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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1 TO
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS UNDER SECTION 12(b)
OR 12(g) OF THE SECURITIES ACT OF 1934
AFFILIATED NETWORKS, INC.
(Name of Small Business Issuer in its Charter)
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FLORIDA 65-0354269
- --------------------------------------------- ----------------------------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
2701 SOUTH BAYSHORE DRIVE, SUITE #403
COCONUT GROVE, FLORIDA 33133
- --------------------------------------------- ----------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(305) 285-2003
--------------------------------
(Issuer's Telephone Number)
SECURITIES TO BE REGISTERED UNDER SECTION 12(b) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON
TO BE SO REGISTERED WHICH EACH CLASS IS TO BE REGISTERED
------------------------------ ------------------------------------
None
SECURITIES TO BE REGISTERED UNDER SECTION 12(g) OF THE ACT:
COMMON STOCK, $.01 PAR VALUE
----------------------------
(Title of Class)
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
COMPANY
Affiliated Networks, Inc. (the "Company") is developing proprietary
internet based trading exchanges for the wholesale trade of equipment, parts and
supplies in selected industries. In addition, the Company publishes financial
and strategic corporate information for use in evaluating and operating various
companies on an industry by industry basis through a number of publications and
on-line services.
The electronic commerce ("E-Commerce") division of the Company's
operations will focus on creating proprietary internet based wholesale trading
exchanges (the "Exchanges") for the marine, medical and dental industries. The
Exchanges, when fully operational, will allow buyers to solicit quotes on-line
from sellers for specific equipment, parts and supplies. The Exchanges will
display to the buyer the best price available, including shipping information
and delivery dates, which will be updated on a real-time basis as bids are
posted. The Exchanges seek to provide a worldwide search capability to buyers
for hard-to-find equipment, parts and supplies and create a lowest price forum
for buyers to take advantage of spot market pricing of sellers' overstocked and
available inventory. Sellers utilizing the Exchanges will gain access to an
expanded wholesale customer base and have greater opportunity to resell slow
moving inventory. The Company anticipates that Exchange members may act as
sellers and buyers on a daily basis to take advantage of differences in regional
pricing and supply availability. Certain types of inventory, such as outboard
engines, are seasonal in most parts of the country as weather precludes
recreational boating in winter months. The Company believes that the marine
Exchange ("MAREX") will facilitate boat dealers' ability to reduce inventory
levels during slower periods and maintain lower in-stock inventory levels during
peak periods because of greater purchasing power.
The Exchanges are designed to create a low price and low risk
environment for both buyers and sellers. Members must satisfy certain credit
standards based on one of three parameters: (1) participating in a credit
protection option; (2) having annual revenues in excess of $25 million and
having been in business for 10 years or more, or (3) having cash or credit in an
established trading account. Buyers using the Exchanges will request quotes for
equipment, parts and supplies by indicating the manufacturer, make or model,
quantity and color, and will set a deadline for posting quotes. Sellers will
receive requests for bids on their terminals through a flashing icon and have
the opportunity to underbid posted quotes on a real time basis, up to the
buyer's deadline. The buyer selects the desired quote and electronically
confirms the purchase, thereby notifying the seller of acceptance of the quote.
The seller ships the goods via the selected common carrier to the buyer, who
must accept delivery prior to the purchase price (net of commission) being
released to the seller.
The Financial Information Services ("FIS") division of the Company,
which operates through Sovereign Financial Information Services, Inc., a wholly
owned subsidiary, is developing a number of industry specific stock handbooks
and periodicals that provide financial and
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corporate information on public companies within selected industries. The
Company's publications include research reports, stock handbooks and global
industry guides and are supplemented with information accessed via the internet.
The Company intends to generate revenue through the sale of the Company's
research reports, stock handbooks and global industry guides.
INDUSTRY OVERVIEW
The internet has emerged as a global medium enabling millions of people
worldwide to share information, communicate and conduct business electronically.
The Company expects that the number of users of the worldwide web (the "Web")
will continue to grow. This growth is expected to be driven by the large and
growing number of personal computers ("PCs") installed in homes and offices, the
decreasing cost of PCs, easier, faster and cheaper access to the internet,
improvements in network infrastructure, the proliferation of internet content
and the increasing familiarity and acceptance of the internet by businesses and
consumers. The internet possesses a number of unique characteristics that
differentiate it from traditional media: users communicate or access information
without geographic or temporal limitations; users access dynamic and interactive
content on a real-time basis; and users communicate and interact instantaneously
with a single individual or with entire groups of individuals. As a result of
these characteristics, the Company expects that Web usage will continue to grow
rapidly.
The Company believes that the growing adoption of the Web represents an
enormous opportunity for businesses to conduct commerce over the internet. The
internet offers the opportunity to create a compelling global marketplace that
overcomes the inefficiencies associated with traditional trading while offering
the benefits of internet-based commerce to the wholesale trading market. An
internet-based centralized trading place facilitates buyers and sellers meeting,
listing items for sale, exchanging information, interacting with each other and,
ultimately, consummating transactions. It allows buyers and sellers to trade
directly, bypassing traditional intermediaries and lowering costs for both
parties. This trading place is global in reach, offering buyers a significantly
broader selection of goods to purchase and providing sellers the opportunity to
sell their goods efficiently to a broader base of buyers. It offers significant
convenience, allowing trading at all hours and providing continually-updated
information. By leveraging the interactive nature of the internet, the Company
believes that this trading place also facilitates a sense of community through
direct buyer and seller communication, thereby enabling the interaction between
parties with mutual interests. As a result, the Company believes that there
exists a significant market opportunity for an internet-based centralized
trading place that applies the unique attributes of the internet to facilitate
business-to-business trading.
BUSINESS STRATEGY
GROWTH OF E-COMMERCE BUSINESS - Initially, the Company intends to
market the Exchanges to retailers, distributors and exporters within the marine,
medical and dental industries. The Company intends to market the Exchanges to
each such industry segment by advertising in industry publications, utilizing
direct mail, telemarketing and attending trade shows. Once the Exchanges are
operational, the Company hopes to capitalize on significant referral business.
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TARGET SPECIFIC INDUSTRIES - The Company is currently focusing the
development of its Exchanges on the marine industry. Once the MAREX Exchange is
operating, the Company plans to expand into other industries such as the medical
and dental industries. Such expansion would be geared towards industries similar
to those mentioned above which, due to their size, fragmented nature and
purchasing inefficiencies, would most benefit from the use of the Exchanges.
CUSTOMER ASSURANCE - The Exchanges are designed to lower the risks
typically associated with conducting business with unknown parties. Buyers remit
payment to an escrow account. It is only upon receipt of such funds that a
Seller is instructed to ship the items to the Buyer. This mechanism is designed
to help alleviate a Seller's concern about a Buyer's willingness and ability to
remit payment upon receiving the products. Similarly, Buyers are given the
opportunity to inspect the purchased items prior to the release of the funds
from the escrow account to the Seller. This mechanism is designed to alleviate a
Buyer's concern about pre-payment when it has not had the opportunity to inspect
the products.
CUSTOMER SERVICE - The Company intends to provide a lowest price and
user friendly environment, staffed with high quality customer service.
STRATEGIC RELATIONSHIPS - The Company has formed a marketing
relationship with GTE Intelligent Network Services Incorporated d/b/a GTE
Internetworking ("GTE") and has, as of October 1998, retained Raymond James &
Associates, Inc. to assist it with obtaining financing for the Company.
PRODUCTS AND SERVICES - E-COMMERCE
MAREX - THE NATIONAL MARINE EXCHANGE
MAREX - The National Marine Exchange is an on-line service designed to
provide the marine industry with an Exchange to purchase virtually any
equipment, parts and supplies in the marine industry that would be used on a
recreational or commercial vessel. The service is accessed via the internet at
www.marex.com. The Company has focused initially on the marine industry because
of its size, fragmented nature and purchasing inefficiencies. MAREX is designed
to speed up the purchasing process, simplify payment procedures and provide a
low cost forum for the marine industry, which the Company believes is
predominantly operated by small business owners.
PRODUCT AND SERVICES - FINANCIAL INFORMATION SERVICES
The Company also provides financial information services for certain
industries through its research reports, its stock handbooks and its global
industry guides. The research reports, which currently consist of THE NATURAL
RESOURCES RESEARCH REPORT and THE TECHNOLOGY RESEARCH REPORT, are biannual
publications that provide financial and other strategic information on North
American publicly traded companies. The stock handbooks will be published
annually and provide, among other things, company profiles, corporate
backgrounds, stock charts, earnings, industry data, historical research and
competitive intelligence information relating to industries
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including mining, oil & gas, high technology and biotechnology. It is
anticipated that each stock handbook will be accompanied by an internet access
code which will enable the user to access updated information in such areas. The
global industry guides will be published annually and will initially focus on
industry information in Latin America and the Caribbean. The Company has
cultivated strategic relationships with certain private and public entities
which it feels will allow it to provide valuable and timely information
regarding legal developments, finance policies, tax and accounting practices,
political assessments, regional news, competition and industry specific data.
These relationships include those with Data Broadcasting Corporation, PR
Newswire, Baker & McKenzie, Kroll Associates and 17 foreign government
ministries. The Company expects to publish the first series of stock handbooks
and global industry guides during the year 1999.
MARKETING
The Company's primary marketing efforts for its E-Commerce business
include advertising in industry publications, utilizing direct mail,
telemarketing and presence at trade shows. The Company's strategy is to use
telemarketing to identify industry participants that have a desire to expand
their sales by the use of the internet. The marketing focus is to encourage
potential new members to visit the Exchange online, take a virtual tour, and
encourage the business to become a registered member. Upon the registration of a
business, a customer service representative will call the new member to describe
the available services and to qualify such member. In addition, the Company
advertises its E-Commerce services in industry publications such as the MARINE
BUSINESS JOURNAL, BOAT & MOTOR DEALER, BOATING INDUSTRY, MARINA/DOCK AGE, MARINE
BUSINESS JOURNAL, PROFESSIONAL BOAT BUILDER AND SOUNDINGS TRADE ONLY.
INTELLECTUAL PROPERTY
The Company regards obtaining protection of its copyrights, service
marks, trademarks, trade dress and trade secrets as critical to its future
success and will rely on a combination of copyright, trademark, service mark and
trade secret laws and contractual restrictions to establish and protect its
proprietary rights in products and services. While the Company plans to pursue
the registration of its trademarks and service marks in the U.S. and
internationally, effective trademark, service mark, copyright and trade secret
protection may not be available in every country in which the Company's services
are made available online. The Company does not currently own the trademark
"MAREX" and there can be no assurance that it will be able to obtain the right
to use this name.
The Company has entered into confidentiality and invention assignment
agreements with its employees and certain vendors in order to limit access to
and disclosure of its proprietary information. There can be no assurance that
these contractual arrangements or the other steps taken by the Company to
protect its intellectual property will prove sufficient to prevent
misappropriation of the Company's technology or to deter independent third-party
development of similar technologies.
