately $2,000,000 of revenue was earned or was committed under
short-term contracts with customers. However, there is no assurance that this
additional capital and future revenues can meet the Company's obligations and
its production and operating expenses as they become due.
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 amounts reported in the financial statements.
Actual results could differ from those estimates.
Segment Information and Concentration of Risk
Through 1996, the Company operated solely in the electronics industry
primarily in the Western United States. Accordingly, segment information
relating to operations in different industries or geographic areas is not
presented in these financial statements. The concentration of business in one
industry and one geographic area subjects the Company to a concentration of
credit risk relating to trade accounts receivable. The Company generally does
not require collateral from its customers with respect to the Company's trade
receivables. Beginning in 1997, the Company has expanded its operations to
include significant sales nationally and internationally.
F-24
<PAGE>
DIGITAL RADIO COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
NOTE 1 -- ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES -- (Continued)
Major Customers
Sales to two customers were each in excess of 10% of total sales during
1996 and 1995. Sales to the first customer were $249,123 and $121,635 in 1996
and 1995, respectively, and were $591,000 and $324,000, respectively, to the
second customer. In 1997, contracts with several additional significant
customers have been signed.
Accounts Receivable
Due to the actual write off of accounts that were uncollectible at December
31, 1996 and 1995, an allowance for doubtful accounts was not required.
Management believes that the remaining accounts receivable are fully
collectible. Trade accounts receivable included $95,000 at December 31, 1996,
which was subsequently collected by receiving shares of customers' common stock,
as prescribed in the related performance contracts.
Inventory
Inventory is stated at the lower of cost or market. Cost is determined
using the first-in, first-out method.
Long-Lived Assets
Beginning in 1996, the Company adopted Statement of Financial Accounting
Standard 121 (SFAS 121) which requires Management to review long-lived assets
and the related intangible assets for impairment whenever events or changes in
circumstances indicate the carrying amount of such assets may not be
recoverable. Recoverability is determined by an analysis of undiscounted future
cash flows from operations related to those assets. If the related operations
are determined to be unable to recover the carrying amount of its assets, then
the assets are written down to fair value. Fair value is determined based on
discounted cash flows or appraised values, depending upon the nature of the
assets. The adoption of SFAS 121 did not result in an adjustment to the carrying
amount of assets during 1996.
Equipment
Property and equipment are stated at cost. Depreciation, including
amortization of leased assets, is computed using the straight-line method over
the estimated useful lives of the equipment, which is five years. Maintenance
and repairs of equipment are charged to operations, and major improvements are
capitalized. Upon retirement, sale, or other disposition of equipment, the cost
and accumulated depreciation are eliminated from the accounts, and gain or loss
is included in operations.
Investments
Investments in equity securities for which the Company cannot sell those
securities for a period in excess of one year, due to restrictions from
securities regulation, are carried at historical cost and are classified as
non-current assets.
Sales Recognition
Sales are recognized upon delivery of products or services and acceptance
by the customer.
Research and Development Expense
Current operations are charged with all research, engineering and product
development expenses.
F-25
<PAGE>
DIGITAL RADIO COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
NOTE 1 -- ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES -- (Continued)
Net Income (Loss) Per Common Share
Net income (loss) per share is computed using the weighted average number
of common shares outstanding during each period.
NOTE 2 -- ACQUISITIONS
On April 1, 1995, the outstanding common stock of EMA Inc. (EMA), an
electronic component assembler, was purchased for $30,430. The Company paid
$13,258 in cash (including acquisition costs) and issued 5,500 shares of common
stock valued at $17,172. The owner of EMA did not own a controlling interest in
the Company; accordingly, the acquisition has been accounted for using the
purchase method of accounting. Assets were recorded at fair value. The results
of operations of EMA are included in the consolidated financial statements from
the date of acquisition.
On August 1, 1995 the Company acquired the net assets of Dem-Tronics, Inc.,
an electronic component assembler, for $175,328. The Company executed a
non-interest bearing promissory note to the seller for $62,724 payable in
January 1996. Additionally, the Company executed a non-compete agreement which
initially required a series of yearly minimum payments, to be increased by a
contingent amount based on Dem-Tronics sales volume. The payment plan was
accelerated through a subsequently re-negotiated agreement whereby the
contingent payments were replaced with higher minimum payments due in entirety
by December 15, 1997. The new payments total $137,023. With imputed interest at
10%, the resulting present value of the obligation was $128,498 at the date of
acquisition. Since the owners of Dem-Tronics did not receive a controlling
interest in the Company, the acquisition was accounted for using the purchase
method of accounting. The results of operations of Dem-Tronics are included in
the consolidated financial statements from the date of acquisition.
The fair value of the net assets acquired was $72,724 which is net of
liabilities incurred and assumed of $101,743. The excess of the purchase price
over the fair value of the identifiable assets was $94,001 and was allocated to
goodwill. Goodwill is being amortized over five years on a straight-line basis.
Goodwill amortization expense was $18,800 and $3,089 for the years ended
December 31, 1996 and 1995, respectively.
Pro forma results of operations for the year ended December 31, 1995, as if
the acquisitions were effective January 1, 1995, are as follows (unaudited):
Revenue ..................... $1,998,021
Net Income .................. 39,888
Income Per Common Share ...... 0.02
NOTE 3 -- OTHER RECEIVABLES AND RECEIVABLE FROM SHAREHOLDER
In 1996, other receivables included loans to employees of $7,768 for
payroll advances and a receivable from a partner in a joint venture for
engineering services under the joint venture agreement.
These amounts were received subsequent to year end. Other receivables also
included a receivable from a customer which retained $35,000 for a project that
is pending completion, once a third party provides necessary software.
Other receivables at December 31, 1995 consist of subscriptions for the
Company's common shares subscribed for during 1995. Total subscriptions at
December 31, 1995 were $311,000, of which $160,000 was received by April 8,
1996, and was recorded as a current asset. The balance of $151,000 was recorded
as an offset against additional paid-in capital on the balance sheet and was
collected in 1996.
F-26
<PAGE>
DIGITAL RADIO COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
NOTE 4 -- INVENTORY
Inventory consists of the following at December 31:
1996 1995
----------- ---------
Materials .................... $ 131,983 $ 84,403
Work in process .............. 176,513 90,640
---------- ---------
Total ....................... $ 308,496 $175,043
========== =========
NOTE 5 -- PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31:
1996 1995
----------- ---------
Computer equipment ............ $ 32,102 $ 26,526
Electronic equipment ......... 131,977 125,117
Office equipment ............... 7,955 6,313
Manufacturing equipment ...... 373,832 295,447
Furniture and fixtures ......... 13,738 13,738
Software ..................... 51,818 18,501
---------- ---------
Total ........................ $ 611,422 $485,642
========== =========
Depreciation expense, which includes amortization of assets under capital
lease, was $116,667 and $42,900 for the years ended December 31, 1996 and 1995,
respectively.
NOTE 6 -- RELATED PARTIES TRANSACTIONS
Notes payable to related parties consisted of the following:
<TABLE>
<CAPTION>
1996 1995
----------- ----------
<S> <C> <C>
Payable to officers for deferred compensation, no terms for
repayment, unsecured ............................................. $ 124,962 $ 61,370
Notes payable to shareholders, no terms for repayment, no stated
interest rate at December 31, 1996 ................................. 8,828 10,863
Loan payable to an officer, no terms for repayment, unsecured ...... 28,750 27,000
Loans payable to employees, unsecured, paid during 1996 ............ -- 20,270
---------- ----------
Total ............................................................... $ 162,540 $ 119,503
========== ==========
</TABLE>
The Company has entered into a line of credit agreement with AAH
Development Company, Inc. The maximum amount available under the line of credit
was $200,000 with $5,000 borrowed at December 31, 1995, and included above in
notes payable to shareholders. The note had a 10% annual interest rate. The note
was repaid January 1996.
F-27
<PAGE>
DIGITAL RADIO COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
NOTE 7 -- NOTES PAYABLE
Notes payable consisted of the following:
<TABLE>
<CAPTION>
1996 1995
----------- ---------
<S> <C> <C>
Note payable to an individual, secured by Dem-Tronics common
stock, paid in 1996 ....................................... $ -- $ 62,724
Other notes payable, various terms ........................ 3,405 3,900
Convertible debentures payable, interest at 12%, due September
1998, unsecured ............................................. 100,000 --
---------- ---------
Total notes payable .......................................... 103,405 66,624
Less current portion ....................................... 3,405 66,624
---------- ---------
Convertible Debentures - Long-Term ........................... $ 100,000 $ --
========== =========
</TABLE>
During 1996, the Company issued notes payable in the amount of $150,000;
these notes were convertible into common stock at a ratio of 289.96 shares per
$1,000 principal amount of notes. On December 6, 1996, $50,000 of these notes
were converted to common stock for 14,498 shares, leaving a remaining balance of
$100,000 of notes payable. Interest is due at 12%, and the notes are due
September 1998. Subsequent to year end, the Company issued additional
convertible notes payable for $75,000. All of the outstanding debentures were
converted to common stock, although the Company amended the terms of its notes
to increase the conversion ratio to 434.94 shares per $1,000 of principal
amount. In 1997, the Company converted $175,000 of debt into 83,369 shares of
common stock (including 7,249 shares for notes converted prior to the 1997
amendment).
NOTE 8 -- OBLIGATION UNDER NON-COMPETE AGREEMENT
In connection with the acquisition of Dem-Tronics (see Note 2) the Company
entered into a non-compete agreement with the seller. The remaining liability on
the agreement is $110,000, imputed interest at 10 percent is $7,936 for a
carrying amount of $102,604, payable in four monthly payments beginning
September 15, 1997 of $27,500 each.
NOTE 9 -- LEASE COMMITMENTS
Capital Leases
The Company has leased equipment under capital lease agreements, and has
capitalized lease equipment of $268,847 and $214,151 as of December 31, 1996 and
1995, respectively. During 1996, the Company leased additional equipment with a
capitalized value of $54,696. During 1995, the Company received capital lease
equipment capitalized in the amount of $55,562 in connection with the
acquisitions described in Note 2, and leased additional equipment with a
capitalized value of $126,669. Accumulated amortization on all leased equipment
was $55,935 and $18,400 at December 31, 1996 and 1995, respectively.
Amortization of leased equipment is included with depreciation expense.
F-28
<PAGE>
DIGITAL RADIO COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
NOTE 9 -- LEASE COMMITMENTS -- (Continued)
The following is a schedule by years of the future minimum lease payments
required under capital leases together with the present value of the net minimum
lease payments as of December 31, 1996:
Years Ending December 31:
- -------------------------
1997 .......................................... $ 102,038
1998 .......................................... 49,870
1999 .......................................... 41,985
2000 .......................................... 9,021
2001 .......................................... 695
---------
Total Minimum Lease Payments ..................... 203,609
Less amount representing interest .................. (56,145)
---------
Present Value of Net Minimum Lease Payments ...... 147,464
Less Current Portion .............................. (73,902)
---------
Capital lease - Long-Term ........................ $ 73,562
=========
Operating Leases
The Company leases office space under operating lease agreements. Lease
expense for the year ended December 31, 1996 was $117,518. The future
obligations under these operating leases are $95,456 and $53,109 for the years
ending December 31, 1997 and 1998, respectively.
During 1996, the Company began leasing three automobiles under operating
lease agreements. Lease expense was $14,258 for the year ended December 31, 1996
for these auto leases. The future obligations for the leases are $19,238 and
$9,096 for the years ending December 31, 1997 and 1998, respectively.
NOTE 10 -- INCOME TAXES
Digital Radio Communications Corporation files a consolidated tax return
with it's two wholly-owned subsidiaries, EMA Inc., and Dem-Tronics, Inc. The
components of the provision for income taxes were as follows at December 31:
1996 1995
------------- ------------
Current: Federal ......................... $ (10,550) $ 13,147
State .............................. (4,753) 3,820
Deferred: Federal ........................ 1,309 (6,855)
State .............................. 276 (1,443)
--------- --------
Provision for (benefit from) income taxes.. $ (13,718) $ 8,669
========= ========
The net deferred tax assets consisted of the following at December 31:
1996 1995
----------- ------------
Deferred Tax Assets:
Compensated absences ............ $ 12,933 $ 10,895
Deferred compensation ............ 30,421 30,421
Net Operating Loss Tax Benefit ...... 447 --
--------- ---------
43,801 41,316
--------- ---------
Deferred Tax Liability:
Depreciation ..................... (32,804) (29,494)
Amortization of Goodwill ......... (10,997) (10,237)
--------- ---------
(43,801) (39,731)
--------- ---------
Net deferred tax asset ............... $ -- $ 1,585
========= =========
F-29
<PAGE>
DIGITAL RADIO COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
NOTE 10 -- INCOME TAXES -- (Continued)
The following is a reconciliation of the amount of tax (benefit) that would
result from applying the federal statutory rate to pretax income (loss) with the
provision for income taxes at December 31:
<TABLE>
<CAPTION>
1996 1995
-------------- ------------
<S> <C> <C>
Tax at statutory rate (34%) ........................ $ (403,319) $ 13,416
Non-deductible expenses ........................... 8,357 2,750
Benefit of operating loss not recognized ............ 362,032 --
State tax benefit, net of Federal tax effect ...... (2,955) 2,377
Effect of lower tax rates ........................... 22,167 (9,874)
---------- --------
Provision for (benefit from) income taxes ......... $ (13,718) $ 8,669
========== ========
</TABLE>
For tax reporting purposes, the Company has a net operating loss carry
forward in the amount of $1,214,514 that will expire in the year 2011.
NOTE 11 -- SUPPLEMENTAL CASH FLOW INFORMATION AND NONCASH INVESTING AND
FINANCING ACTIVITIES
Supplemental Cash Flow Information
1996 1995
--------- --------
Taxes Paid ....................... $ 7,479 $ 100
Interest Paid .................... 32,634 22,154
Supplemental Information of Noncash Investing and Financing Activities
During 1996, equipment was leased under a capital lease obligation in the
amount of $54,859. Equipment was purchased by a note payable in the amount of
$7,941. Additional goodwill was recognized in connection with the renegotiation
of, and the increase in, the non-compete obligation related to the acquisition
of Dem-Tronics in the amount of $56,927. Also, $50,000 of convertible debentures
were converted into common stock.
During 1995, equipment was leased under a capital lease obligation in the
amount of $126,669. Equipment was purchased for $31,334 for which liabilities
were assumed in the same amount. The Company contributed a patent with a cost of
$16,900 to a joint venture and recorded an investment in the joint venture of
$16,900. Common stock was issued to investors for notes receivable of $311,000.
In 1995, the Company purchased the common stock of EMA Inc. for $30,430.
In conjunction with the acquisition, liabilities were assumed as follows:
Fair value of assets acquired ........................... $ 131,727
Common stock issued and acquisition costs incurred ...... (30,430)
---------
Liabilities assumed ....................................... $ 101,297
=========
In 1995, the Company purchased the common stock of Dem-Tronics, Inc. by
assuming and incurring liabilities in the amount of $231,395.
NOTE 12 -- STOCKHOLDERS' EQUITY
On December 11, 1995, the shareholders of the Company agreed to a 5.5-for-1
stock split of the Company's common stock. On March 15, 1996, the shareholders
approved an increase of the authorized common stock
F-30
<PAGE>
DIGITAL RADIO COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
NOTE 12 -- STOCKHOLDERS' EQUITY -- (Continued)
from 500,000 shares to 5,000,000 shares. On August 31,1996, the shareholders
approved a 2-for-1 stock split and also approved increasing the authorized
common stock to 10,000,000 shares. The accompanying financial statements have
been restated for the effects of the changes in capital structure and for the
stock splits for all periods presented.
On March 15, 1996, the shareholders authorized 2,000,000 shares of
nonvoting preferred stock, $0.01 par value. The preferred stock has been
designated for issuance in connection with purchases of other companies. The
Board of Directors is authorized to designate classes of preferred stock with
various rights and preferences as to dividends and liquidation. No preferred
stock has been issued.
NOTE 13 -- STOCK OPTIONS
On October 1, 1995, the Company adopted the Omnibus Stock Option Plan,
which authorized incentive and non-qualified stock options to be granted.
291,000 shares of common stock have been reserved for issuance under the Plan.
On May 17, 1996, the Company adopted the 1996 Stock Option Plan and authorized
200,000 options for granting to employees and consultants. Incentive stock
options must be granted with an exercise price at least equal to the market
value of the common stock on the date of grant, as determined by the Company's
Board of Directors. The options generally become exercisable upon being granted
and are exercisable for a period of five years. In the event of a dissolution or
liquidation of the Company, any options outstanding under the Plan will
terminate. Options were granted under the Plans with exercise prices equal to
the market value of the common stock on the dates granted.
During 1995, the company granted options to investors to purchase 94,000
shares of common stock at $0.01 to $0.02 per share. Those options were exercised
during 1996. In addition, during 1996, options for 96,000 shares of common stock
were granted to an investor. The investor paid the Company $4,800 of the
exercise price during 1996 with services and exercised the options in February
1997 with a payment of $100 in cash.
The Company has elected to continue to account for stock-based
compensation under the provisions of APB Opinion No. 25 rather than Statement
of Financial Accounting Standards (SFAS) No. 123. However, net loss and net
loss per share would not have changed had SFAS No. 123 been adopted.
The following table presents the status of stock options:
Weighted
Average
Options Exercise Price
------------- ---------------
Outstanding, December 31, 1994 ......... -- --
Granted .............................. 209,850 $ 0.02
---------
Outstanding, December 31, 1995 ......... 209,850 0.02
Granted .............................. 241,150 1.34
Exercised ........................... (191,000) 0.02
Canceled ........................... (400) 2.50
---------
Outstanding, December 31, 1996 ......... 259,600 1.25
=========
Exercisable, December 31, 1996 ...... 200,350 1.05
=========
Options at December 31, 1996 had exercise prices ranging from $0.02 to
$2.50.
NOTE 14 -- SUBSEQUENT EVENTS
In February 1997, the Company borrowed $97,093 under the terms of an 8%
promissory note payable to a customer to finance the purchase of certain radio
receivers from the customer. Payments are due monthly and will begin upon
signing an additional contract with the customer and are only payable out of the
revenue from the potential contract. The note is secured by the investment in
common stock of the customer held by the Company.
F-31
<PAGE>
DIGITAL RADIO COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
NOTE 14 -- SUBSEQUENT EVENTS -- (Continued)
An investor exercised options for 96,000 shares of common stock for $100 on
February 22, 1997.
The Company granted options to purchase 200,000 shares of common stock on
February 12, 1997 to employees and consultants under the 1996 Stock Option Plan.
The options are exercisable at $1.84 per share.
On February 12, 1997, the Board of Directors and a majority of the
shareholders approved a merger of the Company into a wholly-owned subsidiary of
World Wireless Communications, Inc. (WWCI), subject to approval of a definitive
agreement. The terms of the agreement presently provide that each outstanding
share of common stock will be exchanged for 0.5577349 shares of WWCI common
stock. All outstanding options will be converted at the same ratio into WWCI
options exercisable at $2.00 per share.
The Board also authorized borrowing up to $1,000,000 under a promissory
note payable to WWCI for monies advanced to the Company. The note is due
February 1998, with interest payable semi-annually commencing on August 12,
1997. Through May 15, 1997, the Company has borrowed approximately $1,380,000
under this note and additional notes (unaudited).
F-32
<PAGE>
================================================================================
The Selling Shareholders and any broker/dealers or agents that
participate with the Selling Shareholders in the distribution of the Shares may
be deemed to be "underwriters" within the meaning of the Securities Act of 1933,
as amended (the "Securities Act"), and any commissions received by them and any
profit on the resale of the Shares purchased by them may be deemed to be
underwriting commissions or discounts under the Securities Act. Persons who are
deemed to be underwriters may be subject to statutory liabilities if the
registration statement of which this Prospectus is a part contains a material
misstatement or omits to disclose any information necessary to make statements
which are made not misleading. The Company has not agreed to indemnify any of
the Selling Stockholders regarding such potential liabilities. See "Plan of
Distribution".
No dealer, salesperson or other person has been authorized by the Company or
the selling shareholders to give any information or to make any representations
other than those contained in this prospectus in connection with the offering
made hereby, and, if given or made, such information or representations must not
be relied upon as having been authorized. The delivery of this Prospectus shall
not, under any circumstances, create any implication that information herein is
correct as of any time subsequent to the date of the Prospectus. This Prospectus
does not constitute an offer to sell or a solicitation of an offer to buy the
shares to any person or by anyone in any jurisdiction in which such offer or
solicitation may not lawfully be made.
--------------------------
TABLE OF CONTENTS
Page
-----
PROSPECTUS SUMMARY ..................... 3
RISK FACTORS ........................... 5
DILUTION .............................. 10
USE OF PROCEEDS ........................ 10
SELECTED CONSOLIDATED HISTORICAL AND PRO
FORMA FINANCIAL DATA ............... 11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS ........................... 13
BUSINESS .............................. 14
MANAGEMENT ........................... 21
PRINCIPAL AND SELLING
SHAREHOLDERS ........................ 25
PLAN OF DISTRIBUTION .................. 30
MARKET INFORMATION ..................... 31
ORGANIZATIONAL AND OTHER TRANSACTIONS . 31
DESCRIPTION OF CAPITAL STOCK ............ 32
DISCLOSURE OF COMMISSION POSITION ON
INDEMNIFICATION FOR SECURITIES ACT
LIABILITIES ........................ 36
LEGAL MATTERS ........................ 36
EXPERTS .............................. 36
AVAILABLE INFORMATION .................. 36
Until ________, 1997, all dealers effecting transactions in the Common
Stock, whether or not participating in this distribution, may be required to
deliver a Prospectus. This is in addition to the obligation of dealers to
deliver a Prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.
================================================================================
<PAGE>
================================================================================
WORLD WIRELESS
COMMUNICATIONS,
INC.
4,000,000 Shares
Common Stock, $.001 Par Value
---------------
PROSPECTUS
---------------
______________ , 1997.
================================================================================
<PAGE>
PART II - INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officer.
The Bylaws of the Registrant provide for indemnification of directors and
officers of the Registrant in accordance with the indemnification of the Nevada
General Corporation Law. The Nevada statute permits indemnification of directors
and employees of a corporation under certain conditions and subject to certain
limitations.
The Registrant's Articles of Incorporation provide that, subject to certain
limitations, no director shall be personally liable to the Registrant or its
stockholders for monetary damages for any breach of fiduciary duty by such
director as a director.
Item 25. Other Expenses of Issuance and Distribution
The following table sets forth the estimated amount of various expenses in
connection with the sale and distribution of the securities being registered:
SEC registration fee ........................... $ 13,533
Printing and engraving expenses ............... 20,000
Legal fees an expense
(including blue sky fees and expenses) ...... 60,000
Accounting fees and expenses .................. 50,000
Miscellaneous ................................. 6,467
----------
Total ....................................... $ 150,000
==========
Item 26. Recent Sales of Unregistered Securities.
Since its inception, the Company has sold Common Stock and other securities
in reliance upon exemptions from the registration requirements of the Securities
Act of 1933 (the "Securities Act") in the following transactions:
a. Upon incorporation of the Company in November 1995, the Company issued
107,140 shares of Common Stock to Elvena, Inc. (53,570 shares), a corporation
controlled by Lynn Dixon, and to Robsal, Inc. (53,570 shares). Abraham J.
Salaman holds the power to vote the shares of the Company owned by Robsal, Inc.
These shares were issued for cash at a price of $.047 per share in reliance upon
Section 4(2) of the Securities Act of 1933 (the "Act") and are restricted as to
resales. Also in connection with the Company's organization, the Company issued
320,000 shares to J.R. Consultants, Inc., a corporation controlled by Jonathan
D. Rahn, and 25,000 shares to Robsal, Inc., for services valued at $16,215
($.047 per share) in reliance on Rule 504, Regulation D.
b. In connection with the acquisition of assets with which the Company
commenced business operations, the Company issued 680,000 shares of Common Stock
to equity owners (Roslyn Maxwell, Gary B. Peterson, Betty A. Peterson, Brian
Pettersen and Ann Marie Pettersen) of Chocolate Leasing LLC, a limited liability
company which then owned the assets, and to Data Growth, Inc., an unaffiliated
corporation which then held an option to acquire the assets from Chocolate
Leasing. Based upon their net equity contributions to Chocolate Leasing, the
cash cost of these shares to the former Chocolate Leasing equity holders was
approximately $122,000. A portion of the Shares were issued for services valued
at $10,810. These shares were issued in reliance upon Section 4(2) of the
Securities Act and restricted as to resales.
c. In connection with the Company's acquisition of assets from Chocolate
Leasing and its commencement of operations, the Company raised a total of
$275,000 in short term debt financing. The debt financing was placed with nine
investors (Elvena, Inc., Cherry Hill, Inc., Robsal, Inc., Research Net Services,
Consolidated Capital, Cow Bell, Inc., BRRD, Inc., Mitchell Salaman and Stamatt,
Inc.). This indebtedness and interest accrued thereon was converted into
1,892,860 shares of Common Stock at a price of approximately $.15 per share in
connection with the Regulation D, Rule 504 offering described in the following
paragraph.
II-1
<PAGE>
d. In March 1996, the Company sold 300,000 shares of Common Stock at a
price of $.70 per share ($210,000) to a total of 64 investors in reliance upon
Rule 504, Regulation D. In connection with this offering, the Company solicited
and obtained the conversion of debt referred to in the preceding paragraph, also
in reliance upon Rule 504, Regulation D.
e. In March 1996, the Company issued 7,000 shares, restricted as to
resales, to an employee, Paul K. Jensen, for services valued at $4,900 in
reliance upon Section 4(2) of the Act.
f. In the period October 1996 through January 1997, the Company sold
2,357,857 shares to a total of 33 investors for cash (1,800,000 shares at a
price of $.33 per share and 557,857 shares at a price of $.35 per share), 5,629
shares in conversion of a note at $.35 per share, and 11,000 shares in payment
of accrued interest on a note at $.45 per share. The investors in such offering,
and the number of shares purchased by each, were as follows:
<TABLE>
<S> <C>
Investor No. of Shares
-------- -------------
Capco Nominees Limited Partnership 654,000
Michael Lauer 400,000
Lynn Dixon/Elvena, Inc. 245,629
Melissa D. Epperson 181,200
T. Kent Rainey 180,600
Trinity American Corp. 113,250
Turan M. Itil 85,000
J.R. Consultants, Inc. 75,500
SRS Partners, Ltd. 60,400
BRRD, Inc. 60,400
Thornhill, Ltd. 60,400
Heather Hanby 50,000
Philip C. Bohm 42,858
Michael Williamson 21,750
Jeffrey G. Shields 20,200
Cartwright Holdings, Inc. 20,000
Rona Dixon 20,000
Alan Dabrow 15,000
Alan Robbins and Judie Robbins 15,000
Brenda Hubrich 10,000
Alisa Pace, individually and as Custodian under UT UGMA 8,000
Joni Dixon 5,000
Lynda Whitehead 5,000
Allen Dixon 5,000
Norene Dixon 5,000
Charlie Schwab and Dorothy Hanby 5,000
Laina Egan 5,000
Peter Gordon 3,300
Justin Moeller, custodian under UGMA 1,000
Lori Gunter, custodian under UGMA 1,000
-------------
Total 2,374,487
</TABLE>
These shares were issued in reliance upon Section 4(2) of the Act, and Rule
506, Regulation D, promulgated thereunder, and restricted as to resales.
g. In November 1996, the Company issued 520,000 shares of Common Stock to
Hyrum Taylor (25,000 shares), David D. Singer (475,000 shares) and Raymond
Scharp (20,000 shares) in connection with their employment by the Company. The
shares were valued, for tax and accounting purposes, at $.33 per share, and were
issued in reliance upon Section 4(2) of the Act, and restricted as to resales.
II-2
<PAGE>
h. In the period March 1997 and through August 1997, the Company sold a
total of 2,000,000 shares of Common Stock at a price of $2.00 per share
(including the allocable cost of warrants to purchase Common Stock exercised by
these purchasers, as described below) to investment funds under the control of
Michael Lauer, and certain business associates of Mr. Lauer, in reliance upon
Section 4(2) of the Act and/or Rule 506 thereunder, and restricted as to
resales, as follows:
Investor No. of Shares
-------- -------------
Lancer Partners, LP 1,043,750
Lancer Offshore, Inc. 773,750
Lancer Voyager 150,000
Martin H. Garvey 30,000
Russel J. Redgate 2,500
-------------
2,000,000
A portion of these shares were issued upon the exercise of warrants which
were issued in units with shares of Common Stock. All such warrants were
exercisable at a price of $2.00 per share, and all have now been exercised.
i. In July 1997, the Company issued a total of 1,798,100 shares of Common
Stock, and options to purchase 201,900 shares of Common Stock, to former
shareholders and employees (a total of 98 persons, of whom 80 were "accredited"
investors) of Digital Radio Communications Corporation ("DRCC") in exchange for
shares and options of DRCC. These shares and options were issued in reliance
upon Rule 506, Regulation D, and restricted as to resales.
j. In September and October 1997, the Company issued a total of 10,931
shares of Common Stock to former employees and directors of DRCC, David Politis,
Stephen Cowser and Jack Berg, at prices of $0.09 (10,513 shares), $0.18 (139
shares) and $2.00 (239 shares), respectively. The shares were issued in reliance
upon Section 4(2) of the Act, and restricted as to resales.
Item 27. Exhibits
(a) Exhibits
Exhibit
No.
- --------
3.1 Articles of Incorporation of the Company and all amendments thereto
3.2 Bylaws of the Company
4.1 Form of Common Stock Certificate*
5 Opinion of Connolly Epstein Chicco Foxman Engelmyer & Ewing regarding
the legality of securities being registered*
10.1 1997 Stock Option Plan
10.2 DRCC Omnibus Stock Option Plan
10.3 Development and License Agreement dated April 4, 1997, between DRCC
and Kyushu Matsushita Electric Co., Ltd.
10.4 Technical Development and Marketing Alliance Agreement dated
September 15, 1997, between the Company and Williams Telemetry
Services, Inc.
10.5 Lease Agreement dated May 17, 1995, between DRCC and Pracvest
Partnership relating to the Company's American Fork City offices and
facility
10.6 Lease Agreement dated February 12, 1996, between the Company the
Green/Praver, et al., relating to the Company's Salt Lake City
offices
II-3
<PAGE>
10.7 Shareholders Agreement dated May 21, 1997 between the Company, DRCC,
Philip A. Bunker and William E. Chipman, Sr.
21 Subsidiaries of the Company
23.1 Consent of Hansen, Barnett & Maxwell, independent certified public
accountants
23.2 Consent of Connolly Epstein Chicco Foxman Engelmyer & Ewing (included
in Exhibit 5)
27 Financial Data Schedules
- ------------
* To be filed by amendment.
Item 27. Undertakings.
The undersigned Registrant hereby undertakes to:
1. File, during any period in which it offers or sells securities, a
post-effective amendment to this Registration Statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) Reflect in the Prospectus any facts or events which, individually or
in the aggregate, represent a fundamental change in the information set forth
in the Registration Statement; and
(iii) Include any additional or changed material information on the Plan
of Distribution described in the Registration Statement.
2. For the purpose of determining any liability under the Securities Act,
treat each post-effective amendment as a new registration of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering thereof.
3. To file a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the small
business issuer pursuant to the foregoing provisions, or otherwise, the small
business issuer pursuant to the foregoing provisions, or otherwise, the small
business issuer has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the small business issuer of expenses incurred or
paid by a director, officer or controlling person of the small business issuer
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the small business issuer will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
The undersigned small business issuer hereby undertakes that:
For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the small business issuer pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be a part of this
Registration Statement as of the time the Commission declared it effective.
For purposes of determining any liability under the Securities Act, each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in this Registration
Statement, and the offering of the securities at that time, shall be deemed to
be the initial bona fide offering of those securities.
II-4
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this Registration
Statement to be signed on its behalf by the undersigned, in Salt Lake City,
Utah, on the 23rd day of October, 1997.
WORLD WIRELESS COMMUNICATIONS, INC.
By: /s/ David D. Singer
----------------------------------------------
David D. Singer, President and Chief Executive
Officer
By: /s/ William E. Chipman, Sr.
----------------------------------------------
William E. Chipman, Sr., Chief Financial
Officer
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement was signed by the following persons in the capacities and
on the dates stated.
Signatures Title Date
---------- ----- ----
/s/ Brian W. Pettersen
- ------------------------- Director Oct. 23, 1997
Brian W. Pettersen
/s/ Jonathan D. Rahn
- ------------------------- Director Oct. 23, 1997
Jonathan D. Rahn
/s/ Philip A. Bunker
- ------------------------- Director Oct. 23, 1997
Philip A. Bunker
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
No. Description Page
- ------ ----------- -----
<S> <C> <C>
3.1 Articles of Incorporation of the Company and all amendments thereto
3.2 Bylaws of the Company
4.1 Form of Common Stock Certificate*
5 Opinion of Connolly Epstein Chicco Foxman Engelmyer & Ewing regarding the legality
of securities being registered*
10.1 1997 Stock Option Plan
10.2 DRCC Omnibus Stock Option Plan
10.3 Development and License Agreement dated April 4, 1997, between DRCC and Kyushu
Matsushita Electric Co., Ltd.
10.4 Technical Development and Marketing Alliance Agreement dated September 15, 1997,
between the Company and Williams Telemetry Services, Inc.
10.5 Lease Agreement dated May 17, 1995 between DRCC and Pracvest Partnership relating
to the Company's American Fork City offices and facility
10.6 Lease Agreement dated February 12, 1996, between the Company the Green/Praver, et al.,
relating to the Company's Salt Lake City offices
10.7 Shareholders Agreement dated May 21, 1997 between the Company, DRCC, Philip A. Bunker
and William E. Chipman, Sr.
21 Subsidiaries of the Company
23.1 Consent of Hansen, Barnett & Maxwell, independent certified public accountants
23.2 Consent of Connolly Epstein Chicco Foxman Engelmyer & Ewing (included in Exhibit 5)
27 Financial Data Schedule
</TABLE>
- ------------
* To be filed by amendment
<PAGE>
ARTICLES OF INCORPORATION
OF
DATA SECURITY CORPORATION
THE UNDERSIGNED natural person of the age of eighteen (18) years or more,
acting as incorporator of a corporation under the Nevada Business Corporation
Act, adopts the following Articles of Incorporation for such corporation.
ARTICLE I - NAME
The name of the corporation is Data Security Corporation
ARTICLE II - DURATION
The duration of the corporation is perpetual.
ARTICLE III - PURPOSES
The purpose or purposes for which this corporation is engaged are:
(a) To engage in the specific business of providing security equipment and
consulting services to the computer industry. Also, the business of
making investments, including investments in, purchase and ownership
of any and all kinds of property, assets or business, whether alone or
in conjunction with others. Also, to acquire, develop, explore and
otherwise deal in and with all kinds of real and personal property and
all related activities, and for any and all other lawful purposes.
(b) To acquire by purchase, exchange, gift, bequest, subscription, or
otherwise; and to hold, own, mortgage, pledge, hypothecate, sell,
assign, transfer, exchange, or otherwise dispose of or deal in or with
its own corporate securities or other securities including, without
<PAGE>
limitations, any shares of stock, bonds, debentures, notes, mortgages,
or other obligations, and any certificates, receipts or other
instrumentalities representing rights or interests therein on any
property or assets created or issued by any person, firm, associate,
or corporation, or instrument thereof; to make payment therefor in any
lawful manner or to issue in exchange therefor its unreserved earned
surplus for the purchase of its own shares, and to exercise as owner
or holder of any securities, any and all rights, powers, and
privileges in respect thereof.
(c) To do each and everything necessary, suitable, or proper for the
accomplishment of any of the purposes or the attainment of any one or
more of the subjects herein enumerated, or which may, at any time,
appear conducive to or expedient for the protection or benefit of this
corporation, and to do said acts as fully and to the same extent as
natural persons might, or could do in any part of the world as
principals, agents, partners, trustees, or otherwise, either alone or
in conjunction with any other person, association, or corporation.
(d) The foregoing clauses shall be construed both as purposes and powers
and shall not be held to limit or restrict in any manner the general
powers of the corporation, and the enjoyment and exercise thereof, as
conferred by the laws of the State of Nevada; and it is the intention
that the purposes and powers specified in each of the paragraphs of
this Article III shall be regarded as independent purposes and powers.
2
<PAGE>
ARTICLE IV - STOCK
The aggregate number of shares which this corporation shall have authority
to issue is 50,000,000 shares of Common Stock having a par value of $.001 per
share. All common stock of the corporation shall be of the same class, common,
and shall have the same rights and preferences. Fully-paid stock of this
corporation shall not be liable to any further call or assessment. The
corporation shall also have authority to issue 1,000,000 shares of Preferred
Stock having a par value of $.001 per share and to be issued with such rights,
preferences and designations and in such series as determined by the Board of
Directors of the corporation.
ARTICLE V - AMENDMENT
These Articles of Incorporation may be amended by the affirmative vote of
"a majority" of the shares entitled to vote on each such amendment.
ARTICLE VI - SHAREHOLDERS' RIGHTS
The authorized and treasury stock of this corporation may be issued at such
time, upon such terms and conditions and for such consideration as the Board of
Directors shall determine. Shareholders shall not have pre-emptive rights to
acquire unissued shares of the stock of this corporation.
ARTICLE VII- INITIAL OFFICE AND AGENT
The Corporate Trust Company of Nevada
One East First Street
Reno, Nevada 89501
3
<PAGE>
ARTICLE VIII - DIRECTORS
The directors are hereby given the authority to do any act on behalf of the
corporation by law and in each instance where the Business Corporation Act
provides that the directors may act in certain instances where the Articles of
Incorporation authorized such action by the directors, the directors are hereby
given authority to act in such instances without specifically numerating such
potential action or instance herein.
The directors are specifically given the authority to mortgage or pledge
any or all assets of the business without stockholders' approval.
The number of directors constituting the initial Board of Directors of this
corporation is one. The name and address of the person who is to serve as
Director until the first annual meeting of stockholders or until his successor
is elected, is:
NAME ADDRESS
P. Lynn Dixon 311 South State, Suite 460
Salt Lake City, Utah 84111
ARTICLE IX - INCORPORATORS
The name and address of each
incorporator is:
NAME ADDRESS
Leon W. Crockett 311 South State, Suite 440
Salt Lake City, Utah 84111
ARTICLE X
COMMON DIRECTORS - TRANSACTIONS BETWEEN CORPORATIONS
No contract or other transaction between this corporation and any one or more of
its
4
<PAGE>
directors or officers or any other corporation, firm, association, or entity
in which one or more of its directors or officers are financially interested,
shall be either void or voidable because of such relationship or interest, or
because such person is present at the meeting of the Board of Directors, or a
committee thereof, which authorizes, approves, or ratifies such contract or
transaction, or because his or their votes are counted for such purpose if: (a)
the fact of such relationship or interest is disclosed or known to the Board of
Directors or committee which authorizes, approves, or ratifies the contract or
transaction in good faith by vote or consent sufficient for the purpose without
counting the votes or consents of such interested director; or (b) the fact of
such relationship or interest is disclosed or known to the stockholders entitled
to vote and they authorize, approve, or ratify such contract or transaction by
vote or written consent, (c) the fact of the common directorship, office or
financial interest is not disclosed or known to the director or officer at the
time the transaction is brought before the board of directors of the corporation
for action; or (d) the contract or transaction is fair and reasonable to the
corporation at the time it is approved.
Common or interested directors may be counted in determining the presence
of a quorum at a meeting of the Board of Directors or committee thereof which
authorizes, approves, or ratifies such contract or transaction.
ARTICLE XI
LIABILITY OF DIRECTORS AND OFFICERS
No director or officer shall be personally liable to the Corporation or its
stockholders for monetary damages for any breach of fiduciary duty by such
person as a director or
5
<PAGE>
officer. Notwithstanding the foregoing sentence, a director or officer shall be
liable to the extent provided by applicable law, (I) for acts or omissions which
involve intentional misconduct, fraud or a knowing violation of law, or (ii) for
the payment of dividends in violation of NRS 78.300.
The provisions hereof shall not apply to or have any effect on the
liability or alleged liability of any officer or director of the Corporation for
or with respect to any acts or omissions of such person occurring prior to such
amendment.
Under penalties of perjury, I declare that these Articles of Incorporation
have been examined by me and are, to the best of my knowledge and belief, true,
correct and complete.
DATED this 14th day of November, 1995.
Leon W. Crockett
---------------------------------
Incorporator
STATE OF UTAH )
: ss:
COUNTY OF SALT LAKE )
On the 14th day of November, 1995, personally appeared before me, Leon W.
Crockett, who duly acknowledged to me that he signed the foregoing Articles of
Incorporation.
[NOTARY SEAL]
6
<PAGE>
CERTIFICATE OF AMENDMENT
TO THE ARTICLES OF INCORPORATION
OF
DATA SECURITY CORPORATION
The Undersigned, constituting the President and Secretary of Data
Security Corporation, hereby certify that pursuant to the provisions of NRS
78.385 the following action was taken:
1. That the Board of Directors of said corporation by unanimous consent
dated January 15, 1997, adopted a resolution to amend Article I of the original
Articles of Incorporation to read as follows: "The name of the Corporation is
"World Wireless Communications, Inc.
2. The number of shares of the corporation outstanding and entitled to
vote on an amendment to the Articles of Incorporation was 3,901,200; that the
said change(s) and amendment has been consented to and approved by a majority
vote of the stockholders holding at least a majority of each class of stock
outstanding and entitled to vote thereon.
Dated this 15th day of January 1997.
/s/ David D. Singer
--------------------------
David D. Singer, President
Attest:
/s Jonathan D. Rahn
- --------------------------------
Jonathan D. Rahn, Secretary
<PAGE>
State of Utah )
) ss
County of Salt Lake )
On the 15th day of January 1997, personally appeared before me, a
Notary public, who acknowledged that David D. Singer, the President of Data
Security Corporation executed the foregoing Certificate of Amendment to the
Articles of Incorporation of Data Security Corporation.
/s/ Josephine Rudd
--------------------------
Notary Public
State of New Jersey )
) ss
County of Middlesex )
On the 16th day of January 1997, personally appeared before me, a
Notary public, who acknowledged that Jonathan D. Rahn, the Secretary of Data
Security Corporation executed the foregoing Certificate of Amendment to the
Articles of Incorporation of Data Security Corporation.
/s/ Michele A. Ott
--------------------------
Notary Public
<PAGE>
BY-LAWS
OF
DATA SECURITY CORPORATION
ARTICLE I - OFFICES
The principal office of the corporation in the State of Nevada shall be
located in the City of Reno, County of Washoe. The corporation may have such
other offices, either within or without the State of incorporation as the
board of directors may designate or as the business of the corporation may
from time to time require.
ARTICLE II - STOCKHOLDERS
1. ANNUAL MEETING.
The annual meeting of the stockholders shall be held on such date as is
determined by the Board of Directors for the purpose of electing directors and
for the transaction of such other business as may come before the meeting.
2. SPECIAL MEETINGS.
Special meetings of the stockholders, for any purpose or purposes, unless
otherwise prescribed by statute, may be called by the president or by the
directors, and shall be called by the president at the request of the holders
of not less than ten per cent of all the outstanding shares of the corporation
entitled to vote at the meeting.
3. PLACE OF MEETING.
The directors may designate any place, either within or without the State
unless otherwise prescribed by statute, as the place of meeting for any annual
meeting or for any special meeting called by the directors. A waiver of notice
signed by all stockholders entitled to vote at a meeting may designate any
place, either within or without the state unless otherwise prescribed by
statute, as the place for holding such meeting. If no designation is made, or
if a special meeting
<PAGE>
be otherwise called, the place of meeting shall be the principal office of the
corporation.
4. NOTICE OF MEETING.
Written or printed notice stating the place, day and hour of the meeting
and, in case of a special meeting, the purpose or purposes for which the
meeting is called, shall be delivered not less than ten nor more than thirty
days before the date of the meeting, either personally or by mail, by or at
the direction of the president, or the secretary, or the officer or persons
calling the meeting, to each stockholder of record entitled to vote at such
meeting. If mailed, such notice shall be deemed to be delivered when deposited
in the United States mail, addressed to the stockholder at his address as it
appears on the stock transfer books of the corporation, with postage thereon
pre-paid.
5. CLOSING OF TRANSFER BOOKS OR FIXING OF RECORD DATE.
For the purpose of determining stockholders entitled to notice of or to vote
at any meeting of stockholders or any adjournment thereof, or stockholders
entitled to receive payment of any dividend, or in order to make a
determination of stockholders for any other proper purpose, the directors of
the corporation may provide that the stock transfer books shall be closed for
a stated period but not to exceed, in any case, thirty days. If the stock
transfer books shall be closed for the purpose of determining stockholders
entitled to notice of or to vote at a meeting of stockholders, such books
shall be closed for at least ten days immediately preceding such meeting. In
lieu of closing the stock transfer books, the directors may fix in advance a
date as the record date for any such determination of stockholders, such date
in any case to be not more than thirty days and, in case of a meeting of
stockholders, not less than ten days prior to the date on which the particular
action requiring such determination of stockholders is to be taken. If the
stock transfer books are not closed and no record date is fixed for the
determination of stockholders entitled to notice of or to vote at a meeting of
stockholders, or stockholders entitled to receive payment of a dividend, the
date on which notice of the meeting is mailed or the date on which the
resolution of the directors declaring such dividend is adopted, as the
case may be, shall be the record date for such determination of stockholders.
When a determination of stockholders entitled to vote at any meeting of
stockholders has been made as provided in this section, such determination
shall apply to any adjournment thereof.
BY- LAWS
Page 2
<PAGE>
6. VOTING LISTS.
The officer or agent having charge of the stock transfer books for shares
of the corporation shall make, at least ten days before each meeting of
stockholders, a complete list of the stockholders entitled to vote at such
meeting, or any adjournment thereof, arranged in alphabetical order, with the
address of and the number of shares held by each, which list, for a period of
ten days prior to such meeting, shall be kept on file at the principal office
of the corporation or transfer agent and shall be subject to inspection by any
stockholder at any time during usual business hours. Such list shall also be
produced and kept open at the time and place of the meeting and shall be
subject to the inspection of any stockholder during the whole time of the
meeting. The original stock transfer book shall be prima facie evidence as to
who are the stockholders entitled to examine such list or transfer books or to
vote at the meeting of stockholders.
7. QUORUM.
Unless otherwise provided by law, at any meeting of stockholders
one-third of the outstanding shares of the corporation entitled to vote,
represented in person or by proxy, shall constitute a quorum at a meeting of
stockholders. If less than said number of the outstanding shares are
represented at a meeting, a majority of the shares so represented may adjourn
the meeting from time to time without further notice. At such adjourned
meeting at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
notified. The stockholders present at a duly organized meeting may continue to
transact business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum.
8. PROXIES.
At all meetings of stockholders, a stockholder may vote by proxy executed
in writing by the stockholder or by his duly authorized attorney in fact. Such
proxy shall be filed with the secretary of the corporation before or at the
time of the meeting.
9. VOTING.
Each stockholder entitled to vote in accordance with the terms and
provisions of the certificate of incorporation and these by-laws shall be
entitled to one vote, in person or by proxy, for each share of stock entitled
to vote held by such stockholders. Upon the demand of any stockholder, the
vote for directors and upon any question before the meeting shall be by
ballot. All elections for
BY-LAWS
Page 3
<PAGE>
directors shall be decided by plurality vote; all other questions shall be
decided by majority vote except as otherwise provided by the Certificate of
Incorporation or the laws of this State.
10. ORDER OF BUSINESS
The order of business at all meetings of the stockholders, shall be as
follows:
1. Roll Call.
2. Proof of notice of meeting or waiver of notice.
3. Reading of minutes of preceding meeting.
4. Reports of Officers.
5. Reports of Committees.
6. Election of Directors
7. Unfinished Business.
8. New Business.
11. INFORMAL ACTION BY STOCKHOLDERS.
Unless otherwise provided by law, any action required to be taken at a
meeting of the shareholders, or any other action which may be taken at a
meeting of the shareholders, may be taken without a meeting if a consent in
writing, setting forth the action so taken, shall be signed by the same
percentage of all of the shareholders entitled to vote with respect to the
subject matter thereof as would be required to take such action at a meeting.
ARTICLE III - BOARD OF DIRECTORS
1. GENERAL POWERS.
The business and affairs of the corporation shall be managed by its board
of directors. The directors shall in all cases act as a board, and they may
adopt such rules and regulations for the conduct of their meetings and the
management
BY - LAWS
Page 4
<PAGE>
of the corporation, as they may deem proper, not inconsistent with these
by-laws and the laws of this State.
2. NUMBER, TENURE AND QUALIFICATIONS.
The number of directors of the corporation shall as established by the
board of directors, but shall be no less than one. Each director shall hold
office until the next annual meeting of stockholders and until his successor
shall have been elected and qualified.
3. REGULAR MEETINGS.
A regular meeting of the directors, shall be held without other notice
than this by-law immediately after, and at the same place as, the annual
meeting of stockholders. The directors may provide, by resolution, the time
and place for the holding of additional regular meetings without other notice
than such resolution.
4. SPECIAL MEETINGS.
Special meetings of the directors may be called by or at the request of
the president or any director. The person or persons authorized to call
special meetings of the directors may fix the place for holding any special
meeting of the directors called by them. A director may attend any meeting by
telephonic participation at the meeting.
5. NOTICE.
Notice of any special meeting shall be given at least two days previously
thereto by written notice delivered personally, or by telegram or mailed to
each director at his business address. If mailed, such notice shall be deemed
to be delivered when deposited in the United States mail so addressed, with
postage thereon prepaid. If notice be given by telegram, such notice shall be
deemed to be delivered when the telegram is delivered to the telegraph
company. The attendance of a director at a meeting shall constitute a waiver
of notice of such meeting, except where a director attends a meeting for the
express purpose of objecting to the transaction of any business because the
meeting is not lawfully called or convened.
6. QUORUM.
At any meeting of the directors a majority shall constitute a quorum for
the transaction of business, but if less than said number is present at a
meeting, a
BY - LAWS
Page 5
<PAGE>
majority of the directors present may adjourn the meeting from time to time
without further notice.
7. MANNER OF ACTING.
The act of the majority of the directors present at a meeting at which a
quorum is present shall be the act of the directors.
8. NEWLY CREATED DIRECTORSHIPS AND VACANCIES.
Newly created directorships resulting from an increase in the number of
directors and vacancies occurring in the board for any reason except the
removal of directors without cause may be filled by a vote of a majority of
the directors then in office, although less than a quorum exists. Vacancies
occurring by reason of the removal of directors without cause shall be filled
by vote of the stockholders. A director elected to fill a vacancy caused by
resignation, death or removal shall be elected to hold office for the
unexpired term of his predecessor.
9. REMOVAL OF DIRECTORS.
Any or all of the directors may be removed for cause by vote of the
stockholders or by action of the board. Directors may be removed without cause
only by vote of the stockholders.
10. RESIGNATION.
A director may resign at any time by giving written notice to the board,
the president or the secretary of the corporation. Unless otherwise specified
in the notice, the resignation shall take effect upon receipt thereof by the
board or such officer, and the acceptance of the resignation shall not be
necessary to make it effective.
11. COMPENSATION.
No compensation shall be paid to directors, as such, for their services,
but by resolution of the board a fixed sum and expenses for actual attendance
at each regular or special meeting of the board may be authorized. Nothing
herein contained shall be construed to preclude any director from serving the
corporation in any other capacity and receiving compensation therefor.
BY - LAWS
Page 6
<PAGE>
12. PRESUMPTION OF ASSENT.
A director of the corporation who is present at a meeting of the
directors at which action on any corporate matter is taken shall be presumed
to have assented to the action taken unless his dissent shall be entered in
the minutes of the meeting or unless he shall file his written dissent to such
action with the person acting as the secretary of the meeting before the
adjournment thereof or shall forward such dissent by registered mail to the
secretary of the corporation immediately after the adjournment of the meeting.
Such right to dissent shall not apply to a director who voted in favor of such
action.
13. EXECUTIVE AND OTHER COMMITTEES.
The board, by resolution, may designate from among its members an
executive committee and other committees, each consisting of three or more
directors. Each such committee shall serve at the pleasure of the board.
ARTICLE IV - OFFICERS
1. NUMBER.
The officers shall be a president, a secretary and a treasurer, each of
whom shall be elected by the directors. Such other officers and assistant
officers as may be deemed necessary may be elected or appointed by the
directors.
2. ELECTION AND TERM OF OFFICE.
The officers of the corporation to be elected by the directors shall be
elected annually at the first meeting of the directors held after each annual
meeting of the stockholders. Each officer shall hold office until his
successor shall have been duly elected and shall have qualified or until his
death or until he shall resign or shall have been removed in the manner
hereinafter provided.
3. REMOVAL.
Any officer or agent elected or appointed by the directors may be removed
by the directors whenever in their judgment the best interests of the
corporation would be served thereby, but such removal shall be without
prejudice to the contract rights, if any, of the person so removed.
BY- LAWS
Page 7
<PAGE>
4. VACANCIES.
A vacancy in any office because of death, resignation, removal,
disqualification or otherwise, may be filled by the directors for the
unexpired portion of the term.
5. PRESIDENT.
The president shall be the principal executive officer of the corporation
and, subject to the control of the directors, shall in general supervise and
control all of the business and affairs of the corporation. He shall, when
present, preside at all meetings of the stockholders and of the directors. He
may sign, with the secretary or any other proper officer of the corporation
thereunto authorized by the directors, certificates for shares of the
corporation, any deeds, mortgages, bonds, contracts, or other instruments
which the directors have authorized to be executed, except in cases where the
signing and execution thereof shall be expressly delegated by the directors or
by these by-laws to some other officer or agent of the corporation, or shall
be required by law to be otherwise signed or executed; and in general shall
perform all duties incident to the office of president and such other duties
as may be prescribed by the directors from time to time.
6. VICE-PRESIDENT.
In the absence of the president or in event of his death, inability or
refusal to act, a vice-president may perform the duties of the president, and
when so acting, shall have all the powers of and be subject to all the
restrictions upon the president. A vice-president shall perform such other
duties as from time to time may be assigned to him by the President or by the
directors.
7. SECRETARY.
The secretary shall keep the minutes of the stockholders' and of the
directors' meetings in one or more books provided for that purpose, see that
all notices are duly given in accordance with the provisions of these by-laws
or as required, be custodian of the corporate records and of the seal of the
corporation and keep a register of the post office address of each stockholder
which shall be furnished to the secretary by such stockholder, have general
charge of the stock transfer books of the corporation and in general perform
all duties incident to the office of secretary and such other duties as from
time to time may be assigned to him by the president or by the directors.
BY- LAWS
Page 8
<PAGE>
8. TREASURER.
If required by the directors, the treasurer shall give a bond for the
faithful discharge of his duties in such sum and with such surety or sureties
as the directors shall determine. He shall have charge and custody of and be
responsible for all funds and securities of the corporation; receive and give
receipts for moneys due and payable to the corporation from any source
whatsoever, and deposit all such moneys in the name of the corporation in such
banks, trust companies or other depositories as shall be selected in
accordance with these by-laws and in general perform all of the duties
incident to the office of treasurer and such other duties as from time to time
may be assigned to him by the president or by the directors.
9. SALARIES.
The salaries of the officers shall be fixed from time to time by the
directors and no officer shall be prevented from receiving such salary by
reason of the fact that he is also a director of the corporation.
ARTICLE V - CONTRACTS, LOANS, CHECKS AND DEPOSITS
1. CONTRACTS.
The directors may authorize any officer or officers, agent or agents, to
enter into any contract or execute and deliver any instrument in the name of
and on behalf of the corporation, and such authority may be general or
confined to specific instances.
2. LOANS.
No loans shall be contracted on behalf of the corporation and no
evidences of indebtedness shall be issued in its name unless authorized by a
resolution of the directors. Such authority may be general or confined to
specific instances.
3. CHECKS, DRAFTS, ETC.
All checks, drafts or other orders for the payment of money, notes or
other evidences of indebtedness issued in the name of the corporation, shall
be signed by such officer or officers, agent or agents of the corporation and
in such manner as shall from time to time be determined by resolution of the
directors.
BY- LAWS
Page 9
<PAGE>
4. DEPOSITS.
All funds of the corporation not otherwise employed shall be deposited
from time to time to the credit of the corporation in such banks, trust
companies or other depositaries as the directors may select.
ARTICLE VI - CERTIFICATES FOR SHARES AND THEIR TRANSFER
1. CERTIFICATES FOR SHARES.
Certificates representing shares of the corporation shall be in such form
as shall be determined by the directors. Such certificates shall be signed by
the president and by the secretary or by such other officers authorized by law
and by the directors. All certificates for shares shall be consecutively
numbered or otherwise identified. The name and address of the stockholders,
the number of shares and date of issue, shall be entered on the stock transfer
books of the corporation. All certificates surrendered to the corporation for
transfer shall be canceled and no new certificate shall be issued until the
former certificate for a like number of shares shall have been surrendered
and canceled, except that in case of a lost, destroyed or mutilated
certificate a new one may be issued therefor upon such terms and indemnity to
the corporation as the directors may prescribe.
2. TRANSFERS OF SHARES.
(a) Upon surrender to the corporation or the transfer agent of the
corporation of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignment or authority to transfer, it shall be the
duty of the corporation to issue a new certificate to the person entitled
thereto, and cancel the old certificate; every such transfer shall be entered
on the transfer book of the corporation which shall be kept at its principal
office.
(b) The corporation shall be entitled to treat the holder of record of
any share as the holder in fact thereof, and, accordingly, shall not be bound
to recognize any equitable or other claim to or interest in such share on the
part of any other person whether or not it shall have express or other notice
thereof, except as expressly provided by the laws of this state.
ARTICLE VII - FISCAL YEAR
The fiscal year of the corporation shall end on the last day of such
month in each year as the directors may prescribe.
BY- LAWS
Page 10
<PAGE>
ARTICLE VIII - DIVIDENDS
The directors may from time to time declare, and the corporation may pay,
dividends on its outstanding shares in the manner and upon the terms and
conditions provided by law.
ARTICLE IX - SEAL
The directors may, in their discretion, provide a corporate seal which
shall have inscribed thereon the name of the corporation, the state of
incorporation, and the words, "Corporate Seal".
ARTICLE X - WAIVER OF NOTICE
Unless otherwise provided by law, whenever any notice is required to be
given to any stockholder or director of the corporation under the provisions
of these by-laws or under the provisions of the articles of incorporation, a
waiver thereof in writing, signed by the person or persons entitled to such
notice, whether before or after the time stated therein, shall be deemed
equivalent to the giving of such notice.
ARTICLE XI - AMENDMENTS
These by-laws may be altered, amended or repealed and new by-laws may
be adopted by action of the Board of Directors.
November 16, 1995 /s/ P. Lynn Dixon
Date: --------------------------
P. Lynn Dixon, Director
BY - LAWS
Page 11
<PAGE>
WORLD WIRELESS COMMUNICATIONS, INC.
1997 STOCK OPTION PLAN
1. Purpose. The Plan is intended as an additional incentive to key
employees, consultants, advisors and members of the Board of Directors
(together, the "Optionees") to enter into or remain in the service or employ of
World Wireless Communications, Inc., a Nevada corporation (the "Company"), or
any Affiliate (as defined below) of the Company, and to devote themselves to the
Company's success by providing them with an opportunity to acquire or increase
their proprietary interest in the Company through receipt of rights (the
"Options") to acquire the Company's Common Stock, par value $.001 per share (the
"Common Stock"). Each Option granted under the Plan to a person who is employed
by the Company or an Affiliate is intended to be an incentive stock option
("ISO") within the meaning of section 422(b) of the Internal Revenue Code of
1986, as amended (the "Code"), for federal income tax purposes, except to the
extent (i) any such ISO grant would exceed the limitation of subsection 6(a)
below, or (ii) any Option is specifically designated at the time of grant (the
"Grant Date") as not being an ISO. No Option granted to a person who is not an
employee of the Company or any Affiliate on the Grant Date, or is not identified
as an ISO in the Option Documents (as hereinafter defined), shall be an ISO.
For purposes of the Plan, the term "Affiliate" shall mean a corporation
which is a parent corporation or a subsidiary corporation with respect to the
Company within the meaning of section 424(e) or (f) of the Code.
2. Administration. The Plan shall be administered by the Board of
Directors of the Company, without participation by any director on any matter
pertaining to him, provided that any director may join in a written consent to
action signed by all directors notwithstanding that such action pertains to such
director, in whole or in part. The Board of Directors may appoint a Stock Option
Committee composed of three or more of its members to operate and administer the
Plan in its stead. The Stock Option Committee or the Board of Directors in its
administrative capacity with respect to the Plan is referred to herein as the
"Committee."
The Committee shall hold meetings at such times and places as it may
determine. Acts approved at a meeting by a majority of the members of the
Committee or acts approved in writing by the unanimous consent of the members of
the Committee shall be the valid acts of the Committee.
The Committee shall from time to time at its discretion grant Options
pursuant to the terms of the Plan. The Committee shall have plenary authority to
determine the Optionees to whom and the times at which Options shall be granted,
the number of Option
<PAGE>
Shares (as defined in Section 4 below) to be covered by such Options and the
price and other terms and conditions thereof, including a specification with
respect to whether an Option is intended to be an ISO, subject, however, to the
express provisions of the Plan. In making such determinations the Committee may
take into account the nature of the Optionee's services and responsibilities,
the Optionee's present and potential contribution to the Company's success and
such other factors as it may deem relevant. The interpretation and construction
by the Committee of any provision of the Plan or of any Option granted under it
shall be final, binding and conclusive.
No member of the Board of Directors or the Committee shall be
personally liable for any action or determination made in good faith with
respect to the Plan or any Option granted under it. No member of the Committee
shall be liable for any act or omission of any other member of the Committee or
for any act or omission on his own part, including but not limited to the
exercise of any power and discretion given to him under the Plan, except those
resulting from (i) any breach of such member's duty of loyalty to the Company or
its stockholders, (ii) acts or omissions not in good faith or involving
intentional misconduct or a knowing violation of law, (iii) acts or omissions
that would result in liability under Section 78.300 of the General Corporation
Law of Nevada, as amended, and (iv) any transaction from which the member
derived an improper personal benefit.
In addition to such other rights of indemnification as he may have as a
member of the Board of Directors or the Committee, and with respect to the
administration of the Plan and the granting of Options under it, each member of
the Board of Directors and of the Committee shall be entitled without further
action on his part to indemnity from the Company for all expenses (including the
amount of judgment and the amount of approved settlements made with a view to
the curtailment of costs of litigation, other than amounts paid to the Company
itself) reasonably incurred by him in connection with or arising out of any
action, suit or proceeding with respect to the administration of the Plan or the
granting of Options under it in which he may be involved by reason of his being
or having been a member of the Board of Directors or the Committee, whether or
not he continues to be such member of the Committee at the time of the incurring
of such expenses; provided, however, that such indemnity shall not include any
expenses incurred by such member of the Board of Directors or Committee: (i) in
respect of matters as to which he shall be finally adjudged in such action, suit
or proceeding to have been guilty of gross negligence or willful misconduct in
the performance of his duties as a member of the Board of Directors or the
Committee; or (ii) in respect of any settlement amount in excess of an amount
approved by the Company on the advice of its legal counsel; and provided further
that no right of indemnification hereunder shall be available to or accessible
by any such member of the Committee unless within a reasonable time
-2-
<PAGE>
after institution of any such action, suit or proceeding (which shall be no
later than the earlier of ten (10) days prior to the date that any responsive
pleading or other action in response to the institution of any such proceeding
is due, or ten (10) days after he has actual notice of the institution of such
proceeding) he shall have offered the Company in writing the opportunity to
handle and defend such action, suit or proceeding at its own expense. The
foregoing right of indemnification shall inure to the benefit of the heirs,
executors or administrators of each such member of the Board of Directors or the
Committee and shall be in addition to all other rights to which such member of
the Board of Directors or the Committee would be entitled to as a matter of law,
contract or otherwise.
3. Eligibility. All key employees of the Company or its Affiliates (who
may also be directors of the Company or its Affiliates) shall be eligible to
receive Options hereunder, and such Options may be either ISOs or Options which
are not ISOs (hereinafter, "Nonqualified Options"). Consultants, advisors and
directors of the Company shall be eligible to receive Nonqualified Options
hereunder. The Committee, in its sole discretion, shall determine whether an
individual qualifies as an employee or an Optionee. An Optionee may receive more
than one Option.
4. Option Shares. The aggregate maximum number of shares of the Common
Stock for which Options may be granted under the Plan is One Million Five
Hundred Thousand (1,500,000) shares (the "Option Shares"), which number is
subject to adjustment as provided in Section 8(b). Option Shares shall be issued
from authorized and unissued Common Stock or Common Stock held in or hereafter
acquired for the treasury of the Company. If any outstanding Option granted
under the Plan expires, lapses or is terminated for any reason, the Option
Shares allocable to the unexercised portion of such Option may again be the
subject of an Option granted pursuant to the Plan.
5. Term of Plan. The Plan is adopted by the Board of Directors
effective on October 1, 1997, but shall terminate (a) on the first anniversary
of the Effective Date unless the Plan is approved by the stockholders of the
Company as set forth in section 422(b)(1) of the Code, and (b) if the Plan is so
approved, on the tenth anniversary of the Effective Date.
6. Terms and Conditions of Options. Options granted pursuant to the
Plan shall be evidenced by written documents (the "Option Documents") in such
form as the Committee shall from time to time approve, which Option Documents
shall comply with and be subject to the following terms and conditions and with
any other terms and conditions (including vesting schedules for the
exercisability of Options) which the Committee shall from time to time provide
which are not inconsistent with the terms of the Plan.
-3-
<PAGE>
a. Number of Option Shares. Each Option Document shall state
the number of Option Shares to which it pertains. In no event shall the
aggregate fair market value, as of the Grant Date, of Option Shares with respect
to which an ISO is exercisable for the first time by the Optionee during any
calendar year (under all incentive stock option plans of the Company or its
Affiliates) exceed $100,000.
b. Option Price. Each Option Document shall state the price at
which Option Shares may be purchased (the "Option Price"), which, for any ISO,
shall be at least 100% of the fair market value of the Common Stock on the date
the option is granted as determined by the Committee; provided, however, that if
an ISO is granted to an Optionee who then owns, directly or by attribution under
section 424(b) of the Code, shares possessing more than ten percent of the total
combined voting power of all classes of stock of the Company or an Affiliate,
then the ISO Option Price shall be at least 110% of the fair market value of the
Option Shares on the Grant Date. The Option Price of Nonqualified Options may be
below 100% of the fair market value of the Common Stock on the Grant Date. The
fair market value of the Common Stock shall be as determined by the Committee,
provided that the fair market value of the Common Stock on the Grant Date in
respect of the grant of an ISO shall be determined in accordance with Section
422(b)(4) of the Code and Regulations hereunder.
c. Medium of Payment. An Optionee shall pay for Options Shares
(i) in cash, (ii) by certified check payable to the order of the Company, (iii)
in whole or in part in shares of Common Stock, including shares of Common Stock
acquired upon the contemporaneous exercise of Options, or (iv) by such other
mode of payment as the Committee may approve, including payment through a broker
in accordance with procedures permitted by Regulation T of the Federal Reserve
Board. If payment is made in whole or in part in shares of Common Stock acquired
upon exercise of an Option, the value of the Common Stock for such purpose shall
be the fair market value of the shares so applied as of the date of exercise of
the Option. The Committee may set forth in the Option Documents at the time of
Grant, and thereby impose, such limitations or prohibitions on the use of shares
of Common Stock to exercise an Option as it deems appropriate.
d. Termination of Options. No Option shall be exercisable
after the first to occur of the following:
(i) Expiration of the Option term specified in
the Option Document, which shall not exceed ten years from the date of grant (or
five years from the date of grant in the case of an ISO if, on such date the
Optionee owns, directly or by attribution under section 424(b) of the Code,
shares possessing more than ten percent (10%) of the total combined voting power
of all classes of stock of the Company or an Affiliate);
-4-
<PAGE>
(ii) Expiration of three months (or such shorter
period as the Committee may select) from the date the Optionee's employment with
the Company or its Affiliates terminates for any reason other than (a)
disability (within the meaning of section 22(e)(3) of the Code) or death, or (b)
circumstances described by subsection (d)(vi), below;
(iii) Expiration of one year from the date the
Optionee's employment with the Company or its Affiliates terminates for any
reason of the Optionee's disability (within the meaning of section 22(e)(3) of
the Code) or death;
(iv) The date, if any, fixed by the Committee as an
accelerated expiration date in the event of a "Change in Control" described in
sub-Section 6(e)(i) and (ii) below, provided an Optionee who holds an Option
affected by such acceleration of expiration date is given written notice at
least sixty (60) days before the date so fixed;
(v) The date set by the Committee to be an
accelerated expiration date after a finding by the Committee that a change in
the financial accounting treatment for Options from that in effect on the date
the Plan was adopted adversely affects or, in the determination of the
Committee, may adversely affect in the foreseeable future, the Company, provided
that (x) an Optionee who holds an Option affected by such acceleration of
expiration date is given written notice at least sixty (60) days before the date
so fixed, and (y) the Committee may take whatever other action, including
acceleration of any exercise provisions, it deems necessary or appropriate
should it make the determination referred to hereinabove; or
(vi) A finding by the Committee, after full
consideration of the facts presented on behalf of both the Company and the
Optionee, that the Optionee has been discharged from employment or service with
the Company or an Affiliate for Cause. For purposes of this Section, "Cause"
shall mean: (A) a breach by Optionee of his employment or service agreement with
the Company or an Affiliate, (B) a breach of Optionee's duty of loyalty to the
Company or an Affiliate, including without limitation any act of dishonesty,
embezzlement or fraud with respect to the Company or an Affiliate, (C) the
commission by Optionee of a felony, a crime involving moral turpitude or other
act causing material harm to the Company's or an Affiliate's standing and
reputation, (D) Optionee's continued failure to perform his duties to the
Company or an Affiliate or (E) unauthorized disclosure of trade secrets or other
confidential information belonging to the Company or an Affiliate. In the event
of a finding that the Optionee has been discharged for Cause, in addition to
immediate termination of the Option, the Optionee shall automatically forfeit
all Option Shares for which the Company has not yet delivered the share
certificates upon refund of the Option Price; provided, however, that, with
respect
-5-
<PAGE>
to any Non-Qualified Option, the Committee may provide other and additional
terms and conditions in the Option Document which are expressly or by
implication at variance with the above terms and conditions, in which case the
terms and conditions set forth in the Option Documents shall be controlling.
e. Change of Control. In the event of a Change in Control (as
defined below), the Committee may take whatever action with respect to the
Options outstanding it deems necessary or desirable, including, without
limitation, accelerating the vesting, expiration or termination dates in the
respective Option Documents to a date no earlier than thirty (30) days after
notice of such acceleration is given to the Optionee; provided, however, that
(x) the Committee shall not accelerate the expiration or termination date of any
outstanding option except in the case of a Change in Control as described in
sub-Sections (i) or (ii) below, and (y) the Committee may provide in the Option
Documents other and additional terms and conditions of such Option which are
applicable if a Change of Control occurs, including terms and conditions which
limit the Committee's discretion under this section. A Change of Control shall
be deemed to have occurred upon the earliest to occur of the following events:
(i) the date the stockholders of the Company (or the
Board of Directors, if stockholder action is not required) approve a plan or
other arrangement pursuant to which the Company will be dissolved or liquidated;
(ii) the date the stockholders of the Company (or
the Board of Directors, if stockholder action is not required) approve a
definitive agreement to sell or otherwise dispose of substantially all of the
assets of the Company;
(iii) the date the stockholders of the Company (or
the Board of Directors, if stockholder action is not required) and the
stockholders of the other constituent corporation (or its board of directors if
stockholder action is not required) have approved a definitive agreement to
merge or consolidate the Company with or into such other corporation, other
than, in either case, a merger or consolidation of the Company in which holders
of shares of the Common Stock immediately prior to the merger or consolidation
will hold at least a majority of the ownership of common stock of the surviving
corporation (and, if one class of common stock is not the only class of voting
securities entitled to vote on the election of directors of the surviving
corporation, a majority of the voting power of the surviving corporation's
voting securities) immediately after the merger or consolidation, which common
stock (and, if applicable, voting securities) is to be held in the same
proportion as such holders' ownership of Common Stock immediately before the
merger or consolidation;
-6-
<PAGE>
(iv) the date any entity, person or group, (within
the meaning of Section 13(d)(3) or Section 14(d)(2) of the Securities Exchange
Act of 1934, as amended), other than (A) the Company or any of its subsidiaries
or any employee benefit plan (or related trust) sponsored or maintained by the
Company or any of its subsidiaries or (B) any person who, on the date the Plan
is effective, shall have been the beneficial owner of at least twenty percent
(20%) of the outstanding Common Stock, shall have become the beneficial owner
of, or shall have obtained voting control over, more than fifty percent (50%) of
the outstanding shares of the Common Stock; or
(v) the first day after the first anniversary of the
adoption of this Plan by the Board of Directors a majority of the directors
comprising the Board of Directors shall have been members of the Board of
Directors for less than twenty-four (24) months, unless each director who was
not a director at the beginning of such twenty-four (24) month period was either
appointed or nominated for election with the approval of at least two-thirds of
the directors then still in office who were directors at the beginning of such
period.
f. Transfers. No Option granted under the Plan may be
transferred, except by will or by the laws of descent and distribution and, in
the case of a Non-Qualified Option, as expressly set forth in the Option
Documents. During the lifetime of the person to whom an Option is granted, such
Option may be exercised only by the Optionee.
g. Other Provisions. The Option Documents shall contain such
other provisions including, without limitation, additional restrictions upon the
exercise of the Option or additional limitations upon the term of the Option, as
the Committee shall deem advisable.
h. Amendment. Subject to the provisions of the Plan, the
Committee shall have the right to amend Option Documents issued to such
Optionee, subject to the Optionee's consent if such amendment is not favorable
to the Optionee except that the consent of the Optionee shall not be required
for any amendment made under subsection 6(e) above.
7. Exercise. No Option shall be deemed to have been exercised prior to
the receipt by the Company of written notice of such exercise and of payment in
full of the Option Price for the Option Shares to be purchased. Each such notice
shall specify the number of Option Shares to be purchased and shall satisfy the
securities law requirements set forth in this Section 7.
Each exercise notice shall (unless the Option Shares are covered by a
then current registration statement or a Notification under Regulation A under
the Securities Act of 1933 (the "Act")),
-7-
<PAGE>
contain the Optionee's acknowledgment in form and substance satisfactory to the
Company that (i) such Option Shares are being purchased for investment and not
for distribution or resale (other than a distribution or resale which, in the
opinion of counsel satisfactory to the Company, may be made without violating
the registration provisions of the Act), (ii) the Optionee has been advised and
understands that (A) the Option Shares have not been registered under the Act
and are "restricted securities" within the meaning of Rule 144 under the Act and
are subject to restrictions on transfer and (B) the Company is under no
obligation to register the Option Shares under the Act or to take any action
which would make available to the Optionee any exemption from such registration,
(iii) such Option Shares may not be transferred without compliance with all
applicable federal and state securities laws, and (iv) an appropriate legend
referring to the foregoing restrictions on transfer and any other restrictions
imposed under the Option Documents may be endorsed on the certificates.
Notwithstanding the above, should the Company be advised by counsel that the
issuance of Option Shares upon the exercise of an Option should be delayed
pending (A) registration under federal or state securities laws or (B) the
receipt of an opinion that an appropriate exemption therefrom is available, (C)
the listing or inclusion of the shares on any securities exchange or in an
automated quotation system or (D) the consent or approval of any governmental
regulatory body whose consent or approval is necessary in connection with the
issuance of such Option Shares, the Company may defer the exercise of any Option
granted hereunder until either such event in A, B, C or D has occurred.
8. Adjustments on Changes in Common Stock.
a. In case the Company shall (i) declare a dividend or make a
distribution on outstanding shares of its Common Stock in shares of Common
Stock, (ii) subdivide or reclassify the outstanding shares of its Common Stock
into a greater number of shares, or (iii) combine or reclassify the outstanding
shares of its Common Stock into a lesser number of shares, the number of Option
Shares subject to outstanding Options shall be increased or decreased in
proportion to the increase or decrease, as the case may be, in the total number
of outstanding shares of Common Stock of the Company as a result of such
subdivision, combination or reclassification. Such adjustment shall be effective
as of the record date of such subdivision, combination or reclassification.
Adjustments hereunder shall be made successively whenever any event specified
above shall occur.
b. The aggregate number of shares of Common Stock as to which
Options may be granted hereunder shall be adjusted in proportion to any
adjustment made in the number of Option Shares covered by outstanding Options
pursuant to Section 8(a) above.
-8-
<PAGE>
c. In case of any reclassification, recapitalization or other
change in the capital structure of the Company affecting its Common Stock, other
than a change in par value, or from par value to no par value, or as a result of
a subdivision or combination, but including any change in the Common Stock into
two or more classes or series of shares), the Optionee shall have the right
thereafter to receive upon exercise of this Option solely the kind and amount of
shares of stock and other securities, property, cash or any combination thereof
receivable in connection with such reclassification, recapitalization or other
change by a holder of a number of shares of Common Stock equal to the number of
Option Shares for which this Option might have been exercised immediately prior
to such event.
d. In case of a Change of Control of the Company involving a
consolidation with or merger of the Company into another corporation (other than
a merger of consolidation in which the Company is the continuing or surviving
corporation), the Optionee shall have the right thereafter to receive upon
exercise of the Option solely the kind and amount of shares of stock and other
securities, property, cash or any combination thereof receivable upon such
consolidation, merger, sale, lease or conveyance by a holder of a number of
shares of Common Stock equal to the number of Option Shares for which this
Option might have been exercised immediately prior to such consolidation or
merger.
9. Amendment of the Plan. The Board of Directors may amend the Plan
from time to time in such manner as it may deem advisable, subject to compliance
with applicable corporate laws, securities laws and exchange requirements.
Notwithstanding the foregoing, any amendment which would change the class of
individuals eligible to receive an ISO, extend the expiration date of the Plan,
decrease the Option Price of an ISO granted under the Plan or increase the
maximum number of shares as to which Options may be granted will only be
effective if such action is approved by a majority of the outstanding voting
stock of the Company within twelve months before or after such action.
10. Continued Employment. The grant of an Option pursuant to the Plan
shall not be construed to imply or to constitute evidence of any agreement,
express or implied, on the part of the Company or any Affiliate to retain the
Optionee in the employ of the Company or an Affiliate, as a member of the Board
of Directors, as an independent contractor or in any other capacity.
11. Withholding of Taxes. Whenever the Company proposes or is required
to issue or transfer Option Shares, the Company shall have the right to (a)
require the recipient or transferee to remit to the Company an amount sufficient
to satisfy any federal, state and/or local withholding tax requirements prior to
the delivery or transfer of any certificate or certificates for such Option
Shares
-9-
<PAGE>
or (b) take whatever action it deems necessary to protect its interests.
12. Assumption by Successors. Any agreement providing for a Change of
Control involving a consolidation with or merger into another corporation (other
than a merger or consolidation in which the Company is the continuing or
surviving corporation) shall make express, effective provisions for the
assumption of the Company's obligations under this Plan by the surviving or
continuing corporation, and/or by the parent of the surviving or continuing
corporation in the case of a "triangular" merger in which holders of the
Company's Common Stock receive securities of such parent corporation in exchange
for or in conversion of the Company's Common Stock.
-10-
<PAGE>
DIGITAL RADIO COMMUNICATIONS CORPORATION
OMNIBUS STOCK OPTION PLAN -1996
ARTICLE 1
Purpose
The purpose of this Omnibus Stock Option Plan (the "Plan") is to enable
Digital Radio Communications Corporation (the "Company") to offer key employees
and directors of the Company as well as non-employee advisors and consultants
equity interests in the Company, thereby attracting, retaining and rewarding
such persons, and strengthening the mutuality of interests between such persons
and the Company's shareholders.
ARTICLE II
Definitions
For the purposes of this Plan, the following terms shall have the following
meanings:
2.1 "Award" shall mean an award under this Plan of any Stock Option or
Restricted Stock.
2.2 "Board" shall mean the Board of Directors of the Company.
2.3 "Change of Control" shall mean the occurrence of any one of the
following, other than in a transaction that has been approved by the Board: (i)
the Company enters into an agreement of reorganization, merger or consolidation
pursuant to which the Company is not the surviving corporation, (ii) the company
sells substantially all its assets, or (iii) in excess of 50% of the outstanding
shares of stock of the Company are acquired, in one transaction or a series of
transactions, by a single purchaser or group of related purchasers.
2.4 "Code" shall mean the Internal Revenue Code of 1986, as amended.
2.5 "Committee" shall mean the Committee of the Board, consisting of two or
more Directors, charged with the supervision of the Plan. If the Board has not
established a Committee, the Committee shall consist of the Board.
2.6 "Common Stock" shall mean the Common Shares, $.01 par value per share,
of the Company.
1
<PAGE>
2.7 "Company" shall mean Digital Radio Communications Corporation, a
Utah Corporation.
2.8 "Disability" shall mean a mental or physical impairment that results in
the inability of an employee to perform his or her material duties for a period
of one hundred eighty (l80) days or, in the reasonable judgment of a qualified
medical professional, the substantial likelihood that an employee will be unable
to perform his or her material duties for a period of one hundred eighty (180)
days or more due to a mental or physical impairment.
2.9 "Fair Market Value" for purposes of this Plan, unless otherwise
required by any applicable provision of the Code or any regulations issued
thereunder, shall mean, as of any date, (it if the shares of the Company are
publicly traded, the weighted average of the published prices of a share of
Common Stock for the 30-day period ending at the close of trading on the
preceding trading day, or (ii) if the shares of the Company are not publicly
traded or if such information is not otherwise available, the fair market value
as reasonably determined by the Board, in good faith, which determination shall
be conclusive.
2.10 "Incentive Stock Option" shall mean any Stock Option awarded under
this Plan intended to be and designated as an "Incentive Stock Option" within
the meaning of Section 422 of the Code or any successor section.
2.11 "Non-Qualified Stock Option" shall mean any Stock Option awarded
under this Plan that is not an Incentive Stock Option.
2.12 "Participant" shall mean a person to whom an Award has been made
pursuant to this Plan.
2. l3 "Restricted Stock" shall mean an Award of shares of Common Stock
under this Plan that is subject to restrictions under Article VII.
2.14 "Restriction Period" shall have the meaning set forth in Section
7.3(a).
2.15 "Stock Option" or "Option" shall mean any option to purchase shares of
Common Stock granted pursuant to Article VI.
2.16 "Termination of Employment" shall mean a termination of employment
with the Company for reasons other than a military or personal leave of absence
granted by the Company. In the case of a Director who is not an employee of the
Company, "Termination of Employment" shall mean termination of service as a
director of the Company.
2
<PAGE>
ARTICLE III
Administration
3.1 The Committee. The Plan shall be administered and interpreted by the
Committee.
3.2 Awards. The Committee shall have full authority to grant Stock Options
and Restricted Stock, pursuant to the terms of this Plan, to persons eligible
under Article V. In particular, the Committee shall have the authority:
(a) to select the persons to whom Stock Options and Restricted Stock
may from time to time be granted hereunder;
(b) to determine whether and to what extent Incentive Stock Options,
Non-Qualified Stock Options and Restricted Stock, or any combination thereof,
are to be granted hereunder to one or more persons eligible to receive Awards
under Article V;
(c) to determine the number of shares of Common Stock to be covered
by each such Award granted hereunder; and
(d) to determine the terms and conditions, not inconsistent with the
terms of this Plan, of any Award granted hereunder (including, but not limited
to, the option price, the term of the option, any restriction or limitation
affecting the exercisability or delivery thereof, any vesting schedule or
acceleration thereof, or any forfeiture restrictions or waiver thereof,
regarding any Award and the shares of Common Stock relating thereto).
3.3 Guidelines. Subject to Article VIII hereof, the Committee shall have
the authority to adopt, alter and repeal such administrative rules, Sidelines
and practices governing this Plan as it shall, from time to time, deem
advisable; to interpret the terms and provisions of this Plan and any Award
issued under this Plan (and any agreements relating thereto); and to otherwise
supervise the administration of this Plan. The committee may correct
any defect, supply any omission or reconcile any inconsistency in this Plan or
in any Award granted in the manner and to the extent it shall deem necessary to
carry this Plan into effect. Notwithstanding the foregoing, no action of the
Committee under this Section 3.3 shall impair the rights of any Participant
without the Participant's consent.
3.4 Decisions Final. Any decision, interpretation or other action made or
taken in good faith by the Committee arising out of or in connection with the
Plan shall be final, binding and conclusive on the Company, all employees and
Participants and their respective heirs, executors, administrators, successors
and assigns.
3
<PAGE>
ARTICLE IV
Share Limitation
4.1 Shares. The maximum aggregate number of shares of Common Stock which
may be issued under this Plan shall be Two Hundred Thousand (200,000) (adjusted
as of August 30, 1996 for a 2 to 1 stock split) (subject to any increase or
decrease pursuant to Section 4.2), which may be either authorized and unissued
Common Stock or issued Common Stock reacquired by the Company. If any Option
granted under this Plan shall expire, terminate or be canceled for any reason
without having been exercised in full, the number of unpurchased shares shall
again be available for the purposes of the Plan.
4.2 Changes. In the event of any merger, reorganization, consolidation,
recapitalization, dividend (other than a dividend or its equivalent which is
credited to a Plan Participant or a regular cash dividend), stock split, or
other change in corporate structure affecting the Common Stock, such
substitution or adjustment shall be made in the maximum aggregate number of
shares which may be issued under this Plan, in the number and option price of
shares subject to outstanding Options granted under this Plan, and in the number
of shares subject to other outstanding Awards granted under this Plan, as may be
determined to be appropriate by the Committee, in its sole discretion, provided
that the number of shares subject to any Award shall always be a whole number.
ARTICLE V
Eligibility
5.1 Employees. Officers and other key employees of the Company (including
Directors of the Company who are also employees of the Company) are eligible to
be granted Awards under this Plan.
5.2 Directors, Consultants and Advisors. Directors of the Company,
consultants, advisors or any other person who is performing services of special
importance to the management, operation or development of the Company are
eligible to be granted Non-Qualified Stock Options and Restricted Stock under
this Plan, but may not be granted Incentive Stock Options.
4
<PAGE>
ARTICLE VI
Stock Options
6.l Options. Each Stock Option granted under this Plan shall be either
an Incentive Stock Option or a Non-Qualified Stock Option.
6.2 Grants. The Committee shall have the authority to grant to any person
eligible under Article V one or more Incentive Stock Options, Non-Qualified
Stock Options, or both types of Stock Options. To the extent that any Stock
Option does not qualify as an Incentive Stock Option (whether because of its
provisions or the time or manner of its exercise or otherwise), such Stock
Option or the portion thereof which does not qualify as an Incentive Stock
Option shall constitute a separate Non-Qualified ed Stock Option.
6.3 Incentive Stock Options. Anything in the Plan to the contrary
notwithstanding, no term of this Plan relating to Incentive Stock Options shall
be interpreted, amended or altered, nor shall any discretion or authority
granted under the Plan be exercised, so as to disqualify the Plan, under Section
422 of the Code, or, without the consent of the Participants affected, to
disqualify any Incentive Stock Option under such Section 422.
6.4 Terms of Options. Options granted under this Plan shalt be subject to
the following terms and conditions and shall contain such additional terms and
conditions, not inconsistent with the terms of this Plan, as the Committee shall
deem desirable:
(a) Stock Option Contract. Each Stock Option shall be evidenced by,
and subject to the terms of, a Stock Option Contract executed by the Company and
the Participant. The Stock Option Contract shall specify whether the Option is
an Incentive Stock Option or a Non-Qualified Stock Option, the number of shares
of Common Stock subject to the Stock Option, the option price, the option term,
and the other terms and conditions applicable to the Stock Option.
(b) Options Price. Subject to section (k) below, the option price per
share of Common Stock purchasable upon exercise of a Stock Option shall be
determined by the Committee at the time of grant but shall be not less than 100%
of the Fair Market Value of the Common Stock on the date of grant if the Stock
Option is intended to be an Incentive Stock Option.
(c) Option Term. Subject to section (k) below, the term of each Stock
Option shall be fixed by the Committee, but no Stock Option shall be exercisable
more than five years after the date it is granted.