To date, the Company has not been notified that its technologies
infringe the proprietary rights of third parties, but there can be no assurance
that third parties will not claim infringement by the Company with respect to
past, current or future technologies. The Company expects that
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participants in its markets will be increasingly subject to infringement claims
as the number of services and competitors in the Company's industry segment
grows. Any such claim, whether meritorious or not, could be time-consuming,
result in costly litigation, cause service upgrade delays or require the Company
to enter into royalty or licensing agreements. Such royalty or licensing
agreements might not be available on terms acceptable to the Company or at all.
As a result, any such claim could have a material adverse effect upon the
Company's business, results of operations and financial condition.
SOFTWARE DEVELOPMENT
The Company has invested approximately $300,000 on proprietary software
development for both its internal needs and E-Commerce products under
development. To date, the Company has developed several internal proprietary
softwares that include a full suite of administrative, data collections and
sorting, and marketing management tools. All of these programs are maintained
in-house. The Company's databases contain data on more than 25,000 companies on
a global basis that may be accessed by the sales force on both an intranet and
internet pass-coded protected basis. The Company has developed a proprietary
electronic commerce software program. The software has been designed to enable
the easy migration to other industry platforms with relatively little, if any,
changes.
COMPETITION
E-Commerce has attracted numerous new businesses and many established
businesses are expanding to take advantage of this medium. Many companies are
using electronic data systems to facilitate production and shipping schedules.
Other companies are focusing on direct access to the consumer through on-line
retail sales and catalogs. While the Company is not aware of any services
equivalent to the Exchange currently being offered to the wholesale marine,
trade, there can be no assurance that other businesses are not developing
similar technology that will compete directly with the Company's Exchange. Many
of the companies that currently participate in the E-Commerce market are larger,
more established and have greater financial resources than the Company. There
can be no assurance that direct competition with the Company's products will not
be quickly developed and operated by such companies. Additionally, since the
electronic commerce industry is in its infancy, many companies are attempting to
enter this industry. The field is, and will remain for a period of time,
extremely competitive.
There are several on-line companies providing products and service
competing with those offered by the Company. Some of these companies are larger,
more established and have greater financial resources than the Company.
GOVERNMENT REGULATION
Due to the increasing popularity and use of the internet and other
online services, it is possible that a number of laws and regulations may be
adopted with respect to the internet or other online services covering issues
such as user privacy, freedom of expression, pricing, content and quality of
products and services, taxation, advertising, intellectual property rights and
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information security. The nature of such legislation and the manner in which it
may be interpreted and enforced cannot be fully determined and, therefore,
legislation could be enacted which could subject the Company and/or its
customers to potential liability, which in turn could have an adverse effect on
the Company's business, results of operations and financial condition. The
adoption of any such laws or regulations might also decrease the rate of growth
of internet use, which in turn could decrease the demand for the MAREX service
or increase the cost of doing business or in some other manner have a material
adverse effect on the Company's business, results of operations and financial
condition. In addition, applicability to the internet of existing laws governing
issues such as property ownership, copyrights and other intellectual property
issues, taxation, libel, obscenity and personal privacy is uncertain. The vast
majority of such laws were adopted prior to the advent of the internet and
related technologies and, as a result, do not contemplate or address the unique
issues of the internet and related technologies.
Numerous states, including the State of Florida, in which the Company's
headquarters are located, have regulations regarding the manner in which
"auctions" may be conducted and the liability of "auctioneers" in conducting
such auctions. Due to the fact that these laws were promulgated prior to the
advent of the internet and exchanges in the nature of MAREX, it is not clear,
and there is little guidance from the courts and the legislature as to, whether
a system like MAREX would fall within their purview. While the Company is in the
process of seeking a determination as to the applicability of the Florida laws
to the Company's business, there can be no assurance that the State of Florida,
or any other state, will not attempt to impose these regulations upon the
Company or that such imposition will not have a material adverse effect on the
Company's business, results of operations and financial condition.
Several states have also proposed legislation that would limit the uses
of personal user information gathered online or require online services to
establish privacy policies. The Federal Trade Commission has also recently
settled a proceeding with one online service regarding the manner in which
personal information is collected from users and provided to third parties.
Changes to existing laws or the passage of new laws intended to address these
issues, could create uncertainty in the marketplace that could reduce demand for
the services of the Company or increase the cost of doing business as a result
of litigation costs or increased service delivery costs, or could in some other
manner have a material adverse effect on the Company's business, results of
operations and financial condition. In addition, because the Company's services
are accessible worldwide, and the Company facilitates sales of goods to users
worldwide, other jurisdictions may claim that the Company is required to qualify
to do business as a foreign corporation in a particular state or foreign
country. The Company is currently only qualified to do business in the State of
Florida, and failure by the Company to qualify as a foreign corporation in a
jurisdiction where it is required to do so could subject the Company to taxes
and penalties for the failure to qualify and could result in the inability of
the Company to enforce contracts in such jurisdictions. Any such new legislation
or regulation, or the application of laws or regulations from jurisdictions
whose laws do not currently apply to the Company's business, could have a
material adverse effect on the Company's business, results of operations and
financial condition.
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EMPLOYEES
The Company currently has 17 full-time employees. The Company considers
its relations with its employees to be good. The Company believes that its
future success will depend in part on its continued ability to attract,
integrate, retain and motivate highly qualified technical and managerial
personnel, and upon the continued service of its senior management and key
technical personnel, none of whom is bound by an employment agreement.
Competition for qualified personnel in the Company's industry and geographical
location is intense, and there can be no assurance that the Company will be
successful in attracting, integrating, retaining and motivating a sufficient
number of qualified personnel to conduct its business in the future.
RECENT HISTORY
The Company is incorporated under the laws of the State of Florida and
conducts its business from its offices at The Coconut Grove Bank Building, 2701
South Bayshore Drive, Coconut Grove, Florida 33133. The internet address for the
Company is http://www.an.net. The Company was originally incorporated in 1992
under the name Florida Marine Management, Inc. On April 19, 1995, the Company
changed its name to Affiliated Networks, Inc. Originally, the Company provided
strategic data and information, and marketing and management services to the
marine industry. By 1995, the Company was providing research and data to other
industries including mining, oil & gas and high technology. In order to more
appropriately reflect the Company's broadened business objectives, the Company
changed its name to Affiliated Networks, Inc.
AVAILABLE INFORMATION
Upon the effective date of this Form 10-SB, February 2, 1999, the
Company will become subject to the reporting requirements of the Securities
Exchange Act of 1934 as amended and will file periodic reports with the
Securities and Exchange Commission (the "Commission"). Copies of any documents
that the Company files with the Commission may be obtained from the Commission's
principal office at 450 Fifth Street, N.W., Washington, D.C. 20549, upon payment
of the fees prescribed by the Commission, or may be examined without charge at
the offices of the Commission. The Commission also maintains a World Wide Web
site on internet at http://www.sec.gov that contains reports, proxy and
information statements and other information filed electronically with the
Commission.
The Company intends to furnish its shareholders with annual reports
containing audited financial statements that have been certified by its
independent public accountants, and quarterly reports containing unaudited
summary financial information for each of the first three quarters of each
fiscal year.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS.
The following discussion and analysis reflects management's assessment
and understanding of the Company's results of operations and financial condition
and should be read in conjunction with the Company's financial statements and
the notes thereto.
OVERVIEW
Affiliated Networks has two primary business segments: E-Commerce and
the FIS business. Since late 1997, the Company's activities for its E-Commerce
business have consisted of raising capital, recruiting personnel and developing
and enhancing the software and hardware. The E-Commerce business is developing
internet based wholesale trading exchanges for specific industries. The Marex
system, a trading exchange for the marine industry, was in the development stage
until November 1998 and therefore has not generated any significant revenues to
date. The Company expects to generate revenues from its E-Commerce operations by
charging an administrative fee. The fee will be based on a sliding scale ranging
from approximately 10% for smaller transactions to 4% for larger transactions.
Since inception, the Company has expended approximately $300,000 developing
proprietary software, including a prototype Exchange, which development has been
funded primarily by capital raising transactions and bank borrowings.
The FIS business generates revenues by charging customers a fee to
appear in its research reports, which include THE NATURAL RESOURCES RESEARCH
REPORT and THE TECHNOLOGY RESEARCH REPORT. The Company publishes its research
reports biannually and recognizes revenue over the life of the contract.
Beginning in the first half of 1998, the Company has focused its publishing
efforts on developing new products such as stock handbooks, global industry
guides, and a supplementary online service, which will generate revenues upon
sales to customers.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998 COMPARED TO THE YEAR ENDED DECEMBER 31, 1997
SALES. Through December 31, 1998, all of the Company's sales
were generated by its FIS business. Sales in 1998 decreased 76.6% to $90,227
from $385,765 in 1997. The decrease in sales was primarily due to the lack of
renewals from existing clients of the Company's mining research report products
due to a near all time low in the price of gold. Therefore, the FIS business has
focused its efforts on developing new products such as stock handbooks, global
industry guides, and a supplementary online service. For the years ended
December 31, 1998 and 1997, the Company recorded provision for doubtful accounts
totaling $101,647 and $25,329, respectively, as a result of a decline in the
mining industry. As such, management has delayed its collection efforts towards
these receivables until the mining industry recovers. The Company does not
expect significant additional increases in the allowance for doubtful accounts
relating to the decline in the mining industry.
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The Company's E-Commerce business did not generate any revenues in 1998 or 1997.
In November 1998, the E-Commerce business launched its first trading exchange,
the Marex system, and began to develop its membership.
DIRECT COSTS. Direct Costs are comprised of production costs
for the research reports. The Company's direct costs' decreased 59.6% to $51,851
in 1998 from $128,473 in 1997, which was primarily due to the decrease in sales.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general
and administrative expenses ("SG&A") increased 34.0% to $1,192,517 in 1998 from
$889,936 in 1997. The change consisted of an increase in the FIS business of
approximately $20,000 and an increase in the E-Commerce business of
approximately $283,000. The increase in the SG&A of the FIS business was
primarily due to the hiring of additional employees for the development and
subsequent sales of the new products and an increase in promotional costs, which
were partially offset by the decrease in the provision for doubtful accounts.
The E-Commerce business incurred SG&A expenses in 1998 totaling approximately
$283,000 primarily relating to advertising and promotional expenses of
approximately $160,000 incurred for the Marex system and for payroll costs. The
Company expects to increase its SG&A expenses for the operations and marketing
of the E-Commerce business.
NET LOSS BEFORE INCOME TAXES. The Company's net loss before
income taxes increased 76.1% to $1,155,053 in 1998 from $655,857 in 1997. The
increase in the net loss before income taxes consisted of an increase of
approximately $216,000 in the FIS business and $283,000 in the E-Commerce
business. The increase in the FIS business was primarily due to the decrease in
sales and increase in SG&A expenses, as described above. The increase in the
E-Commerce business was primarily due to the SG&A expenses relating to the
launch of the Marex system.
BENEFIT FROM INCOME TAXES. The Company recorded a benefit from
income taxes of $532,000 relating to the taxable loss that was incurred during
1998 and the change in the valuation allowance on the deferred tax assets. In
1997 a benefit was not recorded since a full valuation was recorded on the
deferred tax assets.
NET LOSSES. The Company's net loss decreased to $623,053 in
1998 from $655,857 in 1997. The decrease was primarily due to the benefit from
income taxes that was recorded in 1998 which was partially offset by the
decrease in sales and increase in SG&A expenses, as described above.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has financed its operations primarily
through the private sale of common stock, short-term borrowing from banks and
the majority shareholder who is also the Chief Executive Officer of the Company.