5
<PAGE>
(d) Exercisability. Stock Options shall be exercisable at such time or
times and subject to such terms and conditions as shall be determined by the
Committee at the time of grant; provided, however, that the Committee may waive
any installment exercise or waiting period provisions, in whole or in part, at
any time after the date of grant, based on such factors as the Committee shall
deem appropriate in its sole discretion.
(e) Assignability. Except by will or the laws of descent and
distribution, no right or interest in any Stock Option granted under the Plan
shall be assignable or transferable, and no right or interest of any Optionee
shall be liable for, or subject to, any lien, obligation or liability of the
Participant. Stock Options shall be exercisable during the Optionee's lifetime
only by the Optionee or the duly appointed legal representative of an
incompetent Optionee.
(f) Method of Exercise. Subject to such installment exercise and
waiting period provisions as may be imposed by the Committee, Stock Options may
be exercised in whole or in part at any time during the option term, by giving
written notice of exercise to the Company specifying the number of shares of
Common Stock to be purchased and the option price therefor. The notice of
exercise shall be accompanied by payment in full of the option price in cash
and, unless waived by the committee, by the representation described in Section
10.2. The Committee may, in its sole discretion at or after the grant, determine
that payment in full or in part may be made in the form of Common Stock duly
owned by the Participant (and for which the Participant has good title free and
clear of any liens and encumbrances), based on the Fair Market Value of the
Common Stock on the last trading date preceding payment. Upon payment in full of
the option price, as provided herein, a stock certificate or stock certificates
representing the number of shares of Common Stock to which the Participant is
entitled shall be issued and delivered to the Participant. A Participant shall
not be deemed to be the holder of Common Stock, or to have the rights of a
holder of Common Stock, with respect to shares subject to the Option' unless and
until a stock certificate or stock certificates representing such shares of
Common Stock are issued to such Participant.
(g) Death. Except for Incentive Stock Options subject to subsection
(i) below, if a Participant's employment by the Company terminates by reason of
death or if a Participant possessing a Non-Qualified Stock Option dies, any
Stock Option held by such Participant which was exercisable at the date of death
may be exercised by the legal representative of the Participant's estate at any
time or times during the period beginning on the date of death and ending ninety
(90) days after the date of death or until the expiration of the stated term of
such Stock Option, whichever period is the shorter. Nothing in this paragraph is
intended to affect the rights of the Company under any separate agreement
between the Company and a participant.
(h) Disability. Except for Incentive Stock Options subject to
subsection (i) below, if a Participant's employment by the Company terminates by
reason of Disability, any Incentive Stock Option held by such Participant which
was exercisable on
6
<PAGE>
the date of such termination of employment may thereafter be exercised by the
Participant at any time or times during the period beginning on the date of such
termination and ending ninety (90) days after the date of such termination or
until the expiration of the stated term of such Stock Option, whichever period
is the shorter. If an Incentive Stock Option is exercised after the expiration
of the exercise periods that apply for purposes of Section 422 of the Code, such
Stock Option will thereafter be treated as a Non-Qualified Stock Option. Nothing
in this paragraph is intended to affect the rights of a Participant possessing a
Non-Qualified Stock Option or to affect the rights of the Company under any
separate agreement between the Company and a participant.
(i) Termination of Employment. If a Participant's employment by the
Company terminates for any reason other than Death or Disability, any Incentive
Stock Option held by such Participant on the date of such termination of
employment will terminate thirty (30) days after such date of termination, or on
the expiration of the stated term of such Incentive Stock Option if earlier, and
may not be exercised thereafter. Nothing in this paragraph shall affect the
rights of a Participant possessing a NonQualified Stock Option or the rights of
the Company under any separate agreement between the Company and a Participant.
(j) Change of Control. In the event of a Change of Control, all
outstanding Stock Options shall immediately become fully exercisable, and upon
payment by the Participant of the option price (and, unless waived, delivery of
the representation described in Section 10.2), a stock certificate or
certificates representing the Common Stock covered thereby shall be issued and
delivered to the Participant.
(k) Incentive Stock Option Limitations. To the extent that the
aggregate Fair Market Value (determined as of the date of grant) of the Common
Stock with respect to which Incentive Stock Options are exercisable for the
first time by the Participant during any calendar year under the Plan and/or any
other stock option plan of the Company or any subsidiary or parent corporation
(within the meaning of Section 424 of the Code) exceeds $100,000, such Options
shall be treated as Options which are not Incentive Stock Options.
Should the foregoing provisions not be necessary in order for the
Stock Options to qualify as Incentive Stock Options, or should an additional
provisions be required, the Board may amend this Plan accordingly, without the
necessity of obtaining the approval of the shareholders of the Company.
(l) Ten-Percent Shareholder Rule. Notwithstanding any other provision
of this Plan to the contrary, no Incentive Stock Option shall be granted to any
person who, immediately prior to the grant, owns stock possessing more than ten
percent of the total combined voting power of all classes of stock of the
Company, unless the option price is at least 1 10% of the Fair Market Value of
the Common Stock on the date of grant and the Option, by its terms, expires no
later than five years after the date of grant.
7
<PAGE>
ARTICLE VII
Restricted Stock
7.1 Awards of Restricted Stock. The Committee shall determine the
eligible person to whom, and the time or times at which, grants of Restricted
Stock will be made, the number of shares to be awarded, the time or times within
which such Restricted Stock may be subject to forfeiture, the vesting schedule
and rights to acceleration thereof, and the other terms and conditions of the
Awards in addition to those set forth in Section 7.2 and 7.3.
The provisions of Restricted Stock Awards need not be the same with
respect to each Participant, and such Awards to individual Participants need not
be the same in subsequent years.
7.2 Agreements and Certificates. Restricted Stock awarded pursuant to
this Article VII shall be subject to the following terms and conditions:
(a) Restricted Stock Agreement. Each Restricted Stock Award
shall be evidenced by, and subject to the terms of, a Restricted Stock Agreement
executed by the Company. The Restricted Stock Agreement shall specify the
number of shares of Common Stock subject to the Award, the time or times within
which such Restricted Stock is subject to forfeiture and the other terms,
conditions and restrictions applicable to such Award.
(b) Stock Certificate. When a Participant receives a
Restricted Stock Award, a stock certificate or stock certificates representing
the number of shares of Common Stock covered by such Award shall be issued and
registered in the name of the Participant. A Participant shall have all of
the rights of a holder of Common Stock with respect to such shares of Restricted
Stock, including the right to vote such shares and to receive dividends thereon,
except that the Participant shall not be permitted to sell, transfer, pledge or
assign such shares of Restricted Stock.
(c) Custody. All stock certificates representing shares of
Restricted Stock shall be held in custody by the Company until such Restricted
Stock is no longer subject to forfeiture. When the restrictions applicable to a
Restricted Stock Award, or any portion thereof, lapse, the stock certificate or
stock certificates representing such shares shall be released from custody and
delivered to the Participant.
(d) Distributions. In the event of a dividend or distribution
payable in stock or a reclassification, stock split or split-up, the shares
issued or declared on account of Restricted Stock shall be subject to the same
terms and conditions relating to forfeiture as the Restricted Stock to which
they relate.
8
<PAGE>
7.3 Restrictions and Conditions. The shares of Restricted Stock awarded
pursuant to this Plan shall be subject to the following restrictions and
conditions and such other terms and conditions, not inconsistent with the terms
of this Plan, as the committee shall deem desirable.
(a) Restriction Period. Subject to the provisions of this Plan and the
Restricted Stock Agreement, shares of Restricted Stock will be forfeited to the
Company if the Participant ceases to be an employee of the Company or a Director
of the Company during a period (not to exceed five years) set by the Committee
commencing with the date of such Award (the "Restriction Period"). Subject to
the provisions of this Plan, the Committee may provide for the lapse of such
restrictions in installments and may waive such restrictions, in whole or in
part, at any time after the date of grant, based on such factors as the
Committee shall deem appropriate in its sole discretion.
Change of Control. In the event of a Change of Control, all Restricted
Stock remaining subject to forfeiture shall immediately cease to be subject to
forfeiture and the stock certificate or certificates representing such shares of
Common Stock shall be released from custody and delivered to the Participant.
ARTICLE VIII
Termination or Amendment
8.1 Termination or Amendment of the Plan. The Board may at any time
amend, discontinue or terminate this Plan or any part thereof (including any
amendment deemed necessary to ensure that the Company may comply with any
regulatory requirement referred to in Article X); provided, however, that,
unless otherwise required by law, the rights of a Participant with respect to
Awards granted prior to such amendment, discontinuance or termination, may not
be impaired without the consent of such Participant and, provided further,
without the approval of the Company's shareholders, no amendment may be made
that would (1) materially increase the aggregate number of shares of Common
Stock that may be issued under this Plan (except by operation of Section 4.2);
(ii) materially modify the requirements as to eligibility to participate in the
Plan; or (iii) materially increase the benefits accruing to Participants.
8.2 Amendment of Awards. The Committee may amend the terms of any Award
theretofore granted, prospectively or retroactively, but, subject to Article IV,
no such amendment or other action by the Committee shall impair the rights of
any holder without the holder's consent. The Committee may also substitute new
Stock Options for previously granted Stock Options having higher option prices.
9
<PAGE>
ARTICLE IX
Unfunded Plan
9.1 Unfunded Status of Plan. This Plan is intended to constitute an
"unfunded" plan for incentive compensation. With respect to any payment not yet
made to a Participant by the Company, nothing contained herein shall give any
such Participant any rights that are greater than those of a general creditor of
the Company.
ARTICLE X
General Provisions
10.1 Nonassignment. Except as otherwise provided in this Plan, Awards
made hereunder and the rights and privileges conferred thereby shall not be
sold, transferred, assigned, pledged or hypothecated in any way (whether by
operation of law or otherwise), and shall not be subject to execution,
attachment or similar process. Upon any attempt to transfer, assign, pledge,
hypothecate or otherwise dispose of such Award, right or privilege contrary to
the provisions hereof, or upon the levy of any attachment or similar process
thereon, such Award and the rights and privileges conferred hereby shall
immediately terminate and the Award shall immediately be forfeited to the
Company.
10.2 Legend. The Committee may require each person acquiring shares
pursuant to an Award under this Plan to represent to the Company in writing that
the Participant is acquiring the shares without a view to distribution thereof.
The stock certificates representing such shares may include any legend which the
Committee deems appropriate to reflect any restrictions on transfer.
All certificates representing shares of Common Stock delivered under
this Plan shall be subject to such stock transfer orders and other restrictions
as the Committee may deem advisable under the rules, regulations and other
requirements of the Securities and Exchange Commission, any stock exchange or
stock market upon which the Common Stock is then listed or traded, any
applicable Federal or state securities law, and any applicable corporate law,
and the Committee may cause a legend or legends to be put on any such
certificates to make appropriate reference to such restrictions.
10.3 Other Plans. Nothing contained in this 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.
10.4 No Right to Employment. Neither this Plan nor the grant of any
Award hereunder shall give any Participant or other employee any right with
respect to
10
<PAGE>
continuance of employment by the Company nor shall there be a limitation in any
way on the right of the Company to terminate such Participant's employment at
any time. Neither this Plan nor the grant of any Award hereunder shall give any
Director any right with respect to continued service as a Director.
10.5 Withholding of Taxes. The Company shall have the right to (a)
require the Participant to remit to the Company an amount sufficient to satisfy
all Federal, state, and local tax requirements prior to the delivery of a stock
certificate representing the shares of Common Stock otherwise deliverable to the
Participant, (b) reduce the number of shares of Common Stock otherwise
deliverable to the Participant pursuant to this Plan by an amount that would
have a Fair Market Value equal to the amount of all Federal, state or local
taxes required to be withheld, or (c) to deduct the amount of such taxes from
any cash payment otherwise to be made to the Participant. In connection with
such withholding the Committee may make such arrangements as are consistent with
this Plan as it may deem appropriate.
10.6 Listing and Other Conditions.
(a) If the Common Stock is listed on a national securities
exchange, the issuance of any shares of Common Stock pursuant to an Award shall
be conditioned upon such shares being listed on such exchange. The company shall
have no obligation to issue such shares unless and until such shares are so
listed, and the right to exercise any Option or to receive shares pursuant to
any other Award shall be suspended until such listing has been effected.
(b) If at any time counsel to the Company shall be of the
Opinion that any sale or delivery of shares of Common Stock pursuant to an Award
is or may in the circumstances be unlawful or result in the imposition of excise
taxes under the statutes, rules or regulations of any applicable jurisdiction,
the Company shall have no obligation to make such sale or delivery, or to make
any application or to effect or to maintain any qualification or registration
under the Securities Act of 1933, as amended, or otherwise with respect to
shares of Common Stock or Awards, and the right to exercise any Option or to
receive shares pursuant to any other Award shall be suspended until, in the
opinion of such counsel, such sale of delivery shall be lawful or shall not
result in the imposition of excise taxes.
(c) Upon termination of any period of suspension under this
Section 10.6, any Award affect by such suspension which shall not then have
expired or terminated shall be reinstated as to all shares available before
such suspension and as to shares which would otherwise have become available
during the period of such suspension, but no such suspension shall extend the
term of any Option.
10,7 Governing Law. This Plan and actions taken in connection herewith
shall be governed and construed in accordance with the laws of the State of
Utah.
11
<PAGE>
10.8 Construction. Wherever any words are used in this Plan in the
masculine gender they shall be construed as though they were also used in the
feminine gender in all cases where they would so apply, and wherever any words
are used herein in the singular form they shall be construed as though they were
also used in the plural form in all cases where they would so apply.
10.9 Liabilily of Committee. No member of the Board or the Committee
nor any employee of the Company shall be liable for any act or action hereunder,
whether of omission or commission, by any other member or employee or by any
agent to whom duties in connection with the administration of this Plan have
been delegated or, except in circumstances involving bad faith, gross negligence
or fraud, for anything done or omitted to be done by himself.
10.10 Other Benefits. No payment pursuant to an Award under this Plan
shall be deemed compensation for purposes of computing benefits under any
retirement plan nor affect any benefits under any other benefit plan now or
hereafter in effect under which the availability or amount of benefits is
related to the level of compensation.
10.11 Costs. The Company shall bear all expenses incurred in
administering this Plan, including expenses of issuing Common Stock pursuant to
Awards hereunder.
10.12 Severability. If any part of this Plan shall be determined to be
invalid or void in any respect, such determination shall not affect, impair,
invalidate or nullify the remaining provisions of this Plan which shall
continue in full force and effect.
10.13 Successors. This Plan shall be binding upon and inure to the
benefit of any successor or successors of the Company.
10.14 Headings. Article and section headings contained in this Plan
are included for convenience only and are not to be used in construing or
interpreting this Plan.
ARTICLE XI
Effective Date of Plan
11.1 The Plan shall be effective as of the earlier of (i) the date of
first issuance of any Award under the Plan and (ii) the date of its approval by
the Company's stockholders ("Stockholder Approval"); provided, that any
issuance of an Award prior to Stockholder Approval will be subject to
Stockholder Approval being obtained within one year of the date of the Plan was
approved by the Company's board of directors.
12
<PAGE>
ARTICLE XII
Term of Plan
12. No Stock Option or Restricted Stock shall be granted pursuant to
this Plan on or after the tenth anniversary of its approval by the Company's
shareholders, but Awards granted prior to such tenth anniversary may extend
beyond that date.
As adopted by the Board of Directors on May 17, 1996 and approved by
the shareholders on ___________________.
A True Copy
________________________________
Judy Sperry, Secretary
13
<PAGE>
DEVELOPMENT and LICENSE AGREEMENT
AGREEMENT, made and entered into as of the 4th day of April, 1997, by and
between Kyushu Matsushita Electric Co., Ltd., with its offices at 1-62, 4-chome,
Minoshima, Hakata-ku, Fukuoka 812, Japan ("KME"), and Digital Radio
Communication Corporation, a Corporation having its registered place of business
located at 772 East Utah Valley Drive, American Fork, Utah 84003, U.S.A. ("DRI")
WITNESSETH:
WHEREAS, KME is engaged in the design, development, manufacture, marketing and
distribution of certain communication products; and
WHEREAS, DRI is engaged in the development of low-cost spread spectrum radio
technology (Technology); and
WHEREAS, KME wishes to incorporate the Technology (hereinbelow defined) in the
Products (hereinbelow defined) designed by KME.
WHEREAS, DRI represents that it is engaged in the business of, and is fully
knowledgeable about the development of the Technology.
WHEREAS, DRI is willing to develop for KME, and KME are willing to have DRI
developed for KME, such the Technology for the Products designed by KME, upon
the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants and premises set forth
herein, the parties agree as follows:
1. DEFINITIONS
For purpose of this Agreement, the following terms shall have the following
specific meanings:
"Technology" shall mean low-cost spread spectrum radio technology which conforms
to the specifications described in Exhibit-A to be separately agreed upon by the
parties hereto with the recited that it is executed pursuant to this
Agreement. ("Specification")
"Deliverables" shall mean prototypes, schematics, block diagrams and any other
items related to the Technology described in Exhibit-C attached hereto.
"Product" or "Products" shall mean the product incorporated the Technology and
connected with telelines to be manufactured, marketed, and distributed by KME.
2. THE SERVICES
KME hereby retain and assign DRI, and DRI hereby accepts the retention and
assignment to develop the Technology for use in certain Products designed by
KME. The detailed specification and description of the Technology are set forth
in Exhibit-A attached hereto and made a part hereof.
3. DEVELOPMENT SCHEDULE
3.1 DRI shall develop the Technology in accordance with the development
schedule mutually agreed upon between the parties hereto, which is set
forth in Exhibit-B
1
<PAGE>
attached hereto ("Development Schedule") and made a part hereof. DRI agrees
to fully comply with the Development Schedule, and further agrees that time
is of the essence with respect to its performance of this Agreement. In
order for KME to keep the Development Schedule, KME shall have the right,
at any time during the term of this Agreement, to review DRI's progress in
the development of the Technology. DRI agrees to provide KME, from time to
time during the term of this Agreement, at the request of KME, with written
progress reports concerning the development of the Technology, containing
any data any form required by KME. The Development Schedule may be changed
only by the written agreement of the both parties to this Agreement.
3.2 In the event that DRI becomes aware or has reason to believe that it is
unable to accomplish any stage of the development of the Technology in
accordance with the Development Schedule, DRI shall notify KME in writing
within (5) days after DRI first becomes aware or comes to believe the
same. Upon notification, KME and DRI shall negotiate in good faith to
adjust the Development Schedule in order to accommodate DRI's adjusted
schedule. However, in no case shall any particular stage or stages of the
Development Schedule be extended by more than (30) days. In the event
that any particular stage or stages of the Development Schedule is, in
fact, delayed for more than such (30) days, the payments to which DRI
shall be entitled pursuant to Article 6 of this Agreement shall be reduced
by such amount as KME reasonably determine, to be appropriate as a result
of the reduction in value to KME of the Technology due to such delay.
4. ADDITIONS CHANGES
4.1 If, at any time during the term of this Agreement, KME desires to
retain and assign DRI to develop any other technology related and in
addition to the Technology under this Agreement, KME shall provide DRI
with full written particulars of such additions and with such further
information as DRI may reasonably require in order to determine
whether it wishes to accept such retention and assignment.
4.2 DRI shall, upon the request of KME, immediately submit to KME a
written quotation for such additional work for to the Technology
specifying what changes, if any, will be required to the Development
Schedule and what adjustments or amendments will be required to the
Specification.
4.3 Upon receipt of such quotation, KME may elect to proceed in accordance
with subparagraph (i) or (ii) of this Article, and shall advise DRI of
its election within (15) days after the receipt of DRI's written
quotation as aforesaid;
(i) to accept such quotation in principal, in which case the parties
shall negotiate to decide the specific terms and conditions of
any required amendment to this Agreement, or
(ii) to withdraw the proposed additions to the Technology, in which
case this Agreement shall continue in force unchanged.
4.4 If, any time during the term of this Agreement, KME wishes to make
changes to the Specification or the Technology, DRI shall make such
changes. The Development Schedule and Development fees may be amended
in writing upon mutual agreement, if necessary.
5. DELIVERABLES AND EVALUATION
5.1 DRI shall, at its own expense, on or before the date specified in the
Development Schedule, provide KME with Deliverables, as well as
complete documentation and any other items therefor, as may be
required by KME for its acceptance testing/evaluation of the
Technology at facility agreed by the parties.
5.2 Within (60) days after the receipt of the Deliverables and
documentation and any
2
<PAGE>
other items therefor at the time of the completion of each Milestone
by DRI, KME shall conduct evaluation of the Technology whether or not
the Technology conforms to the Specification. Upon the request of KME,
DRI agrees to corporate with KME's evaluation at free of charge. In
the event that the Technology conforms to the Specification, KME shall
accept the Technology. In the event that KME decide to reject the
Technology, such rejection shall be advised to DRI in writing
specifying the reasons for such rejection, KME shall afford DRI one
(1) reasonable opportunity to correct any identified problems and
resubmit at least (1) additional prototype of the Technology and
documentation and any other items therefor to KME, at the expense of
DRI, for re-evaluation of the Technology. If, after such second
evaluation, the parties negotiate and determine in good faith, due to
the failure of the Technology to conform to the Specification, then:
(a) the payments to which DRI shall be entitled pursuant to Article 6
of this Agreement shall be reduced by such amount as the parties
negotiate and determine in good faith, to be appropriate as a result
of the reduction in value to KME of the Technology due to such failure
of the Technology to conform to the Specification. The prototypes and
the copies of the documentation and any other items therefor, as
delivered to KME, shall become the property of KME pursuant to Article
5 of this Agreement, except as may be otherwise expressly provided
herein; or (b) KME shall be entitled to terminate this Agreement, and
DRI shall, without prejudice to any other rights and remedies of KME,
forthwith refund to KME all development fees previously paid by KME to
DRI under this Agreement.
6. DEVELOPMENT FEE AND PAYMENT
6.1 In consideration to the obligation of DRI to complete the development
of the Technology hereunder, KME shall pay to DRI;
a) by 10th day of the following month after the execution of the
Exhibit-A, the sum of ($432,000 US dollars), and,
b) by 10th day of the following month after sufficiently the
completion of KME's evaluation for prototypes set forth in
Article 5, the sum of ($432,000 US dollars), and,
c) by October 10th 1997 subject to sufficiently the completion of
KME's evaluation for final working samples set forth in Article
5, the sum of ($432,000 US dollars), and
6.2 KME shall reserve the right to terminate this Agreement if KME
decides, at its sole discretion, that the development work made by DRI
pursuant to the Development Schedule does not meet the requirement of
KME after KME inspects the process of the development at the time of
the completion of each Milestone by DRI. Upon termination of the
Agreement pursuant to this Article 6.2 hereof, KME shall pay only the
development fee due corresponding to the completion of the Milestone
by DMI and KME shall be relieved from any obligation to pay further
development fee to Developer pursuant to the Development Schedule.
DRI shall immediately assign or transfer to KME all work completed or
in process by DRI in connection with the development of the Technology
to the date of such termination.
7. ROYALTIES
7.1 In consideration of the license granted by DRI to KME described in
Article 10.6, KME will pay DRI the per-unit royalties (the
"Royalties") specified below on the sales of Products by KME.
Royalties are payable within thirty (30) days following the end of
each calendar quarter (each such period a "Royalty Period") based on
Products sold or shipped during such Royalty Period.
3
<PAGE>
Units Shipped in Total: Royalty per Unit:
----------------------- -----------------
For 2 years from the first shipment
of the Products
First 600,000 or fewer Free of Charge
600,001 to 1,000,000 $1.00/unit
Over 1,000,000 $0.5/unit
After 2 years from the first shipment Free of Charge
of the Products
7.2 KME shall keep full, clear and accurate records with respect to all
Products sold, hereunder to the extent necessary for making the
reports and payments provided for herein for 1 year from last payment
of the Royalty.
7.3 Such records shall be open for inspection, at DRI's expense, by an
independent certified public accountant appointed by DRI and
acceptable to KME and upon reasonable notice, but not more than once
during any calendar year of this Agreement, to examine KME's books and
records to the extent reasonably required to verify the statements
furnished by KME to DRI pursuant to Article 7.2 hereof, provided,
however, that the certified public accountant will be instructed by
DRI not to release any of KME's documentation to DRI or confidential
business information including, by way of example and without
limitation, information as to KME's customers.
7.4 In the event that Royalties under this Agreement are taxable by the
Japanese Government and such tax is required by the Japanese
government to be withheld from the Royalties to DRI, KME shall pay
such withholding tax to Japanese tax office on behalf of DRI and DRI
will receive the net amount as described in Article 7.1 after
deducting of such withholding tax.
8. TECHNICAL SUPPORT
(a) DRI shall make available to KME during DRI's normal business hours, a
telephone hotline service, whereby qualified DRI personnel will be
available to respond to KME's inquiries with respect to the
Technology.
(1)) Upon KME's request, DRI will make available qualified personnel to
meet with KME's personnel, at reasonable intervals, to discuss
problems with, or improvements to, the Technology identified by KME.
(c) The technical support described in this Article 8 shall be provided at
DRI's facility free of charge during the execution of this Agreement.
(d) Except for above (c), the technical support will be provided on
mutual agreed terms and conditions.
9. CONFIDENTIALITY
9.1 The Receiving Party agrees to keep the Confidential Information
disclosed to it confidential and to use it only for the purposes
described herein, except as the Disclosing Party may otherwise agree
in writing.
9.2 If the Confidential Information is disclosed in writing, it shall be
conspicuously labeled as confidential. If the Confidential Information
is disclosed orally or in other ephemeral form, it must be
specifically designated as Confidential Information at the time of the
disclosure and confirmed in writing to be received by the Receiving
Party within (20) days of such disclosure.
9.3 Each party's Confidential Information previously disclosed under the
Confidential Disclosure Agreement dated February 20th 1997 ("CDA")
shall be included in the Confidential Information described in this
Article 9.
4
<PAGE>
9.4 Access to the Confidential Information received by the Receiving
Party under this Agreement shall be limited to those employees of
the Receiving Party requiring such access for carrying out the
purposes of this Agreement. This Agreement shall not be construed to
bind or impose obligations upon any other divisions, subsidiaries,
business units and/or affiliated companies of Kyushu Matsushita
Electric Co., Ltd., other than the fourth Division of KME, except for
any of such others that receive access to the Confidential
Information of DRI.
9.5 The Receiving Party will use the same degree of care in keeping the
Confidential Information confidential as it uses for its own
confidential of a similar nature. The Receiving Party shall not be
liable for inadvertent disclosure of the Confidential Information,
provided it uses the same degree of care in keeping the Confidential
Information confidential as it uses for its own confidential
information of a similar nature and, upon discovery of any such
inadvertent disclosure of the Confidential Information, the Receiving
Party promptly advises the Disclosing Party of the inadvertent
disclosure and endeavors to prevent any further inadvertent
disclosure.
9.6 The obligations under this Agreement shall not extend to the
Confidential Information that:
(a) is in the public domain at the time it is disclosed or becomes
part of the public domain after disclosure, including, without
limitation, disclosure in a U.S. or foreign patent or printed
publication, or through the unrestricted sale of products
embodying the same; or
(b) is known to the Receiving Party at the time of its disclosure or
becomes known to it without breach of this confidentiality
obligations; or
(c) is independently developed by the Receiving Party; or
(d) is disclosed by the Disclosing Party to a third party without
restrictions on such third party's rights to disclose or use the
same; or
(e) is disclosed pursuant to judicial order, a requirement of a
governmental agency or by operation of law; or
(f) is approved for release upon the Disclosing Party's prior
written consent; or
(g) is disclosed by the Disclosing Party to the Receiving Party after
the notification by the Receiving Party that it will not accept
any further Confidential Information in confidence.
9.7 This Agreement shall be in effect for a period of (2) years from the
date hereof, and thereafter all of the obligations hereunder shall
cease and neither party shall be under any obligation whatsoever to
keep the Confidential Information confidential.
9.8 The parties agree to terminate the CDA upon the execution hereof.
1O. INTELLECTUAL PROPERTY RIGHTS
10.1 In the event that either party develops any Proprietary Rights
relating to the Technology under this Agreement, such party shall
immediately notify in writing the other party of such Rights.
"Proprietary Rights" means any worldwide right, title and interest in
and to the Technology and in which contained know-how, trade secrets,
patents, copyrights, mask works and all rights or forms of protection
of a similar nature or having equivalent or similar effect to any of
these which may subsist anywhere in the world.
10.2 Any and all Proprietary Rights that are solely developed by either
party under this Agreement shall be solely owned by such party.
5
<PAGE>
10.3 Proprietary Rights that are based upon Deliverables and/or jointly
developed by the parties hereto under this Agreement shall be
owned jointly. Both parties agree that
(a) the parties have equal beneficial ownership of the jointly owned
Proprietary Rights,
(b) the expenses for application of patents or other intellectual
property rights under such jointly owned Proprietary Rights and
for maintenance of patents or other intellectual property rights
issued therefrom shall be borne equally by the parties,
(c) each party and Matsushita Electric Industrial Co. Ltd., which is
a parent company of KME ("MEI") shall have the right to freely
use or exploit the jointly owned Proprietary Rights for any
purpose,
(d) neither party shall grant a license under the jointly owned
Proprietary Rights without the prior written approval by the
other party, and
(e) neither party shall assign its interest in the jointly owned
Proprietary Rights without the prior written approval of the
other party.
10.4 Notwithstanding Article 10.3 above, DRI acknowledges and agrees that
KME will assign MEI its shared rights in the patents (including
utility models and design patents) jointly developed and owned by DRI
and KME without any further consent of DRI. At the request of KME,
DRI shall cooperate with KME in delivering any and all instruments
that are reasonably necessary for such assignment of KME's shared
rights to MEI.
10.5 In the event that either party finds it difficult to judge whether
certain Proprietary Rights are solely owned by one party or jointly
owned, both parties shall meet in good faith to decide the ownership
thereof.
10.6 DRI hereby agrees to grant to KME an irrevocable, world-wide and
non-exclusive license to use or authorize the use of any patents
copyrights, technical know-how and other intellectual property
rights (including Proprietary Rights) of DRI which are or become
embodied in the Technology, for KME or its suppliers' manufacture of
the Technology, and DRI shall not assert any patent or other such
intellectual property rights against KME or its suppliers' marketing
of any products incorporating the Technology so manufactured. DRI's
obligations under this Article 10 shall survive the termination or
expiration of this Agreement.
11. LIMITATION OF THE USE OF TECHNOLOGY
DRI hereby agrees that the Technology developed pursuant to this Agreement
shall not be supplied to any third party for (2) years after first shipment
of the Products. DRI's obligation under this Article 11 shall survive the
termination or expiration of this Agreement.
12. INDEMNITY
12.1 DRI hereby warrants and represents to KME that the Technology, the
documentation and any other items therefor, shall be the original
creations of DRI, and will not be copies from the work of any third
party, that KME will, pursuant to this Agreement, own or be entitled
to the royalty-free license to all proprietary rights (including,
without limitation, patent, trademark, trade secrets and copyright
rights) in the Technology, such documentation and items therefor. If
the Technology, such documentation and items therefor infringes upon
the intellectual property rights of any third parties, then DRI hereby
agrees to defend, indemnify and hold harmless KME, and its parent,
affiliates and subsidiaries, and its successors and assigns, from and
against any and all judgments, suits, damages, costs, charges,
awards and counsel fees relating to any claim of infringement made by
any third parties with respect to the Technology, the documentation
and/or items therefor.
6
<PAGE>
12.2 DRI's obligations under this Article 12 shall survive indefinitely the
termination or expiration of this Agreement.
13. INDEMNIFICATION
DRI shall be liable to KME for any and all damages, including and not
limited to incidental, consequential or special damages, incurred by KME
arising from a breach of DRI's obligations under this Agreement.
14. TERM OF AGREEMENT
14.1 This Agreement shall be effective as of the date first set forth above
of the execution by the respective parties or the date of approval by
the Japanese government, if required, whichever comes later, and
continue effective until the date that KME submits the written notice
for termination.
14.2 This Agreement may be terminated by either party upon written notice
to the other party without liability;
(i) in the event of a breach by the other party of any terms and
conditions of this Agreement and the failure to cure such breach
within sixty (60) days after written notice;
(ii) in the event that performance of this Agreement by either party
shall have been rendered impossible or impractical for a period
of two (2) consecutive months by the reason of the happening of
one (1) or more events referred to in Article 10 hereof, or
(iii) at any time
(a) upon or after the filing by the other party of a petition in
bankruptcy or insolvency; or
(b) upon or after any adjudication that the other party is
insolvent; or
(c) upon or after the filing by the other party of any petition
or answer seeking reorganization, readjustment or
arrangement of the business of the other party under any law
relating to bankruptcy or insolvency; or
(d) upon or after the appointment of a receiver for all or
substantially all of the property of the other party; or
(e) upon or after the making by the other party of any
assignment or attempted assignment for the benefit of
creditors, or
(f) upon or after the institution of any proceedings for the
liquidation or winding up of the other party's business or
for the termination of its corporate charter.
14.3 Upon any termination or expiration of this Agreement, KME shall
immediately stop all reproduction of the Products. In addition, KME
agrees to destroy all reproduction materials delivered to KME by DRI
immediately after such termination or expiration, except for
necessary materials to use only for the purposes of offering continued
maintenance or repair service with respect to Products.
Notwithstanding anything to contrary in this Agreement, no expiration
or termination of this Agreement shall affect or impair the continued
validity of any sublicenses granted by KME with respect to units of
the Products already shipped by KME, or for which KME has already
received a written order from a customer, on and before the date of
such termination or expiration.
15. TERMINATION FOR CONVENIENCE
KME may, in its sole and absolute discretion, terminate this Agreement,
with or without cause, upon (60) days prior written notice to DRI. In the
event of any such termination, DRI shall immediately turn over to KME all
work completed or in process by DRI in connection with the development of
the Technology to the date of such termination, which work and materials
shall thereupon become the exclusive property of KME. In consideration for
DRI turning over to KME all work completed or in process pursuant to this
paragraph, KME may thereupon pay DRI an amount ("Compensation Amount"
7
<PAGE>
which the parties negotiate and determine in good faith, is adequate
compensation to DRI for such work completed or in process.
Therefore, DRI shall repay KME an amount deducted the Compensation Amount
from an amount paid by KME in accordance with Article 6.
16. INDEPENDENT CONTRACTOR
16.1 It is expressly understood and agreed that DRI is, and shall at all
times during the term of this Agreement be deemed to be, an
independent contractor, and nothing in this Agreement shall in any way
be deemed or construed to constitute DRI an agent or employee of KME,
nor shall DRI have the right or authority to act for, incur, assume or
create any obligation, responsibility or liability, express or
implied, in the name of, or on behalf of, KME, or to bind KME, in any
manner whatsoever. DRI's employees shall be deemed to be the agents,
servants and employees of DRI only, and KME shall incur no obligations
or liabilities of any kind, nature or sort, express or implied, by
virtue of, or with respect to, the conduct or such employees.
16.2 DRI agrees that KME reserve the right to retain third party
independent contractors as necessary in their business discretion to
perform the terms of this Agreement.
17. ASSIGNMENT
Neither this Agreement, nor any of the rights or interests of DRI
hereunder, may be assigned, transferred or conveyed by DRI, by operation of
law or otherwise, except upon the express prior written consent of KME.
Any such assignment, transfer or conveyance bv DRI in violation of this
Article 17, shall, at the option of KME, void this Agreement.
18. GOVERNING LAW
This Agreement shall be governed by and construed in accordance with the
laws of Japan.
19. ENTIRE AGREEMENT
This Agreement sets forth the entire understanding, and hereby supersedes
any and all prior agreements, oral or written, heretofore made, between the
parties, with respect to the subject matter of this Agreement, and there
are no representations, warranties, covenants, agreements, or
understandings, oral or otherwise, express or implied, affecting this
Agreement which are not expressly set forth herein. No delay on the part of
either party in exercising any of its respective rights hereunder, or the
failure to exercise the same, nor the acquiescence in or waiver of a breach
of any term, provision or condition of this Agreement, shall be deemed or
construed to operate as a waiver of such rights or acquiescence thereto,
except in the specific instance for which it is given. None of the terms,
conditions or provisions of this Agreement shall have been held to have
been changed, varied, waived, modified or altered, except by a statement in
writing signed by all of the parties hereto.
20. FORCE MAJEURE
Neither party shall be liable for delay or failure in the performance of
this Agreement arising from any of the following matters;
(i) Acts of God, or public enemy or war (declared or undeclared);
(ii) acts of governmental or quasi-governmental authorities, or any
political subdivision thereof, or of any department or agency
thereof, or regulations or restrictions imposed by law or by court
action;
(iii) acts of persons engaged in subversive activities or sabotage,
(iv) fires, floods, explosions or other catastrophes;
(v) epidemics or quarantine restrictions;
(vi) strikes, slowdowns, lockouts or labor stoppages or disputes of any
kind;
(vi) freight embargoes, or interruption of transportation;
8
<PAGE>
(viii) unusually severe weather; or
(ix) any other causes, similar or dissimilar, beyond the control of the
party concerned; and such party shall give written notice thereof to
the other party, and shall use all reasonable endeavors to minimize
the period of any such delay or failure. The time for performance by
such party shall be extended by the period of any such delay or
failure.
21. INTERPRETATION
The original text of this Agreement is written in the English language, and
the both parties hereto agree that any and all interpretations of this
Agreement shall be based upon the original text.
22. ARBITRATION
Any disputes arising out of in connection with this Agreement shall be
settled amicably. Both parties shall exert their best efforts to reach such
amicable settlement. In the event that both parties are unable to reach
such amicable settlement, any claim, dispute or controversy arising out of
or in connection with this Agreement shall be submitted by the parties to
arbitration by the Japan Commercial Arbitration Association under the
commercial rules then in effect for that association. Each party shall
choose one arbitrator within thirty (30) days of receipt of notice of
intent to arbitrate. Within sixty (60) days of receipt of the notice of the
intent to arbitrate, the two arbitrators shall choose neutral third
arbitrator who will act as chairman. If such two arbitrators fail to choose
the third arbitrator within such sixty (60) day period, then the
Association shall make such appointment within thirty (30) days thereafter.
The decision of the arbitration panel shall be enforceable in any court of
competent jurisdiction, and neither party shall object to such decision to
be so enforced.
23. NOTICES
All notices, reports, requests, acceptance and other communications
required or permitted hereunder shall be in writing in English. They shall
be deemed given:(i) when delivered personally, (ii) when sent by confirmed
telex or facsimile (provided that notice by facsimile is subject to the
receiving party's written acknowledgment of receipt thereof) or (iii) five
(5) days after having been sent by registered mail, postage prepaid. All
communication shall be sent to the receiving party's address as set forth
below or to such other address as the receiving party may otherwise
designate for the purpose of notice as provided in this Article 23.
DRI: Mr. Philip Bunker
772 East Utah Valley Drive
American Fork, UT 84003
Tel: 801-763-7600
Fax: 801-763-7379
KME: Mr. Hiroshi Yoshinaga
Technical Manager
Tel: +81-92-477-1149
Fax: +81-92-477-1646
24. GOVERNMENTAL APPROVAL
Any and all performance of this Agreement by KME shall be fulfilled
subject to a required approval by the competent authority of the Japanese
Government under the Foreign Exchange and Foreign Trade Control Law of
Japan and/or the Japanese governmental administrative guidance if and to
the extent from time to time so required.
25. EXPORT ADMINISTRATION
For the performance of this Agreement by DRI, DRI shall comply with the
applicable export control laws or regulations, and DRI shall be responsible
for obtaining any export license required under such laws or regulations
with respect to the export of the
9
<PAGE>
Technology and/or any information therefor. KME will provide DRI with
necessary cooperation for obtaining such export license.
26. SURVIVAL
After the expiration or termination of this Agreement for any reason, the
Article 8, 9, 10, 11, 12, 13, 14, 16, 17, 18, 19, 21, 22, 23, 24, 25 and 26
shall remain in effect and each party shall perform the obligations and
duties pursuant to such Articles.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective duly authorized officers or representatives as of
the day and year first above written.
Kyushu Matsushita Electric Co., Ltd. Digital Radio Communication
Fourth Division Corporation
By: /s/ N. Akamine By: /s/ Phil A. Bunker
--------------------------- ---------------------------
Name: N. Akamine Name: Phil A. Bunker
--------------------------- ---------------------------
Title Assistant Director Title Assistant Director
--------------------------- ---------------------------
Date March 31, 1997 Date March 31, 1997
--------------------------- ---------------------------
10
<PAGE>
Exhibit-A: Specifications (TO BE DEFINED BY KME & DRI.)
Exhibit-B: Development Schedule (TO BE DEFINED BY KME & DRI.)
Exhibit-C: Deliverable (TO BE DEFINED BY KME & DRI.)
11
<PAGE>
TECHNICAL DEVELOPMENT
AND MARKETING ALLIANCE AGREEMENT
This Technical Development and Marketing Alliance Agreement (the "Agreement") is
entered into as of the 26th day of September, 1997 (the "Effective Date"),
between Williams Wireless, Inc. d/b/a Williams Telemetry Services, a Delaware
corporation with offices at 111 East First Street, Tulsa, Oklahoma 74103
("WWI") and World Wireless Communications, Inc., a Nevada corporation with
offices at 150 Wright Brothers Drive, Salt Lake City, Utah 84116 ("WWC").
WHEREAS, WWI wishes to establish a business relationship with WWC to provide WWI
a reliable source of radio based modules and products and thereby allow WWI a
unique competitive edge in the Telemetry Market (as defined below);
WHEREAS, WWC wishes to establish a business relationship with WWI to provide WWC
a constant market for the radio based modules, technology and products it
designs and manufactures exc1usively for customers; and
WHEREAS, WWI and WWC wish to establish a business relationship, under the terms
described below, which will mutually support and enhance the development and
marketing efforts of each company in the area of wireless telemetry products and
services.
Now, therefore, the parties agree as follows:
1. Definitions
"Affiliates" means any person, entity, or association directly or indirectly
controlling or controlled by or under direct or indirect common control with,
the party, entity, person or association in question. "Control" will mean the
power to direct the management policies of the controlled person, entity, or
association, whether by voting securities, by contract, by family relationship
or otherwise.
"Radio Technology" means those sub-components of any Telemetry Radio Product
that is the subject of a CSA (as hereinafter defined) in which WWC shows, by
documentary evidence, that it owned one or more patents, trade-secret rights, or
computer-program copyrights prior to the date of a CSA by which WWC agreed to
design the Telemetry Radio Product in question for WWI (the "Design Agreement
Date"). In the previous sentence, the term "patent" includes any patent issued
after the Design Agreement Date on an application filed prior to that date.
"Telemetry Applications" means specific Telemetry Systems which WWI contemplates
developing and selling to businesses and individuals for the purpose of
monitoring and/or controlling a variety of equipment and a variety of situations
in a telemetry customer's facilities, including, but not limited to gas, water,
electric meter consumption, environmental conditions
<PAGE>
in those facilities, status of a variety of sensors in the facilities, status of
inventory and condition of products and items in the facilities.
"Telemetry Radio Products" means a fully functional radio module for
transmitting and/or receiving data from Telemetry Applications devices in
support of the Telemetry Market.
"Telemetry Markets" means, collectively, businesses and individuals who use
energy, energy metering equipment, energy monitoring and control equipment and
energy using equipment, as well as businesses that sell and distribute products
through remote facilities, including without limitation vending machines and
postal and express drop boxes.
"Telemetry Systems" means, collectively, remote monitoring devices for acquiring
data, communication devices for transmitting and receiving such data, host
computer systems for processing such data, (optionally) control devices for
remote control of equipment, software for performing the foregoing functions,
and related technical support services.
2. Scope and Purpose of the Alliance
WWC will assist and cooperate with WWI in developing and manufacturing Telemetry
Radio Products in support of Telemetry Systems under the terms contained herein.
WWI shall grant WWC certain development, manufacturing and marketing rights,
under the terms contained herein. From time to time other applications of
Telemetry Radio Products may be included by mutual written consent of both
parties, under the terms of this Agreement, including such possible applications
as process control, toll systems, asset tracking and automatic identification.
3. Radio Systems Engineering and Design Services
From time to time WWI may contract with WWC to provide system
engineering and design services to create Telemetry Radio Products to be
included in WWI's Telemetry Systems. The specific terms of such services shall
be set forth in separate Commercial Service Agreements ("CSA"). The parties
contemplate (but in that regard this Agreement does not constitute a binding
commitment) that for each CSA:
(i) Specifications for the specified Telemetry Radio Product will be
set forth in Schedule A to the CSA, compensation for engineering and design
services, and manufacturing services if applicable, will be set forth in
Schedule B to the CSA, and project deliverables, time schedules and milestones
will be set forth in Schedule C to the CSA;
(ii) If the Telemetry Radio Product is not to be manufactured by WWC,
then Schedule B to the CSA will also include compensation for WWI's use of the
Radio Technology in the Telemetry Radio Products; and
2
<PAGE>
(iii) The CSA will include a sales level commitment on WWI's part and a
service level commitment on WWC's part, and will include appropriate remedies
for the breach of such commitments.
4. Manufacturing Services
WWI will grant WWC exclusive manufacturing rights to all Telemetry
Radio Products WWC designs exclusively for use by WWI in the Telemetry Market
pursuant to Section 3 above. The manufacturing services will be governed by
mutually acceptable terms set forth in separate manufacturing CSA's, unless such
terms are specified in an existing CSA for engineering and design services.
Terms in such CSA's will include service level expectations concerning cost,
quality and timeliness and will include manufacturing warranties. From time to
time WWI may also, at its option, grant to WWC manufacturing rights to other
products, under terms of separate CSA's. Estimated manufacturing quantity and
schedules will be set forth in Schedule A to the CSA, compensation for WWC's
manufacture of the Telemetry Radio Products and WWI's use of the Radio
Technology will be set forth in Schedule B to the CSA. WWC will in good faith
disclose its component and manufacturing costs to WWI and WWI will in good faith
negotiate a fair compensation on component and manufacturing costs based on
industry standards and the price constraints of the Telemetry Market. Exclusive
manufacturing rights will remain in force as long as WWC maintains service level
expectations specified in the CSA and associated Schedules and as long as WWC
maintains the capability to perform under proposed CSA. Upon the termination of
such exclusivity rights, WWI may identify and contract with another
manufacturer. WWC will continue to manufacture and deliver specified product to
WWI according to the terms specified in the CSA and for as long as WWI performs
its obligations under this Agreement and the CSA, including reasonably timely
payment for the manufactured Radio Telemetry Products.
5. Property Rights
WWI will own all right, title and interest in and to any and all
intellectual property rights throughout the world (including without limitation
patent rights, design patent rights, copyrights, trade secret rights, and the
like) associated with the Telemetry Radio Products as works for hire, and WWC
will execute patent applications, copyright registrations, written assignments,
etc., of all such rights from time to time upon request by WWI and at WWC's
expense. But all Radio Technology used by WWC in creating Telemetry Radio
Products for WWI will remain the property of WWC (including but not limited to
drawings, specifications, prototypes and circuit boards relating to such Radio
Technology), and WWC will grant WWI a perpetual license to use the Radio
Technology in Telemetry Radio Products in the Telemetry Markets. The parties
understand that the Radio Technology is based upon existing WWC technology and
that WWC retains ownership rights to any patents, technology, copyrights or
trademarks that were used in creating the Radio Technology. If, however, WWI
contracts to WWC under terms specified in a CSA for a custom based Telemetry
Radio Product, then WWI will own all such Intellectual property rights in that
specified product (as well as the drawings, specifications,
3
<PAGE>
prototypes, circuit boards, technical information and documentation relating
thereto) as well as any such intellectual property rights that may be derived
therefrom.
WWC agrees, unless specified otherwise in the CSA, that all work product
relating to the Telemetry Radio Products (including without limitation such
things as drawings, specifications, prototypes, circuit boards and technical
information) and documentation associated with designing, engineering, creating
and/or manufacturing the Telemetry Radio Products win be the exclusive property
of WWI and will be delivered to WWI from time to time as specified by the
applicable CSA, WWC shall not release to any other party for any reason
whatsoever at any time any such work product or information, and all of the work
product and information that had not previously been returned to WWI shall be
returned to WWI promptly following the termination of this Agreement, or earlier
upon the request of WWI For so long as WWC retains exclusive manufacturing
rights as provided in Section 4 and is performing manufacturing services for
WWI, WWI will hold all such documentation proprietary between WWC and WWI and
will. not disclose the documentation or solicit any other manufacturer.
6. Marketing Services
WWI grants WWC the non-exclusive right to market WWI's Telemetry Systems. A
mutually acceptable Marketing Agreement will be developed before December 31,
1997, to be based upon WWI's standard marketing agreement that is being
developed, and will set forth the terms and conditions of such marketing
relationship, including such terms as pricing, quantities and commitment levels.
The parties will determine whether such agreement win allow WWC to market the
Telemetry Systems on an agency basis, as a reseller, or under other
arrangements. WWI retains the right at any time in the future to assign certain
market segments to specific marketers.
WWI retains the right to approve in advance WWC's pursuit of all marketing
opportunities. To receive approval, WWC will follow a customer registration
process, to be established by mutual agreement. WWI will not unreasonably deny
WWC's registration of a potentially new customer, but WWI reserves the right to
deny WWC's request to pursue a customer if WWI or any of WWI's Affiliates, at
WWI's sole discretion, believes that selling to that customer is detrimental in
some way to the Williams Companies or if the customer is being pursued, or under
active consideration to be pursued, by WWI or another authorized marketer. Once
registered, WWI will not sell nor will it allow another marketer to pursue the
registered customer. The registration will be canceled only after sufficient
time period for closing has elapsed and only if it becomes obvious that WWC is
not making progress toward closing the opportunity.
Each party shall be fully responsible to its customers for their satisfaction
with the Telemetry Systems. Each party will provide technical support to the
other in certain instances.
4
<PAGE>
7. Relationship of the Parties
The execution of this Agreement does not constitute, nor shall the execution
hereof be construed to create or imply, a partnership, joint venture,
principal-agent or employment relationship, or any other such relationship.
Under the terms of this Agreement, neither WWI nor WWC has the right or
authority to bind or commit the other party to any obligations.
8. Warranties
WWC warrants that the Radio Technology and the resulting Telemetry Radio
Products will be free of defects. WWC will repair or replace if found defective
within 12 months of delivery of Telemetry Systems to customers
9. General Indemnity.
Each party shall defend, indemnify, and hold the other harmless from any and all
liabilities resulting from or relating to any breach of warranty,
representation, or agreement or performance of duties and obligations of such
party, except to the extent caused by the negligence or willful acts or
omissions of the party entitled to indemnification.
10. Representations and Warranties
Each party is a valid entity and in good standing, has authority to enter into
this Agreement, the CSA's and the other agreements contemplated hereby, and to
carry out the actions described herein, and represents that the Agreement is
binding and enforceable as against such party in accordance with its terms,
subject to bankruptcy, insolvency or other similar laws relating to creditors'
rights generally, and subject to general principals of equity. WWC represents
that it is the exclusive owner of the Radio Technology and all patents,
copyrights, or other intellectual property rights pertaining thereto. WWC
further represents that no cause of action against WWC has commenced or been
threatened as of the Effective Date of this Agreement which alleges that such
Radio Technology infringes upon a third party's present or future patent,
copyright, trade secret or other proprietary right.
11. Term and Termination
The initial term of this Agreement shall commence upon the Effective Date and
continue for three years. The term shall be extended if so provided in a CSA
entered into during the original term or during an extended term of this
Agreement; otherwise, the term may only be extended by the mutual agreement of
the parties.
5
<PAGE>
12. Termination
In the event that:
(i) the parties mutually agree to terminate this Agreement;
(ii) a party is in material breach of this Agreement (including any CSA) and,
after the non-breaching party has given the breaching party 45 days' prior
notice setting forth in reasonable detail the alleged breach, the
breaching party has failed to cure such breach within such 45-day period;
(iii) there occurs a dissolution or any assignment by the other party for the
benefit of its creditors, the appointment of a receiver for, or any
execution levied upon, all or substantially all of the other party's
business or assets, or the filing of any petition for voluntary or
involuntary bankruptcy or similar proceeding for or against the other
party; or
(iv) WWC sells all or substantially all of its assets, or WWC enters into a
merger in which WWC is not the surviving entity, or control of WWC is
transferred to another entity, and upon any of the foregoing events or
within one year thereafter WWI reasonably deems the transferee, surviving
entity or controlling entity, as the case may be, to be an entity that is
detrimental to The Williams Companies, Inc. or any Affiliate;
then, in each such case, this Agreement may be terminated by providing written
notice to that effect (in addition to any earlier notice required above), which
termination shall not limit any other rights or remedies that a party may have
as a result of a breach of this Agreement.
13. Certain Effects of Termination
A. Upon the parties' mutual agreement to terminate this Agreement,
(i) WWC shall grant WWI a non-exclusive license in perpetuity to manufacture
Telemetry Radio Products based on the Radio Technology, as long as WWI pays 5%
of it demonstrable manufacturing costs as a royalty.
(ii) WWC shall release all design and manufacturing work product, not already
released, as previously provided in this Agreement.
(iii) WWC shall work in good faith to ensure an orderly transition to a new
manufacturer.
B. WWI may, upon termination due to the events described in subparts (ii),
(iii) or (iv) of Section 12 and during the one-year period thereafter, elect to
use, and WWC shall provide, all of WWC's work product, documentation and Radio
Technology, for a royalty equal to 2% of WWI's demonstrable manufacturing
costs, in order for WWI to establish another manufacturing
6
<PAGE>
relationship. To this end, WWC Will immediately turn over all remaining design
and manufacturing work product and documentation to WWI and work in good faith
to transfer and assign all outside manufacturing contracts pertaining to
Telemetry Radio Products to WWI.
14. Confidentiality.
The parties acknowledge that they are subject to that certain Confidentiality
Agreement executed between the parties and dated June 25, 1997, a copy which is
attached hereto as Exhibit A and the terms of which are incorporated herein by
this reference; provided, however, that Section 8 thereof is hereby amended so
as to be provide that the confidentiality obligations and use restrictions shall
remain in effect for a period equal to the term of this Agreement, including any
extensions thereof, and for a period of two years thereafter. The parties
further acknowledge that the disclosure of confidential or proprietary
information hereunder shall constitute "Information" (as such term is used in
the Confidentiality Agreement), and that no disclosures shall be made in
violation of such Confidentiality Agreement.
15. Notices.
Any notice or other communication herein required or permitted to be given shall
be in writing and may be personally served, sent by facsimile, or sent by an
internationally recognized overnight courier service, and shall be deemed to
have been received when (a) delivered in person or received by facsimile (as
evidenced by a facsimile confirmation sheet) or (b) three (3) business days
after delivery to the office of such overnight courier service with postage
prepaid and properly addressed to the other party at the following respective
addresses:
To WWC To WWI:
World Wireless Communications, Inc. Williams Wireless, Inc.
Attention: Lance King Attention: James D. Cunningham
150 Wright Brothers Drive, Suite 560 Tulsa Union Depot
Salt Lake City, Utah 84116 111 East First Street
Telephone #: (801) 575-6600 Tulsa, OK 74103
Facsimile #: (801) 575-6621 Telephone (918) 588-4879
Facsimile (918) 561-6024
or to such other address or addresses as either party may from time to time
designate as to itself by like notice.
16. Patent/Copyright Indemnity.
WWC agrees it will at its sole cost and expense, defend, indemnify and hold
harmless WWI against all claims, liens, demands, damages, liability, actions,
causes of action, losses, judgments, costs and expenses of every nature brought
against WWI (including investigation costs and expenses,
7
<PAGE>
settlement costs, and attorney's fees and expenses) (collectively, "Claim(s)")
to the extent such Claims arise out of, result from, or are attributable to any
alleged infringement of any present or future patent, copyright, or other
proprietary right (hereinafter called "Intellectual Property") based on WWC's
design, engineering and/or manufacturing activities hereunder or the use of the
Radio Technology provided by WWC pursuant to this Agreement; provided, however,
WWI gives WWC prompt notice in writing of the Claims. WWC shall defend,
indemnify and hold WWI harmless pursuant to this Section during the entire claim
process, regardless of whether the Claim is settled or goes to trial.
If a judgment or settlement is obtained or reasonably anticipated
against WWI's use of any Intellectual Property for which WWC has indemnified
WWI, WWC shall at WWC's sole cost and expense promptly modify the item or items
which were determined to be infringing, acquire a license or licenses on WWI's
behalf to provide the necessary rights to WWI to continue using the Intellectual
Property, or substitute the Intellectual Property with non-infringing
Intellectual Property which provides WWI the same functionality. If none of such
options is commercially reasonable, WWC shall refund any fees paid by WWI for
engineering and design services associated with the infringing Intellectual
Property, and pay to WWI the net book value of the Telemetry Radio Products
affected by the infringing Intellectual Property.
17. Limitation of Liability.
NEITHER PARTY SHALL BE LIABLE FOR INDIRECT, SPECIAL, EXEMPLARY,
INCIDENTAL OR CONSEQUENTIAL DAMAGES WHETHER UNDER CONTRACT, TORT OR OTHER CAUSE
OF ACTION, INCLUDING, BUT NOT LIMITED TO, ANY DAMAGES, LOSS OR EXPENSES ARISING
FROM THE PERFORMANCE OR NON-PERFORMANCE OF ANY THIRD PARTY HARDWARE OR SOFTWARE,
INCORRECT THIRD PARTY CONTENT, THE OTHER PARTY'S LOST PROFITS, LOST BUSINESS,
LOST DATA, OR LIABILITY OR INJURY TO THIRD PERSONS, WHETHER FORESEEABLE OR NOT
AND REGARDLESS OF WHETHER THE PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH
DAMAGES. IF THIS PROVISION IS IN CONFLICT WITH OTHER CONTRACTUAL TERMS AND
CONDITIONS, IT IS UNDERSTOOD BY THE PARTIES THAT THIS PROVISION WILL, IN ALL
CASES, PREVAIL. NOTWITHSTANDING ANY OF THE FOREGOING, THE LIMITATION DESCRIBED
ABOVE SHALL NOT LIMIT THE SCOPE OF DAMAGES FOR WHICH WWC HAS AGREED TO INDEMNIFY
WWI IN SECTION 16.
18. Noncompete. WWC shall not use, sell or otherwise provide the manufactured
products referred to herein as the Telemetry Radio Products to any vendor other
than WWI who offers similar or competitive products or services with WWI, nor
shall WWC sell, distribute or otherwise market Telemetry Radio Products and/or
Telemetry Systems other than WWI's during the term of this Agreement and for
five years thereafter. WWC retains the right to market its Radio Technology in
markets other than Telemetry Markets.
19. Force Majeure. If either party's performance under this Agreement or any
obligation hereunder is prevented, restricted or interfered with by causes
beyond such party's reasonable
8
<PAGE>
control, including earthquakes, landslides, failure of power, riots,
insurrection, war, acts of God or other reason of like nature that could not
have been reasonably anticipated by the non-performing party as of the Effective
Date and that cannot be reasonably avoided or overcome, then such party shall be
excused from such performance on a day-to-day basis to the extent of such
prevention, restriction or interference. The affected party shall use reasonable
efforts under the circumstances to avoid or remove such causes of
non-performance and shall proceed to perform with reasonable dispatch whenever
such causes are removed or cease, provided that the nonperforming party gives
the other party written notice of such cause promptly, and in any event within
fifteen (15) calendar days of discovery thereof.
20. Improper Use of Funds. WWC agrees that it will not use any funds received
under this Agreement for illegal or otherwise improper purposes. An improper
purpose would include, for example, payment of commissions, fees or rebates to
an employee of WWI and/or favoring such employee with gifts of entertainment of
significant cost or value. If WWI has reasonable cause to believe that the
provisions of this section have been violated, WWC agrees to provide WWI, upon
written request to WWC, access to sufficient records and information to allow
WWI to ensure compliance with the provisions of this section.
21. Alternative Dispute Resolution. The parties will attempt in good faith to
resolve any controversy or claim arising out of or relating to this Agreement
within sixty (60) days by negotiations between senior executives of the parties
who have settlement authority and who do not have direct responsibility for the
administration of this Agreement.
The disputing party shall give the other party written notice of the dispute in
accordance with the notice provision of this Agreement. The other party shall
submit a response within twenty (20) days after receiving said notice. The
notice and response shall include (a) a summary of the party's position and a
summary of the evidence and arguments supporting its position, and (b) the name
of the executive who will represent the party. The executives shall meet at a
mutually acceptable time and place within thirty (30) days of the disputing
party's notice and thereafter as often as they deem reasonably necessary to
resolve the dispute.
If the matter has not been resolved within sixty (60) days of the disputing
party's notice, either party may initiate other means of alternative dispute
resolution of the controversy in accordance with the appropriate rules and
procedures of the Center for Public Resources or American Arbitration
Association or pursue its rights and remedies within a court of competent
Jurisdiction.
22. Miscellaneous.
22.1 Announcements. The parties shall consult and confer with each other
prior to making any public announcement concerning any of the transactions
contemplated in this Agreement. Neither party shall make or issue any public
announcement concerning the subject matter of this Agreement without ten
days written notice to the other party or the prior written consent of the
other party.
9
<PAGE>
22.2 Applicable Law. The validity, construction, and performance of this
Agreement shall be governed by and construed in accordance with the laws of
the State of 0klahoma, without regard to the principles of conflict of laws.
22.3 Assignment. WWC shall not assign this Agreement or its rights or
obligations herein without the prior written consent of WWI.
22.4 Survival. Except as provided herein the provisions of Sections 5
(Property Rights), 8 (Warranties), 9 (General Indemnity), 10
(Representations and Warranties), 13 (Certain Effects of Termination), 14
(Confidentiality), 16 (Patent/Copyright Indemnity), 17 (Limitation of
Liability), 18 (Noncompete) and 21 (Alternative Dispute Resolution) remain
in effect indefinitely and shall survive the termination of this Agreement.
22.5 Complete Agreement. Both parties acknowledge that they have read this
Agreement and any attachments or schedules hereto, understand them and agree
to be bound by their terms, and further agree that they are the complete and
exclusive statement of the Agreement between the parties, which supersede
all proposals oral or written and other communications between the parties
relating to the subject matter hereof The parties further agree that all
changes to this Agreement must be in writing and signed by the parties in
order to bind them.
22.6. Severability. If any term or provision of this Agreement shall to any
extent be invalid or unenforceable, said term or provision shall be
severable and the remainder of this Agreement shall be valid and enforceable
to the fullest extent permitted by law.
WHEREFORE, the parties have entered into this Agreement as of the date first set
forth above.
WILLIAMS WIRELESS, INC. WORLD WIRELESS COMMUNICATIONS, INC.
d/b/a Williams Telemetry Services
By: /s/ S. Miller Williams By: /s/ David Singer
------------------------------ ---------------------------------
Name: S. Miller Williams Name: David Singer
------------------------------ ---------------------------------
Title: President Title: President
--------------------------- -------------------------------
10
<PAGE>
EXHIBIT A
Agreement #______________
CONFIDENTIALITY AGREEMENT
This Confidentiality Agreement (this "Agreement") is entered into this 25th day
of June 1997, by and between Williams Wireless, Inc., whose principal place
of business is located at Tulsa Union Depot, 111 East First Street, Tulsa,
Oklahoma 74103, and World Wireless Communications, Inc., whose principal place
of business is located at 150 Wright Brothers Drive, Salt Lake City, Utah 84116.
In consideration of the mutual covenants of this Agreement, the parties hereby
agree as follows:
I In connection with discussions and negotiations between the parties
retarding the one or more proposed transactions or business relations
between the parties (hereinafter "Subject Matter"), each party in
possession of certain information ("Disclosing Party") may wish to disclose
certain of its confidential or proprietary information (hereinafter
"Information") to the other party ("Receiving Party") on a confidential
basis. "Information" includes inforination furnished in a tangible form,
as well as information transferred orally, visually, electronically or by
any other means. All Information deemed to be confidential or proprietary
by the Disclosing Party shall be so marked by the Disclosing Party (if
provided in written form), or otherwise clearly identified (if provided in
oral or other means), in a manner to indicate that it is considered
proprietary or confidential by the Disclosing Party. In addition, this
Agreement and its terms, and the fact and substance of discussions between
the parties concerning the Subject Matter, shall be deemed to be
Confidential Information.
2. The term "Information" shall not include any information, which (a) was
previously known to the Receiving Party free of any obligation to keep it
confidential; (b) is or becomes generally available to the public by other
than through an unauthorized disclosure; (c) is developed by or on behalf
of such party independent of any Information furnished under this
Agreement; or (d) is required to be disclosed by law or by any governmental
agency having jurisdiction pursuant to an order to produce or in the course
of a legal proceeding pursuant to a lawful request for discovery; provided,
however, that if a Receiving Party is so ordered or required to disclose
the Information, such party shall promptly notify the Disclosing Party of
the order or request and permit the Disclosing Party (at its expense) to
seek an appropriate Protective order.
3. The Receiving Party, its employees, and employees of its affiliated
companies shall (a) hold the Information in secrecy and confidence; (b)
restrict disclosure of the Information solely to its directors, officers
and employees, affiliates and/or professional advisors/consultants
(including attorneys and accountants), all with a need to know, and shall
not disclose it to any other person unless it has obtained the prior
written consent of the Disclosing Party; (c) advise those persons to whom
the Information was disclosed of their obligations with respect to the
Information; and (d) use the Information only in connection with the
Subject Matter and continuing correspondence and discussions by the parties
pertaining thereto.
4. Upon termination of discussions regarding the Subject Matter, the Receiving
Party shall return to the Disclosing Party all Information received in
tangible form, or, at the Disclosing Party's direction, destroy all such
Information and any copies thereof.
5. Neither this Agreement, the disclosure of Information under this Agreement,
nor the ongoing discussions and correspondence between the parties shall
constitute or imply a commitment or binding obligation between the parties
or their respective affiliated companies, if any, regarding the Subject
Matter, and shall not be construed as forming a contract regarding the
Subject Matter or any other transaction between them.
6. Neither party is responsible or liable for any business decisions made or
inferences drawn by the other party in reliance on this Agreement or in
reliance on actions taken or disclosures made pursuant to this Agreement.
Neither party makes any warranty, express or implied, with respect to the
Information. Neither party shall be liable to the other hereunder for
amounts representing loss of profits, loss of business, or indirect,
consequential, or punitive damages.
<PAGE>
7. This Agreement shall be governed by and construed in accordance with the
laws of the State of Oklahoma, without regard to their conflict of laws
provisions.
8. The confidentiality obligations and use restrictions under this Agreement
shall remain in effect for a period of two (2) years from the date hereof
and shall then terminate.
9. The parties acknowledge that in the event of an unauthorized disclosure of
the Information by the Receiving Party, the damages incurred by the
Disclosing party may be difficult if not impossible to ascertain, and that
such Disclosing party may seek injunctive relief as well as monetary
damages against a party that breaches this Agreement.
10. The parties acknowledge that this Agreement does not restrict the ability
of the parties to engage in their respective businesses, nor does it limit
either party's use or application of any information or knowledge acquired
independently of the other without a breach of this Agreement in the course
of such party's business.
11. This Agreement shall benefit and be binding upon the parties hereto and
their respective successors and assigns.
12. This Agreement constitutes the entire understanding between the parties
with respect to the Information provided hereunder. No amendment or
modification of this Agreement shall be valid or binding on the parties
unless made in writing and executed on behalf of each party by its duly
authorized representative.
13. This Agreement may be executed in one or more counterparts each of which
shall be deemed an original, but all of which together shall constitute one
and the same agreement. Facsimile signatures to this Agreement shall be
deemed to be binding upon the parties.
IN WITNESS WHEREOF, the parties have entered into this Agreement as of the date
hereinabove.
WILLIAMS WIRELESS, INC. WORLD WIRELESS COMMUNICATIONS,
/s/ S. Miller Williams /s/ David Singer
- ---------------------------- ------------------------------------
AUTHORIZED SIGNATURE AUTHORIZED SIGNATURE
S. Miller Williams David Singer
- ---------------------------- ------------------------------------
PRINTED NAME PRINTED NAME
President 6/25/97 President 6/25/97
- ---------------------------- ------------------------------------
TITLE TITLE
<PAGE>
LEASE
by and between
PRACVEST,
a Utah general partnership,
as Landlord
and
ELECTRONIC TECHNOLOGY CORPORATION,
a Utah corporation
as Tenant
for
Suite #100
of building #3 at
UTAH VALLEY BUSINESS PARK
in
AMERICAN FORK CITY, UTAH
<PAGE>
INDEX TO LEASE AGREEMIENT: UTAH VALLEY BUSINESS PARK
ARTICLE I. BASIC LEASE PROVISIONS; ENUMERATION OF EXHIBITS ................. 2
SECTION 1.01. BASIC LEASE PROVISIONS ................................ 2
SECTION 1.02. SIGNIFICANCE OF A BASIC LEASE PROVISION ............... 3
SECTION 1.03. ENUMERATION OF EXHIBITS ............................... 3
ARTICLE II. GRANTAND LEASED PREMISES ....................................... 3
SECTION 2.01. PREMISES .............................................. 3
ARTICLE III. RENT .......................................................... 3
SECTION 3.01. BASE MONTHLY RENT .................................... 3
SECTION 3.02. ESCALATION ........................................... 3
SECTION 3.03. TENANT'S SHARE OF CAM, TAX AND INSURANCE
EXPENSES ..................................... 3
SECTION 3.04. TAXES ................................................ 4
SECTION 3.05. PAYMENTS ............................................. 4
ARTICLE IV. RENTAL TERM, COMMENCEMENT DATE & PRELIMINARY TERM .............. 4
SECTION 4.01. RENTAL TERM ........................................... 4
SECTION 4.02. RENTAL COMMENCEMENT DATE .............................. 4
SECTION 4,03. PRELIMINARY TERM ...................................... 4
ARTICLE V. CONSTRUCTION OF PREMISES ........................................ 4
SECTION 5.01. CONSTRUCTION BY LANDLORD .............................. 4
SECTION 5.02. CHANGES AND ADDITIONS BY LANDLORD ..................... 4
SECTION 5.03. DELIVERY OF POSSESSION ................................ 5
ARTICLE, VI. TENANT'S WORK AND LANDLORD'S CONTRIBUTION ..................... 5
SECTION 6.01. TENANT'S WORK ......................................... 5
SECTION 6.02. LANDLORD'S CONTRIBUTION ............................... 5
ARTICLE, VII USE ........................................................... 5
SECTION 7.01. USE OF PREMISES ....................................... 5
SECTION 7.02. HAZARDOUS SUBSTANCES .................................. 5
ARTICLE VIII, OPERATION AND MAINTENANCE OF COMMON AREAS .................... 6
SECTION 8.01. CONSTRUCTION AND CONTROL OF COMMON AREAS .............. 6
SECTION 8.02. LICENSE ............................................... 6
SECTION 8.03. COMMON AREA MAINTENANCE EXPENSES ...................... 6
ARTICLE IX. ALTERATIONS, SIGNS, LOCKS & KEYS ............................... 7
SECTION 9,01. ALTERATIONS ........................................... 7
SECTION 9.02. SIGNS ................................................. 7
SECTION 9.03. LOCKS & KEYS .......................................... 7
ARTICLE X. MAINTENANCE AND REPAIRS; ALTERATIONS; ACCESS .................... 7
SECTION 10.01. LANDLORD'S OBLIGATION FOR MAINTENANCE ................ 7
SECTION 10.02. TENANT'S OBLIGATION FOR MAINTENANCE .................. 7
SECTION 10.03. SURRENDER AND RIGHTS UPON TERMINATION ................ 8
ARTICLE XI. INSURANCE AND INDEMNITY ........................................ 8
SECTION 11.01. LIABILITY INSURANCE AND INDEMNITY .................... 8
SECTION 11 02. FIRE AND CASUALTY INSURANCE .......................... 8
SECTION 11 03. WAIVER OF SUBROGATION ................................ 9
ARTICLE XII. UTILITY CHARGES ............................................... 9
SECTION 12.01. UTILITY CHARGES ...................................... 9
ARTICLE XIII. OFF-SET STATEMENT, ATTORNMENT AND SUBROGATION ................ 9
SECTION 13.01. OFF-SET STATEMENT .................................... 9
SECTION 13.02. ATTORNMENT ........................................... 9
SECTION 13.03. SUBROATION ........................................... 9
SECTION 13.04. MORTGAGE SUBROGATION ................................. 9
SECTION 13.05. REMEDIES ............................................. 9
ARTICLE XIV. ASSIGNMENT .................................................... 10
SECTION 14.01. ASSIGNMENT ........................................... 10
i
<PAGE>
INDEX TO LEASE AGREEMENT: UTAH VALLEY BUSINESS PARK (CONTID)
ARTICLE XV. WASTE OR NUISANCE ............................................. 10
SECTION 15.01. WASTE OR NUISANCE .................................. 10
ARTICLE XVI, NOTICES ...................................................... 10
SECTION 16.01. NOTICES ............................................ 10
ARTICLE XVII. DESTRUCTION OF THE PREMISES ................................. 10
SECTION 17.01. DESTRUCTION ........................................ 10
ARTICLE XVIII. CONDEMNATION ............................................... 10
SECTION 18.01. CONDEMNATION ....................................... 10
ARTICLE XIX, DEFAULT OF TENANT ............................................ 11
SECTION 19.01. DEFAULT -RIGHT TO RE-ENTER ......................... 11
SECTION 19.02. DEFAULT - RIGHT TO RE-LET .......................... 11
SECTION 19.03. LEGAL EXPENSES ..................................... 10
ARTICLE XX. BANKRUPTCY, INSOLVENCY OR RECEIVERSHIP ........................ 11
SECTION 20.01. ACT OF INSOLVENCY, GUARDIANSHIP, ETC ............... 11
ARTICLE XXI. LANDLORD ACCESS .............................................. 12
SECTION 21.01. LANDLORDACCESS ..................................... 12
ARTICLE XXII. LANDLORD'S LIEN ............................................. 12
SECTION 22.01. LANDLORD'S LIEN .................................... 12
ARTICLE XXIII. HOLDING OVER ............................................... 12
SECTION 23.01. HOLDING OVER ....................................... 12
SECTION 23,02. SUCCESSORS ......................................... 12
ARTICLE XXIV. RULES AND REGULATIONS ....................................... 12
SECTION 24.01. RULES AND REGULATIONS .............................. 12
ARTICLE XXV. QUIET ENJOYMENT .............................................. 12
SECTION 25.01. QUIET ENJOYMENT .................................... 12
ARTICLE XXVI. SECURITY DEPOSIT ............................................ 12
SECTION 26.01. SECURITY DEPOSIT ................................... 12
ARTICLE XXVII. MISCELLANEOUS PROVISIONS ................................... 13
SECTION 27.01. WAIVER ............................................. 13
SECTION 27.02. ENTIRE AGREEMENT ................................... 13
SECTION 27.03. FORCE MAJEURE ...................................... 13
SECTION 27 04. LOSS AND DAMAGE .................................... 13
SECTION 27.05. ACCORD AND SATISFACTION ............................ 13
SECTI0N 27.06. NO OPTION .......................................... 13
SECTION 27.07. ANTI-DISCRIMINATION ................................ 13
SECTION 27.08. SEVERABILITY ....................................... 13
SECTION 27.09. OTHER MISCELLANEOUS PROVISIONS ..................... 13
SECTION 27.10. REPRESENTATION REGARDING AUTHORITY ................. 13
SIGNATURES ................................................................ 14
LANDLORD ACKNOWLEDGEMENT .................................................. 14
TENANT ACKNOWLEDGMENT (CORPORATE) ......................................... 14
GUARANTEE ................................................................. 15
EXHIBITS
EXHIBIT "A" Pg. 1 - FLOOR PLAN
EXHIBIT "A" Pg. 2 - POWER PLAN
EXHIBIT "A" Pg. 3 - REFLECTED CEILING PLAN
EXHIBIT "A-2" - BUSINESS PARK PLOT PLAN
EXHIBIT "B" - LEGAL DESCRIPTION(S)
EXHIBIT "C" - LANDLORD'S WORK
EXHIBIT "D" - TENANT'S WORK
EXHIBIT "E" - SIGN CRITERIA
ii
<PAGE>
UTAH VALLEY BUSINESS PARK
LEASE AGREEMENT
ARTICLE I BASIC LEASE PROVISIONS; ENUMERATION OF EXHIBITS
SECTION 1.011 BASIC LEASE PROVISIONS
(A) DATE: May 17,1995
(B) LANDLORD: PRACVEST, a Utah general partnership
(C) ADDRESS OF LANDLORD FOR NOTICES (Section 16.01): 2677 East Parleys Way,
Salt Lake City, Utah 84109
(D) TENANT: Electronic Technology Corporation
(E) ADDRESS OF TENANT FOR NOTICES (Section 16.01). 435 West Universal Circle,
Sandy, Utah 84070
(I) PERMITTED USES (Section 7.01): Office/Light Electronic Manufacturing and
Assembly
(G) TENANT'STRADE NAME (Exhibit "E" - Sign Criteria): Electronic Technology
Corporation and EMA. Inc.
(H) BUILDING (Section 2.01): An approximate 28,000 sq. ft. building situated as
shown on Exhibit "A" attached hereto in tlie Utah Valley Business Park,
American Fork City, Utah County, State of Utah. Mailing address will be
determined prior to occupancy.
(1) PREMISES (Section 2.01): That portion of building #3 at the approximate
location outlined on Exhibit "A" known as Suite 100 consisting of
approximately 9,685 sq. ft. of net rentable area.
(J) DELIVERY OF POSSESSION (Section 5.03): July 1. 1995
(K) RENTAL TERM, COMMENCEMENT AND EXPIRATION DATE (Sections 4.01 & 4.02): The
Rental Term shall commence on the date Tenant receives possession of the
Leased Premises and shall be for a period ofthirty-six (36) full calendar
months plus any initial partial calendar month.
(L) BASE MONTHLY RENT (Section 3.01): Seven Thousand Five Hundred Eighty Seven
Dollars ($7,587.00) per calendar month
(M) ESCALATIONS IN BASE MONTHLY RENT (Section 3.02): None.
(N) TENANT'S PERCENTAGE OF OPERATING EXPENSES (Section 3.03): 35.00 percent
(35%) of all operating expenses as defined in Sections 3.03 and 8.03. Such
expenses include common area and utility system maintenance, taxes, and
insurance, but shall specifically exclude utilities, janitorial and any
management fees. L,andlord estimates that Tenant share will not exceed
$1.00 per sq. ft. during the first Lease Year and $1.15 per sq. 1@t, in the
second Lease Year. Utilities and janitorial expenses shall be paid by
Tenant pursuant to Sections L1.01 and 10.0", respectively.
(0) LANDLORD'S CONTRIBUTION TO TENANT'S WORK (Section 6.02): Actual cost of
Tenant's Work in accordance with specifications set forth in Exhibit "D"
and as mutually agreed, but not to exceed Fourteen and 55/100 Dollars
($14.55) per square foot of gross rentable area.
(P) PREPAID RENT: $7,587.00 paid upon delivery of the premises to Tenant and
shall be applied to the first installment(s) of Base Monthly Rent due
hereunder.
(Q) SECURITY DEPOSIT (Section 26.01): Seven Thousand Five Hundred and no/100ths
Dollars ($7,500.00)
(R) TENANT RIGHT TO CONSTRUCTION BUDGET SAVINGS: Tenant shall have the right to
apply unused
<PAGE>
SECTION 1.02. SIGNIFICANCE OF A BASIC LEASE PROVISION. The foregoing
provisions of Section 1.01 summarize for convenience only certain fundamental
terms of the Lease delineated more fully in the Articles and Sections referenced
therein. In the event of a conflict between the provisions of Section 1.01 and
the balance of the Lease, the latter shall control.
SECTION 1.03. ENUMERATION OF EXIBBITS. The exhibits enumerated in this
Section and attached to this Lease are incorporated in the Lease by this
reference and are to be construed as a part of the Lease.
EXHIBIT "A" Pg. 1 - FLOOR PLAN
EXHIBIT "A" Pg. 2 - POWER PLAN
EXHIBIT "A" Pg. 3 - REFLECTED CEILING PLAN
EXHIBIT "A-2" - BUSINESS PARK PLOT PLAN
EXHIBIT "B" - LEGAL DESCRIPTION(S)
EXHIBIT "C" - LANDLORD'S WORK
EXHIBIT "D" - TENANT'S WORK
EXHIBIT "E" - SIGN CRITERIA
ARTICLE II. GRANT AND PREMISES
SECTION 2.01. PREMISES. In consideration for the rent to be paid and
covenants to be performed by Tenant, Landlord hereby leases to Tenant, and
Tenant leases from Landlord for the Term and upon the terms and conditions
herein set forth premises described in Section 1.01(l) (hereinafter referred to
as the "Premises"), located in an office building development referred to in
Section 1.01(H) (hereinafter referred to as the "Building"). The legal
description of the Building is attached hereto as Exhibit "B". Gross rentable
area measurements herein specified are from the exterior of the perimeter walls
of the building to the center of the interior walls. In addition, the factor set
forth in Section 1.010.) has been added to the area as measured above to adjust
for Tenant's proportionate share of common hallways, restrooms, etc. in the
building.
The exterior walls and roof of the Premises and the areas beneath said
Premises are not demised hereunder and the use thereof together with the right
to install, maintain, use, repair, and replace pipes, ducts, conduits, and wires
leading through the Premises in locations which will not materially interfere
with Tenant's use thereof and serving other parts of the building or buildings
are hereby reserved to Landlord. Landlord reserves (a) such access rights
through the Premises as may be reasonably necessary to enable access by Landlord
to the balance of the building and reserved areas and elements as set forth
above; and (b) the right to install or maintain meters on the Premises to
monitor use of utilities. In exercising such rights, Landlord will use
reasonable efforts so as to not commit waste upon the Premises and as far as
practicable to minimize annoyance, interference or damage to Tenant when making
modifications, additions or repairs.
Subject to the provisions of Article VIII contained hereinbelow, Tenant
and its customers, agents and invitees have the right to the non-exclusive use,
in common with others of such unreserved automobile parking spaces, driveways,
footways, and other facilities designated for common use within the Building,
except that with respect to non-exclusive areas, Tenant shall cause its
employees to park their cars only in areas specifically designated from time to
time by Landlord for that purpose.
<PAGE>
ARTICLE III RENT
SECTION 3.01 BASE MONTHLY RENT. Tenant agrees to pay to Landlord the
Base Monthly Rent set forth in Section 1.01(L) at such place as Landlord may
designate, without prior demand therefor, without offset or deduction and in
advance on or before the first day of each calendar month during the Rental
Term, commencing on the Rental Commencement Date. In the event the Rental
Commencement Date occurs on a day other than the first day of a calendar month,
then the Base Monthly Rent to be paid on the Rental Commencement Date shall
include both the Base Monthly Rent for the first full calendar month occurring
after the Rental Commencement Date, plus the Base Monthly Rent for the initial
fractional calendar month prorated on a per-diem basis (based upon a thirty (30)
day month).
SECTION 3.02 ESCALATION. Tenant's Base Monthly Rent shall be increased
on the Adjustment Dates set forth in Section 1..01(M).
SECTION 3.03 TENANT'S SHARE OF CAM, TAX AND INSURANCE EXPENSES. Tenant
shall pay as additiona Rent Tenant's pro-rated share of Landlord's expenses for
common area maintenance and security, if any, as defined in Section 8.03,
property taxes and assessments as defined in Section 3.04 and insurance as
defined in Section 11.01. Tenant's pro-rated share of Landlord's expenses is set
forth in Section 1.01(N) and is calculated by dividing the gross rentable area
of the premises by the gross rentable area of the Building.
Said additional rent shall be estimated annually at the beginning of
each Lease Year of the Rental Term. One-twelfth (1/12th) of Tenant's Share shall
be payable each month together with Base Monthly Rent as determined in Sections
3.01 and 3.02. Within sixty (60) days after the end of each Lease Year, Landlord
shall deliver to Tenant an accounting in reasonable detail of actual common area
maintenance, tax and insurance expenses certified by an officer of Landlord as
true and correct together with a calcualtion of Tenant's share of such expenses
incurred by Landlord in that Lease Year. Should the actual amount of such
expense exceed the estimated amount paid by Tenant during that
<PAGE>
Lease Year, then Tenant shall pay the amount of any excess within twenty (20)
days after receipt of invoice. However if the estimated payments for the
previous year exceeded the actual amount incurred by Landlord, then Tenant may
deduct the excess amount from the next monthly estimated payment due from
Tenant.
SECTION 3.04 TAXES.
(a) Landlord shall pay all real property taxes and assessments
(all of which are hereinafter collectively referred (o as "Taxes")
which are levied against or which apply with respect to the Premises,
subject to reirribursement of Tenant's share as set forth in Section
3.03.
(b) Tenant shall prior to delinquency pay all taxes,
assessments, charges, and fees which during the Rental Term hereof may
be imposed, assessed, or levied by any governmental or public authority
against or upon Tenant's use of the Premises or any inventory, personal
property, fixtures or equipment kept or installed, or permitted to be
located therein by Tenant.
SECTION 3.05 PAYMENTS. All payments of Base Monthly Rent, Additional
Rent and other payments to be made to Landlord shall be made on a timely basis
and shall be payable to Landlord or as Landlord may otherwise designate. All
such payments shall be mailed or delivered to Landlord's principal office set
forth in Section 1.01(C), or at such other place as Landlord may designate from
time to time in writing. If mailed, all payments shall be mailed in sufficient
time and with adequate postage thereon to be received in Landlord's account by
no later than the due date for such payment, if Tenant shall fail to pay any
Base Monthly Rent or any additional rent or any other amounts or charges within
ten (10) days after the due date, Tenant shall pay a late fee equal to four (4%)
percent of such past due amount and, in addition, Tenant shall pay interest from
the due date of such past due amounts to the date of payment, both before and
after at a rate equal to the greater of fourteen (14%) percent per annum or two
(2%) percent over the "prime" or "base" rate charged by Zions First National
Bank of Utah at the due date of such payment; provided howeyer, that in any case
the maximum amount or rate of interest to be charged shall not exceed the
maximum non- usurious rate M accordance with applicable law.
ARTICLE IV RENTAL TERM, COMMENCEMENT DATE & PRELIMINARY TERM
SECTION 4.01 RENTAL TERM. The initial term of this Lease shall be for
the period defined as the Rental Term in Section 1,01(K), plus the partial
calendar month, if any, occurring after the Rental Commencement Date (as
hereinafter defined) if the Rental Commencement Date occurs other than on the
first day of a calendar month. "Lease Year" shall include twelve 1 12) calendar
months, except that first Lease Year will also include any partial calendar
month beginning on the Rental Date.
SECTION 4.02 RENTAL COMMENCEMENT DATE. The Rental Term of this Lease
and Tenant's obligation to pay rent. hereunder shall commence as set forth in
Section 1.01(K) (the "Rental Commencement Date"). Within five (5) (lays after
Landlord's request to do so, Landlord and Tenant shall execute a written
affidavit, in recordable form, expressing the Rental Commencement Date and the
termination date, which affidavit shall be deemed to be part of this Lease.
SE( TION 4.03 PRELIMINARY TERM. The period between the date Tenant
enters upon the Premises and the commencement of the Rental Term will be
designated as the "preliminary term" during which no Base Monthly Rent or other
common area expenses shall accrue; however, other covenants and obligations of
Tenant shall be in full force and effect. Delivery of possession of the Premises
to Tenant as provided in Section 5.03 shall be considered "entry" by Tenant and
commencement of "preliminary term".
<PAGE>
ARTICLE V CONSTRUCTION OF PREMISES
SECTION 5.01 CONSTRUCTION BY LANDLORD. Landlord shall construct or
cause to be constructed the Building in which the Premises are to be located.
The Premises shall be constructed substantially in accordance with Outline
Specifications entitled "Landlord's Work" marked Exhibit "C" attached hereto and
Exhibit "D" to the extent set forth therein and made a pan hereof. Landlord's
construction obligation shall include Tenant Improvement pursuant to mutually
agreed space layout plans and specifications. After consultation with Tenant,
Landlord's architect shall furnish the plans and specifications for the Leased
Premises, but the cost thereof shall be charged toward Landlord Contribution It
is understood and agreed by Tenant that no minor changes from any plans or from
said Outline Specifications which may be necessary during construction of the
Premises or the Building shall affect or change this Lease or invalidate same.