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Net cash used in operating activities were approximately $1,049,000 and
$512,000 in 1998 and 1997, respectively, which was primarily due to the loss
before income taxes reported during the period.
Net cash provided by investing activities was approximately $16,000 in
1998, which was primarily due to the decrease in the amount due from
shareholder. In 1997, net cash used in investing activities was approximately
$261,000, which was primarily due to the software development costs incurred
during the period.
Net cash provided by financing activities were approximately $1,354,000
and $733,000 in 1998 and 1997, respectively, which was primarily due to the
issuance of common stock. For the years ended December 31, 1998 and 1997, the
Company received approximately $1,405,000 and $700,000, respectively, from the
issuance of common stock.
The Company's working capital at December 31, 1998 was $60,821 compared
to the working capital deficit of $226,200 at December 31, 1997. The improvement
was primarily due to the increase of cash to $350,042 at December 31, 1998 from
$28,778 at December 31, 1997. The increase in cash resulted from the issuance of
common stock during 1998. At December 31, 1998, the Company had recorded
deferred tax assets totaling $532,000 resulting from the recognition of deferred
tax benefits associated with the taxable loss incurred during the year
ended December 31, 1998 and the change in the valuation allowance on the
deferred tax assets.
At December 31, 1998, the principal source of liquidity for the Company
was approximately $350,000 of cash. The Company currently maintains lines of
credit and term loans with several banks, which total $139,727 as of December
31, 1998. At December 31, 1998, however, the Company had no availability under
its lines of credit. The majority shareholder and CEO of the Company personally
guarantees all of the Company's bank loans. Loans to the Company from an entity
that is owned by the majority shareholder, who is also the Chief Executive
Officer, total $35,750 at December 31, 1998. Interest rates for all loans
fluctuate from prime plus 2.5% to prime plus 6.75% or have fixed terms of 11.7%
or 12.5%. Management believes that existing working capital and funds that will
be generated from operations are not sufficient to meet the Company's
anticipated capital needs in connection with its present and proposed
activities. Management plans to pursue sources of equity and debt financing to
fund the operations of the Company. There has been no firm commitment of any
kind with regard to such financing and no assurance can be given that such
financing will be obtained, and if obtained, whether they will be obtained on
terms favorable to the Company. See Note 12 in the accompanying audited
financial statements regarding an uncertainty about the ability of the Company
to continue as a going concern.
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SEASONALITY
Historically, the Company's revenues and operating results experience a
small decrease in the late second and early third quarters as a result of
decreased demand for the Company's FIS products.
YEAR 2000 ISSUES
Many computer systems and software products are coded to accept only
two-digit entries in the date code field and cannot reliably distinguish dates
beginning on January 1, 2000 from dates prior to the year 2000. Many companies'
software and computer systems may need to be upgraded or replaced in order to
correctly process dates beginning in 2000. The Company has reviewed its internal
programs and determined that there are no significant Year 2000 issues within
the Company's programs or services. However, the Company utilizes third-party
equipment and software that may not be Year 2000 compliant although the Company
believes that the third-party systems that are material to its business are Year
2000 compliant based on representations made by these suppliers. Failure of the
Company's or such third-party equipment or software to properly process dates
for the year 2000 and thereafter could require the Company to incur
unanticipated expenses to remedy any such problems, which could have a material
adverse effect on the Company's business, results of operations and financial
condition.
ITEM 3. DESCRIPTION OF PROPERTY.
The Company leases office space (2,311 sq. ft.) in Coconut Grove,
Florida, pursuant to a lease agreement that expires September 30, 2000.
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ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth, as of March 10, 1999, certain
information known by the Company with respect to the ownership of shares of
Common Stock as to (i) all persons who are beneficial owners of more than 5% of
the Common Stock of the Company, (ii) each director of the Company, (iii) each
executive officer of the Company and (iv) the directors and registrants of the
Company as a group. Each person's address is c/o the Company's principal offices
at 2701 South Bayshore Drive, Suite #403, Coconut Grove, Florida 33133.
Amount and Nature of the
Name and Address of Beneficial Ownership of Ownership
Beneficial Owner Common Stock Percentage
- ---------------- ------------ ----------
David A. Schwedel 2,853,000(1) 47.11%
Roger A. Baumann 498,000(2) 8.22%
Roger A. Trombino 72,000(3) 1.19%
Dan Gallagher 72,000(4) 1.19%
George Glazer 90,000(5) 1.49%
Leonard Wien 628,000(6) 10.37%
---------- ------
All officers and directors 4,213,000 69.57%
========== ======
- -----------------------
(1) The number of shares includes (i) fully vested options held by David
Schwedel to purchase 690,000 shares of common stock and (ii) warrants
issued to DAS Consulting, Inc., a corporation wholly owned by David
Schwedel, exercisable at any time for 3,000 shares of common stock.
(2) The number of shares includes fully vested options to purchase 198,000
shares of common stock.
(3) This number reflects fully vested options to purchase 72,000 shares of
common stock.
(4) This number reflects fully vested options to purchase 72,000 shares of
common stock.
(5) This number reflects fully vested options to purchase 90,000 shares of
common stock.
(6) These shares are held by the Wien Family Holdings Limited Partnership. Mr.
Wien, a private investor, is the general partner of the partnership and has
both voting and investment power over the partnership. The number reflected
includes warrants exercisable at any time for 3,000 shares of common stock.
Mr. Wien is related to Roger A. Baumann.
Page 13 of 39
<PAGE> 14
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.
The following sets forth certain information with respect to the
directors and officers of the Company.
Name Age Title
- ---- --- -----
David A. Schwedel 33 Chief Executive Officer,
President and Director
Roger A. Baumann 31 Chief Information Officer
Kenbian A. Ng 31 Chief Financial Officer
Roger A. Trombino 59 Director
Dan Gallagher 52 Director
George Glazer 68 Director
All Directors hold office until the Company's Annual Meeting of Shareholders to
be held in the year 2000 or until their successors are elected and qualified.
Executive officers serve at the discretion of the Board of Directors. No
compensation is paid to the Board members for attendance at each Board meeting.
For information on the ownership of shares by directors and officers see,
"Security Ownership of Certain Beneficial Owners and Management."
DAVID A. SCHWEDEL, CHIEF EXECUTIVE OFFICER, PRESIDENT AND DIRECTOR. Mr.
Schwedel has served as a Director and President of the Company since 1992, when
he founded the Company. Mr. Schwedel has over ten years of hands-on experience
in the business development and corporate communications profession.
ROGER A. BAUMANN, CHIEF INFORMATION OFFICER. Mr. Baumann has served as
Chief Information Officer of the Company since January of 1997. For the past six
years, Mr. Baumann has been an independent information technology consultant,
developing business systems for use on mainframe, mini and personal computer
systems. Mr. Baumann joined the Company on a part-time basis in 1994 and became
a full-time consultant to the Company in 1995.
KENBIAN A. NG, CHIEF FINANCIAL OFFICER. Mr. Ng was hired as the Chief
Financial Officer of the Company in March 1999. Prior to joining Affiliated
Networks, Mr. Ng served as the Chief Financial Officer for a publicly traded
company. Mr. Ng was also with Arthur Andersen LLP, an international accounting
firm, for over five years.
ROGER A. TROMBINO, DIRECTOR. Mr. Trombino has served as a Director of
the Company since 1992. Mr. Trombino has over 30 years of diversified experience
with an investment bank, a multi-national Fortune 500 company, a group of
private companies, and a Big Six accounting firm. He served on the Board of
Directors of the Bon Secours Health System and several charitable organizations.
Page 14 of 39
<PAGE> 15
DAN GALLAGHER, DIRECTOR. Mr. Gallagher joined the Board of Directors of
the Company in November, 1997. Mr. Gallagher is currently, and has been for the
last five years, the Director of New Business Development for GTE, where he has
been for over 22 years.
GEORGE GLAZER, DIRECTOR. Mr. Glazer has served as a director of the
Company since February 1998. Mr. Glazer recently retired from Hill & Knowlton,
an international public affairs, public relations firm where he had been Senior
Vice President and Executive Director of worldwide broadcast and satellite
services. Mr. Glazer currently serves as the President of Broadcast Media, Inc.,
headquartered in Boynton Beach, Florida.
ITEM 6. EXECUTIVE COMPENSATION.
The following is the aggregate annual remuneration of the Company's
Chief Executive Officer (the "Named Officer") for the last three fiscal years.*
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Annual Compensation(1) Compensation
----------------------------------------- ----------------------
Fiscal Number of Options
Name and Principal Position Year Salary Granted
--------------------------------------- ------------------- ------------------ ----------------------
<S> <C> <C> <C>
David A. Schwedel 1998 $75,000 - 0 -
Chief Executive Officer, President 1997 $75,000 450,000
and Director 1996 $65,000 420,000
</TABLE>
* No officer or director is paid more than $100,000 by the Company per year.
(1) The columns for "Bonus" and "Other Annual Compensation" have been omitted
because there is no bonus or compensation required to be reported in such
columns.
OPTION GRANTS TABLE
No options were granted to any Named Officer in 1998.
STOCK OPTION PLANS
1996 INCENTIVE STOCK OPTION PLAN. The Company's 1996 Incentive Stock
Option plan, as amended, allows the Company to issue, in the aggregate, options
for up to 300,000 shares (prior to giving effect to the 3-for-1 stock split) of
the Company's common stock to selected employees. The options may be exercised
at a price that is the greater of one dollar per share, the fair market value of
the common stock on the date of grant, or the book value per share on the date
of grant. Each option is 100% vested as of the date of the grant and expires on
the fifth anniversary of the date of grant unless terminated earlier.
1997 INCENTIVE STOCK OPTION PLAN. The Company's 1997 Incentive Stock
Option Plan, as amended, allows the Company to issue, in the aggregate, options
for up to 660,000 shares (prior to giving effect to the 3-for-1 stock split) of
the Company's common stock to selected employees. The options may be exercised
at a price that is the greater of one dollar per share, the fair market value of
the common stock on the date of grant, or the book value per share on the
Page 15 of 39
<PAGE> 16
date of grant. The options vest over a period of four years with an initial
vesting of 20% on the date of grant with an additional 20% vesting on each
anniversary thereafter. Each option shall expire on the fifth anniversary of the
date of grant unless terminated earlier.
AMENDED AND RESTATED 1997 STOCK OPTION PLAN. The Company's Amended and
Restated 1997 Stock Option Plan allows the Company to issue, in the aggregate,
options for up to 2,000,000 shares (post 3-for-1 stock split) of the Company's
common stock to selected employees, directors or consultants of the Company. The
options may be exercised at a price that is the greater of one dollar per share,
the fair market value of the common stock on the date of grant, or the book
value per share on the date of grant. The options vest over a period of four
years with an initial vesting of 20% on the date of grant with an additional 20%
vesting on each anniversary thereafter. Each option shall expire on the fifth
anniversary of the date of grant unless terminated earlier.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Company has entered into an Affinity Marketing Agreement with GTE
Intelligent Network Services Incorporated d/b/a GTE Interworking ("GTE"), a
company which provides internet access, web hosting and other internet-related
services. Dan Gallagher, one of the Company's directors, is the Director of New
Business Development for GTE.