SECTION 5.02 CHANGES AND ADDITIONS BY LANDLORD. Landlord hereby
reserves the right at any time, and from time to time, to make alterations or
additions to, and to build additional stories on the Building in which the
Premises are contained and to build adjoining the same and to modify the
existing parking or other common areas to accommodate additional buildings.
Landlord also reserves the right to construct other buildings or improvements in
the Building area from time to time, on condition that if the Building area is
expanded so as to include any additional buildings, Landlord agrees to create or
maintain a parking ratio adequate to meet local laws and ordinances, including
the right to add land to the Building or to erect parking structures thereon.
SECTION 5.03 DELIVERY OF POSSESSION. Except as hereinafter provided,
Landlord shall deliver the Premises to Tenant ready for Tenant's Work on or
before the date set forth in Section 1.01(J). The Premises shall be
<PAGE>
deemed as ready for delivery when Landlord shall have substantially completed
construction of the portion of the said Premises to be occupied exclusively by
Tenant, in accordance with Landlord's obligations set forth in Exhibit "C".
Landlord shall, from time to time during the course of construction, provide
information to Tenant concerning the progress of construction of said Premises,
and will give written notice to Tenant when said Premises are in fact ready for
Tenant's Work. Notwithstanding the foregoing, Landlord shall have the right to
extend the date for delivery of possession of the Premises for a period of one
(1) month by notice in writing given to Tenant any time prior to said delivery
date. If any disputes shall arise as to the Premises being ready for delivery of
possession, a certificate furnished by Landlord's architect in charge so
certifying shall be conclusive and binding of that fact and date upon the
parties. It is agreed that by occupying the Premises as a tenant, Tenant
formally accepts the same and acknowledges that the Premises are In the
condition called for hereunder, except for items specifically excepted in
writing at date of occupancy as 1
ARTICLE VI TENANT'S WORK & LANDLORD'S CONTRIBUTION
SECTION 6.01 TENANT'S WORK. Tenant agrees to provide all work of
whatsoever nature in accordance with its obligations set forth in Exhibit "D"
except as set forth to be completed by Landlord during initial construction in
Exhibit "C". If Tenant desires to remodel the Premises, Tenant agrees to furnish
Landlord, prior to construction, with a complete and detailed set of plans and
specifications drawn by some qualified person acceptable to Landlord setting
forth and describing Tenant's Work in such detail as Landlord may require and in
compliance with Exhibit "D", unless this requirement be waived in writing by
Landlord. Landlord must approve all Tenant plans in writing prior to
construction. No substantive deviation from the final set of plans and
specifications once submitted to and approved by Landlord, shall be made by
Tenant without Landlord's prior written consent. Landlord shall have the right
to approve Tenant's contractor to be used in performing Tenant's Work, and the
right to require and approve insurance or bonds provided by Tenant or such
contractors. In due course after completion of Tenant's Work, Tenant shall
certify to Landlord the itemized cost of Tenant improvements and fixtures
located upon the Premise,@.
SECTION 6.02 LANDLORD'S CONTRIBUTION. Landlord agrees to make a
contribution to Tenant's Work set forth in Exhibit "D", in an amount not to
exceed the actual cost of Tenant's Work or the amount set forth in Section I
040), whichever amount is the lesser. Within thirty (30) days after invoice
therefore, Tenant shall reimburse to Landlord any construction cost in excess of
the sum of Landlord's Work pursuant to Exhibit "C" and Landlord's Contribution
toward work performed by Landlord shown in Exhibit "D".
ARTICLE VII USE
SECTION 7.01 USE OF PREMISES. Tenant shall use and occupy the Premises
solely for the purpose of conducting the business indicated in Section 1.01(F).
Tenant shall promptly comply with all present or future laws, ordinances, lawful
orders and regulations affecting the Premises and the cleanliness, safety,
occupancy and use of same. Tenant shall not make any use of the Premises which
will cause cancellation or an increase in the cost of any insurance policy
covering the same. Tenant shall not keep or use on the Premises any article,
item, or thing which is prohibited by the standard form of fire insurance
policy. Neither Tenant nor Landlord shall not commit any waste upon the Premises
and shall not conduct or allow any business, activity, or thing on the Premises
which is an annoyance or causes damage to landlords Tenant to other subtenants,
occupants, or users of the improvements, or to occupants of the vicinity.
<PAGE>
SECTION 7.02 RAZARDOUS SUBSTANCES.
a) Landlord shall be responsible for removal of any Hazardous
Substances that existed at the Leased Premises prior to construction or any that
Landlord has or does install at the Leased Premises or Building. After
reasonable inquiry, Landlord is not aware of any existing Hazardous Substances
in the Building or Common Areas.
b) Tenant shall not use, produce, store, release, dispose or
handle in or about the Leased Premises or transfer to or from the Leased
Premises (or permit any other party to do such acts) any Hazardous Substance
except in compliance with all applicable Environmental Laws. Tenant shall not
construct or use any improvements, fixtures or equipment or engage in any act on
or about the Leased Premises that would require the procurement of any license
or permit pursuant to any Environmental Law and Tenant shall remove any
Hazardous Substance resulting from Tenant's or its agent's contractors, or
business invitee's acts. Tenant shall immediately notify Landlord of (i) the
existence of any Hazardous Substance on or about the Leased Premises that may in
violation of any Environmental Law (regardless of whether Tenant is responsible
for the existence of such Hazardous Substance), (ii) any proceeding or
investigation by any governmental authority regarding the presence of any
Hazardous Substance on the Leased Premises or the migration thereof to or from
any other property, (iii) all claims made or threatened by any third party
against Tenant relating to any loss or injury resulting from any Hazardous
Substance in or about the Leased Premises. "Environmental Laws" shall mean any
federal, state or local statute, ordinance, rule, regulation or guideline
pertaining to health, industrial hygiene, or the environment, including without
limitation, the federal Comprehensive Environmental Response, Compensation, and
Liability Act; "Hazardous Substance' shall mean all substances, materials and
wastes that are or become regulated, or classified as hazardous or toxic, under
any Environmental Law.
c) The party herein responsible for removal of Hazardous
Substances shall upon learning of such condition proceed within five (5) days
thereafter to commence removal of such Hazardous Substance and shall diligently
continue to effect such removal until completion. Removal shall be accomplished
in accordance with any applicable safety standards.
<PAGE>
ARTICLE VII OPERATION AND MAINTENANCE OF COMMON AREAS
SECTION 8.01 CONSTRUCTION AND CONTROL OF COMMON AREAS. All
automobile parking areas, driveways, entrances and exits thereto, and other
facilities furnished by Landlord in or near the buildings or Building, including
if any, employee parking areas, truck ways, loading docks, mail rooms or mail
pickup areas, pedestrian sidewalks and hallways, landscaped areas, retaining
walls, stairways, restrooms, HVAC, electrical and other utility systems, and
other areas and improvements provided by Landlord for the general use in common
tenants, their officers, agents, employees and customers, (hereinafter "Common
Facilities") shall at all times be subject to the exclusive control and
management of Landlord which shall have the right from time to time to
establish, modify and enforce reasonable Rules and Regulations with respect to
all facilities and areas mentioned in this Section. Landlord shall have the
right to construct, maintain and operate lighting and drainage facilities on or
in all said areas and improvements; to police the same, front time to time to
change the area, level, location and arrangement of parking areas and other
facilities hereinabove referred to; to restrict parking by tenants, their
officers, agents and employees to employee parking areas; to close temporarily
all or any portion of said areas or facilities to such extent as may, in the
opinion of counsel, be legally sufficient to prevent a dedication thereof or the
accrual of any rights to any person or the public therein; to assign "reserved"
par-king spaces for exclusive use of certain tenants or for customer parking, to
discourage non-employee and non-custorrier parking; and to do and perform such
other acts in and to said areas and improvements as, in the exercise ofgood
businessjudgment, the Landlord shall determine to be advisable with a view
toward maintaining of appropriate convenience uses, amenities, and for permitted
uses by tenants, their officers, agents, employees and customers. Landlord will
operate and maintain the common facilities referred to above in such a manner as
it, in its sole discretion, shall determine from time to time. Without limiting
the scope of such discretion, Landlord shall have the full right and authority
to employ all personnel and to make all Rules and Regulations pertaining to and
necessary for the proper operation, security and maintenance of the common areas
and facilities. Building and/or project signs, traffic control signs and other
signs determined by Landlord to be in best interest of the Building, will be
considered part of common area and common facilities.
SECTION 8.02 LICENSE. All common areas and facilities not
within the Premises, which Tenant may be permitted to use and occupy, are to be
used and occupied under a revocable license, and if the amount of such areas be
diminished, Landlord shall not be subject to any liabilities nor shall Tenant be
entitled to any compensation or diminution or abatement of rent, nor shall such
diminution of such areas be deemed constructive or actual eviction, so long as
such revocations or diminutions are deemed by Landlord to serve the best
interests of the Building.
<PAGE>
SECTION 8.03 COMMON AREA MAE14TENANCE EXPENSES.
a) Pursuant to Section 3.03, Tenant shall pay its share of the
"Common Area Operating Cost" for the Common Facilities
b) For the purpose of this Section 8.03 the "Common Area
Operating Cost" means the total cost and expense incurred in operating and
maintaining, equipping, policing, protecting, lighting, repairing and replacing
the Common Facilities, actually used or available for use by tenants and the
employees, agents, servants and other invitees of tenants, excluding carrying
charges, "on-site employee expenses" and management fees or Landlord
administrative fee, but specifically including fire and other casualty, public
liability and property damage insurance, real estate taxes and assessments,
security personnel and equipment, utility charges, heating and air conditioning,
on and off-site traffic control, directories, repairs, line painting, lighting,
and sanitary control. Notwithstanding the above, the following items are to be
specifically excluded from "Common Area Operating Cost":
1) Costs attributable to original development, or seeking and
obtaining new tenants or lease extensions, such as advertising,
brokerage commissions, architectural, engineering, attorney's fees,
renovations and improvements
2) Costs attributable to enforcing leases against tenants in
the project, such as attorney's fees, court costs, adverse judgments
and similar expenses, except for a reasonable allocation of costs to
extent action relates to common area collections or operations;
3) Costs that are reimbursed to the Landlord by tenants as a
result of provisions contained in their specific leases;
4) Costs for alterations and additions that are in the nature
of new, rather than replacement of existing common area capital
improvements;
5) Reserves for bad debts or future expenditures which would
be incurred subsequent to the then current accounting year;
6) Interest on any mortgages of the Landlord (except that this
shall not restrict charges for depreciation of amortization (including
principal and interest) of permitted capital improvements or equipment
regardless of whether or not acquisition proceeds may have been
borrowed);
<PAGE>
7) Repairs and other work occasioned by fire, windstorm or
other casualty to the extent that the Landlord is reimbursed by
insurance that was required to be carried under the Lease:
8) Any costs, fines or penalties incurred due to violations by
Landlord of any leases or any governmental rule or authority, except to
the extent that Landlord reasonably determines that Operating Expenses
had been reduced in prior years as a result thereof;
9) The costs of correcting originally-constructed conunon area
improvements in order to comply with codes that were applicable at the
time such improvements were constructed;
10) Costs attributable to repairing items that are covered by
warranties to the extent that Landlord recovers such costs under the
warranties;
11) Repairs and maintenance performed exclusively for a
particular tenant exclusive space and not in the common areas, or
tenant improvements in a tenant's space rather than for improvements
intended generally for the common benefit of the office building
tenant.
12) Costs of correcting defective conditions in the Building
resulting from failure to comply with applicable building and
construction codes at the time such improvements were constructed;
13) Building structural, roof and other costs set forth as
Item 2 in Landlord maintenance obligations in Section 10.01.
14) Costs resulting from Landlord's negligent acts.
ARTICLE IX ALTERATIONS, SIGNS, LOCKS & KEYS
SECTION 9.01 ALTERATIONS. Tenant shall not make or suffer to be made
any alterations or additions to the Premises or any part thereof without the
prior written consent of Landlord. Any additions to, or alterations of the
Premises except movable furniture, equipment and trade fixtures shall become a
part of the realty and belong to Landlord upon the termination of Tenant's lease
or renewal term or other termination or surrender of the Premises to Landlord.
SECTION 9.02 SIGNS. Subject to prior municipal or required public
approvals and to full conformity with Exhibit " E ", Tenant may place, at its
own expense, suitable tenant identification signs on the Premises and/or
Building, provided that such sign shall be in the Landlord-approved building
location, and that general design conforms to the design and style of other
tenant signs on the buildings and provided that written approval of the sign
design and proposed location is obtained in advance from Landlord. If any sign
is installed or posted prior to obtaining such approval or which does not
conform to the conditions herein specified, Tenant shall be required to remove
said sign and repair any damage caused thereby at its sole cost and expense. At
the termination of this Lease, Tenant shall remove said sign. Tenant shall
repair any damage caused by the installation or removal of any Tenant signs. All
work shall be completed in a good and workmanlike manner.
<PAGE>
SECTION 9.03 LOCKS AND KEYS. Tenant may change locks or install other
locks on doors, but if Tenant does, Tenant must provide Landlord with duplicate
keys within twenty four hours after said change or installation. Tenant upon
termination of this Lease shall deliver to Landlord all the keys to the Premises
including any interior offices, toilet rooms, combinations to built-in safes,
etc. which shall have been furnished to or by the Tenant or are in the
possession ot the 'Tenant
ARTICLE X MAINTENANCE AND REPAIRS; ALTERATIONS; ACCESS
SECTION 10.01 LANDLORD'S OBLIGATION FOR MAMTENANCE. Landlord shall
maintain and repair: (1) the areas outside the Premises including hallways,
public restrooms, if any, general landscaping, parking areas, driveways and
walkways; (2) the Building structure including roof, exterior walls, and
foundation; and (3) all plumbing, electrical, heating, and air conditioning
systems. However, if the need for such repairs or maintenance results from any
careless, wrongful or negligent act or omission of Tenant, Tenant shall pay the
entire cost of any such repair or maintenance including a reasonable charge to
cover Landlord's supervisory overhead. Landlord shall not be obligated to repair
any damage or defect until receipt of written notice from Tenant of the need of
such repair and Landlord shall have a reasonable time after receipt of such
notice in which to make such repairs. Tenant shall give immediate notice to
Landlord in case of fire or accidents in the Premises or in the building of
which the Premises are a part or of defects therein or in any fixtures or
equipment provided by Landlord.
SECTION 10.02 TENANT'S OBLIGATION FOR MAINTENANCE.
(a) Tenant shall provide its own janitorial service and keep
and maintain the Premises including the interior wall surfaces and
windows, floors, floor coverings and ceilings in a clean, sanitary and
safe condition in accordance with the laws of the State and in
accordance with all directions, rules and regulations of the health
officer, fire marshall, building inspector, or other proper officials
of the governmental agencies having jurisdiction, at the sole cost and
expense of Tenant, and Tenant shall comply with all requirements of
law, ordinance and otherwise, affecting said Premises.
<PAGE>
(b) Tenant shall pay, when due, all claims for labor or
material furnished, for work under Sections 9.01, 9.02 and 9.03 hereof,
to or for Tenant at or for use in the Premises, and shall bond such
work if reasonably required by Landlord to prevent assertion of claims
against Landlord.
(c) Tenant agrees to be responsible for all furnishings
fixtures and equipment located upon the Premises from time to time and
shall replace carpeting within the Premises if same shall be damaged by
tearing, burning, or stains resulting from spilling anything on said
carpet, reasonable wear and tear accepted. Tenant further agrees to use
chairmats or floor protectors wherever it uses chairs with wheels or
casters on carpeted areas.
SECTION 10.03 SURRENDER AND RIGHTS UPON TERMINATION.
(a) This Lease and the tenancy hereby created shall cease and
terminate at the end of the Rental Term hereof, or any extension or
renewal thereof, without the necessity of any notice from either
Landlord or Tenant to terminate the same, and Tenant hereby waives
notice to vacate the Premises and agrees that Landlord shall be
entitled to the benefit of all provisions of law respecting summary
recovery of possession of Premises from a Tenant holding over to the
same extent as if statutory notice has been given.
(b) Upon termination of this Lease at any time and for any reason
whatsoever, Tenant shall surrender and deliver up the Premises to Landlord
in the same condition as when the Premises were delivered to Tenant or as
altered as provided in Section 9.01, ordinary wear and tear excepted. Upon
request of Landlord, Tenant shall promptly remove all personal property from
the Premises and repair any damage caused by such removal. Obligations
under this Lease relating to events occurring or circumstances existing prior
to the date of termination shall survive the expiration or other termination
of the Rental Term or this Lease. Liabilities accruing after date of
termination are defined in Sections 19.01 and 19.02.
ARTICLE XI INSURANCE AND INDEMNITY
SECTION 11.01 LIABILITY INSURANCE AND INDEMNITY. Tenant shall, during
all terms hereof, keep in full force and effect a policy of public bodily injury
and property damage liability insurance with respect to the Premises, with a
combined single limit of not less than One Million Dollars ($1,f000,000.00) per
occurrence. The policy shall name Landlord, Property Manager (i.e., Woodbury
Corporation) and any other persons, firms or corporations designated by Landlord
and Tenant as insureds, and shall contain a clause that the insurer will not
cancel or change the insurance without first giving the Landlord ten (10) days
prior written notice. Such insurance shall include an endorsement permitting
Landlord and Property Manager to recover damage suffered due to act or omission
of Tenant, notwithstanding being named as an additional "Insured party" in such
policies. Such insurance may be furnished by Tenant under any blanket policy
carried by it or under a separate policy therefor. The insurance shall be with
an insurance company approved by Landlord and a copy of the paid-up policy
evidencing such insurance or a certificate of insurer certifying to the issuance
of such policy shall be delivered to Landlord. If Tenant fails to provide such
insurance, Landlord may do so and charge same to Tenant.
<PAGE>
Tenant will indemnify, defend and hold Landlord harmless from and
against any and all claims, actions, damages, liability and expense in
connection with loss of life, personal injury and/or damage to property arising
from or out of any occurrence in, upon or at the Premises or from the occupancy
or use by Tenant of the Premises or any part thereof, or occasioned wholly or in
part by any act or omission of Tenant, its agents, contractors, employees,
servants, sublessees, concessionaires or business invitees unless caused by the
negligence of Landlord and to the extent not covered by its fire, casualty and
liability insurance. In case Landlord shall, without fault of its part, be made
a party to any litigation commenced by or against Tenant, then Tenant shall
protect and hold Landlord harmless and shall pay all costs, expenses and
reasonable attorney fees incurred or paid by either in defending itself or
enforcing the covenants and agreements of this Lease.
Landlord will indemnify, defend and hold Tenant harmless from and
against any and all claims, actions, damages, liability and expense in
connection with loss of life, personal injury and/or damage to property arising
from or out of any misconduct or negligent omission of Landlord, its agents,
contractors, employees or servants, to the extent not covered by its fire,
casualty and liability insurance. In case Tenant shall, without fault of its
part, be made a party to any litigation commenced by or against Landlord, then
Landlord shall protect and hold Tenant harmless and shall pay all costs,
expenses and reasonable attorney fees incurred or paid by either in defending
itself or enforcing the covenants and agreements of this Lease.
SECTION 11.02 FIRE AND CASUALTY INSURANCE.
(a) Subject to the provisions of this Section 11.02, Landlord
shall secure, pay for, and at all times during the terms hereof
maintain, insurance providing coverage upon the building improvements
in an amount equal to the full insurable value thereof (as determined
by Landlord) and insuring against the perils of fire, extended
coverage, vandalism, and malicious mischief. All insurance required
hereunder shall be written by reputable, responsible companies licensed
in the State of Utah. Tenant shall have the right, at its request at
any reasonable time, to be furnished with copies of the insurance
policies then in force pursuant to this Section, together with evidence
that the premiums therefor have been paid.
<PAGE>
(b) Tenant agrees to maintain at its own expense such fire and
casualty insurance coverage as Tenant may desire or require in respect
to Tenant's personal property, equipment, furniture, fixtures or
inventory and Landlord shall have no obligation in respect to such
insurance or losses. All property kept or stored on the Premises by
Tenant or with Tenant's permission shall be so done at Tenant's sole
risk and Tenant shall indemnify Landlord against and hold it harmless
from any claims arising out of loss or damage to same.
(c) Tenant will not permit said Premises to be used for any
purpose which would render the insurance thereon void or cause
cancellation thereof or increase the insurance risk or increase the
insurance premiums in effect just prior to the commencement of this
Lease. Tenant agrees to pay as additional rent the total amount of any
increase in the insurance premium of Landlord over that in effect prior
to the commencement of this lease resulting from Tenant use of the
Premises. If Tenant installs any electrical or other equipment which
overloads the lines in the Premises, Tenant shall at its own expense
make whatever changes are necessary to comply with the requirements of
Landlord's insurance.
(d) Tenant shall be responsible for all glass breakage at
Leased Premises from any cause whatsoever and agrees to immediately
replace all glass broken or damaged during the terms hereof with glass
of the same quality as that broken or damaged. Landlord may replace, at
Tenant's expense, any broken or damaged glass if not replaced by Tenant
within five (5) days after such damage.
(e) Tenant shall reimburse to Landlord Tenant's share of
casualty insurance provided by Landlord pursuant to subsection (a)
above in the manner set forth in Section 3.03 herein.
SECTION 11.03 WAIVER OF SUBROGATION. Each party hereto does hereby
release and discharge the other party hereto and any officer, agent, employee or
representative of such party, of and from any liability whatsoever hereafter
arising from loss, damage or injury caused by fire or other casualty for which
insurance (permitting waiver of liability and containing a waiver of
subrogation) is carried by the injured party at the time of such loss, damage or
injury to the extent of any recovery by the injured party under such insurance.
ARTICLE XII UTILITY CHARGES
SECTION 12.01 UTILITY CHARGES. Landlord shall install all utility
systems and shall have electricity and gas sub-metered or monitored such that
Tenant shall pay only for actual electrical and gas usage at the Leased
Premises. Water and sewer charges shall be included in common area maintenance
pursuant to Section 8.O3 Landlord shall pay all utility charges to utility
companies promptly when due, but Tenant shall pay to Landlord its actual share
within ten (10) days after invoice by Landlord. Tenant shall pay for all
telephone installation, equipment and monthly use charges. If utility
companies bill Tenant direct for separately metered utility charges, Tenant
agrees to pay when due all such charges direct to the utility company.
<PAGE>
ARTICLE XIII OFF-SET STATEMENT, ATTORNMENT AND SUBORDINATION
SECTION 13.01 OFF-SET STATEMENT. Tenant agrees within ten (10) days
after request therefor by Landlord to execute in recordable form and deliver
to Landlord a statement in writing, certifying (a) that this Lease is
in full force and effect (b) the date of commencement of the Rental Term of
this Lease, (c) that rent is paid currently without any off-set or defense
thereto, (d) the amount of rent, if any paid in advance. and (e) that there
are no uncured defaults by Landlord or stating those claimed by Tenant.
SECTION 13.02 ATTORNMENT. Tenant shall, in the event any proceedings are
brought for the foreclosure of, or in the event of exercise of the power of
sale under any mortgage or deed of trust made by Landlord covering the
Premises, attorn to the purchaser upon any such foreclosure or sale and
recognize such purchaser as the Landlord under this Lease.
SECTION 13.03 SUBORDINATION. Tenant agrees that this Lease shall, at the
request of Landlord, be subordinate to any first mortgages or deeds of trust
that may hereafter be placed upon said Premises and to any and all
advances to be made thereunder, and to the interest thereon, and all renewals,
replacements and extensions thereof, provided the mortgagees or trustees named
in said mortgages or deeds of trust shall agree to recognize and not disturb
the Lease of Tenant in the event of foreclosure, if Tenant is not in default.
SECTION 13.04 MORTGAGEE SUBORDINATION. Tenant hereby agrees that this
Lease shall, if at any time requested by Landlord or any lender in respect to
Landlord's financing of the building or project in which the Premises are
located or any portion hereof, be made superior to any mortgage or deed of
trust that may have preceded such Lease.
SECTION 13.05 REMEDIES. Tenant hereby irrevocably appoints Landlord as
attorney-in-fact for the Tenant with full power and authority to execute and
deliver in the name of the Tenant any such instruments described in this
Article XIII upon failure of the Tenant to execute and deliver any of the
above instruments within fifteen (15) days after written request so to do by
Landlord; and such failure shall constitute a breach of this Lease entitling
the Landlord, at its option, to cancel this Lease and terminate the Tenant's
interest therein.
<PAGE>
ARTICLE XIV ASSIGNMENT
SECTION 14.01 ASSIGNMENT. Tenant shall not assign this Lease or sublet
the Premises, or any part thereof, without first obtaining the written consent
of the Landlord, which consent shall not be unreasonably withheld. The consent
of Landlord shall not relieve Tenant or Guarantors of this Lease from continuing
liability for all obligations under this Lease. Any Assignment by operation of
law or if the Tenant be a corporation, unincorporated association or
partnership, the transfer, assignment or hypothecation of any stock or interest
in such corporation, association or partnership in the aggregate in excess of
50% shall be deemed an "Assignment" within the meaning of this Section.
ARTICLE XV WASTE OR NUISANCE
SECTION 15.01 WASTE OR NUISANCE. Tenant shall not commit or suffer to
be committed any waste upon the Premises, or any nuisance or other act or thing
which may disturb the quite enjoyment of any other tenant in the building in
which the Premises may be located, or elsewhere within the Building.
ARTICLE XVI NOTICES
SECTION 16.01 NOTICES. Except as provided in Section 19.01 any notice
required or permitted hereunder to be given or transmitted between the parties
shall be either personally delivered, or mailed postage prepaid by registered
mail, return receipt requested, addressed if to Tenant at the address set forth
in Section 1.01(E), and if to Landlord at the address set forth in Section
1.01(C). Either party may, by notice to the other given as prescribed in this
Section 16.01, change its above address for any future notices which are mailed
under this Lease.
ARTICLE XVII DESTRUCTION OF THE PREMISES
SECTION 17.01 DESTRUCTION.
(a) If the Premises are partially or totally destroyed by fire
or other casualty insurable under standard fire insurance policies with
extended coverage endorsement so as to become partially or totally
untenantable, the same shall be repaired or rebuilt as speedily as
practical under the circumstances at the expense of the Landlord,
unless Landlord elects not to repair or rebuild as provided in
Subsection (b) of this Section 17.01. During the period required for
restoration, a just and proportionate part of Base Rent, additional
rent and other charges payable by Tenant hereunder shall be abated
until the Premises are repaired or rebuilt.
(b) If the Premises are (I) rendered totally untenantable by
reason of an occurrence described in Subsection (a), or (II) damaged or
destroyed as a result of a risk which is not insured under Landlord's
fire insurance policies, or (III) at least twenty percent (20%) damaged
or destroyed during the last year of the Rental Term, or (IV) if the
Building is damaged in whole or in part (whether or not the Premises
are damaged), to such an extent that Tenant cannot practically use the
Premises for its intended purpose, then and in any such events Landlord
or Tenant may at its option terminate this Lease Agreement by notice in
writing to the Tenant within sixty (60) days after the date of such
occurrence. Unless Landlord gives such notice, this Lease Agreement
will remain in full force and effect and Landlord shall repair such
damage at its expense as expeditiously as possible under the
circumstances.
<PAGE>
(c) If Landlord should elect or be obligated pursuant to
Subsection (a) above to repair or rebuild because of any damage or
destruction, Landlord's obligation shall be limited to the original
Building any other work or improvements which may have been originally
performed or installed at Landlord's expense. If the cost of performing
Landlord's obligation exceeds the actual proceeds of insurance paid or
payable to Landlord on account of such casualty, Landlord may terminate
this Lease Agreement unless Tenant, within fifteen (15) days after
demand therefor, deposits with Landlord a sum of money sufficient to
pay the difference between the cost of repair and the proceeds of the
insurance available for such purpose Tenant shall replace all work and
improvements not originally installed or performed by Landlord at its
expense.
(d) Except as stated in this Article XVII and as otherwise
provided in this Lease, Landlord shall not be liable for any loss or
damage sustained by Tenant by reason of casualties mentioned
hereinabove or any other accidental casualty.
ARTICLE XVIII CONDEMNATION
SECTION 18.01 CONDEMNATION. As used in this Section the term
"Condemnation Proceeding" means any action or proceeding in which any interest
in the Premises or Building is taken for any public or quasi-public purpose by
any lawful authority through exercise of the power of eminent domain or right of
condemnation or by purchase or otherwise in lieu thereof. If the whole of the
Premises is taken through Condemnation Proceedings, this Lease shall
automatically terminate as of the date possession is taken by the condemning
authority. If in excess of twenty-five (25%) percent of the Premises is taken,
either party hereto shall have the option to terminate this Lease by giving the
other written notice of such election at any time within thirty (30) days after
the date of taking. If less than twenty-five (25%) percent of the space is taken
and Landlord determines, in Landlord's sole discretion, that a reasonable amount
of
<PAGE>
reconstruction thereof will not result in the Premises or the Building
becoming a practical improvement reasonably suitable for use for the purpose for
which it is designed, then Landlord may elect to terminate this Lease Agreement
by giving thirty (30) days written notice as provided hereinabove. In all other
cases, or if neither party exercises its option to terminate, this Lease shall
remain in effect and the rent payable hereunder from and after the date of
taking shall be proportionately reduced in proportion to the ratio of: (1) the
area contained in the Premises which is capable of occupancy after the taking;
to (II) the total area contained in the Premises which was capable of occupancy
prior to the taking. In the event of any termination or rental reduction
provided for in this Section, there shall be a proration of the rent payable
under this Lease and Landlord shall refund any excess theretofore paid by
Tenant. Whether or not this Lease is terminated as a consequence of Condemnation
Proceedings, all damages or compensation awarded for a partial or total taking,
including any sums compensating Tenant for diminution in the value of or
deprivation of its leasehold estate, shall be the sole and exclusive property of
Landlord, except that Tenant will be entitled to any awards intended to
compensate Tenant for expenses of locating and moving Tenant's operations to a
new space.
ARTICLE XIX DEFAULT OF TENANT
SECTION 19.01 DEFAULT - RIGHT TO RE-ENTER. In the event of any failure
of Tenant to pay any rental due hereunder within ten (10) days after written
notice that the same is past due shall have been mailed by certified mail to
Tenant, or any failure by Tenant to perform any other of the terms, conditions
or covenants required of Tenant by this Lease within thirty (30) days after
written notice of such default shall have been mailed by certified mail to
Tenant, or if Tenant shall abandon said Premises, or permit this Lease to be
taken under any writ of execution, then Landlord, besides other rights or
remedies it may have, shall have the right to declare this Lease terminated and
shall have the immediate right of re-entry and may remove all persons and
property from the Premises. Such property may be removed and stored in a public
warehouse or elsewhere at the cost of and for the account of Tenant, without
evidence of notice or resort to legal process and without being deemed guilty of
trespass, or becoming liable for any loss or damage which may be occasioned
thereby. Tenant hereby waives all compensation for the forfeiture of the term or
its loss of possession of the Premises in the event of the forfeiture of this
Lease as provided for above. Any notice that Landlord may desire or is required
to give Tenant with reference to the foregoing provision may, in lieu of
mailing, at the option of Landlord, be conspicuously posted for ten (10)
consecutive days at the main entrance to or in front of the Premises, and such
notice shall constitute a good, sufficient, and lawful notice for the purpose of
declaring a forfeiture of this Lease and for terminating all of the rights of
the Tenant hereunder.
<PAGE>
SECTION 19.02 DEFAULT - RIGHT TO RE-LET. Should Landlord elect to
re-enter, as herein provided, or should it take possession pursuant to legal
proceedings or pursuant to any notice provided for by law, it may either
terminate this Lease or it may from time to time, without terminating this
Lease, make such alterations and repairs as may be necessary in order to relet
the Premises, and may relet said Premises or any part thereof for such term or
terms (which may be for a term extending beyond the term of this Lease) and at
such rental or rentals and upon such other terms and conditions as Landlord in
its sole discretion may deem advisable. Upon each such reletting, all rentals
received by Landlord from such reletting shall be applied first to the payment
of any costs and expenses of such reletting, including brokerage fees and
attorney's fees and costs of such alterations and repairs; second, to the
payment of rent or other unpaid obligations due hereunder; and the residue, if
any, shall be held by Landlord and applied in payment of future rent as the same
may become due and payable hereunder. If such rental received from such
reletting during any month be less than that to be paid during that month by
Tenant hereunder, Tenant shall pay any such deficiency to Landlord. Such
deficiency shall be calculated and paid monthly. No such re-entry or taking
possession of said Premises by Landlord shall be construed as an election on its
part to terminate this Lease unless a written notice of such intention be given
to Tenant or unless the termination thereof be decreed by a court or competent
jurisdiction. Notwithstanding any such reletting without termination, Landlord
may at any time elect to terminate this Lease for such previous default. Should
Landlord at any time terminate this Lease for any default, in addition to any
other remedies it may have, it may recover from Tenant all damages it may incur
by reason of such default, including the cost of recovering the Premises,
reasonable attorney's fees, and including the worth at the time of such
termination of the excess, if any, of the amount of rent and charges equivalent
to rent reserved in this Lease for the remainder of the stated term over the
then reasonable rental value of the Premises for the remainder of the stated
term, all of which amounts shall be immediately due and payable.
SECTION 19.03 LEGAL EXPENSES. In case of default by either party in the
performance and obligations under this Lease, the defaulting patty shall pay all
costs incurred in enforcing this Lease, or any right arising out of such
default, whether by suit or otherwise, including a reasonable attorney's fee.
ARTICLE XX BANKRUPTCY, INSOLVENCY OR RECEIVERSHIP
SECTION 20.01 ACT OF INSOLVENCY, GUARDIANSHIP, ETC. The following shall
constitute a default of this Lease by the Tenant for which Landlord, at
Landlord's option, may immediately terminate this Lease.
(a) The appointment of a receiver to take possession of all or
substantially all of the assets of the Tenant.
(b) A general assignment by the Tenant of his assets for the
benefit of creditors.
(c) Any action taken or suffered by or against the Tenant
under any federal or state insolvency or bankruptcy act.
<PAGE>
(d) The appointment of a guardian, conservator, trustee, or
other similar officer to take charge of all or any substantial part of
the Tenant's property.
Neither this Lease, nor any interest therein nor any estate thereby
created shall pass to any trustee, guardian, receiver or assignee for the
benefit of creditors or otherwise by operation of law.
ARTICLE XXI LANDLORD ACCESS
SECTION 21.01 LANDLORD ACCESS. Landlord or Landlord's agent shall have
the right to enter the Premises at all reasonable times to examine the same, or
to show them to prospective purchasers or lessees of the Building, or to make
all repairs, alterations, improvements or additions as Landlord may deem
necessary or desirable, and Landlord shall be allowed to take all material into
and upon said Premises that may be required therefor without the same
constituting an eviction of Tenant in whole or in part, and rent shall not abate
while said repairs, alterations, improvements, or additions are being made, by
reason of loss or interruption of business of Tenant, or otherwise which shall
not materially affect Tenant. During the ninety days prior to the expiration of
the Rental Term of this Lease or any renewal term, Landlord may exhibit the
Premises to prospective tenants and place upon the Premises the usual notices
"To Let" or "For Rent" which notices Tenant shall permit to remain thereon
without molestation.
ARTICLE XXII LANDLORD'S LIEN
SECTION 22.01 LANDLORD'S LIEN. Tenant hereby grants to Landlord a lien
upon the improvements, trade fixtures and furnishings of Tenant to secure full
and faithful performance of all of the terms of this Lease.
ARTICLE XXIII HOLDING OVER
SECTION 23.01 HOLDING OVER. Any holding over after the expiration of
the Rental Term hereof shall be construed to be a tenancy at sufferance and all
provisions of this Lease Agreement shall be and remain in effect except that the
monthly rental shall be double the amount of rent (including any adjustments as
provided herein) payable for the last full calendar month of the Rental Term
including renewals or extensions. Notwithstanding the aforementioned double rent
penalty, should Tenant and Landlord agree to construct or lease another building
to the Tenant, this penalty can be waived.
SECTION 23.02 SUCCESSORS. All rights and liabilities herein given to,
or imposed upon, the respective parties hereto shall extend to and bind the
several respective heirs, executors, administrators, successors and assigns of
the said parties; and if there shall be more than one tenant, they shall all be
bound jointly and severally by the terms, covenants and agreements herein. No
rights, however, shall inure to the benefit of any assignee of Tenant unless the
assignment to such assignee has been approved by Landlord in writing.
<PAGE>
ARTICLE XXIV RULES AND REGULATIONS
SECTION 24.01 RULES AND REGULATIONS. Tenant shall comply with all
reasonable rules and regulations which are now or which may be hereafter
prescribed by the Landlord and posted in or about said Premises or otherwise
brought to the notice of the Tenant, both with regard to the project as a whole
and to the Premises including common facilities.
ARTICLE XXV QUIET ENJOYMENT
SECTION 25.01 QUIET ENJOYMENT. Upon payment by the Tenant of the rents
herein provided, and upon the observance and performance of all the covenants,
terms and conditions on Tenant's part to be observed and performed, Tenant shall
peaceably and quietly hold and enjoy the Premises for the term hereby demised
without hindrance or interruption by Landlord or any other person or persons
lawfully or equitably claiming by, through or under the Landlord, subject,
nevertheless, to the terms and conditions of this Lease and actions resulting
from future eminent domain proceedings and casualty losses.
ARTICLE XXVI SECURITY DEPOSIT
SECTION 26.01 SECURITY DEPOSIT. The Landlord herewith acknowledges
receipt of the amount set forth in Section 1.01(Q), which it is to retain as
security for the faithful performance of all the covenants, conditions and
agreements of this Lease, but in no event shall the Landlord be obliged to apply
the same upon rents or other charges in arrears or upon damages for Tenant's
failure to perform the said covenants, conditions and agreements. The Landlord
may so apply the security, at its option, and the Landlord's right to possession
of the Premises for non-payment of rent or for any other reason shall not in any
event be affected by reason of the fact that the Landlord holds this security.
The said sum, if not applied toward the payment of rent in arrears or toward the
payment of damages suffered by the Landlord by reason of the Tenant's breach of
the covenants, conditions and agreements of this Lease, is to be returned to the
Tenant without interest when this Lease is terminated,according to these terms,
and in no event is the said security to be returned until the Tenant has vacated
the Premises and delivered possession to the Landlord.
In the event that the Landlord repossesses the Premises because of the
Tenant's default or because of the Tenant's failure to carry out the covenants,
conditions and agreements of this Lease, the Landlord may apply the said
security toward damages as may be suffered or shall accrue thereafter by reason
of the Tenant's default or breach. The Landlord shall not be obligated to keep
the said security as a separate fund, but may mix the said security with its own
funds.
ARTICLE XXVII MISCELLANEOUS PROVISIONS
SECTION 27.01 WAIVER. No failure on the part of Landlord to enforce any
covenant or provision of this Lease shall discharge or invalidate such covenant
or provision or affect the right of Landlord to enforce the same in the event of
any subsequent breach. One or more waivers of any covenant or condition by
Landlord shall not be construed as a waiver of a subsequent breach of the same
covenant or condition and the consent to or approval of any subsequent similar
act by Tenant. No breach of a covenant or condition of this Lease shall be
deemed to have been waived by Landlord, unless such waiver be in writing signed
by Landlord.
<PAGE>
SECTION 27.02 ENTIRE AGREEMENT. This Lease constitutes the entire
Agreement and understanding between the parties hereto and supersedes all prior
discussions, understandings and agreements. This Lease may not be altered or
amended except by a subsequent written agreement executed by all parties.
SECTION 27.03 FORCE MAJEURE. Any failure to perform or delay in
performance by either party of any obligation under this Lease. other than
Tenant's obligation to pay rent, shall be excused if such failure or delay is
caused by any strike, lockout, governmental restriction or any similar cause
beyond the control of the party so failing to perform, to the extent and for the
period that such continues.
SECTION 27.04 LOSS AND DAMAGE . Except as otherwise provided in this
Lease, the Landlord shall not be responsible or liable to tile Tenant for any
loss or damage that may be occasioned by or through the acts or omissions of
persons occupying all or any part of the premises adjacent to or connected with
the Premises or any part of the building of which the Premises are a part, or
for any loss or damage resulting to the Tenant or his property from bursting,
stoppage or leaking of water, gas sewer or steam pipes or for any damage or loss
of property within the Premises from any cause whatsoever.
SECTION 27.05 ACCORD AND SATISFACTION. No payment by Tenant or receipt
by Landlord of a lesser amount than the amount owing hereunder shall be deemed
to be other than on account of the earliest stipulated amount receivable from
Tenant, nor shall any endorsement or statement on any check or any letter
accompanying any check or payment as rent be deemed an accord and satisfaction,
and Landlord may accept such check or payment without prejudice to Landlord's
right to recover the balance of such rent or receivable or pursue any other
remedy available under this Lease or the law of the state where the Premises are
located.
SECTION 27.06 NO OPTION. The submission of this Lease for examination
does not constitute a reservation of or option for the Premises and this Lease
becomes effective as a lease only upon full execution and delivery thereof by
Landlord and Tenant.
SECTION 27.07 ANTI-DISCRIMINATION. Tenant herein covenants by and for
itself, its heirs, executors, administrators and assigns and all persons
claiming under or through it, and this Lease is made and accepted upon and
subject to the following conditions That there shall be no discrimination
against or segregation of any person or group of persons on account of race,
sex, marital status, color, creed, national origin or ancestry, in the leasing,
subleasing, assigning, use, occupancy, tenure or enjoyment of the Premises, nor
shall the Tenant itself, or any person claiming under or through it, establish
or permit any such practice or practices of discrimination or segregation with
reference to the selection, location, number, use or occupancy of tenants,
lessees, sublessees, or subtenants in the Premises.
SECTION 27.08 SEVERABILITY. If any term, covenant or condition of this
Lease or the application thereof to any person or circumstance shall be invalid
or unenforceable to any extent, the remainder of this Lease, or the application
of such term, covenant or condition to persons or circumstances other than those
as to which it is held invalid or unenforceable, shall not be affected thereby
and each term, covenant or condition of this Lease shall be valid and be
enforced to the fullest extent permitted by law.
SECTION 27.09 OTHER MISCELLANEOUS PROVISIONS. This instrument shall not
be recorded without the prior written consent of Landlord; however, upon the
request of either party hereto, the other party shall join in the execution of a
memorandum or "short form" lease for recording purposes which memorandum shall
describe the parties, the Premises, the Rental Term and shall incorporate this
Lease by reference, and may include other special provisions. The captions which
precede the Sections of this Lease are for convenience only and shall in no way
affect the manner in which any provisions hereof is construed. In the event
there is more than one Tenant hereunder, the liability of each shall be joint
and several. This instrument shall be governed by and construed in accordance
with the laws of the State wherein the Premises are located. Words of any gender
used in this Lease shall be held to include any other gender, and words in the
singular number shall be held to include the plural when the sense requires.
Time is of the essence of this Lease and every term, covenant and condition
herein contained.
SECTION 27.10 REPRESENTATION REGARDING AUTHORITY. The persons who have
executed this Agreement represent and warrant that they are duly authorized to
execute this Agreement in their individual or representative capacity as
indicated.
<PAGE>
IN WITNESS WHEREOF, Landlord and Tenant have executed and delivered this
Lease as of the day and year first above written.
TENANT: LANDLORD:
ELECTRONIC TECHNOLOGY CORP. PRACVEST, A UTAH GENERAL PARTNERSHIP
By: William E Chipman Sr. By: /s/ W. Richards Woodbury
- ------------------------- ---------------------------------------
William E Chipman Sr. W. Richards Woodbury, Attorney-in-Fact
Director and Chief Financial Officer
By: /s/ Orin R. Woodbury
---------------------------------------
Orin R. Woodbury, Attorney-in-Fact
LANDLORD ACKNOWLEDGMENT
STATE OF UTAH )
)ss.
COUNTY OF SALT LAKE )
On this 21st day of May, 1995 before me personally appeared W.
RICHARDS WOODBURY and ORIN R WOODBURY to me personally known who being by me
duly sworn did each for himself say that he is Attorney In Fact for that
certain partnership known as PRACVEST and that the within instrument was
executed by them for and on behalf of said partnership.
O. Randall Woodbury
-----------------------------------------
Notary Public
TENANT ACKNOWLEDGEMENT
(CORPORATE)
STATE OF UTAH )
)ss.
COUNTY OF UTAH )
On this 17 day of May, 1995, before me personally appeared WILLIAM E CHIPMAN,
known to me to be the Director and Chief Financial Officer , of ELECTRONIC
TECHNOLOGY CORP., the corporation that executed the within instrument, known
to me to be the person who executed the within instrument on behalf of the
corporate therein named, and acknowledged to me that such corporation executed
the within instrument pursuant to its bylaws or a resolution of its board of
directors.
Melvin A. Clement
-----------------------------------------
Notary Public
<PAGE>
GUARANTY
TO INDUCE PRACVEST, a Utah general partnership, to enter into that
certain Lease Agreement dated the 17th day of May, 1995, by and between
PRACVEST, a Utah general partnership, and ELECTRONIC TECHNOLOGY CORP, William
E. Chipman,Sr. hereby guarantees to PRACVEST a Utah general partnership, the
Landlord, and its successors and assigns the due and punctual payment of all
rent thereunder, and the performance of all covenants, conditions and
agreements to be paid or performed by Tenant in or under the foregoing Lease.
The undersigned jointly and severally waive any demand for performance
upon Tenant and any notice to the undersigned of non-payment or
non-performance by Tenant and hereby waive all suretyship defenses The
undersigned further consents to any indulgences granted or allowed to Tenant,
including but not limited to granting of extensions of times for payment or
taking of any notes or other obligations or any security for payment of sums
due or to become due, without notice to the undersigned and without thereby in
any manner releasing or affecting the liability of the undersigned.
DATED May 17, 1995
/s/ William E Chipman, Sr.
-----------------------------------------
William E Chipman, Sr.
STATE OF UTAH )
)ss.
COUNTY OF )
On this 17 day of May, 1995, personally appeared before me William E. Chipman,
Sr., signer of the foregoing instrument, who duly acknowledged to me that he
executed the same.
Melvin A. Clement
-----------------------------------------
Notary Public
<PAGE>
PICTURE OF FLOOR PLAN
<PAGE>
PICTURE OF POWER PLAN
<PAGE>
PICTURE REFLECTED CEILING PLAN
<PAGE>
PICTURE OF UTAH VALLEY BUSINESS PARK
<PAGE>
EXHIBIT "B"
LEGAL DESCRIPTION
Lots 15 and 16 of Plat G, Utah Valley Business Park Subdivision.
<PAGE>
EXHIBIT "C"
LANDLORD'S WORK
The following is a description of the construction, and limitations of same,
which will be provided exclusively by the Landlord at Landlord's expense unless
indicated otherwise herein. The basic site, exterior common area, and building
shell improvements are existing or will be provided by Landlord in accordance
with plans and specifications, prepared by Landlord's Architect, and shall be of
a type and quality indicated herein or determined by Landlord's Architect. Where
two types of materials, structures, or installations are indicated, the option
will be exclusively with the Landlord.
A. SITE WORK
1. Perform all earthwork, excavation, grading, and preparation of
building pads and parking lot areas to receive final finishes.
2. Install new curb, sidewalks, landscaping, underground sprinkler
systems, and other improvements as indicated on site plans and in
planters around the perimeter of the building.
3. Install all parking lot improvements, asphalt paving, striping, and
signage.
4. Install parking lot drainage, retention, and other site utilities,
including installation of pole and/or building mounted parking lot
lighting.
B. UTILITY DISTRIBUTION SYSTEMS EXTERIOR TO THE PREMISES
1. Provide all utility mains including culinary water, fire protection,
storm drainage, sanitary sewer, gas, electrical, and telephone and
install in accordance with the governing municipal and utility company
standards.
2. Extend power and telephone mains to electrical rooms and provide
distribution panels at a central location as more specifically
described in Paragraph I.E. of this Exhibit.
C. BUILDINGS
1. Construct a one-story building consisting steel and/or wood framed
structural support members on continuous concrete or spot footings of
the shape, size, and configuration as shown on Exhibit "A". All work
to be in accordance with plans and specifications prepared by
Landlord's Architect.
2. The exterior envelope shall consist of integrally colored or painted
of 4" x 8" x 16" clay or concrete masonry units in combination with
fixed glass and aluminum window framing and entrance door system.
Configuration and design of windows, masonry units, and other exterior
finishes to be as determined by Landlord's Architect. Roof to be
constructed of single-ply, PVC or EPDM membrane system over rigid
insulation.
3. Landlord shall install demising partitions which shall be one-hour
fire-rated and constructed of masonry or steel studs and 5/8" gypsum
board. Such partitions shall extend from floor to underside of roof or
floor construction above.
D. COMMON AREAS, LOBBIES, CORRIDORS, AND RESTROOMS
1. Each occupant will generally have independent restrooms, entrances,
and exits serving its Leased Premises. Common lobbies, corridors, and
restrooms are not anticipated but may be provided at Landlord's option
where deemed necessary to serve building occupants.
2. Provide mechanical and/or service and equipment areas including
walkways, trash rooms, janitors rooms, electrical rooms, and shafts.
3. Landlord reserves the right to make any additional changes,
modifications, alterations, or additions to common areas utilizing a
design and materials as determined appropriate by Landlord's Architect
to achieve overall building design schemes developed by Landlord's
Architect.
<PAGE>
E. LANDLORD'S WORK WITHIN THE PREMISES
1. Basic functional main utility lines and systems shall be brought to
restrooms, mechanical equipment, and electrical panels within the
Leased Premises as follows:
a. Water: Provided in restrooms, janitor's rooms, mechanical rooms,
drinking fountains, etc.
b. Sewer: Provided except in restrooms, janitor's rooms, mechanical
rooms, drinking fountains, etc.
C. Electrical Service: shall be 120/208 volt 3-phase service.
Landlord shall either provide for a separate electrical
disconnect panel within tenant space with main power extending
therefrom to building central panels, or power shall be
provided from tenant space directly to building central panels at
Landlord's option.
d. Gas: Provided as required for boilers, HVAC equipment.
e. Telephones: None provided except for main service to electrical
rooms.
2. Landlord will provide functional packaged heating and air conditioning
roof-top units, sized, positioned, and zoned as required and supply
and return air duct distribution system, grilles,
Page 1
<PAGE>
diffusers, and controls within each lease space. System shall be
designed to maintain 72 degrees F. indoor at 95 degrees F., outdoor
summer condition; and 70 degrees F. indoor at O degrees F., outdoor
winter condition. All work will be installed in accordance with good
engineering practice based on the exposure and areas served.
3. Landlord shall provide handicapped accessible and equipped restrooms
within Leased Premises. Restrooms shall include complete hot and cold
water service, number and type of fixtures, finishes, and accessories
as indicated below. All work to be installed in accordance with
applicable laws and codes.
a. Fixtures - Provide quantity required by code. To include ceramic
floor-mounted, tank-type water closets; matching ceramic
urinals; recessed ceramic vanities in counter-top with
brass-bodied, chrome plated hardware.
b. Accessories - Provide steel, floor-mounted bathroom partitions or
wall-hung privacy screens between water closet compartments and
urinals. Also, provide handicap grab bars, toilet paper holders,
soap dispensers, paper towel dispensers, and vanity mirrors as
required by code and to serve each restroom.
c. Finishes - Provide 4'-0" high, plastic laminate or marlite
wainscot on all walls with painted sheetrock walls and ceilings
above. Floor to have vinyl composition tile and 4" covered vinyl
base. Cabinet bases and counter-tops to be as indicated
elsewhere.
4. Landlord shall provide a complete fire sprinkler system throughout in
accordance with NFPA #13 including risers, valves, fire department
connections, alarms, main and branch piping, drops, and heads. System
to be based on the layout as shown in Exhibit A.
5. Landlord shall provide additional improvements and finishes within the
Premises as indicated below and as shown on attached Exhibit A Floor
Plan, Reflected Ceiling Plan, and Power Plan. Any work that is
otherwise required to place the Premises in a finished occupiable
condition shall be provided by Tenant in accordance with Design and
Construction Standards.
a. Interior Partitioning: 8 - 9 ft. high partitions extending to
underside of ceiling with 5/8" or 1/2" gypsum board each side,
fire-taped and painted.
b. Paint and Wall Covering: Landlord shall provide a 3-coat paint
application on all demising walls and Landlord provided interior
partitions. Color to be at Tenant's option. Two different colors
can be used but only one color per wall.
c. Interior Doors and Hardware: Landlord shall provide 3'-0" x
6'8" solid core wood doors with hollow metal or wood frame at
Landlord's option, stained and finished on all interior doors
shown on plan. Hardware will typically include 1-1/2 pair hinges,
door stop, and commercial grade lockset.
d. Entrance Doors and Hardware: Landlord shall provide 3'-0" x
7'-0" glass and aluminum door and frame together with 1-1/2"
pair hinges, door stop, closer, and mortise type lockset with
deadbolt for all exterior entrance and exit doors. Where a
exterior door is for service use only, Landlord may provide a
standard, painted, hollow-metal door and frame.
e. Millwork: Landlord will provide plastic laminate counter-top with
4" back-splash and base cabinets in restrooms and breakroom as
shown on Floor Plan. At Landlord's option, wood casings and/or
base matching color and finish of wood doors may be used around
doors and windows or in other locations where deemed advisable by
Landlord's Architect.
f. Electrical: Landlord shall provide overhead lighting, switches,
duplex outlets, and phone outlets as shown on Power Plan and
Reflected Ceiling Plan. Light fixtures to be 2'0" x 4'0"
standard recessed 3-tube light fixture with acrylic tenses or
8'0" strip lights as applicable. Light switches and outlets to
be standard ivory colored 20 amp devices or the quantity shown on
plan or of any other type specifically indicated. Empty telephone
junction outlets extending to ceiling plenum to be provided where
shown.
<PAGE>
g. Window Coverings: Landlord shall provide 1-inch mini-blinds of a
uniform type and color on all exterior windows.
h. Floor Coverings: Landlord shall provide 26 oz. level-loop carpet
directly glued to floor throughout the Premises except in the
product assembly area. Restrooms and equipment rooms to have
vinyl composition tile. Color at Tenant's option, selected from
manufacturer's standard line for the type of carpet provided.
i. Wall Base: Landlord shall provide 4-inch high, straight vinyl
base on all carpeted and VCT floors at Landlord provided
partitions. Color at Tenant's option, selected from
manufacturer's standard line.
j. Ceilings: Landlord shall provide a standard 2'0" x 4'0",
suspended acoustical lay-in ceiling system and grid where shown
on plan. Landlord may provide suspended gypsum board ceilings
where deemed advisable by Landlord's Architect in lieu of
standard 2'0" x 4'0" ceiling. Other areas to remain unfinished.
6. Locating of Landlord's Work Within the Premises.
a. In addition to any rights that Landlord or other building
occupants might have through the Restrictions, Rules, and
Covenants related to this project, Landlord and other Tenants
shall have the right to locate utility mains and other facilities
within the Premises, when such location is dictated by
necessities of engineering design, good practice, and/or code
requirements. These shall be located, wherever possible, in
ceiling plenums and walls or so as to cause the minimum of
interference with the Tenant and to be unobtrusive in appearance,
and so as not to materially interfere with Tenant's business or
use of space.
Page 2
<PAGE>
b. This right to locate work within the Premises shall include the
right to locate work in ceiling plenum areas between finished
ceiling and roof or floor deck above, as well as on the roof or
under the roof thereof.
c. Facilities may include, but are not necessarily limited to:
drains, water supply, sewerage lines, refrigerant lines,
sprinkler risers, electric power circuits, telephone circuits,
pump stations, electric panel boards, sanitary vents, air supply,
ducts and shafts, exhaust ducts, and flues servicing other
building occupants.
d. Such areas shall be located adjacent to an interior wall and
shall in no event exceed 1.0% of the floor area.
7. Construction plans and specifications will be prepared by Landlord's
Architect showing final location of all partitions, doors, ceiling
layout, etectrical fixtures and outlets, heating and air conditioning
diffusers, and other construction within the Leased Premises. All
plans shall be subject to Tenant's approval. Landlord will not
commence with Tenant finish construction prior to obtaining Tenant's
approval of finish plans. Landlord may make minor deviations to the
approved plan where deemed necessary by Landlord's Architect due to
site conditions or where good engineering and design may so dictate
provided the aesthetic effect or function of the space is not
materially altered.
Page 3
<PAGE>
EXHIBIT "D"
TENANT'S WORK
A. GENERAL
1. Any work which is not specifically described as being Landlord's work
herein but which is required to complete and place the premises in a
finished condition shall be done by Tenant at Tenant's cost and in
full accordance with Design and Construction Standards.
2. Tenant's work shall include all design, finishes, decorating,
equipment, furniture and any other costs or fees required to complete
construction or obtain occupancy permits, business licenses, or
utility services except as specifically required to be performed by
Landlord herein.
3. Tenant may not enter upon premises to commence Tenant's work or to
deliver fixtures or equipment prior to substantial completion of
Landlord's work within the premises except with prior written approval
of Landlord. If so permitted, such entry shall not be deemed an
acceptance by the Tenant of possession of the premises, but in such
event Tenant shall hold Landlord and Landlord's General Contractor
harmless for any loss or damage to Tenant's property, fixtures, or
equipment and for injury to any persons, unless same be directly
caused by the wanton negligence of Landlord or its agents or its
General Contractor.
4. Tenant will provide Landlord with all necessary information with
respect to space needs, equipment requirements, and other special
conditions or provisions that must be planned for. Such information
shall be provided promptly at Landlord's request.
B. PLANS AND SPECIFICATIONS
1. Tenant will provide plans, drawings, or other necessary information to
Landlord's Architect with respect to space layout needs, electrical
and mechanical criteria, and with respect to special requirements and
additional improvements to be provided by Tenant. Tenant shall pay an
architectural fee equal to 6% of the value of all construction costs
for Tenant provided work or work exceeding the allowances provided by
Landlord.
2. Landlord shall make changes to preliminary plans as requested by
Tenant. Any changes, modifications, or additions to plans requested by
Tenant thereafter may be made prior to proceeding with construction.
However, to the extent that such changes require re-engineering or
material alterations to construction drawings, Tenant shall pay for
the cost of making such changes or modifications.
3. From approved preliminary plans, Landlord shall prepare final
construction drawings and perform the necessary engineering,
circuiting design, HVAC distribution design, and other details
required for construction of the Leased Premises.
4. Landlord shall submit final construction drawings to Tenant for review
and approval. Construction of Tenant improvements may commence only
after completion of construction drawings by Landlord's Architect and
final approval by Tenant.
5. Where possible, Landlord will provide to Tenant for approval a cost of
all Tenant work prior to proceeding with construction. However,
Landlord may proceed with such work prior to obtaining cost where it
is necessary in order to maintain construction progress.
6. Tenant shall pay for the cost of all changes, modifications, or
alterations in approved drawings or construction requested by Tenant
after completion of final construction drawings.
7. Any questions, clarifications, or interpretations regarding design
criteria, plans, or specifications and all submissions for approval
shall be directed to Landlord at 2677 East Parley's Way, SLC, UT,
84109, Attention: Lynn S. Woodbury.
8. At Tenant's option, Tenant may separately prepare additional drawings
describing Tenant construction or additional improvements not provided
by Landlord. In such event, all such drawings shall be submitted to
Landlord's Architect for approval prior to Tenant proceeding with such
work.
<PAGE>
C. CONSTRUCTION BY TENANT CONTRACTORS
1. Where initial construction is to be performed by Tenant and Landlord
is paying an agreed upon allowance toward the cost of the construction
of Tenant's work, the Tenant and Tenant's contractors will be
responsible for the entire cost of the work, including the cost of
permits, fees, and other general conditions as described in the
General Construction Requirements.
2. Tenant's contractors shall conform with the General Construction
Requirements herein, secure necessary permits and be responsible for
any damage to basic building systems caused by or incidental to its
work.
3. Upon completion, Landlord shall inspect and upon verification of
compliance with design criteria and proper tie-in with building
systems, construction allowance will be paid.
4. For any subsequent remodeling to the Leased Premises, or, where
initial additional Tenant construction is to be performed by Tenant,
such work may only be performed after receipt of written approval from
Landlord. Tenant shall prepare all plans and fully describe any
remodeling work to be performed.
Page 1
<PAGE>
5. Tenant is encouraged to utilize Landlord's contractor for the
completion of Tenant work in light of contractor's familiarity with
the project and the construction requirements and operating systems.
Landlord's contractor will submit complete cost breakdown for the
performance of all work and, upon receipt of Tenant's approval, will
commence construction and complete all work in a timely manner.
D. CONSTRUCTION BY LANDLORD CONTRACTORS
1. Initial construction work is to be performed by Landlord's
contractors. Tenant shall pay the cost of any work required beyond
that set forth in Exhibits "A-1" or "C". Where Landlord is
performing Tenant work, the procedure shall be as follows:
a. Landlord's contractor will submit to Tenant complete cost
breakdowns for the portion of the work to be paid for by Tenant.
b. Contractor shall not proceed with any work until after receipt of
Tenant's written approval and acceptance of the cost and a
deposit in the amount of 50% of the value thereof.
c. Landlord's contractor shall notify Tenant of substantial
completion at which time an inspection will be performed and a
"punch list" of deficiencies prepared. Tenant shall immediately
make payment of the remaining portion of the cost to be paid by
Tenant, less a reasonable retainage based on the value to correct
or complete any of the deficiencies or items of work on the punch
list.
d. Tenant may then enter upon the premises and install any other
equipment, fixtures, furnishings, decorations, or improvements
not included as part of the construction contract.
e. Landlord's contractor shall correct in a timely manner any
deficiencies on the punch list.
f. Tenant shall make payment of any retainages held to Landlord's
contractor within 10 days after completion of all punch list
items.
2. Tenant shall promptly repair or be responsible for the cost of
repairing any damage to Landlord provided improvements caused by
Tenant's Contractors or the installation of Tenant's fixtures and
furnishings.
3. Tenant shall also pay an amount equal to $____________________ toward
the cost of work to be provided by Landlord per Exhibit "C". Such
amount is determined as follows.
E. DESIGN AND CONSTRUCTION STANDARDS
1. Purpose and Scope
a. The design criteria as set forth in this section represent
minimum standards for all systems, finishes, mechanical,
electrical, and other construction work and installations and
design.
b. These standards also describe the specification and construction
standard to be used with respect to all Landlord provided work.
If there is a discrepancy between these construction standards
and Exhibit "C" descriptions, the Exhibit "C" descriptions shall
govern.
c. These standards and criteria are established to assure the proper
and efficient operation and functioning of common building
systems, to verify the compatibility of all installations with
basic building systems, to set a standard of quality which will
enhance and maintain building values and to establish uniform
criteria relating to the overall aesthetics and appearance of the
project.
d. All construction and installations shall conform with the
standards set forth herein and shall be subject to the prior
written approval of Landlord's Architect, who shall have absolute
authority with respect to the design and construction issues and
whose decisions shall be binding upon all building tenants.
Tenant hereby agrees to abide by the decisions of said Architect.
<PAGE>
2. General Construction Requirements
a. The design, type of construction, engineering of mechanical and
electrical systems, types of materials and finishes, and each of
Tenant's proposed contractors must be approved by Landlord or
Landlord's Architect prior to the commencement of any
construction work.
b. Construction and use shall comply with applicable statutes,
ordinances, regulations, laws, building codes, zoning statutes
including, without limiting, the foregoing: Uniform Building
Code, National Electric Code, Uniform Plumbing Code, Uniform
Mechanical Code, and any other applicable City, County and State
Building, Plumbing, Mechanical, Fire, Health, Pollution,
Electrical, Safety, Americans With Disabilities Act, and other
codes.
c. All required permits shall be obtained and paid for by Tenant
and/or Tenant's Contractor.
d. Quality of workmanship and materials shall be first class,
acceptable to Landlord's Architect and in keeping with the
project standards.
e. On completion, all facilities shall be in full use without
defects.
Page 2
<PAGE>
f. Contractors shall be required to show evidence of possessing good
labor relations, compatible with other labor on the project, and
Tenant and its contractors shall avoid labor practices or
disputes which will interfere with other work or operations in
the project.
g. Contractors shall be required to work in harmony with other
contractors on the project. Tenant's contractors shall coordinate
their work and any systems shut downs with the contractors and
occupants of the building.
h. Landlord shall have the right to order any Tenant or Tenant's
Contractor, who willfully violates the above requirements, to
cease work, and to remove himself, his work, his equipment, and
his employees from the property.
i. Tenant's contractors shall carry such types of insurance in such
amounts as shall be designated by Landlord, and all policies
shall name the Landlord and its agents as additional insureds.
Prior to starting construction, Tenant's contractor shall submit
to Landlord a copy of or other evidence of such insurance.
j. Landlord shall have the right to perform by its own contractor or
subcontractors, on behalf of and for the account of the Tenant,
any of the Tenant's work which Landlord determines should be so
performed. Generally, such work shall be that which affects
structural components, or the general utility systems for the
project. If Landlord so determines, Landlord shall notify Tenant
prior to commencement of said work, and Tenant shall reimburse
Landlord for all costs of planning and performing such work.
k. No approval by Landlord shall be deemed valid unless same shall
be in writing signed by Landlord or Landlord's Architect.
l. In the event that the premises have not been constructed in
accordance with said approved drawings, Tenant shall not be
permitted to open the premises for business until the premises
comply in all respects with said approved drawings, in the
reasonable exercised judgement of the Landlord's Architect. Where
final drawings are in conflict with design criteria, the
provisions of the design criteria shall prevail unless specific
exceptions were agreed upon in writing.
<PAGE>
3. Architectural (To the extent not otherwise provided by Landlord.)
a. Exterior Walls and Windows
1) Modifications to exterior walls after Landlord's initial
construction will generally not be permitted.
2) Wall finish shall be 4" x 8" x 16" clay or concrete
masonry units in the pattern, design, finish, color,
texture, and style determined by Landlord's Architect. A
landscaped beam will be constructed to a point approximately
6" below the sill of all windows. Any modifications thereto
must match precisely the materials and other project details
established by Landlord in the original construction.
3) Glass shall be 1" double-glazed, medium gray tinted,
insulated glass. Exterior pane to be tinted and interior
pane to be clear.
4) Aluminum frame shall extend from sill to underside of
masonry head or finish ceiling structure above and shall be
4" wide at door and window recess areas and 2-3/4" wide at
other windows. Finish shall be clear anodized.
5) Penetrations or modifications of exterior walls for exhaust
vents, ducts, or other purposes will not be permitted except
where specifically agreed otherwise by Landlord's Architect.
Detailing must be in strict accordance with Landlord's
requirements.
b. Interior Walls and Partitions
1) Demising walls generally to have 5/8" sheetrock (one-hour
rated construction) on light-gauge metal studs extending
from floor to underside of structure above.
2) Office partitioning shall generally be of light gauge metal
studs with 1/2" sheetrock extending from floor to underside
of acoustical ceiling. One-hour construction must be
utilized in corridors or other areas where required by code.
3) All walls to be painted with one prime coat and two finish
coats of alkyd-enamel paint with satin finish. Color at
Tenant's option.
4) Floor base to be 4" high straight edge vinyl. Color at
Tenant's option.
5) Other types of partitioning systems, base material, or wall
finishes may be applied at Tenant's option. Tenant shall be
responsible for any additional cost related thereto.
c. Ceilings
1) Ceilings shall be suspended 2' x 4' fissured, white acoustical
ceiling tile in T-bar grid or suspended gypsum board.
2) In one-hour rated corridors or spaces, ceilings must be 1-hour
fire-rated construction with fire dampers at grilles and boxed
"USG Thermal Fiber" light fixture protection or equal, unless
approved otherwise by the local building official. Fixtures may
be surface mounted where approved by Landlord.
<PAGE>
1) Carpet to be 26 oz., Level loop, nylon or olefin, directly glued
to concrete floor. Color at Tenant's option selected from palette
of standard colors offered by manufacturer.
2) Vinyl tile may be substituted in file rooms, storage rooms, print
rooms, restrooms, or other areas where use of such floor covering
is prudent.
3) Other type or quality of floor coverings may be used with
Landlord's Architect's approval. Tenant shall be responsible for
any additional costs related thereto.
f. Cabinetry & Millwork - Type, style and color at Tenant's option.
4. Structural and Roof (To the extent not otherwise provided by Landlord.)
a. There shall be no penetrations of the roof or installation of radio or
television antennas or any other equipment on the roof without the
prior written approval of Landlord's Architect.
b. Any and all roof penetrations shall be engineered and installed in
accordance with standard project details.
c. Any rooftop equipment or exhaust fans, if permitted, shall be
installed on fully contained curbs in a location specifically approved
by Landlord's Architect.
1) Roof curbs shall be fully framed and the structure will be
reinforced as necessary and in a manner so as to leave it as
strong or stronger than original design with finish unimpaired.
2) Equipment shall be located so as not to be visible from the
ground or parking lot areas. Metal screen walls may be required
by Landlord's Architect to shield equipment where location makes
visible.
d. Floor construction and loads are designed of adequate capacity to
generally support typical offices uses. However, Tenant shall indicate
on plans the weight of any special equipment, heavy equipment,
computers, library cases, etc., so that Landlord's Architect may
evaluate load carrying capacity. If inadequate, additional reinforcing
will be required.
e. Under no condition shall any penetrations or cutting of the floor or
roof joists be permitted except with Landlord's Architect's specific
written approval and then only in accordance with any special
requirements that Landlord's Architect may impose.
f. The dimension to the underside of structural joists is typically no
less than 11'-0". Consequently, approximately 2'-0" of clear plenum
space is available for utility distribution systems.
g. Any cutting of stabs must be by sawcutting or core drilling. Take
precautions to protect adjoining finishes and construction.
<PAGE>
5. Plumbing (To the extent not otherwise provided by Landlord.)
a. Restrooms, janitor's rooms, and drinking fountains of adequate size
and capacity to meet applicable building codes are provided by
Landlord as shown on plans.
b. Tenant shall be responsible for the installation of all additional
plumbing within premises as may be desired including but not limited
to additional restrooms, water heaters, vanities, fountains, sinks,
wet bars, floor drains, associated rough-ins, distribution and vents
and all other plumbing work unless specifically indicated otherwise
herein.
c. Tenant shall connect to building water and sewer mains in locations
designated by Landlord's Architect.
d. Any other special systems for natural gas or plumbing for Tenant
equipment or other special Tenant facilities shall be by Tenant
including any grease interceptors, chemical holding pots or other
types of special waste traps from laboratories that may be needed to
safeguard and assure the proper operations and maintenance of basic
building systems in accordance with good engineering design as
determined by Landlord's Architect.
6. Heating, Ventilating, and Air Conditioning (HVAC) (To the extent not
otherwise provided by Landlord.)
a. Landlord has provided rooftop heating and air conditioning units and
associated gas piping, together with supply and return air duct
distribution system, ceiling diffusers and registers, and controls to
serve the Leased Premises. Units shall have
Page 4
<PAGE>
e. Each restroom will have a separate exhaust fan with back-draft damper
appropriately sized for the area exhausted and interlocked with the
lighting.
f. Additional exhaust fans, exhaust hoods and make-up air vents or
additional cooling will be installed by Tenant if such units in
the determination of Landlord's Architect are necessary. All exhaust
fans must be provided with back-draft dampers.
g. Any separate HVAC systems that may be required for Tenant's special
needs or special purpose areas shall be provided by Tenant at Tenant's
expense.
h. The ceiling plenum area is used as a return-air plenum.
7. Fire Protection: (To the extent not otherwise provided by Landlord.)
a. A complete fire sprinkler system is provided throughout with
approximately one head per 125 sq. ft. All fire sprinkler work must
conform to NFPA #13 for light hazard occupancies.
b. Heads shall be chrome-plated brass pendant with semi-recessed
chrome-plated escutcheons.
c. Tenant shall relocate existing heads or install new heads as required
to achieve proper coverages in compliance with NFPA #13 with respect
to the construction or installation of any Tenant partitioning.
d. Tenant to provide fire extinguishers as determined necessary by local
fire marshall.
8. Electrical (To the extent not otherwise provided by Landlord.)
a. Electric power available to Tenant's premises shall be 120/208 volt, 3
phase, 4 wire. Except for work to be provided by Landlord, Tenant
shall pay all costs related to the modification of Landlord provided
electrical or the installation and distribution of Tenant provided
electrical equipment.
b. Tenant power shall be brought to panels or subpanels within electrical
rooms located adjacent to the Leased Premises or in the wall of a
partition within the Leased Premises.
c. Tenant shall do any and all electrical work it may require beyond that
provide by Landlord including but not limited to distribution center
requirements and branch wiring, duplex and convenience outlets,
under-floor ducts for outlets and telephone, lighting, distribution
and fixture installation, lamps, control wiring, equipment time
clocks, and electrical work required for special equipment. All Tenant
circuiting shall be installed so as to maintain a balance between
phases.
d. Exit lights and emergency exit lighting are provided by Landlord at
each main exit. Additional exit lights and emergency lighting when
required by the building official shall be provided by Tenant.
<PAGE>
9. Telephone Communications (To the extent not otherwise provided by
Landlord.)
a. Landlord has provided main telephone service to the building at
telephone distribution panels located in building electrical rooms.
Telephone outlet boxes stubbed to plenum area have also been provided.
b. Tenant shall be responsible for all telephone and communication
systems, distribution wiring, outlets, and equipment required to
satisfy its needs and shall make any necessary arrangements with the
local utility company and/or private telephone companies.
c. Telephone wiring shall be of a type permitted by building codes.
Wiring shall be installed in conduit or be Teflon coated.
10. Data and Computer Equipment and Associated Wiring (To the extent not
otherwise provided by Landlord.)
a. Landlord has provided data outlet boxes stubbed to plenum area.
b. Tenant shall be responsible for all data and computer systems,
distribution wiring, outlets, and equipment required to satisfy its
needs.
c. Data and computer wiring shall be of a type permitted by building
codes. Wiring shall be installed in conduit or be Teflon coated.
Page 5
<PAGE>
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
COPY MISSING
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
2 Prior to proceeding with the fabrication and installation of any
exterior signage, Tenant shall submit to Landlord a sign fabrication
drawing showing the dimensions, construction details, method of
attachment, location of lighting, and other pertinent information. All
sign fabrication drawings must be approved by Landlord in writing.
3. The wording of Tenant's exterior signage shall be as set forth in
Section 1.01 (G) of the Lease. Use of corporate logos, shields, or
crests will be permitted.
4. Business identification signage will be required of all tenants. Such
signage will be of a uniform type and size, located on the side
masonry panel immediately adjacent to the Tenant entrance. Optional
identification signage may be installed by Tenant at Tenant expense.
Such signage shall be of a uniform type and size, located the masonry
parapet fascia above the windows where specifically approved by
Landlord.
5. Exterior signs shall be used to identify the names of businesses only.
Advertising, identification of products sold or services provided will
generally be prohibited.
6. All signs must be approved by Landlord prior to fabrication and
installation. No approval shall be deemed valid unless given in
writing.
7. Tenant shall be responsible for the removal of all signs at the
termination of any lease. Tenant shall repair any damage to building
materials and shall completely remove any remnants of signage
including, if necessary, cleaning the masonry surface to remove dirt
or other surface stains. Tenant shall patch all holes using mortar
matching that used on the other parts of the building. Tenant agrees
to pay Landlord $500 penalty for failure to remove signage or properly
repair and restore building surfaces to a condition satisfactory to
Landlord.
C. BUSINESS IDENTIFICATION SIGNAGE CRITERIA
1. All signs shall be non-illuminated individual letter type. Letters
shall be cut, 1" thick, plastic faces without edge trim, painted to
match window frames.
2. Maximum letter size shall be 6".
3. Letter style shall be ____________________. Where Tenant logo or trade
mark utilizes a different letter style, such style may be used only
when specifically approved by Landlord.
4. Logos may be utilized using the same type materials and design. Size
of logo may be increased to 12".
5. Signs shall be Located on the masonry panel between the entrance and
window. Signs shall be centered horizontally on the panel and maintain
a minimum of 1'-0", clear space each side. Signs shall also be
centered vertically between the window sill and the head. In no case
may signage extend above the window head.
6. Where multiple businesses are located within Leased Premises, each
business may have separate identification signage. Signs shall be on
separate lines, appropriately spaced and separated.
7. Tenant may install one set of signs at each entrance.
<PAGE>
D. OPTIONAL IDENTIFICATION SIGNAGE CRITERIA
1. All signs shall be reversed channel, individual letter type signs
constructed from sheet metal with 4" deep painted returns and faces
matching the color used in the exterior aluminum framing system. No
exposed fasteners shall be permitted. Signs may be illuminated or
non-illuminated at Tenant's option.
a. If sign is illuminated, construction shall provide a halo effect
wherein lighting is by way of white neon concealed within each
letter with a clear back. Letter shall be set off from the face
of the wall by 1".
b. If sign is non-illuminated, construction shall be the same as for
illuminated signs except that neon and clear plastic backer will
not be instated.
2. Maximum letter size shall be 24" high.
3. Letter style shall be as selected by Tenant.
4. Logos may be utilized using illuminated faces, cabinets, and
backgrounds without the halo effect. Size of logo may be increased to
32". Color, style, and design of face shall be at Tenant's option. The
returns shall be painted to match the other Lettering.
5. Tenant may install one sign on the face of each elevation upon which
the Leased Premises
Page 1
<PAGE>
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
COPY MISSING
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
Such lettering will be 6" high and located and centered on the
masonry band above each entrance recess.
3. No other signage will be permitted on buildings.
4. Interior signage of the type and style selected by Tenant may be
provided by Tenant at Tenant's option and expense.
F. PARKING STALL IDENTIFICATION
1. Reserved parking spaces may be designated. Reserved parking spaces
shall be identified by painting "Reserved," "Business Name Only," or
such other mutually approved designation. The location of spaces
reserved for Tenant is designated on Exhibit "A", Site Plan.
2. Other parking spaces may be designated for visitor or customer use
only in a similar manner.
3. Tenant will not permit its employees to park in spaces that are
reserved or designated for specific tenants, visitors, or customers.
Page 2
<PAGE>
a. The design, type of construction, engineering of mechanical and
electrical systems, types of materials and finishes, and each of
Tenant's proposed contractors must be approved by LandLord or
Landlord's Architect prior to the commencement of any
construction work.
b. Construction and use shall compLy with applicable statutes,
ordinances, regulations, Laws, building codes, zoning statutes
including, without Limiting, the foregoing: Uniform Building
Code, National Electric Code, Uniform Plumbing Code, Uniform
Mechanical Code, and any other applicable City, County and State
Building, Plumbing, Mechanical, Fire, Health, Pollution,
Electrical, Safety, Americans With Disabilities Act, and other
codes.
c. ALL required permits shall be obtained and paid for by Tenant
and/or Tenant's Contractor.
d. Quality of workmanship and materials shall be first class,
acceptable to Landlord's Architect and in keeping with the
project standards.
e. on completion, all facilities shaLL be in full use without
defects.
<PAGE>
================================================================================
WILEY POST PLAZA LEASE
4750 Wiley Post Way
Salt Lake City, Utah
================================================================================
SUMMARY OF BASIC LEASE PROVISIONS
DATE OF LEASE: February 12, 1996
TERM OF LEASE: Ends May 31, 1998
TENANT: Data Security Corporation
LEASED PREMISES: Suite # 550, see Exhibit A for description.
NET RENTABLE AREA: 20,079 square feet
MONTHLY PAYMENT, BASE ANNUAL RENT: $8,403.90
Base Annual Rent increases by amount of increase in
CPI (Not less than 3% or more than 6% per year).
ADDITIONAL RENT: Tenant's Proportionate Share of Taxes, Common Area
Expenses and Insurance. Estimated initial total
monthly payment for additional rent $2,610.27
SECURITY DEPOSIT: $8,403.90
LANDLORD'S ADDRESS FOR PAYMENT OF RENT:
GREEN/PRAVER ET AL
c/o ASSET MANAGEMENT SERVICES, INC.
428 East 6400 South, Suite 100
Salt Lake City, Utah 84107
<PAGE>
TABLE OF CONTENTS
I. LEASE OF PREMISES, TERM................................... 1
1.1. Lease of Premises............................... 1
1.2. Use of Common Area.............................. 1
1.3. Term of Lease................................... 1
1.4. Holding Over.................................... 2
II. RENT, SECURITY............................................ 2
2.1. Annual Base Rent................................ 2
2.2. Additional Rent................................. 2
2.3. Security Deposit................................ 3
2.4. Late Charges.................................... 3
III. TAXES..................................................... 3
3.1. Real Estate Taxes............................... 3
3.2. Personal Property Taxes......................... 4
IV. COMMON AREA............................................... 4
4.1. Common Area..................................... 4
4.2. Maintenance of Common Area...................... 5
4.3. Tenant's Proportionate Share of Common Area
Expenses........................................ 5
V. INSURANCE, INDEMNITY...................................... 5
5.1. Insurance to be Maintained by Landlord.......... 5
5.2. Insurance to be Maintained by Tenant............ 5
5.3. Waiver of Subrogation........................... 6
5.4. Indemnification................................. 6
VI. UTILITIES................................................. 6
6.1. Utilities....................................... 6
6.2. Failure of Utility Service...................... 7
VII. CONDITION OF PREMISES, IMPROVEMENTS, REPAIRS.............. 7
7.1. Condition of Premises - Improvements............ 7
7.2. Alterations and Additions....................... 7
7.3. Maintenance and Repairs to Premises............. 7
7.4. Repairs to Building............................. 8
7.5. Liens........................................... 8
VIII. POSSESSION, USE........................................... 8
8.1. Quiet Possession................................ 8
8.2. Possession...................................... 8
i
<PAGE>
8.3. Use of Premises............................ 9
8.4. Compliance With Law........................ 9
8.5. Compliance With Hazardous Materials
Requirements and Rules..................... 9
8.6. Signs...................................... 9
8.8. Entry and Inspection....................... 10
IX. ASSIGNING, SUBLETTING, MORTGAGING......................... 10
9.1. No Assignment etc Without Landlord's Consent 10
9.2. No Release of Tenant....................... 10
X. DESTRUCTION, CONDEMNATION................................. 11
10.1. Destruction................................ 11
10.2. Condemnation............................... 11
XI. DEFAULT, REMEDIES......................................... 11
11.1. Default by Tenant.......................... 11
11.2. Landlord's Right to Reenter and Relet
Premises................................... 12
11.3. Tenant's Property.......................... 13
11.4. Other Rights and Remedies of Landlord...... 13
11.5. Waiver of Rights........................... 14
11.6. Default By Landlord........................ 14
XII. PROVISIONS APPLICABLE UPON TERMINATION OF LEASE........... 14
12.1. Surrender of Premises...................... 14
12.2. Tenants Fixtures and Property.............. 15
12.3. Surrender of Lease......................... 15
12.4. Tenant's Obligations to Survive Termination 15
XIII. FINANCING, SUBORDINATION, ESTOPPEL CERTIFICATES........... 15
13.1. Subordination.............................. 15
13.2. Amendment.................................. 16
13.3. Attornment................................. 16
13.4. Landlord's Right to Estoppel Certificate... 16
13.5. Sale of Premises by Landlord............... 16
XIV. ADDITIONAL PROVISIONS..................................... 17
14.1. Waiver..................................... 17
14.2. Notice..................................... 17
14.3. Joint Obligation........................... 17
14.4. Governing Law - Headings................... 17
14.5. Time....................................... 18
14.6. Successors and Assigns..................... 18
14.7. Recordation................................ 18
14.8. Prior Agreements........................... 18
ii
<PAGE>
14.9. Force Majeure.............................. 18
14.10. Attorney's Fees............................ 18
14.11. Severability............................... 18
14.12. Cumulative Remedies........................ 18
14.13. Authority of Signatories.................. 18
14.14. Brokers.................................... 19
EXHIBITS
Exhibit Description
------- -----------
A Description of Premises
B Estimate of Additional Rent
C Description of Improvements to
Premises to be Made by Landlord and/or Tenant
D Hazardous Materials Requirements
E Rules
iii
<PAGE>
LEASE
THIS LEASE AGREEMENT, dated as of February , 1996 is made
and entered into by and between parties who are joint tenant owners referred
to as GREEN/PRAYER ET AL with a mailing address c/o Asset Management Services,
Inc. 428 East 6400 South, Suite 100 Salt Lake City, Utah 84107 (hereinafter
collectively called "Landlord") and DATA SECURITY CORPORATION, a Nevada
corporation, with a mailing address of 150 Wright Brothers Drive, Suite 550,
Salt Lake City, Utah 84116 (hereinafter called "Tenant").
THIS LEASE AGREEMENT IS TO BECOME EFFECTIVE
UPON THE CONDITIONS SET OUT IN THAT CERTAIN
AGREEMENT BETWEEN LANDLORD AND TENANT
DATED FEBRUARY , 1996.
FOR AND IN CONSIDERATION OF the mutual covenants, conditions and
agreements hereinafter set out, the parties agree as follows:
I. LEASE OF PREMISES, TERM
1.1. Lease of Premises. Landlord does hereby lease to Tenant and Tenant
hereby leases from Landlord those certain premises (hereinafter called
"Premises") described in Exhibit "A" to this Lease, known and described as Suite
# 550 situated in Building # 5 (hereinafter called the "Building") which is one
of four buildings in that certain commercial - industrial center located at
approximately 4750 Wiley Post Way, Salt Lake City, Utah known as Wiley Post
Plaza (hereinafter called the "Project"). It is agreed, for the purpose of this
Lease, that the Premises have a rentable area of 20,079 square feet. This Lease
is subject to the terms, covenants and conditions herein set forth and Tenant
covenants, as a material part of the consideration for this Lease, to keep and
perform each and all of said terms, covenants, and conditions to be kept and
performed by Tenant.
1.2. Use of Common Area. The use and occupation by Tenant of the
Premises shall include the non-exclusive right by Tenant, its agents,
employees, customers, licensees and subtenants, in common with Landlord, and
other present and future owners and tenants and their agents, employees,
customers, licensees and subtenants, to use the Common Area, as designated in
Section 5.1 of this Lease during the entire term of this Lease, or any
extension thereof, for ingress and egress, walkways and parking. Tenant agrees
to comply with the terms and conditions of this Lease and such reasonable
rules and regulations as Landlord may adopt from time to time for the orderly
and proper operation of Common Area.
1.3. Term of Lease. The term of this Lease (hereinafter called the "Lease
Term") shall commence on the date (hereinafter called the "Commencement Date")
that
1
<PAGE>
Tenant receives notice from Landlord that Landlord has acquired possession of
the Premises from the existing tenant of the Premises and that the Premises
are available for occupancy by Tenant and shall end May 31, 1998.
1.4. Holding Over. In the event Tenant remains in possession of the
Premises, or any part thereof, after the expiration of the Lease Term with the
consent of Landlord, such occupancy shall be a tenancy from month to month,
terminable upon 30 days written notice, at a rental of 150 percent of the
amount of the last monthly rent, plus all other additional rent and other
charges payable hereunder, and upon all the terms hereof applicable to a month
to month tenancy.
II. RENT, SECURITY
2.1. Annual Base Rent. Tenant agrees to pay to Landlord, without prior
notice or demand, as base rental for the Premises, monthly payments of
$8,403.90 on or before the first day of each month in advance. Rent for any
period which is for less than one month shall be a prorated portion of the
monthly installment, based on a thirty 30 day month. All rent to be paid by
Tenant to Landlord shall be in lawful money of the United States of America
and shall be paid without deduction or offset, at the address designated in
Section 14.2.
2.2. Additional Rent. Tenant shall pay, as additional rent, all sums of
money required to be paid by Tenant under any of the provisions of this Lease,
including but not limited to taxes, insurance and Common Area expenses whether
or not the same be designated "additional rent". In those cases where the
payments to be made by Tenant are based on "Tenant's Proportionate Share",
that term shall mean 10.62 percent, which is determined by dividing the 20,079
square feet being rented by Tenant by the 189,100 square feet of total
rentable space in the Project. In event that there are changes in either the
square feet being rented by Tenant or the total rentable space in the Project,
Tenant's Proportionate Share shall be recalculated on the same basis used
above to reflect such changes. If the amounts to be paid by Tenant are not
paid at the time provided in this Lease, they shall nevertheless be
collectible as additional rent with the next installment of annual base rent
thereafter falling due, but nothing herein contained shall be deemed to
suspend or delay the payment of any amount or charge at the time the same
becomes due and payable hereunder, or limit any other remedy of Landlord.