Renee Schwedel, the mother of David Schwedel, the Company's President,
served on the Board of Directors of the Company until June 1998.
DAS Consulting, Inc., a corporation wholly owned by David Schwedel, has
entered into a revolving loan agreement with the Company, dated as of January 1,
1998, pursuant to which there are currently $35,750 outstanding. The loans bear
interest at a rate of 2.5% over the prime rate.
ITEM 8. DESCRIPTION OF SECURITIES.
The authorized capital stock of the Company consists of (i) 25,000,000
shares of common stock, par value $.01 (the "Common Stock") of which 4,928,180
are issued and outstanding as of March 10, 1999, and (ii) 1,000,000 shares of
Preferred Stock, par value $.01 ("Preferred Stock); none of which are issued or
outstanding.
COMMON STOCK
Subject to the rights of the holders of any preferred stock which may
be outstanding, each holder of Common Stock on the applicable record date is
entitled to receive such dividends as may be declared by the Board of Directors
out of funds legally available therefor, and, in the event of liquidation, to
share pro rata in any distribution of the Company's assets after payment or
providing for the payment of liabilities and the liquidation preference of any
outstanding preferred stock. Each holder of Common Stock is entitled to one vote
for each share held of record on the applicable record date on all matters
presented to a vote of shareholders, including the election of directors.
Holders of Common Stock have no cumulative voting rights or preemptive rights to
purchase or subscribe for any stock or other securities and there are no
conversion rights or
Page 16 of 39
<PAGE> 17
redemption or sinking fund provisions with respect to such stock. All
outstanding shares of Common Stock are fully paid and nonassessable.
The transfer agent and registrar for the Common Stock is Florida
Atlantic Stock Transfer Co., Tamarac, Florida.
PREFERRED STOCK
The Company's Board of Directors may, without further action by the
Company's shareholders, from time to time, direct the issuance of shares of
Preferred Stock in series and may, at the time of issuance, determine the
rights, preferences and limitations of each series. Satisfaction of any dividend
preferences of outstanding shares of Preferred Stock would reduce the amount of
funds available for the payment of dividends on shares of Common Stock. Holders
of shares of Preferred Stock may be entitled to receive a preference payment in
the event of any liquidation, dissolution or winding-up of the Company before
any payment is made to the holders of shares of Common Stock. Under certain
circumstances, the issuance of shares of Preferred Stock may render more
difficult or tend to discourage a merger, tender offer or proxy contest, the
assumption of control by a holder of a large block of the Company's securities
or the removal of incumbent management. The Board of Directors of the Company,
without shareholder approval, may issue shares of Preferred Stock with voting
and conversion rights which would adversely affect the holders of shares of
Common Stock. There are currently no shares of Preferred Stock outstanding, and
the Company has no present intention to issue any shares of Preferred Stock.
The State of Florida has enacted legislation that may deter or
frustrate takeovers of Florida corporations. The Florida Control Share Act
generally provides that shares acquired in excess of certain specified
thresholds will not possess any voting rights unless such voting rights are
approved by a majority of a corporation's disinterested shareholders. The
Florida Affiliated Transactions Act generally requires supermajority approval by
disinterested shareholders of certain specified transactions between a public
corporation and holders of more than 10% of the outstanding voting shares of the
corporation (or their affiliates). Florida law and the Company's Articles also
authorize the Company to indemnify the Company's directors, officers, employees
and agents under certain circumstances and presently limit the personal
liability of corporate directors for monetary damages, except where the
directors (i) breach their fiduciary duties and (ii) such breach constitutes or
includes certain violations of criminal law, a transaction from which the
directors derived an improper personal benefit, certain unlawful distributions
or certain other reckless, wanton or willful acts or misconduct. The Company may
also indemnify any person who was or is a party to any proceeding by reason of
the fact that he is or was a director, officer, employee or agent of such
corporation (or is or was serving at the request of such corporation in such a
position for another entity) against liability to be in the best interests of
such corporation and, with respect to criminal proceedings, had no reasonable
cause to believe his conduct was unlawful.
Page 17 of 39
<PAGE> 18
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE COMPANY'S COMMON STOCK AND OTHER
SHAREHOLDER MATTERS.
The Company's Common Stock is traded on the NASD over-the-counter
bulletin board under the symbol "AFNT" and commenced its trading on February 4,
1998. The following table sets forth the high and low bid quotations for the
Common Stock for the periods indicated. These quotations reflect prices between
dealers, do not include retail mark-ups, mark-downs, commissions and may not
necessarily represent actual transactions.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
1998
- ----
<S> <C> <C>
First Quarter (commencing February 4) $18 (pre 3-for-1 $16.50 (pre 3-
split) for-1 split)
Second Quarter $ 5.28125 $ 5.25
Third Quarter $ 5.00 $ 4.50
Fourth Quarter $14.00 $ 4.00
</TABLE>
As of March 10, 1999, there were approximately 94 holders of record of
the Company's Common Stock, of which 4,928,180 shares were issued and
outstanding. The closing bid price for the Common Stock was $10.4375 per share.
The Company has never paid cash dividends on its Common Stock. The
Company presently intends to retain future earnings, if any, to finance the
expansion of its business and does not anticipate that any cash dividends will
be paid in the foreseeable future. The future dividend policy will depend on the
Company's earnings, capital requirements, expansion plans, financial condition
and other relevant factors.
ITEM 2. LEGAL PROCEEDINGS.
There are no pending material legal proceedings to which the Company is
a party or which any of its property is the subject.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
None.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES.
In December 1995, the Company raised $300,000 through the sale of
30,000 shares of Common Stock at an average per share price of $10.00 through
individual private placements. The shares were sold without registration under
the Securities Act of 1933, as amended (the "Securities Act"), in reliance on
Rule 504 of Regulation D ("Reg. D") under the Securities Act (which exemption
was available due to the fact that the aggregate offering price did not exceed
$1,000,000) and, with respect sales to non-United States residents, pursuant to
Regulation S under the Securities Act. The proceeds of these sales were used for
operational expenses of the Company. Mr. Schwedel, the President of the Company,
purchased 5,000 of these shares. In June 1996, the Company effectuated a
10-for-1 stock split. During 1997, the Company raised $700,000 through its sale
of 120,060 shares of Common Stock to accredited investors under Reg. D and to
non-United States residents pursuant to Regulation S
Page 18 of 39
<PAGE> 19
under the Securities Act. In March 1998, the Company effectuated a 3-for-1 stock
split. In 1998, the Company sold 181,000 shares of Common Stock to non-United
States residents for $905,000 pursuant to Regulation S of the Securities Act.
Additionally, in 1998 the Company raised $500,000 through the sale of 125,000
shares of Common Stock pursuant to Reg. D.
During 1997, the Company received two loans from entities owned or
controlled by current shareholders in the amounts of $15,000 and $50,000,
respectively. The maximum amount to be borrowed from these lenders is $100,000.
As partial consideration for these loans, the Company has issued 6,000 warrants
to the above lenders. Each warrant is convertible into one share of the
Company's Common Stock and is exercisable at $1.83 per share (these warrants
were to be exercisable at $5.50 per share prior to the 3-for-1 stock split). The
warrants are valid for a period of five years. The Company has also issued
warrants converting into 27,000 shares of Common Stock to Beloyan Investment
Securities ("BIS"), each with an exercise price of $1.83, in consideration of
BIS having acted as a placement agent for the private placement of a portion of
the 300,000 shares. These warrants were issued without registration under the
Securities Act on reliance upon Reg. D.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company has authority under the Florida Business Corporation Act to
indemnify its directors and officers to the extent provided in such statute. The
Company's Articles of Incorporation provide that the Company shall indemnify its
executive officers and directors to the fullest extent permitted by law either
now or hereafter. The Company has also entered into an agreement with each of
its directors and certain of its officers wherein the Company agreed to
indemnify each of them to the fullest extent permitted by law. In general,
Florida law permits a Florida corporation to indemnify its directors, officers,
employees and agents, and persons serving at the corporation's request in such
capacities for another enterprise against liabilities arising from conduct that
such persons reasonably believed to be in, or not opposed to, the best interests
of the corporation and, with respect to any criminal action or proceeding, had
no reasonable cause to believe their conduct was unlawful.
The provisions of the Florida Business Corporation Act that authorize
indemnification do not eliminate the duty of care of a director and, in
appropriate circumstances, equitable remedies such as injunctive or other forms
of nonmonetary relief will remain available under Florida law. In addition, each
director will continue to be subject to liability for (a) violations of criminal
law, unless the director had reasonable cause to believe his conduct was lawful
or had no reasonable cause to believe his conduct was unlawful, (b) deriving an
improper personal benefit from a transaction, (c) voting for or assenting to an
unlawful distribution, and (d) willful misconduct or a conscious disregard for
the best interests of the Company in a proceeding by or in the right of the
Company to procure a judgment in its favor or in a proceeding by or in the right
of a shareholder.
Page 19 of 39
<PAGE> 20
The statute does not affect a director's responsibilities under any other law,
such as the federal securities laws or state or federal environmental laws.
At present, there is no pending litigation or proceeding involving a
director or officer of the Company as to which indemnification is being sought
from the Company, nor is the Company aware of any threatened litigation that may
result in claims for indemnification from the Company by any officer or
director. The Company has directors and officers insurance in place, which
insures claims up to $1 million per occurrence.
Page 20 of 39
<PAGE> 21
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Affiliated Networks, Inc. and Subsidiary
Miami, Florida
We have audited the accompanying consolidated balance sheet of Affiliated
Networks, Inc. and Subsidiary as of December 31, 1998 and the related
consolidated statements of income from operating activities, shareholders'
equity, and cash flows for the years ended December 31, 1998 and 1997. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit 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 audit provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Affiliated Networks, Inc. and
Subsidiary as of December 31, 1998 and the results of their operations,
changes in their shareholders' equity, and their cash flows for the years
ended December 31, 1998 and 1997, in conformity with generally accepted
accounting principles.
/s/ McClain & Company, L.C.
January 18, 1999
Miami, Florida
Page 21 of 39
<PAGE> 22
AFFILIATED NETWORKS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1998
<TABLE>
<CAPTION>
<S> <C>
ASSETS
CURRENT ASSETS
Cash $ 350,042
Receivables (net) 9,635
Deferred tax asset 47,000
-----------
Total current assets 406,677
-----------
NET PROPERTY AND EQUIPMENT 71,270
-----------
OTHER ASSETS
Copyright (net) 4,000
Software development costs (net) 156,610
Deposits 5,039
Deferred tax asset 485,000
-----------
Total other assets 650,649
-----------
Total assets $ 1,128,596
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of notes payable $ 116,206
Current portion of capital lease
obligations 11,296
Accounts payable and accrued
expenses 106,307
Customer deposits 76,297
Due to related party 35,750
-----------
Total current liabilities 345,856
-----------
LONG TERM LIABILITIES
Notes payable, net of current portion 23,521
Capital lease obligations, net of current
portion 5,126
-----------
Total long-term liabilities 28,647
-----------
Total liabilities 374,503
-----------
SHAREHOLDERS' EQUITY
Common stock, par value $.01 per share,
25,000,000 shares authorized, 4,928,180 shares issued and outstanding 49,282
Additional paid-in capital 2,373,000
Accumulated deficit (1,668,189)
-----------
Total shareholders' equity 754,093
-----------
Total liabilities and shareholders' equity $ 1,128,596
===========
</TABLE>
The accompanying notes to financial statements are an integral part of this
statement.
Page 22 of 39
<PAGE> 23
AFFILIATED NETWORKS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME FROM OPERATING ACTIVITIES
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
SALES $ 90,227 $ 385,765
OTHER INCOME
Trading account losses (912) (23,213)
----------- -----------
Total income 89,315 362,552
----------- -----------
COSTS AND EXPENSES
Direct costs 51,851 128,473
Selling, general, and
administrative expenses 1,192,517 889,936
----------- -----------
Total costs and expenses 1,244,368 1,018,409
----------- -----------
Net loss before income taxes (1,155,053) (655,857)
BENEFIT FROM INCOME TAXES 532,000 --
----------- -----------
Net loss $ (623,053) $ (655,857)
=========== ===========
BASIC EARNINGS PER COMMON SHARE $ (.13) $ (.16)
=========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
Page 23 of 39
<PAGE> 24
AFFILIATED NETWORKS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON PAID-IN ACCUMULATED SHAREHOLDERS'
STOCK CAPITAL DEFICIT EQUITY
----------- ----------- ----------- ----------------
<S> <C> <C> <C> <C>
Balance, December 31, 1996 $ 39,000 $ 278,000 $ (389,279) $ (72,279)
Issuance of 360,200 shares
of common stock and
contribution of additional
paid-in capital 3,602 696,698 -- 700,300
Net loss -- -- (655,857) (655,857)
----------- ----------- ----------- -----------
Balance, December 31, 1997 42,602 974,698 (1,045,136) (27,836)
Issuance of 668,000 shares
of common stock and
contribution of additional
paid-in capital 6,680 1,398,302 -- 1,404,982
Net loss -- -- (623,053) (623,053)
----------- ----------- ----------- -----------
Balance, December 31, 1998 $ 49,282 $ 2,373,000 $(1,668,189) $ 754,093
=========== =========== =========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
Page 24 of 39
<PAGE> 25
AFFILIATED NETWORKS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (623,053) $ (655,857)
Adjustments to reconcile net loss to net
cash used in operations
Depreciation 28,587 24,794
Amortization 70,137 68,655
Provision for doubtful accounts 25,329 101,647
Deferred tax benefit (532,000) --
Increase in receivables (2,408) (52,623)
(Decrease) increase in accounts payable (22,600) 31,508
(Decrease) increase in customer deposits (27,448) 4,453
Net decrease (increase) in trading securities 34,875 (34,875)
----------- -----------
Net cash used in operating
activities (1,048,581) (512,298)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (36,906) (6,811)
Additions to software development costs (8,158) (203,278)
Net decrease (increase) in due from
shareholder 61,038 (50,820)
----------- -----------
Net cash provided by (used in)
investing activities 15,974 (260,909)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings 438,862 83,155
Principal payments on due to related party (403,112) --
Principal payments on notes payable, net (76,112) (41,222)
Principal payments on capital lease
obligations (10,749) (9,306)
Proceeds from stock issuance 1,404,982 700,300
----------- -----------
Net cash provided by financing
activities 1,353,871 732,927
----------- -----------
Increase (decrease) in cash 321,264 (40,280)
CASH, beginning of year 28,778 69,058
----------- -----------
CASH, end of year $ 350,042 $ 28,778
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
During the years ended December 31, 1998 and 1997, interest paid was
approximately $45,200 and $31,000, respectively
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
Page 25 of 39
<PAGE> 26
AFFILIATED NETWORKS, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
COMPANY OPERATIONS AND BUSINESS SEGMENTS
Affiliated Networks, Inc. ("The Company") has two business activities:
electronic commerce ("E-Commerce") and financial information services
("FIS"). Each of these is a business segment with its financial
performance detailed in this report.
The electronic commerce ("E-commerce") division of the Company's
operations (in development stage up to November 1998) focuses on
creating proprietary Internet based wholesale trading exchanges ("the
Exchanges") for the marine, medical and dental industries. The
Exchanges, when fully operational, will allow buyers to solicit quotes
on-line from sellers for specific equipment, parts and supplies. The
Exchanges will display to the buyer the best price available,
including shipping information and delivery dates, which will be
updated on a real-time basis as bids are posted. The Exchanges seek to
provide a worldwide search capability to buyers for hard-to-find
equipment, parts and supplies and create a lowest price forum for
buyers to take advantage of spot market pricing of seller's
overstocked and available inventory. Sellers utilizing the Exchanges
will gain access to an expanded wholesale customer base and have
greater opportunity to resell slow-moving inventory. The Company
anticipates that Exchange members may act as sellers and buyers on a
daily basis to take advantage of differences in regional pricing and
supply availability. Certain types of inventory, such as outboard
engines, are seasonal in most parts of the country as weather
precludes recreational boating in winter months. The Company believes
that the Marine Exchange ("MAREX") will facilitate boat dealers'
ability to reduce inventory levels during slower periods and maintain
lower in-stock inventory levels during peak periods because of greater
publishing power.
The Exchanges are designed to create a low price and low risk
environment for both buyers and sellers. Members must satisfy certain
credit standards based on one of three parameters: (1) participating
in a credit protection option; (2) having annual revenues in excess of
$25 million and having been in business for 10 years or more; or (3)
having cash or credit in an established trading account. Buyers using
the Exchange will request quotes for equipment, parts and supplies by
indicating the manufacturer, make or model, quantity and color, and
will set a deadline for posting quotes. Sellers will receive requests
for bids on their terminals through a flashing icon and have the
opportunity to underbid posted quotes on a real time basis up to the
buyer's deadline. The buyer selects the desired quote and
electronically confirms the purchase, thereby notifying the seller of
acceptance of the quote. The seller ships the goods via the selected
common carrier to the buyer, who must accept delivery prior to the
purchase price (net of commission) being released to the seller. Prior
to the E-Commerce division coming on-line, the portion of the
Company's activities related to this division were reflected as a
development stage in these financial statements under the
classification of software development costs.
Page 26 of 39
<PAGE> 27
AFFILIATED NETWORKS, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
COMPANY OPERATIONS AND BUSINESS SEGMENTS (CONTINUED)
The Financial Information Services ("FIS") division of the Company,
which as of June 1998 operated through Sovereign Financial Information
Services, Inc., a wholly owned subsidiary, is developing a number of
industry specific stock handbooks and periodicals that provide
financial and corporate information on public companies within
selected industries. The Company's publications include research
reports, stock handbooks and global industry guides and are
supplemented with information accessed via the Internet. The Company
intends to generate revenue through the sale of the Company's research
reports, stock handbooks and global industry guides.
PRINCIPLES OF CONSOLIDATION
During June 1998, Sovereign Financial Information Services, Inc. was
formed as a wholly owned subsidiary of Affiliated Networks, Inc.
The accompanying consolidated financial statements include the
accounts of Affiliated Networks, Inc. and Sovereign Financial
Information Services, Inc. All intercompany accounts and transactions
have been eliminated in the consolidated financial statements.
REVENUE RECOGNITION
The Company charges its customers for appearing in its research
reports on a per appearance basis. Revenues are recorded over the life
of the contract on a per appearance basis as specified in the
contract. Monies received prior to publication of the research reports
are recorded as customer deposits and are not recognized as revenue
until distribution occurs. For the years ended December 31, 1998 and
1997, this was the sole source of sales for the Company.
RECENT PRONOUNCEMENTS
Effective for the year ended December 31, 1998, the Company adopted
SFAS No. 131, which requires a new basis of determining reportable
business segments. This approach (contrasted with the prior
requirement which utilized a specific classification system for
determining segments) designates the Company's internal organization
as used by management for making operating decisions as the basis for
determining business segments. On this basis, the Company has two
reportable business segments: Electronic Commerce ("E-Commerce") and
Financial Information Services ("FIS"). Segment results, as well as
selected geographic data, are presented on this new basis in 1998, as
well as retroactively ( see "BUSINESS SEGMENTS").
Page 27 of 39
<PAGE> 28
AFFILIATED NETWORKS, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECENT PRONOUNCEMENTS (CONTINUED)
The Company adopted SFAS 130 effective in 1998. It requires disclosure
of nonowner changes in stockholders' equity and is defined as net
income plus direct adjustments to stockholders' equity.
The adoption of both SFAS 131 and 130 will have no effect on the
Company's reported net income.
In 1998, the American Institute of Certified Public Accountants issued
Statement of Position (SOP) 98-1, ACCOUNTING FOR THE COSTS OF COMPUTER
SOFTWARE DEVELOPED OR OBTAINED FOR INTERNAL USE. SOP 98-1 is effective
for fiscal years beginning after December 15, 1998. The Company has
complied with the provisions of SOP 98-1 and, as such, the SOP will
have no effect on the manner in which the Company reports its income.
BUSINESS SEGMENTS
The E-Commerce segment of the Company was in the development stage
until November 1998. While in the development stage, the sole activity
of the E-Commerce segment was the development of an on-line
proprietary software. Additions to these capitalized costs totaled
$8,158 and $83,278 in 1998 and 1997, respectively. Prior to November
1998, these capitalized software costs were not amortized, as the
software was not ready for its intended use. Total assets (including
capitalized software) dedicated to the E-Commerce segment were
approximately $960,000 and $83,000 as of December 31, 1998 and 1997,
respectively. Included in the statement of operations for the year
ended December 31, 1998 are approximately $281,000 of advertising and
other general and administrative expenses and $1,500 of amortization
expense as a result of the E-Commerce software being on-line in
November 1998.
The FIS segment of the Company accounts for the remaining activity of
the Company. For the year ended December 31, 1998 and 1997, the FIS
segment incurred operating losses of approximately $341,000 and
$656,000, respectively. Included in these losses were depreciation and
amortization expenses of $97,242 and $93,449, respectively. Total
assets dedicated to the FIS segment were approximately $169,000 and
$365,000 as of December 31, 1998 and 1997, respectively, and included
capital expenditures of $36,906 and $126,811, respectively.
As the E-Commerce segment did not generate any sales during the years
ending December 31, 1998 and 1997, revenues for the Company during
those time periods were solely from the FIS segment and were derived
from customers located in geographic areas as follows:
1998 1997
-------- --------
United States $ -- $ 21,797
Canada 90,227 363,968
-------- --------
$ 90,227 $385,765
======== ========
Page 28 of 39
<PAGE> 29
AFFILIATED NETWORKS, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
STRATEGIC RELATIONSHIPS
MAREX:
The Company has a non-exclusive agreement with GTE Intelligent Network
Services, Inc. d/b/a GTE Internetworking ("GTE") whereby GTE agrees to
sell specified Internet access services to the Company's merchants for
a predetermined fee and, in return, the Company will receive a
one-time referral fee once specified minimum active accounts have been
achieved. The Company is obligated to provide merchants with an
unspecified amount of communication and promotion support that will
help merchants become aware of GTE's services. The term of this
agreement is for one year expiring in August of 1999 and shall
continue for subsequent one year terms except that either party may
terminate the agreement with thirty calendar days written notice.