Landlord may estimate Tenant's share of said costs and expenses, for a period
of not more than 12 months in advance, and may collect and impound Tenant's
estimated share in advance on a monthly basis. On or before March 15 of
each year, Landlord shall provide to Tenant a reconciliation of Tenant's
account for the twelve month period ending the preceding December 31. Said
reconciliation shall set forth in reasonable detail the costs and expenses
paid by Landlord, and shall include a computation as to Tenant's Proportionate
Share. In the event Tenant has overpaid its share of said costs and expenses,
the excess shall be credited on Tenant's next succeeding payment of additional
rent, and in the event of an underpayment, Tenant shall pay to Landlord said
underpayment within ten days after receipt of the reconciliation. The initial
estimated monthly charge for
2
<PAGE>
additional RENT is $2,610.27, as set out in Exhibit "B" hereto, and shall be
adjusted annually or at such time as there is a significant change in the
costs of any item of additional rent to be paid by Tenant.
2.3. Security Deposit. Tenant shall deposit with Landlord upon the
execution of this Lease the sum of $8,403.90 as a security deposit. Said sum
shall be security for the faithful performance by Tenant of all the terms,
covenants and conditions of this Lease during the Lease Term. If Tenant
defaults with respect to any provision of this Lease, including, but not
limited to the provisions relating to the payment of rent, Landlord may
(but shall not be required) to use, apply or retain all or any part of this
security deposit for the payment of any rent or any other sum in default, or
for the payment of any amount which Landlord may spend or become obligated to
spend by reason of Tenant's default, or to compensate Landlord for any other
loss or damage which Landlord may suffer by reason of Tenant's Default. If any
portion of the security deposit is so used or applied, Tenant shall
deposit with Landlord an amount sufficient to restore the security deposit to
its original amount within ten days after written demand therefor by Landlord,
and Tenant's failure to do so shall be a material breach of this Lease.
Landlord shall not be required to keep the security deposit separate from its
general funds, and Tenant shall not be entitled to interest on said deposit.
If Tenant shall fully perform every provision of this Lease to be performed
by Tenant, the security deposit or any balance thereof shall be returned to
Tenant (or, at Landlord's option, to the last valid assignee of Tenant's
interest hereunder) at the expiration of the Lease Term.
2.4. Late Charges. Tenant hereby acknowledges that late payment by Tenant
to Landlord of rent or other sums due hereunder will cause Landlord to incur
costs not contemplated by this Lease, the exact amount of which will be
extremely difficult to ascertain. Accordingly, if any installment of rent or
other sum due from Tenant shall not be received by Landlord or Landlord's
designee within ten days after said amount is due, then Tenant shall pay to
Landlord a late charge equal to ten percent of such overdue amount.
Acceptance of such late charges by Landlord shall in no event constitute a
waiver of Tenant's default with respect to such overdue amount, nor prevent
Landlord from exercising any of the other rights and remedies granted
hereunder.
III. TAXES
3.1. Real Estate Taxes. In addition to all rents herein reserved, Tenant
shall pay to Landlord, as additional rent, all real estate taxes and
assessments levied upon the Premises and Tenant's Proportionate Share of all
real estate taxes and assessments levied upon the Common Area. Such amount
shall be payable in advance as estimated by Landlord as provided in Section
2.2 of this Agreement or, at Landlord's option, within ten days after
receipt of an annual statement to be sent by Landlord to Tenant setting forth
the amount of such tax based upon the actual tax bill received by Landlord. In
the event the Premises are not separately assessed, the taxes on the Premises
shall be Tenant's Proportionate Share if taxes are assessed on the Project as
a single tax parcel, or the ratio that the square feet of
3
<PAGE>
rentable area in the Premises bears to the total square feet of rentable area
in the Building or buildings in the Project covered by the tax parcel that
includes the Premises and Tenant's Proportionate Share of the taxes and
assessments levied on the Common Area. Any such tax for the year in which the
lease commences or ends shall be prorated. With respect to any assessment
which may be levied against or upon the Premises and which, under the laws
then in force, may be evidenced by improvement or other bonds payable in
annual installments, only the annual payments on said assessment shall be
included in computing Tenant's annual obligation for taxes and assessments.
The term "real estate taxes" as used herein shall be deemed to mean all taxes
imposed upon the real property and permanent improvements constituting the
Premises, all assessments levied against the Premises, and all excise,
privilege and other taxes levied or assessed by any federal, state or local
authority upon the rent received by Landlord hereunder, and any business tax
imposed upon Landlord by any governmental authority which is based or measured
in whole or in part by amounts charged or received by Landlord from Tenant
under this Lease but shall not include personal income taxes, personal
property taxes, inheritance taxes, or franchise taxes levied against the
Landlord, but not directly against the Premises or the Lease even though such
taxes shall become a lien against the Premises.
3.2. Personal Property Taxes. During the Lease Term, Tenant shall pay,
prior to delinquency, all taxes assessed against and levied upon fixtures,
furnishings, equipment and all other personal property of Tenant contained in
the Premises, and when possible Tenant shall cause said fixtures, furnishings,
equipment and other personal property to be assessed and billed separately
from the real property of Landlord. In the event any or all of Tenant's
fixtures, furnishings, equipment and other personal property shall be assessed
and taxed with Landlord's real property, Tenant shall pay to Landlord its
share of such taxes within ten days after delivery to Tenant by Landlord of a
statement in writing setting forth the amount of such taxes applicable to
Tenant's property.
IV. COMMON AREA
4.1. Common Area. All area included in the Project not specified for
leasing to tenants shall be "Common Area" of the Project. Landlord has or
shall cause the Common Area to be improved, lighted and appropriately marked
and landscaped at no expense to Tenant as parking areas, service roads,
loading facilities, sidewalks, landscaped areas, and other facilities as
determined from time to time by Landlord. Landlord covenants that the
Common Area shall be available for the non-exclusive use of Tenant during the
term of this Lease as provided in Section 1.2 of this Lease and provided that
the condemnation or other taking by any public authority, or sale in lieu of
condemnation, of any or all of the Common Area shall not constitute a
violation of this covenant. Landlord reserves the right to change the
entrances, exits, traffic lanes and the boundaries and locations of the
parking area or other portions of the Common Area; provided that any such
changes do not unreasonably interfere with Tenant or Tenant's employees or
customers.
4
<PAGE>
4.2. Maintenance of Common Area. Landlord shall cause the Common Area
to be kept in a neat, clean and orderly condition, properly lighted and
landscaped, and shall maintain in good condition and repair any damage to the
facilities thereof, but all expenses in connection with the maintenance of the
Common Area shall be charged to tenants of the Project in the manner set forth
in section 4.3 of this Lease. It is understood and agreed that such "Common
Area Expenses" shall be construed to include, but not be limited to, all
sums expended by Landlord in connection with the Common Area for all general
maintenance and repairs, resurfacing, painting, restriking, cleaning, sweeping
and janitorial services, garbage collection, snow removal, landscaping,
lighting, security and other services, water, power and other utility charges
for the Common Area, assessments by the Salt Lake International Center Owners
Association, real estate taxes on the Common Area, unless billed pursuant to
Section 3.1, required fees or charges levied pursuant to any governmental
requirements and ten percent of said costs to Landlord as a management fee.
4.3. Tenant's Proportionate Share of Common Area Expenses. Tenant shall
pay to Landlord, Tenant's Proportionate Share of Common Area Expenses. Such
amount shall be payable in advance as estimated by Landlord as provided in
Section 2.2 of this Agreement. There shall be appropriate adjustments of
Tenant's share of Common Area Expenses as of the commencement and expiration
of the Lease Term.
V. INSURANCE, INDEMNITY
5.1. Insurance to be Maintained by Landlord. Landlord shall maintain
standard form fire insurance with extended coverage endorsement throughout the
Lease Term on the Building in such amount and with such deductibles as
Landlord shall reasonably determine, together with such other insurance as may
be required by Landlord's lender or by any governmental agency. Landlord shall
also maintain public liability and property damage insurance on the Common
Area under which Tenant shall be named as an additional insured, with limits
as determined by Landlord. Tenant agrees to pay to Landlord Tenant's
Proportionate Share of the cost of the insurance to be secured by Landlord
under this Section; or if the fire and extended coverage insurance covering
the Premises does not include all of the leasable space in the Project,
Tenant's share of that insurance in shall be determined by the ratio that the
square feet of rentable area in the Premises bears to the total square feet of
rentable area in the Building or the buildings in the Project covered by that
insurance. Such amount shall be payable in advance as estimated by Landlord as
provided in Section 2.2 of this Agreement. There shall be appropriate
adjustments of Tenant's share of insurance as of the commencement and
expiration of the Lease Term.
5.2. Insurance to be Maintained by Tenant. During the entire Lease Term,
Tenant shall, at Tenant's sole cost and expense, but for the mutual benefit of
Landlord and Tenant, maintain comprehensive public liability insurance against
claims for personal injury, death or property damage occurring in, upon or
about the Premises. The limitation of liability of such insurance shall not be
less than $2,000,000. All such policies of insurance shall be issued in the
name of Tenant and Landlord and for the mutual and joint benefit and
5
<PAGE>
protection of the parties, and such policies of insurance or copies thereof
shall be delivered to the Landlord and renewal certificates or other evidence
of coverage shall be provided to Landlord annually. Such policy or polices
shall provide for not less than thirty days' prior written notice to Landlord
and any mortgagee of Landlord in the event of cancellation or material
modification of the terms and conditions thereof. Such insurance may be
provided under a blanket policy, provided that an endorsement naming Landlord
and Landlord's property manager as additional insureds is attached thereto. In
addition to the foregoing, Tenant shall maintain insurance against such other
perils and in such amounts as Landlord may from time to time reasonably
require.
5.3. Waiver of Subrogation. Tenant hereby waives any right of recovery
from Landlord, its officers and employees, and Landlord hereby waives any
right of recovery from Tenant, its officers or employees, for any loss or
damage (including consequential loss) resulting from any of the perils insured
against in the fire and extended coverage insurance; and each party, on behalf
of its insurance company or companies, to the extent allowed by applicable
law, waives any right of subrogation that it may have against the other party.
5.4. Indemnification. Tenant, as a material part of the consideration to
be rendered to Landlord under this lease, hereby waives all claims against
Landlord for damages to goods, wares and merchandise in, upon or about the
Premises and for injuries to persons in, upon or about the Premises, from any
cause arising at any time, and Tenant will hold Landlord exempt and harmless
from any damage or injury to any person, or the goods, wares, and merchandise
of any person, arising from the use of the Premises by Tenant or from the
failure of Tenant to keep the Premises in good condition and repair, as herein
provided.
VI. UTILITIES
6.1. Utilities. Throughout the Lease Term, Tenant shall pay for all
public and other utilities and related services rendered or furnished to the
Premises, including, but not limited to, water, hot water, gas, electricity,
telephone, heat, light, sewer charges, installation and connection charges or
deposits therefor and refuse or garbage collection or disposal. Tenant shall
not allow refuse, garbage, or trash to accumulate inside or outside of
the Premises. In the event that one or more of such utilities or related
services shall be supplied to the Premises and to one or more other tenants
within the Building or the Project without being individually metered or
measured to the Premises, Tenant's proportionate share thereof shall be paid
as additional rent and shall be determined by Landlord with such consultants
as Landlord shall deem advisable, based upon Landlords estimate of Tenant's
usage. Payment for Tenant's share of any and all unmetered water, gas,
electricity and other utilities used by Tenant shall be made monthly and
within ten days of the presentation of bills to Tenant. Landlord may cut off
and discontinue, without notice to Tenant, water, gas, electricity, or any
other service whenever and during any period for which bills for the
service, or any sum under this lease, are not properly paid by Tenant.
Landlord shall
6
<PAGE>
provide and maintain the necessary mains, conduits, wires, and cables to bring
water and electricity to the Premises.
6.2. Failure of Utility Service. Landlord shall not be liable in damages,
consequential or otherwise, arising out of any failure or interruption in
utility services which are due to causes beyond the control of Landlord or any
interruptions in such service which are necessary to the making of
alterations, repairs or improvements. Any such failure or interruption of
utility service shall not entitle Tenant to terminate this Lease or offset
against rent payable under this Lease.
VII. CONDITION OF PREMISES, IMPROVEMENTS, REPAIRS
7.1. Condition of Premises - Improvements. Except for the improvements,
if any, to be made by Landlord and/or Tenant, as set out in Exhibit C" to this
Lease, the Premises are leased in an "as is condition", without any liability
or obligation on the part of Landlord to make any alterations or improvements
of any kind. Unless otherwise agreed in writing by Landlord, upon occupancy of
the Premises by Tenant, all of the obligations of Landlord to make
Improvements shall be deemed to be satisfactorily completed.
7.2. Alterations and Additions. Tenant shall not make or suffer to be
made any alterations, additions, or improvements to the Premises without the
prior written consent of Landlord. In the event Landlord consents to Tenant
making alternations, additions or improvements to the Premises, they shall be
made at Tenant's sole cost and expense and by a contractor or person approved
by Landlord. Any alterations, additions or improvements made by Tenant,
including, but not limited to, wall covering, carpeting, paneling and built-in
cabinet work, but excepting movable furniture and trade fixtures, shall upon
the expiration of the Lease Term become a part of the realty and belong to
Landlord and shall be surrendered with the Premises. At Landlord's election
and upon written demand by Landlord, Tenant shall remove any alternations,
additions, or improvements made by Tenant without Landlord's prior approval
and repair all damage caused to the Premises by their removal at Tenant's sole
cost and expense.
7.3. Maintenance and Repairs to Premises. Tenant shall be responsible for
all maintenance and report to the Premises of whatsoever kind or nature that
is not set forth specifically as the obligation of Landlord in this Lease.
Tenant shall take good care of the Premises and fixtures, and keep them in
good repair and free from filth, overloading, danger of fire or any pest or
nuisance, and repair any damage or breakage done by Tenant or Tenant's
agents, employees or invitees, including damage done to the Building by
Tenant's equipment or installations. Tenant shall be responsible for the
repair and replacement of all glass and plate glass on the Premises. Tenant
shall furnish and pay for the upkeep, maintenance, repair and periodic
servicing of the heating, ventilation and air conditioning system servicing
the Premises. In the event Tenant fails to maintain the Premises, including
the heating, ventilation and air conditioning system, as provided for herein,
Landlord shall have the right, but not the obligation, to perform such
maintenance as is required of Tenant,
7
<PAGE>
in which event Tenant shall promptly reimburse Landlord for its costs in
providing such maintenance or repairs together with a ten percent charge for
landlord's overhead. Tenant shall enter into a service contract for the
heating, ventilation and air conditioning system providing for periodic
inspection, servicing and repair of the system with a contractor approved by
Landlord, which approval shall not be unreasonably withheld, and Tenant shall
provide a copy of such service contract to Landlord. At the end of the Lease
Term or any renewal thereof, Tenant shall quit and surrender the Premises
broom clean in as good condition as when received by Tenant, normal wear and
tear excepted.
7.4. Repairs to Building. Landlord shall, subject to Tenant's
reimbursement as herein provided, maintain in good repair the exterior walls
(excluding glass or plate glass), roof, gutters and downspouts of the Building
in good condition and repair. Tenant agrees that it will not, nor will it
authorize any person to, go onto the roof of the Building without the prior
written consent of Landlord. Landlord shall not be required to make any
repairs to the exterior walls, roof and sidewalks unless and until Tenant has
notified Landlord in writing of the need for such repairs and Landlord shall
have had a reasonable period of time thereafter to commence and complete said
repairs. Tenant shall reimburse Landlord for its prorate share of the cost of
said repairs and maintenance incurred by Landlord, said prorate share to be
determined according to the square feet of rentable area included in the
Premises as it relates to the total square feet of rentable area of the
Building. There shall be no abatement of rent and no liability of Landlord by
reason of any injury to or interference with Tenant's business arising from
the making of any repairs, alterations or improvements in or to any portion of
the building or the Premises or to fixtures, appurtenances and equipment
therein. Tenant waives the right to terminate this Lease in the event of any
failure to make repairs or maintenance and the right to make repairs at
Landlord's expense under any law, statute or ordinance now or hereafter in
effect.
7.5. Liens. Tenant shall keep the Premises free from any liens arising
out of any work performed, materials furnished or obligations incurred by
Tenant.
VIII. POSSESSION, USE
8.1. Quiet Possession. Upon Tenant paying the rent reserved hereunder and
observing and performing all of the covenants, conditions, and provisions on
Tenant's part to be observed and performed hereunder, Tenant shall have quiet
possession of the Premises for the entire Lease Term, subject to all
provisions of this Lease.
8.2. Possession. Tenant shall be deemed to have taken possession of the
Premises as of the Commencement Date. In the event Tenant acquires equipment
currently located on the Premises and the equipment remains on the Premises
prior to the Commencement Date, the provisions of ARTICLE V of this Lease
shall apply and be in effect prior to the Commencement Date.
8
<PAGE>
8.3. Use of Premises. Tenant shall use the Premises solely for purposes
of office and light manufacturing or fabrication. Tenant shall not use or
permit the Premises to be used for any other purpose without the prior written
consent of Landlord. No use shall be made or permitted to be made of the
Premises, nor acts done, which will increase the rate of insurance upon the
Building (once said rate is established), or cause a cancellation of any
insurance policy covering the Building or any part thereof, nor shall Tenant
sell or permit to be kept, used or sold in or about the Premises any article
which may be prohibited by standard form of fire insurance policies. Tenant
shall, at his sole cost, comply with any and all requirements, pertaining to
the use of the Premises, of any insurance organization or company necessary
for the maintenance of reasonable fire and public liability insurance,
covering the Premises and appurtenances. In the event Tenant's uses of the
premises, as recited in this Section, results in a rate increase for the
Building, Tenant shall pay annually on the anniversary date of this lease, as
additional rent, a sum equal to that of the additional premium occasioned by
said rate increase. Tenant shall not do or permit anything to be done
in or about the Premises which will unreasonably disturb or interfere with
other tenants of the Project or their customers; or use or allow the Premises
to be used for any improper, immoral, unlawful or objectionable purpose, nor
shall Tenant cause, maintain or permit any nuisance in, on or about the
Premises. Tenant will not commit or suffer to be committed any waste in or to
the Premises.
8.4. Compliance With Law. Tenant shall not use the Premises or permit any
thing to be done in or about the Premises which will in any way conflict with
any law, statue, ordinance or governmental rule or regulation now in force or
which may hereafter be enacted or promulgated. Tenant shall at its sole cost
and expense, promptly comply with all laws, statues, ordinances and
governmental rules, regulations or requirements now in force or which may
hereafter be in force. The judgement of any court of competent jurisdiction or
the admission of Tenant in any action against Tenant, whether Landlord be a
party thereto or not, that Tenant has violated any law, statue, ordinance or
governmental rule, regulation or requirement, shall be conclusive of that fact
as between the Landlord and Tenant.
8.5. Compliance With Hazardous Materials Requirements and Rules. Tenant
shall faithfully observe and comply with the Hazardous Materials Requirements
set out in Exhibit "D" to this Lease. Tenant shall faithfully observe and
comply with the rules relating to the Project that Landlord shall from time to
time promulgate. A copy of the current rules are attached as Exhibit "E" to
this Lease (hereinafter called the "Rules"). Landlord reserves the right from
time to time to make all reasonable modifications to the Rules and
modifications to the Rules shall be binding on Tenant upon delivery of a copy
of them to Tenant. Landlord shall not be responsible to Tenant for the
nonperformance of any of the Hazardous Materials Requirements or the Rules by
any other tenant or occupants. Violations by Tenant of the Hazardous Materials
Requirements or the Rules shall constitute a default under this Lease.
8.6. Signs. Tenant shall not place or permit to be placed any sign upon
the exterior or in the windows of the Premises, the Building or the Project
without Landlords
9
<PAGE>
prior written consent, nor shall Tenant change the color or exterior
appearance of the Premises without Landlord's prior written consent.
8.8. Entry and Inspection. Tenant shall permit Landlord and its agents to
enter into and upon the Premises at all reasonable times for the purpose of
inspecting the same or for the purpose of maintaining the Building, or for the
purpose of making repairs, alterations, or additions to any other portion of the
Building, including the erection and maintenance of such scaffolding, canopy,
fences and props as may be required, or for the purpose of posting notices of
non-liability for alterations, additions or repairs, or for the purpose of
placing upon the Building or the Project any usual or ordinary "For Sale' signs.
Landlord shall be permitted to do any of the above without any rebate of rent
and without any liability to Tenant for any loss of occupation or quiet
enjoyment of the Premises thereby occasioned. Tenant shall permit Landlord, at
any time within 30 days prior to the expiration of this lease, to place upon the
Premises any usual or ordinary "For Lease" signs, and during such 30 day period
Landlord or his agents may, during normal business hours, enter upon the
Premises and exhibit same to prospective Tenants.
IX. ASSIGNING, SUBLETTING, MORTGAGING
9.1. No Assignment etc Without Landlord's Consent. Tenant shall not
transfer, assign, sublet, enter into license or concession agreements, mortgage
or pledge this Lease or the Tenant's interest in and to the Premises nor permit
the occupancy or use of any part thereof by another, without the prior written
consent of Landlord. Any assignment, mortgage, pledge, encumbrance, subletting
or license of this Lease, the leasehold estate hereby created, or the Premises
or any portion thereof, either voluntary or involuntary, whether by operation of
law or otherwise, without the prior written consent of Landlord shall be null
and void and shall at the option of Landlord terminate this Lease. If Tenant is
a corporation which is not deemed to be a "public corporation" under the laws of
the State of Utah, or if Tenant is an unincorporated association or partnership,
the assignment or transfer of more than 25 percent of the stock or other
ownership interest in Tenant shall be deemed an assignment within the meaning
and provisions of this Section. Tenant agrees to reimburse Landlord for
Landlord's reasonable attorney fees and other costs incurred in conjunction with
the processing and documentation of approval of any requested transfer,
assignment, subletting, licensing or concession agreement, mortgage or pledge of
this Lease or Tenant's interest in and to the Premises.
9.2 No Release of Tenant. No consent by Landlord to any assignment,
subletting shall relieve Tenant from any of the provisions, Covenants, and
conditions of this Lease on the part of Tenant to be kept and performed, The
consent by Landlord to any assignment, subletting, licensing or concession
agreement, mortgage or pledge of this Lease or Tenant's interest in and to the
Premises shall not relieve Tenant from the obligation to obtain the consent of
Landlord to any other or subsequent assignment, subletting, licensing or
concession agreement, mongage or pledge of this Lease or Tenant's interest in
and to the Premises.
10
<PAGE>
X. DESTRUCTION, CONDEMNATION
10.1 Destruction. In the event the Premises or the Building are damaged by
fire or other perils covered by extended coverage insurance and Landlord
receives sufficient proceeds to cover the cost of replacing the damage and said
proceeds are made available by Landlord's Mortgagee, then Landlord agrees to
forthwith repair the same and this Lease shall remain in full force and effect,
except that Tenant shall be entitled to a proportionate reduction of the rent
while such repairs are being made, such proportionate reduction to be based upon
the extent to which the making of such repairs materially interferes with the
business carried on by the Tenant in the Premises. If the damage is due to the
fault or neglect of Tenant or his employees, there shall be no abatement of
rent. Notwithstanding anything to the contrary contained in this Article,
Landlord shall not have any obligation whatsoever, to repair, reconstruct or
restore the Premises when the damage resulting from any casualty covered under
this Section either destroys 25 percent of the Building or occurs during the
last 12 months of the Lease Term or any extension thereof, and under either of
such circumstances, Landlord shall have the right to terminate this Lease
without liability on its part. Landlord shall not be required to repair any
damage by fire or other cause, or to make any repairs or replacements of any
panels, decoration, office fixtures, railings, floor covering, partitions, or
any other property installed in the Premises by Tenant. Tenant shall not be
entitled to any compensation or damages from Landlord for loss of the use of the
whole or any part of the Premises, Tenant's personal property or any
inconvenience or annoyance occasioned by such damage, repair, reconstruction or
restoration.
10.2. Condemnation. If all or a substantial portion of the Premises shall
be taken or appropriated by any public or quasi-public authority under the power
of eminent domain, either party hereto shall have the right, at its option, to
terminate this Lease and Landlord shall be entitled to any and all income,
rent, award, or any interest therein which may be paid or made in connection
with such public or quasi-public use or purpose and Tenant shall have no claim
against Landlord for the value of any unexpired portion of the Lease Term. If
any part of the Project is so taken or appropriated which, in Landlord's
judgement, materially interferes with the ability to operate the Project or a
substantial portion thereof, Landlord shall have the right, at its option, to
terminate this Lease and shall be entitled to the entire award as above
provided. If a portion of the Premises is taken and neither party terminates
this Lease as herein provided, the rent thereafter to be paid shall be equitably
reduced.
XI. DEFAULT, REMEDIES
11.1. Default by Tenant. The occurrence of any one or more of the following
events shall constitute a default and breach of this Lease by Tenant:
(a) The vacating or abandonment of the Premises by Tenant.
11
<PAGE>
(b) The failure by Tenant to make any payment of rent or any other
payment required to be made by Tenant hereunder within a period of ten days
after the same is due and payable.
(c) The failure by Tenant to observe or perform any of the covenants,
conditions, or provisions of this Lease to be observed or performed by the
Tenant, other than to make the payments set out in subsection (b) above,
where such failure shall continue for a period of 30 days after written
notice thereof to Tenant by Landlord.
(d) The making by Tenant of any general assignment or general
arrangement for the benefit of creditors; or the filing by or against
Tenant of a petition to have Tenant adjudged bankrupt, or a petition or
reorganization or arrangernent under any law relating to bankruptcy
(unless, in the case of the petition filed against Tenant, the same is
dismissed within 60 days); or the appointment of a trustee or a receiver to
take possession of substantially all of Trenant's assets located at the
Premises or of Tenant's interest in this Lease, where possession is not
restored to Tenant within 30 days; or the attachment, execution or other
judicial seizure of substantially all of Tenant's assets located at the
Premises or of Tenant's interest in this Lease, where such seizure is not
discharged in 30 days.
(e) The failure of the Tenant to keep the Premises free of liens as
required by this Lease.
11.2. Landlord's Right Reenter and Relet Premises. In the event of any
default or breach by Tenant, Landlord may elect to re-enter the Premises, as
herein provided, or take possession pursuant to legal proceedings or pursuant to
any notice provided for by law, and Landlord may either terminate this Lease or
it may from time to time, without terminating this Lease, make such alterations
and repairs as may be necessary in order to relet the Premises and relet the
Premises or any part thereof for such term or terms (which may be for a term
extending beyond the Lease Term) and at such rent or rents and upon such other
terms and conditions as Landlord, in its sole discretion, may deem advisable.
Upon each such reletting, all rents received by Landlord from such reletting
shall be applied: first, to the payment of any indebtedness other than rent due
hereunder from Tenant to Landlord; second, to the payment of any costs and
expenses of such reletting, including brokerage fees and attorney's fees to the
payment of rent due and unpaid hereunder; and, the residue, if any, shall be
held by Landlord and applied in payment of further rent as the same may become
due and payable hereunder. If rents received from such reletting during any
month are less than that to be paid during that month by Tenant hereunder,
Tenant shall pay such deficiency to Landlord. Such deficiency shall be
calculated and paid monthly or at such greater intervals as Landlord may see
fit; or Landlord may institute action for the whole of such deficiency
immediately upon effecting any letting or reletting and shall not thereafter be
precluded from further like action in the event such
12
<PAGE>
letting or reletting shall not embrace the whole unexpired portion of the Lease
Term. No such re-entry or taking possession of said Premises by Landlord shall
be construed as an election on its part to terminate this Lease unless a written
notice of such intention be given to Tenant, or unless the termination thereof
be decreed by a court of competent jurisdiction. Notwithstanding any such
reletting without termination, Landlord may at any time thereafter elect to
terminate this Lease for such previous breach. Should Landlord at any time
terminate this Lease for any breach, in addition to any other remedies it may
have, it may recover from Tenant all damages it may incur by reason of such
breach, including the cost of recovering the Premises and reasonable attorney's
fees, and including the worth at the time of such termination of the excess, if
any, of the amount of rent and charges equivalent to rent reserved in this Lease
for the remainder of the Lease Term over the then reasonable rental value of the
Premises for the remainder of the Lease Term, all of which amount shall be
immediately due and payable by Tenant.
11.3. Tenant's Property. In the event Landlord shall take possession of the
Premises upon any default or breach by Tenant, all property of Tenant placed on
the Premises may be taken, possessed and used by Landlord without compensation
to the Tenant, and may be let with the Premises upon any reletting provided for
in this Lease, and may be taken, possessed and used by the substitute tenant in
the conduct of the substitute tenant's business, without compensation to Tenant
and without constituting an eviction of Tenant from the Premises or any part
thereof. Said right of taking, using and letting shall apply to any of said
property which may be subject to a lease or to a conditional sales contract,
lease contract, reserved or soecurity title, chattel mortgage or other security
agreement to secure the balance of the purchase price thereof, or other
obligation of Tenant. The Landlord or receiver or trustee shall be subrogated to
all rights of Tenant in such property and shall have the right to make such
payments as may be required to prevent repossession or foreclosure or the
exercise of any remedy by the obligee under any such lease or security
agreement; and the amount so paid, with interest therein, shall be added to the
sum due from Tenant to Landlord. In the alternative, upon taking possession of
the Premises, Landlord may require Tenant to remove all property of Tenant on
the Premises or have such property removed from the Premises and stored at the
cost of and for the account of Tenant.
11.4. Other Rights and Remedies of Landlord. Each of the remedies set out
in sections 11.2 and 11.3 of this Lease may be exercised jointly or severally
with any of the remedies provided by this Lease or by law, at the option of
Landlord or any receiver or trustee; and any remedy election may be abandoned or
terminated and may be resumed after such abandonment or termination, at the
option of Landlord or receiver or trustee. The rights and remedies herein set
forth and granted to Landlord shall be cumulative and in addition to any and all
other rights and remedies provided and given to Landlord under applicable 1aw.
The use of any one or more of the rights and remedies herein enumerated, shall
not be an election of remedies; nor, in such event, shall Landlord be barred or
estopped from using or asserting any other or different or concurrent or
cumulative right or remedy at the same or any other or different time or place.
Tenant hereby agrees to hold Landlord safe and harmless from any claim of any
character by any person arising out of or in any wise
13
<PAGE>
connected with the entry and the taking possession of the Premises and/or the
property of Tenant by Landlord or receiver or trustee, by reason of Tenants
default or breach of this Lease.
11.5. Waiver of Rights. In the event Landlord commences any proceeding for
nonpayment of rent, Tenant will not interpose any counterclaim of whatever
nature or description in any such proceeding. This shall not, however, be
construed as a waiver of the Tenant's right to assert such claims in any
separate actions brought by the Tenant. Tenant hereby expressly waives any and
all rights of redemption granted by or under any present or future laws in the
event of Tenant being evicted or dispossessed for any cause, or in the event of
Landlord obtaining possession of the Premises by reason of the violation by
Tenant of any of the covenants or conditions of the Lease or otherwise.
11.6. Default By Landlord. In the event Landlord shall neglect or fail to
perform or observe any of the covenants, provisions or conditions contained in
this Lease on its part to be performed or observed within 30 days after written
notice of default (or if more than 30 days shall be required because of the
nature of the default, if Landlord shall fail to proceed diligently to cure such
default after notice), then in that event Landlord shall be responsible to
Tenant for any and all damages sustained by Tenant as a result of Landlord's
breach, unless such damages are or would be covered by insurance provided or
required to be provided by Tenant. If the Premises or any part thereof are at
any time subject to any mortgage or deed of trust and this Lease or the rentals
due from Tenant hereunder are assigned to such mortgagee, trustee or beneficiary
(called "Assignee" for purposes of this Section only), then Tenant shall give
written notice to such Assignee, specifying the default in reasonable detail,
and affording such Assignee a reasonable opportunity to make performance for and
on behalf of Landlord. If and when the said Assignee has made performance on
behalf of Landlord, such default shall be deemed cured. If, after such notice to
Landlord and Assignee, if any, Landlord and Assignee shall fail to cure such
default as provided herein, Tenant shall have the right to cure any such default
at Landlord's expense including in such expenditure all costs and attorney's
fees incurred to cure such default or breach of this Lease. Tenant shall have no
right to terminate this Lease except as herein otherwise specifically provided.
XII. PROVISIONS APPLICABLE UPON TERMINATION OF LEASE
12.1. Surrender of Premises. Tenant shall upon expiration of the Lease
Term, or any earlier termination of this Lease for any cause surrender to
Landlord the Premises, including, without limitation, all building apparatus and
equipment then upon the Premises (other than the trade fixtures, signs and other
personal property which Tenant has the right to remove); and all alternations,
improvements, and other additions thereto that may have been made or installed
by either party to, in or upon the Premises in the same condition as when
received, reasonable use and wear thereof excepted without payment therefore.
Tenant, at its expense, shall immediately repair any damage to the Premises
caused by it vacating the same
14
<PAGE>
or by Tenant's removal of such trade fixtures, signs and other personal
property, and shall leave the Premises in a neat and clean condition, free of
debris.
12.2. Tenants Fixtures and Property. If Tenant shall not be in default upon
surrender of the Premises, Tenant may remove its trade fixtures, signs and other
personal property, but not including ceiling, light fixtures, air conditioning
equipment and duct work, floor and wall coverings, doors, windows, window
coverings including blinds, and partitions, which items shall remain in the
Premises and become the property of Landlord without any payment therefore. If
Tenant shall be in default, Tenant shall not have the right to remove any of
said trade fixtures, signs and other personal property and the same shall remain
and become the property of Landlord. Landlord shall have a Landlord's lien
against Tenant's property until said default is remedied. If Tenant fails to
remove the trade fixtures, signs and other personal property which Tenant has a
right to remove within three days after the expiration of the Lease Term, or
earlier termination of the Lease, Landlord may, at its election: (i) consider
the same abandoned and retain the same as Landlord's property; or (ii) remove
and store the same for the account of Tenant and at Tenant's cost and expense.
12.3. Surrender of Lease. The voluntary or other surrender of this Lease by
Tenant, or a mutual cancellation thereof, shall not work a merger, and shall, at
the option of Landlord, terminate all or any existing subleases or
subtenancies, or may, at the option of Landlord, operate as an assignment to
him of any or all of such subleases or subtenancies.
12.4. Tenant's Obligations to Survive Termination. Tenant's obligation to
observe and perform any of the provisions of this Article shall survive the
expiration of the Lease Term or earlier termination of this Lease.
XIII. FINANCING, SUBORDINATION, ESTOPPEL CERTIFICATES
3.1. Subordination. Tenant acknowledges that it might be necessary for
Landlord or its successors or assigns to secure mortgage loan financing or
refinancing affecting the Premises. Tenant also acknowledges that the lender
interested in any given loan may desire that Tenant's interests under this Lease
be either superior or subordinate to the mortgage then held or to be taken by
said Lender. Accordingly, Tenant agrees that at the request of Landlord at any
time and from time to time Tenant shall execute and deliver to Landlord an
instrument, in form reasonably acceptable to Landlord, whereby Tenant
subordinates its interests under this Lease in the Premises to any mortgage or
trust deed and customary related instruments are herein collectively referred to
merely as a "Mortgage" securing a loan obtained by Landlord or its successors or
assigns for the purpose of enabling acquisition of the Project and/or
construction of additional improvements to the Project or to provide standing or
permanent financing for the Project, or for the purpose of refinancing any such
construction, acquisition, standing or permanent loan as may be specified by
Landlord. Provided, however, that any such instrument or subordination executed
by Tenant shall provide that so long as Tenant continues to perform all of its
obligations under this Lease its tenancy shall remain in full force and effect
notwithstanding Landlord's default in
15
<PAGE>
connection with the Mortgage concerned or any resulting foreclosure or sale or
transfer in lieu of such proceedings. Tenant shall not subordinate its interests
hereunder or in the Premises to any lien or encumbrance other than the Mortgages
described in and specified pursuant to this Section without the prior written
consent of Landlord. Any such unauthorized subordination by Tenant shall be void
and of no force or effect.
13.2. Amendment. Tenant recognizes that Landlord's ability from time to
time to obtain construction, acquisition, standing, and/or permanent mortgage
loan financing for the Project may in part be dependent upon the acceptability
of the terms of this lease to the lender concerned. Accordingly, Tenant agrees
that from time to time it shall, if so requested by Landlord and if doing so
will not materially and adversely affect Tenant's economic interests hereunder
join with Landlord in amending this Lease so as to meet the needs or
requirements of any lender which is considering making or which has made a loan
secured by a mortgage affecting the Premises.
13.3. Attornment. Any sale, assignment, or transfer of Landlord's interest
under this Lease or in the Premises including any such disposition resulting
from Landlord's default under a mortgage, shall be subject to this Lease and
also Tenant shall attorn to Landlord's successor and assigns and shall recognize
such successor or assigns as landlord under this Lease, regardless of any rule
of law to the contrary or absence of privity of contract.
13.4. Landlord's Right to Estoppel Certificate. Tenant shall, within 15
days after Landlord's request, execute and deliver to Landlord a written
declaration in recordable form ("Estoppel Certificate"): (i) ratifying this
Lease; (ii) expressing the commencement date and termination date hereof; (iii)
certifying that this Lease is in full force and effect and has not been
assigned, modified, supplemented or amended (except as shall be stated); (iv)
that all conditions under this Lease to be performed by Landlord have been
satisfied (except as shall be stated); (v) that there are no defenses or offsets
against the enforcement of this Lease by the Landlord (or stating those claimed
by Tenant); (vi) the amount of advance rental, if any, (or none if such is the
case) paid by Tenant; (vii) the date to which rental has been paid; (viii) the
amount of security deposited with Landlord; and (ix) such other information as
Landlord may reasonably request. Landlord's mortgage lenders and/or purchasers
shall be entitled to rely upon such declaration. If Tenant shall fail to furnish
any Estoppel Certificate within 15 days after request therefor shall be deemed a
default hereunder and, moreover, it shall be conclusively presumed that: (i)
this Lease is in full force and effect without modification in accordance with
the terms set forth in the request; (ii) that there are no unusual breaches or
defaults on the part of the Landlord; and (iii) no more than one month's rent
has been paid in advance.
13.5. Sale of Premises by Landlord. In the event of any sale of the Project
or the Building Landlord shall be and is hereby entirely freed and relieved of
all liability under any and all of its covenants and obligations contained in or
derived from this Lease arising out of any act, Occurrence or omission occurring
after the consummation of such sale;
16
<PAGE>
and the purchaser, at such sale or any subsequent sale of the Premises shall be
deemed, without any further agreement between the parties or their successors in
interest or between the parties and any such purchaser, to have assumed and
agreed to carry out any and all of the covenants and obligations of the Landlord
under this Lease.
XIV. ADDITIONAL PROVISIONS
14.1. Waiver. The waiver by Landlord of any term, covenant or condition
herein contained shall not be deemed to be a waiver of such term, covenant or
condition on any subsequent breach of the same or any other term, covenant or
condition herein contained. The acceptance of rent hereunder by Landlord shall
not be deemed to be a waiver of any preceding breach by Tenant of any term,
covenant or condition of this Lease, other than the failure of Tenant to pay the
particular rental so accepted, regardless of Landlord's knowledge of such
preceding breach at the time of the acceptance of such rent.
14.2. Notice. Any notice given under this Lease shall be in writing and
shall be delivered personally, be mailed by first class or express mail, or be
sent by facsimile transmission ("Fax") addressed as follows:
To Landlord: GREEN/PRAVER ET AL
c/o ASSET MANAGEMENT SERVICES INC.
428 East 6400 South, Suite 100
Salt Lake City, Utah 84107
Fax No. (801) 281-4888
Attention: Gregory Strong
To Tenant: DATA SECURITY CORPORATION
150 Wright Brothers Drive, Suite 150
Salt Lake City, Utah 84116
Fax No. (801) 575-6621
Attention: Gary Peterson
or at such other address as either party may designate by written notice to the
other party as herein provided. Notice shall be deemed given when actually
received if personally delivered; if faxed, when the fax is received, except
that if the fax is received after normal business hours of the office at which
it is received, on the next regular business day; and if by mail, the earlier of
the day actually received or the third business day after the notice is
deposited in the United States mail properly addressed and postage prepaid.
14.3. Joint Obligation. If there be more than one Tenant, the obligations
hereunder imposed upon Tenants shall be joint and several.
14.4. GoverninG Law - Headings. This Lease shall be governed as to
validity, enforcement, construction, effect and in all other respects by the
laws of the State of
17
<PAGE>
Utah. The section headings and captions appearing in this Lease are for
convenience only and are not to be used to construe, interpret or define the
provisions of this Lease.
14.5. Time. Time is of the essence of this Lease and each and every
provision hereof.
14.6. Successors and Assigns. The covenants and conditions herein
contained, subject to the provisions as to assignment contained elsewhere in
this Lease, apply to and bind the heirs, successors, personal representatives,
administrators and assigns of the parties hereto.
14.7. Recordation. Neither Landlord nor Tenant shall record this Lease or a
short form memorandum hereof without the prior written consent of the other
party.
14.8. Prior Agreements. This Lease contains all of the agreements of the
parties hereto with respect to any matter covered or mentioned in this Lease,
and no prior agreements or understanding pertaining to any such matters shall be
effective for any purpose. No provisions of this Lease may be amended or added
to, except by an agreement in writing signed by the parties hereto or their
respective successors in interest. This Lease shall not be effective or binding
on any party until fully executed by both parties hereto.
14.9 Force Majeure. This Lease and the obligations of the Tenant hereunder
shall not be affected or impaired because the Landlord is unable to fulfill any
of its obligations hereunder or is delayed in doing so, if such inability or
delay is caused by reason of strike, labor troubles, acts of God, or any other
causes beyond the reasonable control of the Landlord.
14.10. Attorney's Fees. The parties agree that should any party default in
any of the covenants or agreements herein contained, the defaulting party shall
pay all costs and expenses, including reasonable attorney's fees, which may
arise or accrue from enforcing this Lease or in pursuing any remedy provided
hereunder or by applicable law, whether such remedy is pursued by filing suit or
otherwise.
14.11. Severability. Any provision of this Lease which shall prove to be
invalid, void or illegal shall in no way effect, impair or invalidate any other
provisions hereof and such other provisions shall remain in full force and
effect.
14.12. Cumulative Remedies. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
14.13. Authority of Signatories. The persons executing this Lease on behalf
of Landlord and Tenant, each represent and warrant that he or she has the
authority to execute this Agreement and to bind the responsive party.
18
<PAGE>
14.14. Brokers. Except as agreed upon in writing by Landlord, Tenant
represents, and warrants that there are no claims for brokerage commissions or
finder's fees in connection with this Lease and agrees to indemnify Landlord
against and hold it harmless from all liabilities arising from such claim,
including any attorneys' fees connected therewith.
THE PARTIES HERETO have caused this Lease to be executed as of the date
first hereinabove set out.
TENANT:
DATA SECURITY CORPORATION
By /s/ xxxxxxxxxx
-----------------------
Its: President
LANDLORD:
GREEN/PRAVER ET AL
By /s/ xxxxxxxxxx
-----------------------
Its: Project Manager
19
<PAGE>
EXHIBIT "B"
ATTACHED TO AND FORMING A PART OF
THE LEASE DATED FEBRUARY 12, 1996
BETWEEN GREEN/PRAVER ET AL
AND DATA SECURITY CORPORATION
COVERING PREMISES AT WILEY POST PLAZA
ESTIMATE OF ADDITIONAL RENT
20,079 Square Feet x $0.13 = $2,610.27
20
<PAGE>
EXHIBIT "C"
ATTACHED TO AND FORMING A PART OF
THE LEASE DATED FEBRUARY 12, 1996
BETWEEN GREEN/PRAVER ET AL
AND DATA SECURITY CORPORATION
COVERING PREMISES AT WILEY POST PLAZA
DESCRIPTION OF IMPROVEMENTS TO PREMISES
TO BE MADE BY LANDLORD AND/OR TENANT
No improvements are to be made. Tenant is leasing the Premises in their "AS
IS" condition.
<PAGE>
EXHIBIT "D"
ATTACHED TO AND FORMING A PART OF
THE LEASE DATED FEBRUARY 12, 1996
BETWEEN GREEN/ RAVER ET AL
AND DATA SECURITY CORPORATION
COVERING PREMISES AT WILEY POST PLAZA
HAZARDOUS MATERIAL REQUIREMENTS
The following Hazardous Material Requirements are additional provisions of
the above referenced Lease (the "Lease") to which they are attached. Terms used
herein shall have the same meanings as are given those Terms in the Lease.