FIS:
Since the Company's inception, management has continually strived to
develop strategic relationships within the business community, both in
the public and private sectors. It is management's contention that
these informal relationships enable its FIS segment to provide more
valuable and timely industry-specific information.
TRADING SECURITIES
The Company's securities investments that are bought and held
principally for the purpose of selling them in the near term are
classified as trading securities. Trading securities are recorded at
fair value on the balance sheet in current assets with the change in
fair value during the period included in earnings.
DEPRECIABLE ASSETS
Property and equipment are stated at cost and depreciated using
straight-line methods over the estimated useful lives of the assets.
SOFTWARE DEVELOPMENT COSTS
The Company has capitalized two internally developed software: IRN and
MAREX.
Prior to the issuance of SOP 98-1, the Company was following the
guidance promulgated by SFAS No. 86, ACCOUNTING FOR THE COSTS OF
COMPUTER SOFTWARE TO BE SOLD, LEASED, OR OTHERWISE MARKETED. As
prescribed by SFAS No. 86, all costs incurred to establish
technological feasibility of a computer software product to be sold,
leased, or otherwise marketed were expensed as incurred.
Once technological feasibility was determined (January 1996 for IRN
and January 1997 for MAREX), the subsequent costs for coding and
testing were capitalized until the software was available for general
release to customers (January 1997 for IRN and November 1998 for
MAREX).
Page 29 of 39
<PAGE> 30
AFFILIATED NETWORKS, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SOFTWARE DEVELOPMENT COSTS (CONTINUED)
Marex amortization commenced as of December 1998, using the
straight-line method over the remaining estimated useful life of five
years, and was approximately $1,500 for the year ended December 31,
1998.
Amortization of Investors Research Network ("IRN"), an on-line
Internet research service used for internal purposes and as a
supplement to the mining research, oil and gas, and high technology
reports, commenced in 1997 using the straight-line method over the
remaining estimated useful life of three years. Amortization for the
years ending December 31, 1998 and 1997, was approximately $66,000 per
year.
LONG-LIVED ASSETS
The Company reviews its long-lived assets for impairment whenever
events or changes in circumstances indicated that the carrying amount
of an asset may not be recoverable.
COPYRIGHTS
The cost of copyrights acquired is being amortized using the
straight-line method over five years. Included in the consolidated
statements of income from operating activities for the years ended
December 31, 1998 and 1997, are $2,000 per year of amortization
expenses relating to these copyrights. As of December 31, 1998
accumulated amortization of copyrights totaled $6,000.
INCOME TAXES
The Company utilizes an asset and liability approach to financial
accounting and reporting for income taxes. Deferred income tax assets
and liabilities are computed annually for differences between the
financial statement and tax basis of assets and liabilities that will
result in taxable or deductible amounts in the future based on enacted
tax laws and rates applicable to the periods in which the differences
are expected to effect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount
expected to be realized. Income tax expense is the tax payable or
refundable for the period plus or minus the change in deferred tax
assets and liabilities during the period.
CONCENTRATION OF CREDIT RISK
During the years ended December 31, 1998 and 1997, the Company
maintained deposits with financial institutions in excess of the
$100,000 insured by the Federal Deposit Insurance Corporation.
Page 30 of 39
<PAGE> 31
AFFILIATED NETWORKS, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The following assumptions were used to estimate the fair value of each
class of financial instruments for which it is practical to estimate
that value:
CASH AND CASH EQUIVALENTS
The carrying amounts of cash and cash equivalents
approximate their fair value.
NOTES PAYABLE, CAPITAL LEASE OBLIGATIONS AND DUE TO RELATED
PARTY
The fair values of the notes payable, capital lease
obligations and due to related party are estimated based
upon current rates offered to the Company for debt of the
same remaining maturities. Carrying amounts of notes
payable, capital lease obligations and due to related party
are reasonable estimates of their fair values.
NOTE 2 - RECEIVABLES
Receivables consist of open trade accounts. Management has applied an
allowance of $126,976 as of December 31, 1998, on these trade accounts
due to a decline in the mining industry. As such, management is
delaying its collection efforts towards these receivables until the
mining industry economy recovers.
NOTE 3 - NET PROPERTY AND EQUIPMENT
Property and equipment as of December 31, 1998, consist of the
following:
Equipment held under capital leases $ 60,800
Office furniture and equipment 105,751
---------
166,551
Less accumulated depreciation 95,281
---------
Net property and equipment $ 71,270
=========
Page 31 of 39
<PAGE> 32
AFFILIATED NETWORKS, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 3 - NET PROPERTY AND EQUIPMENT (CONTINUED)
Depreciation expense charged to operations for the years ended
December 31, 1998 and 1997, was approximately $29,000 and $25,000,
respectively.
NOTE 4 - NOTES PAYABLE
At December 31, 1998, notes payable consist of the following:
<TABLE>
<CAPTION>
<S> <C>
Note payable to bank, interest at 11.7%, payable in monthly
installments including interest of $1,657 through December 1999,
secured by accounts receivable, equipment, and general
intangibles of the Company, personally guaranteed by the
majority shareholder. $ 21,798
Note payable to bank, interest at prime plus 2.5%,
payable in monthly installments of $1,388 plus interest
through November 1999, secured by accounts receivable,
equipment, and general intangibles of the Company,
personally guaranteed by the majority shareholder. 16,667
$50,000 line of credit with bank, interest at prime
plus 3.0% payable monthly, principal due on demand, secured
by accounts receivable, equipment, and general intangibles
of the Company, personally guaranteed by the majority
shareholder. 50,000
$25,000 line of credit with finance company, interest at prime
plus 6.75%, payable in minimum monthly installments of 2% of
outstanding balance plus interest, cancelable at any time,
personally guaranteed by the majority shareholder. 24,955
Note payable to bank, interest at 12.5%, payable in monthly
installments including interest of $1,677 through March
2000, secured by equipment, accounts receivable, and general
intangibles of the Company, personally guaranteed by the
majority shareholder. 26,307
--------
Total 139,727
Less current portion 116,206
--------
$ 23,521
========
</TABLE>
Page 32 of 39
<PAGE> 33
AFFILIATED NETWORKS, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 4 - NOTES PAYABLE (CONTINUED)
Principal payments on notes payable for the next five years and in the
aggregate are as follows:
1999 $116,206
2000 9,107
2001 3,459
2002 2,629
2003 1,998
Subsequent 6,328
--------
$139,727
========
Interest expense charged to operations on these notes payable was
approximately $21,200 and $26,600 for the years ended December 31,
1998 and 1997, respectively.
NOTE 5 - CAPITAL LEASES
The Company is the lessee of certain equipment under capital leases
expiring in various years through the year 2000. The assets and
liabilities under capital leases are recorded at the lower of the
present value of the minimum lease payments or the fair value of the
asset and are included in net property and equipment. The assets are
depreciated over the lesser of their estimated useful lives or the
term of the lease. Depreciation of assets under capital leases is
included in depreciation expense for the years ended December 31, 1998
and 1997.
Page 33 of 39
<PAGE> 34
AFFILIATED NETWORKS, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 5 - CAPITAL LEASES (CONTINUED)
Minimum future lease payments under capital leases for the next two
years and in the aggregate are as follows:
1999 $12,907
2000 5,546
-------
Total minimum lease payments 18,453
Less amount representing interest 2,031
-------
Present value of net minimum lease payment $16,422
=======
Interest rates on capitalized leases vary from 12.0% to 13.0% and are
imputed based on the lower of the Company's incremental borrowing rate
at the inception of each lease or the lessor's implicit rate of return.
Imputed interest expense for the years ended December 31, 1998 and
1997, was approximately $4,300 and $6,200, respectively.
NOTE 6 - CUSTOMER DEPOSITS
Customer deposits primarily represent unearned fee income from
customers subscribing to the Mining, Oil and Gas, and High Technology
Research Reports.
NOTE 7 - INCOME TAXES
The provision for income taxes for the years ended December 31, 1998
and 1997, are summarized as follows:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Current $ -- $ --
Deferred - Federal (716,043) (216,000)
Deferred - State (115,830) (35,000)
Less valuation allowance applied to total
provision 299,873 251,000
--------- ---------
$(532,000) $ --
========= =========
</TABLE>
The valuation allowance was reduced from 100% to approximately 36%
based upon management's projections of income and the Company's cost of
borrowing approximating 11%. These two factors combined resulted in the
recognition of a deferred tax benefit being recognized during the year
ended December 31, 1998. If managements projections are not achieved,
the deferred tax asset may not be utilized and the associated tax
benefits will not be realized.
Page 34 of 39
<PAGE> 35
AFFILIATED NETWORKS, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 7 - INCOME TAXES
At December 31, 1998, the significant components of the Company's
deferred tax assets are as follows:
Allowance for doubtful accounts $ 50,155
Accrual to cash adjustment (net) 18,168
Net operating loss carryforward 763,550
Less valuation allowance (299,873)
---------
$ 532,000
=========
The provision for income taxes differs from the amount computed by
applying the statutory federal and state income tax rates to income
before income taxes. The sources and tax effects of the difference are
as follows:
1998 1997
--------- ---------
Expected tax benefit at 39.5% $ 456,246 $ 259,064
Non-deductible expenses (4,937) (8,064)
Change in valuation allowance 80,691 (251,000)
--------- ---------
$ 532,000 $ --
========= =========
At December 31, 1998, the Company's net operating loss carryforwards
for income tax purposes amounted to approximately $1,900,000 and are
available to offset future taxable income through the year 2013.
NOTE 8 - OPERATING LEASES
The Company leases its office space under an operating lease which
expires on September 30, 2000. Minimum future lease payments under
operating leases for the next two years and in the aggregate are as
follows:
1999 $39,372
2000 29,529
-------
$68,901
=======
During the years ended December 31, 1998 and 1997, rental expense for
all operating leases was approximately $43,000 and $55,000,
respectively.
NOTE 9 - RELATED PARTY TRANSACTIONS
During the year ended December 31, 1997, certain shareholders paid
$25,000 of professional services and commissions on behalf of the
Company.
Page 35 of 39
<PAGE> 36
AFFILIATED NETWORKS, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 9 - RELATED PARTY TRANSACTIONS (CONTINUED)
A Director of the Company who has fully vested options to purchase
48,000 shares of the Company's common stock is also on an employee of
GTE (See Note 1).
Affiliated Networks Inc.'s Chief Executive Officer, President, Director
and majority shareholder owns another company which makes loans to the
Company pursuant to a revolving loan agreement which specifies interest
at 2.5% over the prime rate, with principal due on demand. During 1998,
this loan balance reached a high of $403,112 and the Company remitted
principal payments to reduce the balance to $35,750 at December 31,
1998. In addition to principal payments, the Company remitted
approximately $19,000 for interest during 1998.
NOTE 10 - SHAREHOLDERS' EQUITY
The Company effected a three-for-one stock split to stockholders of
record as of the close of business on March 24, 1998. Share and per
share amounts presented have been adjusted to reflect the stock split.
STOCK OPTION PLAN
During January 1997, the Company approved a 1996 and 1997 Incentive
Stock Option Plan (ISO). The 1996 and 1997 plans provide options for
900,000 and 1,980,000 shares, respectively, to be purchased for the
greater of $.33, the fair market value at the date of grant or the book
value per share on the date of grant.
The Company applies APB Opinion No. 25 and related interpretations in
accounting for these plans; accordingly, no compensation cost has been
recognized. The Company's net loss would not have been materially
affected had the Company's determined compensation cost been consistent
with the method prescribed by SFAS No. 123, Accounting for Stock Based
Options.
The following is a summary of the activity of the 1996 and 1997 ISO
plan during the years ending December 31, 1998 and 1997:
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED AVERAGE
SHARES EXERCISE PRICE
---------- ----------------
<S> <C> <C>
Outstanding at January 1, 1997 420,000 $ .37
Granted 1,680,000 $ 1.57
Exercised -- --
----------
Outstanding at December 31, 1997 2,100,000 $ 1.33
========== ========
Weighted average fair value of options
granted during 1997 $ --
==========
</TABLE>
Page 36 of 39
<PAGE> 37
AFFILIATED NETWORKS, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 10 - SHAREHOLDER'S EQUITY (CONTINUED)
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED AVERAGE
SHARES EXERCISE PRICE
---------- ----------------
<S> <C> <C>
Outstanding at January 1, 1998 2,100,000 $ 1.33
Granted -- --
Exercised -- --
----------
Outstanding at December 31, 1998 2,100,000 $ 1.33
========== ========
Weighted average fair value of options
granted during 1998 $ --
==========
</TABLE>
The following is a summary of the status of the 1996 and 1997 ISO Plan
Options outstanding at December 31, 1998:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS VESTED OPTIONS
-------------------------------------------------------- ---------------------------------------
WEIGHTED WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE AVERAGE
EXERCISE REMAINING EXERCISE REMAINING EXERCISE
PRICE RANGE NUMBER LIFE PRICE NUMBER LIFE PRICE
----------- ------ --------- --------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
$1.33-$5.50 2,100,000 4.25 Yrs. $1.33 1,184,700 4.25 Yrs. $1.02
</TABLE>
The Company estimates that based on a vesting schedule of 25% per year,
approximately 95% of such options will eventually vest.
In the event an optionee under the Plans owns stock possessing more
than ten percent (10%) of the total combined voting power of all
classes of stock of the Corporation or, if applicable, of its parent or
subsidiary corporation at the time an option is granted, the purchase
price shall be the great of one dollar ten cents ($1.10) per share or
one hundred ten percent (110%) of the fair market value per share of
the Corporation's common stock on the date of granting the option or
one hundred ten percent (110%) of the book value per share of the
Corporation's common stock on the date of the granting of the Option.
On November 2, 1998, the Company amended and restated the 1997 stock
option plan to increase the number of options to 2,000,000 shares which
are to be purchased for the greater of one dollar per share, the fair
market value at the date of grant, or the book value per share on the
date of grant. As of December 31, 1998, no new options have been issued
under the amended and restated 1997 stock option plan.
Page 37 of 39
<PAGE> 38
AFFILIATED NETWORKS, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 10 - SHAREHOLDER'S EQUITY (CONTINUED)
PREFERRED STOCK
During 1998, the articles of incorporation of the Company were
amended. Such amendment authorized 1,000,000 shares of preferred
stock of $.01 par value with preferences to be determined by the
Board of Directors upon issuance. As of December 31, 1998, no
preferred stock had been issued.
WARRANTS
During 1997, the Company received two loans from entities owned or
controlled by current shareholders in the amounts of $15,000 and
$50,000, respectively. The maximum amount to be borrowed from these
lenders is $100,000. As partial consideration for these loans, the
lenders were granted stock warrants.
Effective July 28, 1997, the Company has issued 6,000 warrants to the
above lenders. Each warrant is convertible into one share of the
Company's common stock and is exercised at $1.83 per share. The
warrants are valid beginning on the effective date and for a period of
five years from the effective date. The Company has also issued
warrants converting into 27,000 shares of Common Stock to Beloyan
Investment Securities ("BIS"), each with an exercise price of $1.83,
in consideration of BIS having acted as a placement agent for the
private placement of a portion of the 300,000 shares.
NOTE 11 - EARNINGS PER SHARE
Basic earnings per share amounts are computed based on the weighted
average number of shares actually outstanding. The number of shares
used in the computation were 4,752,975 and 3,995,719 for the years
ending December 31, 1998 and 1997, respectively. Options and warrants
on common stock for the years ending December 31, 1998 and 1997 were
not included in computing diluted earnings per share because their
effects were antidiultive.
NOTE 12 - UNCERTAINTY
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
has incurred recurring operating losses, has had a working capital
deficit and has minimal remaining equity.
Realization of the major portion of the assets in the accompanying
balance sheet is dependent upon continued operations of the Company,
which in turn is dependent upon the Company's ability to meet its
financing requirements and the success of future operations. The
Company is embarking on a private placement of up to $5,000,000.
Management believes these actions will generate future sales and
position the Company to be more competitive. If these actions do not
generate the capital necessary to maintain the Company's operations,
its majority shareholder has expressed his intention of providing the
necessary capital to keep the Company operating through December 31,
1999.
NOTE 13 - RECLASSIFICATION
Certain items in the 1997 financial statements have been reclassified
to conform with the 1998 presentation.
Page 38 of 39
<PAGE> 39
PART III
ITEM 1. INDEX TO EXHIBITS.
EXHIBITS DESCRIPTION OF DOCUMENT
- -------- -----------------------
3.1(a) Form of Amended and Restated Articles of Incorporation
of the Company*
3.2(a) Form of Amended and Restated Bylaws of the Company*
4.1 Form of Warrant*
10.1 1996 Incentive Stock Option Plan, as amended*
10.2 1997 Incentive Stock Option Plan, as amended*
10.3 Amended and Restated 1997 Stock Option Plan*
10.4 Affinity Marketing Agreement between GTE Intelligent
Network Services Incorporated D/B/A GTE
Internetworking and Affiliated Networks Incorporated
10.5 Revolving Note to DAS Consulting, Inc.
10.6 Company's Office Lease, as amended
* Previously filed as an exhibit to the Company's Form 10-SB.
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act
of 1934, the registrant caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized.
AFFILIATED NETWORKS, INC.
By: /s/ David A. Schwedel
--------------------------------
David A. Schwedel, President
Page 39 of 39
<PAGE> 1
EXHIBIT 10.4
AFFINITY MARKETING AGREEMENT
BETWEEN
GTE INTELLIGENT NETWORK SERVICES INCORPORATED
D/B/A GTE INTERNETWORKING
AND
AFFILIATED NETWORKS INCORPORATED
AFFILIATED NETWORK MKT 1 07/22/987
CONFIDENTIAL
<PAGE> 2
TABLE OF CONTENTS
ARTICLE I- DEFINITIONS ...................................... 3
ARTICLE II- SERVICE ......................................... 4
ARTICLE III- PRICES ......................................... 4
ARTICLE IV- BILLING AND PAYMENT ............................. 5
ARTICLE V- AFFINITY PROGRAM ................................. 5
ARTICLE VI- SUPPORT OBLIGATIONS ............................. 5
ARTICLE VII- LIMITATION OF LIABILITY AND INDEMNIFICATION .... 6
ARTICLE VIII- FORCE MAJEURE ................................. 8
ARTICLE IX- PROPRIETARY INFORMATION ......................... 9
ARTICLE X- TERM AND TERMINATION ............................. 11
ARTICLE XI- MISCELLANEOUS ................................... 12
SERVICE ATTACHMENT 1 - INTERNET DIAL-UP SERVICES ............ 16
EXHIBIT A - SUBSCRIBER AGREEMENTS
AFFILIATED NETWORK MKT 2 07/22/987
CONFIDENTIAL
<PAGE> 3
AFFINITY MARKETING AGREEMENT
THIS AFFINITY MARKETING AGREEMENT (this "Agreement") is entered into
between GTE Intelligent Network Services Incorporated d/b/a GTE Internetworking,
a Delaware corporation, with offices located at 5525 MacArthur Boulevard, Suite
320, Irving, Texas 75038, ("GTE") and Affiliated Network Incorporated with
offices at 2701 South Bayshore Drive, Suite 403, Coconut Grove, Florida 33133
("Affiliated Networks"). (GTE and Affiliated Networks being sometimes referred
to collectively as the "Parties" and individually as a "Party").
WHEREAS, GTE is an Internet Service Provider ("ISP") that offers
Internet access, web hosting and other Internet-related services, the sale of
which benefit from discussions and other contacts between the potential customer
and a knowledgeable marketing channel;
WHEREAS, Affiliated Networks desires to market GTE's services to
Merchants for the establishment and maintenance of Web Sites and Stores;
WHEREAS, GTE wishes to support such endeavors, Affiliated Networks
shall market and promote, on a non-exclusive basis, the GTE services subject to
the terms and conditions contained herein.
NOW THEREFORE, in consideration of the mutual promises set forth below,
the Parties hereby agree as follows:
ARTICLE I - DEFINITIONS
For the purposes of this Agreement, the following definitions shall apply:
I.1 "Customer" means an individual or entity that incurs usage charges for the
Service for its own use or on behalf of a third party User.
I.2 "User" a Customer that uses the Service or an individual or entity whose
Service usage charges are incurred by a third party Customer.
I.3 "Service" means Internet services provided by GTE, as more specifically
described in the attachments hereto and any other subsequent Attachments or
Exhibits that may be added from time to time and made a part hereof.
I.4 "Merchant" mean an individual or entity that is enrolled as a Merchant of
Affiliated Networks at any point in time according to the terms of this
Agreement.
AFFILIATED NETWORK MKT 3 07/22/987
CONFIDENTIAL
<PAGE> 4
I.5 "Subscriber" means a Merchant that becomes a customer or User of the
Services.
ARTICLE II - SERVICE
II.1 Purchase of Service. Affiliated Networks and/or its Merchants shall have
the right to purchase from GTE the Services set forth in the Exhibits and
Attachments hereto in accordance with the terms and conditions of this
Agreement.
II.2 Provision of Service by GTE. GTE shall provide the Service to Affiliated
Networks and/or its Merchants substantially in accordance with the
specifications set forth in the Exhibits hereto and subject to the terms and
conditions of this Agreement and the Service Attachments listed below (the
"Service Attachments"). The provision of the Services is further subject to and
conditioned upon the execution by the Customer of separate agreements covering
each of the Services identified below, which are substantially in the form and
attached hereto as Exhibit "A".
SERVICE ATTACHMENTS
Dialup Services Attachment 1
II.3 Additional Services. If, during the term of this Agreement, Affiliated
Networks desires to purchase from GTE, and GTE desires to provide to Affiliated
Networks, additional services, the parties may make such additional services
part of this Agreement by written amendment to this Agreement incorporating the
additional services. Upon the effective date of the amendment, the additional
services shall be deemed to be a part of the Service and the additional service
attachments shall be deemed to be Service Attachments to this Agreement to the
same extent as if they were originally part of this Agreement.
II.4 No Resale. Affiliated Networks shall not resell the Service. The Service
may only be used by Affiliated Networks and its Merchants who are subject to the
applicable agreements set forth in Exhibit "A".