1. For purposes of these Requirements, the following terms shall be
defined as follows:
"Disposal of Hazardous Material" shall mean any emitting, releasing,
spilling, leaking, pumping, pouring, emptying, disposing or dumping of any
Hazardous Material into air or waters (including ground water) or onto
lands.
"Environmental Compliance Audit" shall mean an audit of the Premises
and of Tenant's operations at or affecting the Premises for the purpose of
determining whether Tenant and Tenant's operations are in full compliance
with all applicable Environmental Laws. The audit sHall include, without
limitation, (i) a determination of all environmental registrations and
notices required to be filed by Tenant with respect to its operations or
the Premises, (ii) a determination of all permits and approvals required to
be obtained or maintained by Tenant with respect to its operations or the
Premises, (iii) an examination of the Premises to determine whether there
has been any Disposal of Hazardous Material on or under the Premises or any
other Violation of any applicable Environmental Law affecting Tenant or the
Premises which has not been fully and finally corrected, and (iv) a review
of Tenant's facilities, records, training programs, policies, procedures
and ongoing operations to determine whether Tenant's operations are being
conducted in full compliance with all applicable Environmental Laws.
"Environmental Compliance Audit Certificate" shall mean a certificate
addressed to Landlord issued by a competent, independent environmental
consultant reasonably acceptable to Landlord certifying (i) that the
consultant has completed an Environmental Compliance Audit of Tenant and
the Premises, (ii) that, as of the effective date of
<PAGE>
the certificate, Tenant and the Premises are in full compliance with all
applicable Environmental Laws, (iii) that there has been no known Disposal
of Hazardous Material at, in, on or under the Premises, and (iv) that in
the consultant's opinion after due inquiry there is no basis for the
consultant to recommend or require further investigation or testing with
respect to any suspected or possible contamination at the Premises.
"Environmental Laws" shall mean all federal, state and local laws and
ordinances pertaining to the generation, manufacture, refining, recycling,
treatment, handling, use, storage, transportation, disposal and cleanup of
hazardous, radioactive, reactive, flammable, infectious, toxic or dangerous
substances or materials or the protection of public health or of the
environment, including without limitation the Comprehensive Environmental
Response, Compensation and Liability Act of 1980 (42 U.S.C. Section 9601,
et seq.), the Resource Conservation and Recovery Act of 1976 (42 U.S.C.
Section 6901, et seq.), the Toxic Substances Control Act (15 U.S.C. Section
2601, et seq.), the Clean Air Act (42 U.S.C. Section 7401, et seq.), the
Federal Water Pollution Control Act (33 U.S.C. Section 1251, et seq.), and
any similar state law, including all amendments thereto and all regulations
promulgated thereunder, and further including the conditions and
requirements of all permits and regulatory approvals issued thereunder.
"Hazardous Material" shall mean oil, petroleum, petroleum products,
asbestos, PCB's, dioxins and any other pollutants, contaminants, hazardous
substances, hazardous wastes and toxic or dangerous substances or materials
as defined in or regulated under any Environmental Laws.
2. Tenant shall not cause or permit any Hazardous Material to be
brought upon, kept or used in or about the Premises or the Project by Tenant,
its agents, employees, contractors or invitees, except for such Hazardous
Material as is necessary or useful to Tenant's business.
3. At the commencement of the Lease Term and the commencement of each
subsequent year of the Lease Term, Tenant shall disclose to Landlord the names
and approximate amounts of all Hazardous Material which Tenant intends to store
or use on the Premises in the coming lease year. In addition, at the
commencement of each year of the Lease Term beginning with the second year,
Tenant shall disclose to Landlord the names and amounts of all Hazardous
Material which were actually used or stored on the Premises if such materials
were not
2
<PAGE>
previously identified to Landlord at the commencement of the previous year of
the Lease Term.
4. Tenant (and each other occupant of the Premises) shall comply fully
with all Environmental Laws applicable to the Premises or to activities on or
uses of the Premises. Any Hazardous Material permitted on the Premises as
provided in Section 2 above, and all containers therefor, shall be used, kept,
stored and disposed of in a manner that complies with all Environmental Laws.
5. Tenant shall not cause or permit to exist, as a result of any
intentional or unintentional act or omission on Tenant's part or on the part of
any occupant of the Premises, any Disposal of Hazardous Material on, in or under
the Premises or the Project.
6. Tenant shall promptly notify Landlord of any event or occurrence,
whether occurring on the Premises or on the Project or nearby lands, which
causes or poses a risk of contamination of the Premises or of air or water on,
under or near the Premises with any Hazardous Material. Tenant shall also
promptly provide to Landlord with a copy of every summons, citation, directive,
letter, order, information request, notice of violation (NOV) or other
communication received or obtained by Tenant, written or oral, from any local,
state or federal agency or department concerning any known, alleged or suspected
intentional or unintentional action or omission on Tenant's or any other
person's part which resulted or may have resulted in the Disposal of Hazardous
Materials on, in or under the Premises or the Project, or which alleges the
violation by Tenant or any other occupant of the Premises of any Environmental
Law.
7. If and whenever so requested by Landlord, Tenant shall promptly
provide Landlord wiih complete and accurate copies of all reports, notices
applications or other documents filed with any governmental authority, including
accompanying or related correspondence and all responsive notices and
correspondence, under any Environmental Law with respect to any events or
activities occurring at or on the Premises. If so requested by Landlord, Tenant
shall provide Landlord, on an ongoing basis and without needing further
requests, with copies of all such materials as and when filed with or received
from such governmental authorities.
8. Tenant shall promptly provide Landlord with copies of any tests,
analyses or reports obtained by Tenant pertaining to Tenant's compliance with
Environmental Laws, the existence or nonexistence of any Hazardous Material on,
in or under the Premises, or the condition of the Premises.
9. Tenant shall protect, indemnify, defend and save harmless Landlord
and its directors, officers, trustees, agents and employees from and
3
<PAGE>
against any and all obligations, duties, liabilities, expenses, fines, penalties
and damages of every kind and nature and from all suits, claims, notices, orders
and demands, including reasonable legal fees and expenses, on account of any
matter or thing, whether in suit or not, (i) arising out of or relating to any
violation or alleged violation of Environmental Laws at, on or with respect to
the Premises during the Lease Term, (ii) arising out of or relating to the
investigation, testing, study, removal, monitoring or remediation of any known
or suspected Disposal of Hazardous Material during the Lease Term from the
Premises, (iii) arising out of or relating to the presence, investigation,
testing, study, removal, monitoring or remediation of any known or suspected
Hazardous Material at or from lands, air or water in the vicinity of the
Premises resulting from any actual or alleged Disposal of Hazardous Material or
violation of Environmental Laws at or on the Premises during the Lease Term, or
iv) arising out of or relating to the inaccuracy of any representation by Tenant
or to the breach by Tenant of any warranty, covenant or agreement contained
herein.
10. If Landlord, in its sole discretion, has reason to suspect that a
violation of any Environmental Law has occurred, or that a Disposal of Hazardous
Material at, on, in or under the Premises has occurred, Landlord may request and
Tenant shall provide an Environmental Compliance Audit Certificate at any time
during the Lease Term. In addition if the information provided pursuant to
Section 3 of these requirements discloses the use of a significant amount of
Hazardous Material on the Premises or the use of Hazardous Material on the
Premises in a manner that Landlord reasonably believes creates a significant
risk of a Disposal of Hazardous Material, Landlord may request and Tenant shall
provide Landlord with an Environmental Compliance Audit Certificate within 30
days following each anniversary of the beginning of the Lease Term, effective as
of a date no earlier than 60 days prior to the date of delivery of the
certificate.
11. In the event Tenant fails or refuses promptly to provide Landlord
with an Environmental Compliance Audit Certificate when required under Section
10 of these Requirements Landlord may, at Tenants risk and expense, arrange to
obtain such a certificate. Landlord and any consultant retained by or for the
benefit of Landlord shall have the right, without further permission from or
notice to Tenant, to enter upon the Premises for the purpose of performing any
examination or testing required in order to provide such a certificate, and
Tenant shall provide the consultant with reasonable access to Tenant's records
for such purposes. Any costs incurred by Landlord in obtaining such a
certificate shall constitute additional rent under the Lease, and shall be due
and payable as provided in the Lease.
12. During the Lease Term, Tenant shall have, sufficient control over
all employees, agents, and other persons using or occupying the Premises to
ensure compliance with these Requirements.
4
<PAGE>
13. The obligations of Tenant and the rights and remedies of Landlord
under these Requirements shall survive the termination of the Lease.
5
<PAGE>
EXHIBIT "E"
ATTACHED TO AND FORMING A PART OF
THE LEASE DATED FEBRUARY 12, 1996
BETWEEN GREEN/PRAVER ET AL
AND DATA SECURITY CORPORATION
COVERING PREMISES AT WILEY POST PLAZA
RULES
The following Rules are additional provisions of the above referenced
Lease (the "Lease") to which they are attached. Terms used herein shall have the
same meanings as are given those Terms in the Lease.
1. Use of Common Areas. Tenant will not obstruct the sidewalks, exits
and entrances of the Building and Common Areas, and Tenant will not use the
Common Areas for any purpose other than ingress and egress to and from the
Premises. The Common Areas are not open to the general public and Landlord
reserves the right to control and prevent access to the Common Areas of any
person whose presence, in Landlord's opinion, would be prejudicial to the
safety, reputation and interests of the Project and its tenants.
2. No Access to Roof. Tenant has no right of access to the roof of the
Building and will not install, repair or replace any antenna, aerial, aerial
wires, fan, air-conditioner or other device on the roof of the Building,
without prior written consent of Landlord. Any such device installed without
such written consent is subject to the removal at Tenant's expense without
notice at any time. In any event Tenant will be liable for any damages or
repairs incurred or required as a result of its installation, use or removal of
such devices on the roof.
3. Signage. No sign, placard, picture, name, advertisement or notice
visible from the exterior of the premises will be inscribed, painted, affixed or
otherwise displayed by Tenant on or in any part of the Building without prior
written consent of Landlord. Landlord reserves the right to adopt and furnish
Tenant with general guidelines relating to signs in or on the Building. All
approved signage will be inscribed, painted or affixed at Tenant's expense by a
person approved by Landlord, which approval will not be unreasonably withheld.
4. Freight. Landlord reserves the right to prescribe the weigh, size
and position of all equipment, materials, furniture or other property brought
into the Building. Landlord reserves the right to require that heavy objects
will stand on wood strips of such length and thickness as is necessary to
properly distribute weight. Landlord will not be responsible for loss of or
damage to any such property from any cause, and Tenant will be liable for all
damage or injuries caused by moving such property.
<PAGE>
5. Electrical Installations. Landlord will direct Tenant's electricians
as to where and how telephone, telegraph and electrical wires are to be
installed. No boring or cutting from wires will be allowed without the prior
written consent of Landlord. The location of burglar alarms, smoke detectors,
telephone, call boxes and other office equipment affixed to the premises shall
be subject to the written approval of Landlord.
6. Building Closing Procedures. Tenant will see that the doors of the
Premises are closed and locked and that all water faucets, water apparatus and
utilities are shut off before Tenant or its employees leave the Premises, so as
to prevent waste or damage Tenant will be liable for all damage or injuries
sustained by other tenants or occupants of the Building or Landlord resulting
from Tenant's carelessness in this regard or violation of this rule. Tenant will
keep the doors to the Building closed at all times except for ingress and
egress.
7. Plumbing Facilities. The toilet rooms, toilets, urinals, wash bowls
and other apparatus shall not be used for purpose other than that for which they
were constructed and no foreign substance of any kind whatsoever shall be
disposed of therein. Tenant will be liable for any breakage, stoppage or damage
resulting from the violation of this rule by Tenant, its employees or invitees.
8. Refuse. Tenant will store all its trash and garbage within the
Premises or in designated dumpsters or trash receptacles provided by Landlord in
the Common Areas. No material will be placed in the dumpsters or receptacles if
such material may not be disposed of in the ordinary and customary manner of
removing and disposing of trash and garbage in Salt Lake City without being in
violation of any law or ordinance governing such disposal. All trash and garbage
removal will be only through the Common Areas provided for such purposes and at
such times as Landlord may designate.
9. Soliciting. Canvassing, peddling, soliciting and distribution of
handbills or any other written materials in the Building and Common Areas are
prohibited, and Tenant will cooperate to prevent the same.
10. Parking. Tenant will use, and will cause its agents, employees,
contractors, invitees and visitors to use, the parking spaces to which it is
entitled under the Lease in a manner consistent with Landlord's directional
signs and markings in the parking areas. Specifically, but without limitations,
Tenant will not park, in a manner that impedes access to and from the Building
or the parking areas or that violates space reservations for handicapped
drivers. Landlord may use such reasonable means as may be necessary to enforce
the directional signs and markings in the parking areas, including but not
limited to towing services, and Landlord will not be liable for any damage to
vehicles towed as a result of non-compliance with such parking regulations.
2
<PAGE>
11. Fires, Security and Safety-Regulations. Tenant will comply with all
safety, security, fire protection and evacuation measures and procedures
established by Landlord or any governmental agency.
12. Responsibility for Theft. Tenant assumes any and all responsibility
for protecting the Premises from theft, robbery and pilferage, which includes
keeping doors locked and other means of entry to the Premises closed.
13. Sales and Auctions. Tenant will not display or sell merchandise
outside the exterior walls and doorways of the Premises nor use such areas for
storage. Tenant will not install any exterior lighting, amplifiers or similar
devices or use in or about the premises any advertising medium which may be
heard or seen outside the Premises, including flashing lights, searchlights,
loudspeakers, phonographs or radio broadcasts. Tenant will not conduct or permit
to be conducted any sale by auction in, upon or from the Premises or elsewhere
in the Project, whether auction be voluntary, involuntary, pursuant to any
assignment for the payment of creditors or pursuant to any bankruptcy or other
insolvency proceeding.
14. Enforcement. Landlord may waive any one or more of these Rules for
the benefit of a particular tenant or tenants, but no such waiver by Landlord
will be construed as a waiver of such Rules in favor of any other tenant or
tenants nor prevent Landlord from enforcing or waiving these Rules with regard
to any other tenant or tenants.
15. Effect on Lease. These Rules are in addition to, shall not be
construed to in any way modify or amend, in whole or in part, the terms,
covenants, agreements and conditions of the Lease. Violation of these Rules
constitutes a default under the Lease.
16. Additional and Amended Rules. Landlord reserves the right to
rescind or amend these Rules and/or adopt any other and reasonable rules and
regulations as in its judgment may from time to time be needed for the safety,
care and cleanliness of the Project and for the preservation of good order
therein.
17. No portion of the Project shall be used for lodging purposes.
3
<PAGE>
EXHIBIT C
SHAREHOLDERS AGREEMENT
OF
WORLD WIRELESS COMMUNICATIONS, INC.
Agreement made as of the 21st day of May 1997, by and among World Wireless
Communications, Inc., a Nevada corporation currently having its office and
principal place of business at 150 Wright Brothers Drive, Suite 560, Salt Lake
City, Utah 84116 (the "Corporation"), Digital Radio Communications Corporation,
a Utah corporation currently having its principal place of business at 772 East
Valley Drive, American Fork, Utah, Philip Bunker, residing at 946 East 880
North, Orem, Utah 84097, William E. Chipman, Sr., residing at RD # 1, Box 503,
Parksburg, Utah 84003, and Jeffrey G. Ballif, residing at 112 West 1340 North
American Fork, Utah 84003 (each such person or entity, together with all such
other former shareholders of Digital Radio Communications Corporation, a Utah
corporation ("Digital") listed in Schedule A attached hereto and such other
persons or entities subsequently becoming parties to this Agreement by virtue of
the exercise of options granted to them by Digital after the Effective Date (as
defined herein), hereinafter shall be referred to individually as a
"Shareholder" and collectively as the "Shareholders").
1
<PAGE>
WHEREAS, upon the Closing (the "Effective Date"), as defined in the
Agreement and Plan of Merger by and among the Corporation, Wireless Acquisitions
Corp.("Newco") and Digital dated as of May 21, 1997, the Shareholders will
collectively own approximately 18.9% of the issued and outstanding, shares of
common stock, $.001 par value per share, of the Corporation (shares of such
common stock, together with shares of common subsequently acquired by the
parties, being referred to as the "Shares" and collectively as the "Stock");
WHEREAS, upon the Effective Date, the Corporation and the Shareholders
desire to provide for certain registration rights for the Stock of the
Corporation or any interest therein now or hereafter owned by the Shareholders;
WHEREAS, upon the Effective Date, the Corporation and the Shareholders
desire to facilitate the continuity of the management of the Corporation and
Digital following its merger with and into Newco;
NOW, THEREFORE, effective upon the Effective Date, in consideration of the
mutual covenants and conditions herein contained, each of the parties hereby
agrees as follows:
1. Voting of Stock; Directors.
1.1 The Shareholders hereby agree with one another that they will, at all
times, vote their respective Shares, commencing on the Effective Date and
2
<PAGE>
continuing until the first annual meeting of the shareholders of the
Corporation, so as to effectuate the election of solely the following persons as
directors of the Corporation:
(a) David Singer,
(b) Jonathan Rahn,
(c) Brian Pettersen,
(d) Phil B. Acton, and
(e) Philip Bunker.
1.2 The Corporation hereby agrees that it will, at all times, vote all of
its shares of the capital stock of Digital, commencing on the Effective Date and
continuing until the Corporation owns none of the capital stock of Digital, so
as to effectuate the election of solely the following persons as directors of
the Corporation:
(a) David Singer;
(b) Philip Bunker; and
(c) William E. Chipman,
1.3 (a) In the event the size of the Board of Directors of Digital is
increased from time to time or Philip Bunker or William E. Chipman, Sr., shall
not be serving as directors, Digital, acting through Philip Bunker and William
E. Chipman, Sr., jointly, or, by the sole director of the two of them if only
one of them is then serving
3
<PAGE>
as a director, shall have the right to designate additional persons to serve as
members of the Board of Directors, so that, in all events, Digital's designees
constitute 75% of the members of the Board of Directors of Digital and the
Corporation's designees constitute 25% of the members of the Board of Directors
of the Corporation.
(b) In the event of the death of Philip Bunker or William E. Chipman,
Sr., the survivor of them shall have the right to appoint a director to replace
the deceased director pursuant to Section 1.3(a) hereof, and upon the death of
the survivor of them, the last person or persons so appointed a director or
directors shall have the right provided herein to appoint a director in such
decedent's place.
2. Officers.
2.1 The Shareholders hereby agree to use their best efforts to cause
the Board of Directors to appoint the following person as an officer of the
Corporation, to hold the office or offices set opposite his name, for the period
commencing on the Effective Date and continuing until all of the Shareholders
own no Stock: David Singer, President and Chief Executive Officer.
2.2 The Corporation hereby agrees to cause the Board of Directors of
Digital to appoint the following persons as officers of Digital, to hold the
office or offices set opposite their respective names, for the period commencing
on the Effective Date and continuing until all of the Shareholders own no Stock:
4
<PAGE>
(a) Philip Bunker, President
(b) William E. Chipman, Sr., Chief Financial Officer and (c) David
Singer, Secretary.
3. Voting.
3.1 The Shareholders and the Corporation shall vote at all corporate
meetings so as to effectuate the terms and provisions of this Agreement.
4. Other Activities.
4.1 Neither this Agreement nor any activity on behalf of the
Corporation or Digital shall prevent the Shareholders from engaging in any other
activities or businesses or from making any other investments. In no event shall
any of the Shareholders be obligated to account to the other Shareholders of the
Corporation, to the Corporation or to Digital, for any profits or other benefits
derived from such permitted activities, businesses or investments or be under
any obligation to offer to the other Shareholders of the Corporation, the
Corporation or Digital an interest in any such permitted activity business or
investment, and any income realized may therefrom be retained by such
Shareholder for his or her own account.
4.2 The fact that a Shareholder is directly or indirectly interested
in any person, firm or corporation employed or retained by the Corporation or
Digital to render or perform a service, or to or from whom the Corporation or
Digital may
5
<PAGE>
purchase, sell, license or lease property, shall not prohibit the Corporation or
Digital from employing or retaining such person or firm or Corporation or
Digital or from otherwise dealing with him or it, provided, however, that the
same is approved by the Board of Directors of the Corporation or Digital, as the
case may be.
5. Piggyback and Demand Registration Rights. 5.1 (a) If the
Corporation shall propose to file a registration
statement under the Securities Act, at any time during the 30-month period after
the Effective Date, either on its own behalf or that of any of its shareholders
for an offering of shares of the capital stock of the Corporation (including
shares to be issued pursuant to the exercise of any warrants) for cash or
securities, the Corporation shall give written notice as promptly as possible of
such proposed registration to each Shareholder and shall use reasonable efforts
to include such number or amount of shares of the Stock owned by such
Shareholders (including shares to be issued pursuant to the exercise of any
warrants) (each a "Seller" or "Registering Shareholder" and collectively, the
"Sellers" or "Registering Shareholders") in such registration statement as such
Seller or Sellers shall request within ten days after receipt of such notice
from the Corporation, provided, that (A) if shares of the Stock are being
offered by the Corporation in an underwritten offering, any shares of the Stock
proposed to be included in the registration statement on behalf of such
Seller(s) shall be included in
6
<PAGE>
the underwriting offering on the same terms and conditions as the Stock being
offered by the Corporation, (B) each Seller shall be entitled to include such
number of shares of the Stock owned by such Seller in such registration
statement, one time only during the applicable period set forth herein, so that
the proportion of shares of the Stock of each Seller to be included in such
registration statement to the total number of shares of the Stock owned by him
is equal to the proportion that the number of shares of the Stock of all Sellers
to be included in such registration statement bears to the total number of
shares of the Stock owned by all Shareholders (except that each Seller shall
have the right not to exercise such piggyback registration right set forth
herein once, in which case such Seller shall have the right set forth in this
Section 5.1 with respect to the next succeeding registration statement described
in this Section 5.1 proposed to be filed by the Corporation during such 30-month
period); and provided further, that (i) the Corporation shall not be required to
include such number or amount of shares owned by such Seller(s) in any such
registration statement if it relates solely to securities of the Corporation to
be issued pursuant to a stock option or other employee benefit plan, (ii) the
Corporation may, as to an offering of securities of the Corporation by the
Corporation, withdraw such registration statement at its sole discretion and
without the consent of any Seller and abandon such proposed offering and (iii)
the Corporation shall not be required to include such number of shares of the
Stock owned
7
<PAGE>
by such Seller in such registration statement if the Corporation is advised in
writing by its underwriter or investment banking firm that it reasonably
believes that the inclusion of such Seller's shares would have an adverse effect
on the offering, provided that if such limitation is imposed, the effects of
such limitation shall be allocated among the Sellers pro rata in proportion to
the number of shares of the Stock as to which such Sellers have requested
inclusion therein.
(b) A registration filed pursuant to this Section 5.1(a) shall not be
deemed to have been effected unless the registration statement related thereto
(i) has become effective under the Securities Act and (ii) has remained
effective for a period of at least nine months (or such shorter period of time
in which all of the Stock registered thereunder has actually been sold
thereunder); provided, however, that if, after any registration statement filed
pursuant to Section 5. l (a) becomes effective and prior to the time the
registration statement has been effective for a period of at least nine months,
such registration statement is interfered with by any stop order, injunction or
other order or requirement of the Commission or other governmental agency or
court solely due to actions or omissions to act of the Corporation, such
registration statement shall not be considered one of the registrations
applicable pursuant to Section 5.1(a).
8
<PAGE>
5.2 (a) (i) If the Corporation fails to prepare and file a
registration statement under Section 5.1 hereof within 24 months after the
Effective Date which has become effective under the Securities Act and has
remained effective for a period of at least six months (or such shorter period
of time in which shares registered thereunder have been sold thereunder), then
(ii) if Philip Bunker (or any affiliate of his), William E. Chipman, Sr., (or
any affiliate of his) or Jeffrey Ballif or any two of such three Shareholders
acting jointly desire to sell, transfer or otherwise dispose of at least 20% of
their Shares pursuant to an offering registered under the Securities Act, such
Shareholder or Shareholders shall have the right, twice during such three-year
period commencing with the expiration of 24 months after the Effective Date and
continuing until the expiration of 60 months after the Effective Date, to
deliver a notice to the Corporation (the "Registration Notice") on behalf of all
of the former Digital shareholders (A) specifying the number of shares proposed
to be sold or otherwise transferred by all Digital shareholders (collectively
the "Registration Shares") (which shall not be less than 400,000 shares of
Acquiror Common Stock (the "Minimum Number"), (B) describing the proposed manner
of sale or other transfer thereof and (C) requesting the registration of the
Registration Shares under the rules and regulations of the Securities and
Exchange Commission (the "Commission") pursuant to the Securities Act. As
promptly as practicable following its receipt of a
9
<PAGE>
Registration Notice, the Corporation shall prepare and file with the Commission
a registration statement with respect to the Registration Shares pursuant to the
rules and regulations of the Commission and use its reasonable best efforts to
effect the registration under the Securities Act of any Registration Shares
requested to be so registered by the Shareholder or Shareholders to the extent
required to permit the sale or other transfer of the Registration Shares in the
manner described in the Registration Notice. Notwithstanding the foregoing
demand (but subject to the penultimate sentence of Section 5.2 (b)), the
Corporation shall not be obligated to effect more than two registrations
pursuant to this Section 5.2(a) using the then applicable registration forms of
the Commission, and the Shareholder or Shareholders shall not be entitled to
request registration of the Registration Shares more than once in any six-month
period. A registration requested pursuant to this Section 5.2(a) shall not be
deemed to have been effected unless the registration statement related thereto
(i) has become effective under the Securities Act and (ii) has remained
effective for a period of at least nine months (or such shorter period of time
in which all Registration Shares registered thereunder have actually been sold
thereunder); provided, however, that if, after any registration statement
requested pursuant to this Section 5.2(a) becomes effective and prior to the
time the registration statement has been effective for a period of at least nine
months, such registration statement is interfered with by any stop order,
injunction
10
<PAGE>
or other order or requirement of the Commission or other governmental agency or
court solely due to actions or omissions to act of the Corporation, such
registration statement shall not be considered one of the registrations which
may be requested pursuant to this Section 5.2(a).
(b) Delay or Suspension of Registration. Notwithstanding any other
provision of this Section 5.2 to the contrary, if the Corporation shall furnish
to the Shareholder or Shareholders:
(i) a certificate signed by the President of the Corporation
stating that, in the good faith judgment of a majority of the members of
the entire Board of Directors of the Corporation, it would adversely and
materially affect the Corporation's ability to enter into an agreement with
respect to, or to consummate, a bona fide material transaction to which it
is or would be a party, or the Corporation has a plan to register Stock to
be sold for its own account within a 90-day period after the receipt of the
demand request under Section 5.2(a), for the Corporation to use its
reasonable best efforts to effect the registration of the Registration
Shares (following a demand therefor by the Shareholder or Shareholders
pursuant to Section 5.2(a)); or
(ii) both (A) a certificate signed by the President of the
Corporation stating that, in the good faith judgment of a majority of the
11
<PAGE>
members of the entire Board of Directors of the Corporation, a material
fact exists which the Corporation has a bona fide business purpose for
preserving as confidential and (B) an opinion of counsel to the Corporation
to the effect that the registration by the Corporation (following a demand
for registration by the Shareholder or Shareholders pursuant to Section
5.2(a)) or the offer or sale by the Shareholder or Shareholders of the
Registration Shares pursuant to an effective registration statement would
require disclosure of the material fact which is referenced in the
President's certificate required under Section 5.2(b)(ii)(A) and which, in
such counsel's opinion, is not otherwise required to be disclosed,
then the Corporation's obligations pursuant to Section 5.2(a) with respect to
any such demand for registration shall be deferred or offers and sales of
Registration Shares by the Shareholder or Shareholders shall be suspended, as
the case may be, until the earliest of: (1) the date on which, as applicable (a)
the Corporation's use of reasonable best efforts to effect the registration of
the Registration Shares would no longer have such a material adverse effect or
(b) the material fact is disclosed to the public or ceases to be material; (2)
135 days from the date of receipt by the Shareholder or Shareholders of the
materials referred to in Section 5.2(b) (i) and (ii) above; and (3) such time as
the Corporation notifies the Shareholder or Shareholders that it has
12
resumed use of its reasonable best efforts to effect registration of the
Registration Shares or that offers and sales of Registration Shares pursuant to
an effective registration statement may be resumed, as the case may be. If the
Shareholder or Shareholders receives the materials referred to in Section
5.2(b)(ii) above while a registration statement for the offer and sale of the
Registration Shares is in effect, the Shareholder or Shareholders agree to
terminate immediately any offer or sale of Registration Shares. If offers and
sales of the Registration Shares are suspended and resumed following the
effectiveness of a registration statement within the 135-day period set forth in
clause (2) of the second preceding sentence, the six-month period set forth in
Section 5.2(a) shall be extended for a number of days equal to the number of
days for which offers and sales of Registration Shares were suspended. If offers
and sales of the Registration Shares are suspended but not resumed within the
135-day period, the Corporation shall, at the request of the Shareholder or
Shareholders, withdraw such registration and the Shareholder or Shareholders
shall be entitled to one additional demand registration right under this Section
9.2(a). A particular material transaction to which the Corporation is or would
be a party or a particular material fact shall not give rise to more than one
deferral or suspension notice by the Corporation pursuant to the provisions of
this Section 5.2(b).
13
<PAGE>
5.3 In connection with any registration or qualification pursuant to
the provisions of this Article V, all Sellers, and the Corporation shall, except
as prohibited under the blue sky or securities laws of any jurisdiction under
which a registration or qualification is being effected, pay (pro rata based on
the relative number of shares included in such registration) all of the fees and
expenses, which shall not include fees and expenses of legal counsel for any
Seller and any underwriting or selling discounts, fees, commissions or similar
charges with respect to the shares of Stock as to which registration is
requested; provided, however, that in the event the Corporation shall have
incurred out-of-pocket expenses in connection with the preparation of any
registration statement which shall be withdrawn prior to its effective date at
the request of a Seller, such Seller shall promptly reimburse the Corporation
for all out-of-pocket expenses including, without limitation, attorneys' fees
and expenses, accounting costs and all fees and expenses relating to blue sky
filings incurred by the Corporation in connection with such preparation
(including any filing thereof); and provided further, however, that the
Corporation shall not be required in the case of any registration hereunder to
make blue sky filings in more than 20 states.
5.4 (a) In each case of registration of shares of Stock under the
Securities Act pursuant to these registration provisions, the Corporation shall
unconditionally indemnify and hold harmless each of the Sellers, each
underwriter (as
14
<PAGE>
defined in the Securities Act), and each person who controls any such
underwriter within the meaning of Section 15 of the Securities Act or Section
20(a) of the Securities Exchange Act of 1934 (the Sellers and each such
underwriter, and each such person who controls any such underwriter being
referred to for purposes of this Section 5.4, as an "Indemnified Person") from
and against any and all losses, claims, damages, liabilities and expenses
arising out of or based upon any untrue statement or alleged untrue statement of
a material fact contained in any registration statement under which such shares
of the Stock were registered under the Securities Act, any prospectus or
preliminary prospectus contained therein or any amendment or supplement thereto
(including, in each case, any documents incorporated by reference therein), or
arising out of any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, except insofar as such losses, claims, damages, liabilities or
expenses arise out of any such untrue statement or omission or alleged untrue
statement or omission based upon information relating to any of the Sellers or
any underwriter and furnished to the Corporation or the Registering Shareholder,
as the case may be, in writing by any of the Sellers or such underwriter
expressly for use therein; provided that the foregoing indemnification with
respect to a preliminary prospectus shall not inure to the benefit of any
underwriter (or to the benefit of any person controlling such underwriter) from
15
<PAGE>
whom the person asserting any such losses, claims, damages, liabilities or
expenses purchased shares of the Stock to the extent such losses, claims,
damages or liabilities result from the fact that a copy of the final prospectus
had not been sent or given to such person at or prior to written confirmation of
the sale of such shares to such person.
(b) In each case of a registration of shares of the Stock under the
Securities Act pursuant to these registration provisions, each of the Sellers
participating in the registration, severally and not jointly, shall
unconditionally indemnify and hold harmless the Corporation (and its directors
and officers) each underwriter and each person, if any, who controls the
Corporation or such underwriter within the meaning of Section 15 of the
Securities Act of Section 20(a) of the Securities Exchange Act of 1934, to the
same extent as the foregoing indemnity from the Corporation to the Sellers but
only with reference to information relating to such Seller and furnished to the
Corporation by such Seller for use in the registration statement, any prospectus
or preliminary prospectus contained therein or any amendment or supplement
thereto. Each Seller will use all reasonable efforts to cause any underwriters
of shares of Stock to be sold by any of the Sellers to indemnify the Corporation
on the same terms as the Sellers agree to indemnify the Corporation or the
Registering Shareholder, as the case may be, but only with reference to
information
16
<PAGE>
furnished in writing by such underwriter for use in the registration statement.
(c) In case any action or proceeding shall be brought against or
instituted which involves any Indemnified Person, such Indemnified Person shall
promptly notify the person against whom such indemnity may be sought (the
"Indemnifying Person") in writing and the Indemnifying Person shall retain
counsel reasonably satisfactory to the Indemnified Person to represent the
Indemnified Person and any others the Indemnifying Person may designate in such
proceeding and shall pay the fees and disbursements of such counsel related to
such proceeding. In any such action or proceeding, any Indemnified Person shall
have the right to obtain its own counsel, but the fees and expenses of such
counsel shall be at the expense of such Indemnified Person unless (i) the
Indemnifying Person has agreed to the retention of such counsel at its expense
or (ii) the named parties to any such action or proceeding include both the
Indemnifying Person and the Indemnified Person, and the Indemnified Person has
been advised by counsel that there may be one or more defenses available to such
Indemnified Person which are different from or additional to those available to
the Indemnifying Person (in which case, if the Indemnified Person notifies the
Indemnifying Person that it wishes to employ separate counsel at the expense of
the Indemnifying Person, the Indemnifying Person shall not have the right to
assume the defense of such action or proceeding on behalf of such Indemnified
Person). It is
17
<PAGE>
understood that the Indemnifying Person shall not be liable for the fees and
expenses of more than one separate firm of attorneys at any time for all such
similarly situated Indemnified Persons. The Indemnifying Person shall not be
liable for any settlement of any action or proceeding effected without its
written consent.
(d) In the event the indemnifications provided for in this Article V
are unavailable or insufficient, then the Sellers shall each contribute to the
amount paid or payable as a result of such losses, claims, damages, liabilities,
actions and expenses in such proportion as is appropriate to reflect (A) the
relative benefits received by each Seller and (B) the relative fault of each
Seller.
(e) Notwithstanding anything in this Article V to the contrary, the
Corporation shall not be liable to any Seller for any losses, claims, damages or
liabilities arising out of or caused by (A) any reasonable delay (1) in filing
or processing any registration statement or any preliminary or final prospectus,
amendment or supplement thereto after the inclusion of such Seller's Stock in
such registration statement, or (2) in requesting such registration statement be
declared effective by the Commission and (B) the failure of the Commission for
any reason to declare effective any registration statement.
18
<PAGE>
6. MISCELLANEOUS.
6.1 Notices. All notices or other communications required or permitted
to be given pursuant to this Agreement shall be in writing and shall be
considered as duly given on (a) the date of delivery, if delivered in person, by
nationally recognized overnight delivery service or by facsimile or (b) three
days after mailing if mailed from within the continental United States by
registered or certified mail, return receipt requested to the party entitled to
receive the same, if to the Corporation, World Wireless Communications Inc., 150
Wright Brothers Drive, Suite 560, Salt Lake City, Utah 84116, with a copy to
Ronald N. Vance, P.C., American Plaza II, 57 West 200 South, Suite 310, Salt
Lake City, Utah 84101; if to Digital, Digital Radio Communications Corporation,
772 East Utah Valley Drive, American Fork, Utah 84003, with a copy to Law
Offices of Stephen R. Field, 620 Fifth Avenue, New York, New York, Attn: Stephen
R. Field, Esq.; and if to any Shareholder, at his address as set forth in the
books and records of the Corporation. Any party may change his or its address by
giving notice to the other party stating his or its new address. Commencing on
the 10th day after the giving of such notice, such newly designated address
shall be such party's address for the purpose of all notices or other
communications required or permitted to be given pursuant to this Agreement.
19
<PAGE>
6.2 Governing Law. This Agreement and the rights of the parties
hereunder shall be governed by and construed in accordance with the laws of the
State of Utah, without regard to its conflicts of law principles. All parties
hereto (i) agree that any legal suit, action or proceeding arising out of or
relating to this Agreement shall be instituted only in a federal or state court
in Salt Lake City, Utah, (ii) waive any objection which they may now or
hereafter have to the laying of the venue of any such suit, action or
proceeding, and (iii) irrevocably submit to the exclusive jurisdiction of any
federal or state court in Salt Lake City, Utah, in any such suit, action or
proceeding, but such consent shall not constitute a general appearance or be
available to any other person who is not a party to this Agreement. All parties
hereto agree that the mailing of any process in any suit, action or proceeding
in accordance with the notice provisions of this Agreement shall constitute
personal service thereof.
6.3 Entire Agreement; Waiver of Breach. This Agreement constitutes the
entire agreement among the parties and supersedes any prior agreement or
understanding among them with respect to the subject matter hereof, and it may
not be modified or amended in any manner other than as provided herein; and no
waiver of any breach or condition of this Agreement shall be deemed to have
occurred unless such waiver is in writing, signed by the party against whom
enforcement is sought, and no waiver shall be claimed to be a waiver of any
subsequent breach or condition of a
20
<PAGE>
like or different nature.
6.4 Binding Effect; Assignability. This Agreement and all the terms
and provisions hereof shall be binding upon and shall inure to the benefit of
the parties and their respective heirs, successors and permitted assigns. This
Agreement and the rights of the parties hereunder shall not be assigned except
with the written consent of all parties hereto.
6.5 Specific Performance. The parties hereby acknowledge that
irreparable damage will be caused by a violation or threatened violation of this
Agreement and that it is impossible to measure in money the damages which will
accrue to a party hereto or to the personal representative of a decedent by
reason of a failure to perform any of the obligations under this Agreement.
Therefore, if any party hereto or the personal representative of a decedent
shall institute any action or proceeding to enforce any of the provisions
hereof, any person (including the Corporation) against whom such action or
proceeding is brought hereby consents to a grant of an injunction restraining
any such violation or threatened violation of this Agreement or any other
appropriate decree of specific performance by any court having equity
jurisdiction and waives the claim or defense therein that such party or such
personal representative has an adequate remedy at law, and such person shall not
allege in any such action or proceeding the claim or defense that such remedy at
law
21
<PAGE>
exists.
6.6 Restrictive Legend. Each certificate representing shares of Stock
shall bear the following legend in addition to such other restrictive legends as
may be required by law or as agreed to by the Corporation and Digital acting
jointly:
"The shares represented by this certificate have not been registered
under the Securities Act of 1933, as amended (the "Act"), or any state
securities laws, and no sale or transfer thereof may be effected without an
effective registration statement or an opinion of counsel for the holder,
satisfactory to the company, that such registration is not required under
the act and any applicable state securities laws.
Also, the shares represented by this certificate are subject to the
limitations and restrictions and are entitled to the registration rights
that are set forth in the Shareholders Agreement, dated as of May 21, 1997,
a copy of which is on file at the principal office of the Corporation."
6.7 Captions. Captions contained in this Agreement are inserted only
as a matter of convenience and in no way define, limit or extend the scope or
intent of this Agreement or any provision hereof.
6.8 Number and Gender. Wherever from the context it appears
appropriate, each term stated in either the singular or the plural shall include
the singular and the plural, and pronouns stated in either the masculine, the
feminine or the neuter gender shall include the masculine, feminine and neuter.
22
<PAGE>
6.9 Severability. If any provision of this Agreement shall be held
invalid or unenforceable, such invalidity or unenforceability shall attach only
to such provision and shall not in any manner affect or render invalid or
unenforceable any other severable provision of this Agreement, and this
Agreement shall be carried out as if any such invalid or unenforceable provision
were not contained herein.
6.10 Amendments. This Agreement may not be amended except in a writing
signed by all of the parties hereto.
6.11 Compliance with Securities Laws. Commencing with the Effective
Date, the Corporation will use its best efforts to comply thereafter with the
applicable provisions of the Securities Act and the Securities Exchange Act of
1934.
6.12 Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same instrument. In addition, this Agreement may contain
more than one counterpart of the signature page and this Agreement may be
executed by the affixing of such signature pages executed by the parties to one
copy of the Agreement; all of such counterpart signature pages shall be read as
though one, and they shall have
23
<PAGE>
the same force and effect as though all of the signers had signed a single
signature page.
IN WITNESS WHEREOF, the undersigned have executed this
Agreement on the date first above written.
WORLD WIRELESS COMMUNICATIONS, INC.
By: /s/ David Singer
----------------------------------------
David Singer, President
DIGITAL RADIO COMMUNICATIONS CORPORATION
By: /s/ Philip Bunker
----------------------------------------
Philip Bunker, President
/s/ Philip Bunker
----------------------------------------
Philip Bunker
/s/ William E. Chipman
----------------------------------------
William E. Chipman
/s/ Jeffrey G. Ballif
----------------------------------------
Jeffrey G. Ballif
24
<PAGE>
EXHIBIT 21
SUBSIDIARIES
The following are wholly-owned subsidiaries of World Wireless
Communications, Inc.
State of
Name Incorporation
---- -------------
Digital Radio Communications Corporation Utah
ECA Electronic Contract Assembly, Inc. Nevada
EMA Corporation* Utah
DEM-Tronics, Inc.* Utah
*Subsidiary of Digital Radio Communications Corporation
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form SB-2) and related Prospectus of World Wireless
Communications, Inc. for the registration of 4,000,000 shares of common stock,
and to the use therein of our report dated March 7, 1997 with respect to the
consolidated financial statements of World Wireless Communications, Inc. and
subsidiaries, and our report dated March 4, 1997 (except for the second
paragraph of Note 2, as to which the date is September 15, 1997), with respect
to the consolidated financial statement of Digital Radio Communications
Corporation and subsidiaries.
/s/ HANSEN, BARNETT & MAXWELL
---------------------------------------
HANSEN, BARNETT & MAXWELL
Salt Lake City, Utah
October 17, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET OF WORLD WIRELESS COMMUNICATIONS, INC. AND
SUBSIDIARIES AS OF DECEMBER 31, 1996 AND THE RELATED CONSOLIDATED STATEMENTS OF
OPERATIONS, STOCKHOLDERS' EQUITY AND CASH FLOWS FOR THE YEAR ENDED DECEMBER 31,
1996, AND THE CONSOLIDATED BALANCE SHEET OF WORLD WIRELESS, INC. AND
SUBSIDIARIES AS OF JUNE 30, 1997 (UNAUDITED) AND THE RELATED CONSOLIDATED
STATEMENTS OF OPERATIONS, STOCKHOLDERS EQUITY AND CASH FLOWS FOR THE SIX MONTH
PERIOD ENDED JUNE 30, 1997 (UNAUDITED) AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996
<PERIOD-END> JUN-30-1997 DEC-31-1996
<CASH> 707,120 37,278
<SECURITIES> 0 0
<RECEIVABLES> 824,636 130,509
<ALLOWANCES> 0 0
<INVENTORY> 422,206 159,881
<CURRENT-ASSETS> 1,953,962 328,551
<PP&E> 1,279,625 448,237
<DEPRECIATION> 212,556 121,215
<TOTAL-ASSETS> 6,654,713 663,042
<CURRENT-LIABILITIES> 903,380 203,351
<BONDS> 0 0
0 0
0 0
<COMMON> 9,525 5,663
<OTHER-SE> 5,141,259 409,220
<TOTAL-LIABILITY-AND-EQUITY> 6,654,713 663,042
<SALES> 1,875,494 618,505
<TOTAL-REVENUES> 1,875,494 618,505
<CGS> 1,070,097 662,184
<TOTAL-COSTS> 2,345,497 825,568
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 22,597 30,677
<INCOME-PRETAX> (1,562,697) (899,924)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (1,562,697) (899,924)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,562,697) (899,924)
<EPS-PRIMARY> (0.19) (0.25)
<EPS-DILUTED> (0.19) (0.25)
</TABLE>