ARTICLE III - PRICES
Affiliated Networks' Merchants shall pay the charges set forth on the Service
Attachments and any other subsequent Attachments or Exhibits that may be
subsequently agreed in writing between the Parties. GTE may increase prices for
subsequent terms of the Agreement by giving notice to Affiliated Networks'
Merchants prior to thirty (30) days before the commencement of the subsequent
term pursuant to Art. X.1. below.
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ARTICLE IV - BILLING AND PAYMENT
Billing Cutoff. GTE shall bill Merchants for all applicable charges on a monthly
basis on a personal credit card or, if they are GTE local telephone Customers,
on their monthly telephone bill.
ARTICLE V - AFFINITY PROGRAM
V.1 Basic Program. GTE agrees to provide Affiliated Networks and its Merchants
Internet access when Affiliated Networks refers a Merchant that makes a
Qualifying Purchase of any of the services noted in Service Attachment 1 or any
subsequent amendment thereto.
V.2 "Qualified Purchase" means a purchase that meets the following criteria: (a)
the purchaser is a Merchant; (b) the purchaser has not purchased the same
Service from GTE within the preceding one year; (c) the purchaser has remained a
GTE customer in good standing long enough to pay for three full months of the
Service in question.
V.3 Referral Fee. GTE agrees to pay Affiliated Networks a one-time referral fee
of $10 for each Qualified Purchase. No referral fee will be paid to Affiliated
Networks until a minimum of 1500 active accounts is established. Once the
minimum is surpassed GTE shall pay Affiliated Networks every thirty(30) days,
during the term of this Agreement. Payment will be made to Affiliated Networks
within thirty (30)-days of the end of each month, beginning ninety (90) days
from the execution date of this Agreement.
ARTICLE VI - SUPPORT OBLIGATIONS
VI.1 Program Administrative Support. Affiliated Networks agrees to provide
single first point of contact for administration of this Agreement. Affiliated
Networks and its designee shall cooperate with GTE in the performance and
delivery of the Service hereunder.
VI.2 Communications and Promotions. Throughout the term hereof, Affiliated
Networks agrees to provide Merchant communications and promotions support that
will help Merchants become aware of the Service.
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VI.3 Minimum Terms and Conditions. Affiliated Networks acknowledges and accepts
that its users of the Service will have terms substantially similar to the terms
and conditions identified on Exhibit "A" imposed upon its end users. In
addition, Affiliated Networks agrees to abide by the terms and conditions
contained on Exhibit "A" that are not inconsistent with the terms and conditions
of this Agreement, which are hereby incorporated by reference. Affiliated
Networks acknowledges that the requirements contained on Exhibit "A" may be
modified from time to time by GTE in its sole discretion.
VI.4 Registration. Affiliated Networks and its Merchants may register for
Services by accessing GTE's online registration service via the Access Software.
GTE will provide 1,000 registration CDs to Affiliated Networks to handle this
type of registration. Affiliated Networks will be solely responsible for
distributing the registration CDs to the Merchants.
VI.5 Marketing Materials. Affiliated Networks shall incur the costs of any
marketing materials (both production and printing costs) used to distribute the
software, including but not limited to any collateral, direct mail pieces, sales
training sessions and sales kits. GTE will have the right of final approval on
any marketing materials that include the GTE logo or mention the software, such
approval not be unreasonably withheld.
ARTICLE VII - LIMITATION OF LIABILITY AND INDEMNIFICATION
VII.1 LIMITATION OF LIABILITY. EACH PARTY'S LIABILITY TO THE OTHER (AS DISTINCT
FROM A PARTY'S OBLIGATION TO PAY FOR THE SERVICE PROVIDED PURSUANT TO THIS
AGREEMENT) FOR ACTUAL PROVEN DAMAGES ARISING FROM ANY LOSS, COST, CLAIM, INJURY,
LIABILITY OR EXPENSE RELATING TO OR ARISING OUT OF ANY ACT OR OMISSION IN ITS
PERFORMANCE OF THIS AGREEMENT (NOT INVOLVING WANTON OR WILLFUL MISCONDUCT)
INCLUDING BUT NOT LIMITED TO ANY FAILURE OF OR DISRUPTION OF SERVICE, SHALL BE
LIMITED TO AN AMOUNT EQUIVALENT TO CHARGES PAYABLE BY AFFILIATED NETWORKS UNDER
THIS AGREEMENT FOR THE SERVICE DURING THE PERIOD SUCH DAMAGES OCCUR. SUCH
DAMAGES SHALL NOT INCLUDE ANY BUSINESS OR REVENUE WHICH AFFILIATED NETWORKS
CLAIMS WOULD HAVE BEEN DUE TO IT BUT FOR GTE'S ACT OR OMISSION. NEITHER PARTY
SHALL BE LIABLE TO THE OTHER FOR INDIRECT, SPECIAL OR CONSEQUENTIAL DAMAGES,
INCLUDING BUT NOT LIMITED TO LOSS OF PROFITS, LOSS OF BUSINESS OR BUSINESS
OPPORTUNITY, EVEN IF IT HAS BEEN ADVISED OF THE POSSIBILITY OF THE SAME.
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VII.2 Indemnification Subject to the limitations contained in this Agreement,
each Party ("Indemnifying Party") shall indemnify and hold harmless the other
Party ("Indemnified Party") from and against any loss, cost, claim, liability,
damage or expense (including reasonable attorneys' fees) to third parties,
relating to or arising out of negligence or wanton or willful misconduct by the
Indemnifying Party, its employees, Merchants or contractors in the performance
of this Agreement. In addition, the Indemnifying Party shall, to the extent of
its negligence or wanton or willful misconduct, defend any action or suit
brought by a third party against the Indemnified Party for any loss, cost,
claim, liability, damage or expense relating to or arising out of negligence or
wanton or willful misconduct by the Indemnifying Party, its employees, Merchants
or contractors, in the performance of this Agreement. The Indemnified Party
shall notify the Indemnifying Party promptly, in writing, of any written claims,
lawsuits or demand by third parties for which the Indemnified Party alleges that
the Indemnifying Party is responsible under this paragraph and tender the
defense of such claim, lawsuit or demand to the Indemnifying Party. The
Indemnified Party also shall cooperate in every reasonable manner with the
defense or settlement of such claim, demand or lawsuit. The Indemnifying Party
shall not be liable under this subparagraph for settlements by the Indemnified
Party of any claim, demand or lawsuit unless the Indemnifying Party has approved
the settlement in advance or unless the defense of the claim, demand or lawsuit
has been tendered to the Indemnifying Party, in writing, and the Indemnified
Party has failed promptly to undertake the defense.
VII.3 Releases.
(a) Affiliated Networks acknowledges that network failure can possibly occur,
and Affiliated Networks releases and holds GTE harmless from any losses or
damages that might occur in this event. Affiliated Networks further acknowledges
that Affiliated Networks and/or the User shall be responsible to provide for the
proper installation, operation; and maintenance of the equipment of Affiliated
Networks and/or the User used in connection with the Service, and Affiliated
Networks and/or the User shall ensure that such equipment is technically and
operationally Notwithstanding anything to the contrary contained herein,
compatible with the Service and in compliance with applicable Federal
Communications Commission rules and regulations.
(b) Affiliated Networks further acknowledges that GTE is not responsible for the
content on the Internet. Affiliated Networks shall indemnify and hold harmless
GTE from and against any loss, cost, claim, liability, damage, or expense
(including reasonable attorneys' fees) to third parties, relating to or arising
from the use of the Service by Affiliated Networks and/or any User, or anyone
using the login identification name of Affiliated Networks or an User, whether
or not Affiliated Networks or the User has knowledge of or has authorized such
access or use, including, without limitation, claims for libel,
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slander, invasion of privacy, infringement of copyright, patent infringement
(where Affiliated Networks or an User has used, connected, or combined the
Service with the products or services of others), negligence, or tortious
behavior.
VII.4 No Warranties. GTE MAKES NO WARRANTIES, EXPRESS OR IMPLIED, WITH RESPECT
TO THE SERVICE PROVIDED PURSUANT TO THIS AGREEMENT, INCLUDING, BUT NOT LIMITED
TO, THE IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE,
and NON-INFRINGEMENT, NO REPRESENTATION OR STATEMENT MADE BY GTE OR ANY OF ITS
MERCHANTS OR EMPLOYEES, ORAL OR WRITTEN, INCLUDING, BUT NOT LIMITED TO, ANY
SPECIFICATIONS, DESCRIPTIONS OR STATEMENTS PROVIDED OR MADE TO CUSTOMER BY GTE
SHALL BE BINDING UPON GTE AS A WARRANTY OR OTHERWISE.
VII.5 Ownership and Grant of License of GTE Materials.
(a) Any and all software, ideas, inventions, documentation, other documents,
data, programs, materials, code, object code or other materials developed,
produced and/or created, licensed and/or developed by GTE in connection with
this Agreement, including all intellectual property rights, (collectively, the
"GTE Materials") are and shall remain the sole and exclusive property of GTE;
GTE shall have the right to use them for any purpose without compensation to
Affiliated Networks; and Affiliated Networks acquires no sublicense or rights in
same by virtue of this Agreement or the provision of the Service hereunder,
other than as hereinafter provided. During the term of this Agreement, and
subject to its terms and conditions, GTE grants Affiliated Networks a personal,
nonexclusive, nontransferable license to access, execute and use the GTE
Materials solely in connection with their retail activities for the purposes set
forth in the recitals to this Agreement. Affiliated Networks shall have no other
right or license to reproduce, distribute, download, display, modify, enhance,
improve or create any derivative work based on the GTE Materials.
(b) Without limitation to the foregoing, Affiliated Networks shall specifically
not reverse assemble, reverse compile, reverse engineer or otherwise translate
any part or all of the Object Code.
ARTICLE VIII - FORCE MAJEURE
VIII.1 Causes. Neither Party shall be held liable for any delay or failure in
performance of any part of this Agreement from any cause beyond its control and
without its fault or negligence, including, but not limited to, acts of civil or
military authority, government regulations, embargoes, epidemics, war, terrorist
acts, riots, insurrections, fires, explosions, nuclear accidents, strikes,
extended
AFFILIATED NETWORK MKT 8 07/22/987
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power blackouts, natural disasters like earthquakes, floods, volcanic action,
unusually severe weather conditions or other major environmental disturbances,
inability to secure transportation facilities, software products or services of
other persons, acts or omissions of transportation or communications common
carriers and legal and/or regulatory constraints affecting either of the Parties
hereto in performing their obligations hereunder ("Force Majeure").
VIII.2 Remedy. If a Force Majeure condition occurs, the Party injured by the
other Party's inability to perform may elect to: (a) terminate the applicable
Service Attachment as to Service not already received, if such Force Majeure
condition results in a delay or failure to perform which continues for more than
thirty (30) calendar days; or (b) suspend the Service for the duration of the
delaying cause, or (c) buy or sell elsewhere the Service to be bought or sold
hereunder and deduct from any commitment the services for which such commitments
have been made elsewhere and resume performance under this Agreement once the
delaying cause ceases. Unless written notice is given within thirty (30)
calendar days after such injured Party is apprised of the Force Majeure
condition, option (b) shall be deemed selected.
ARTICLE IX - PROPRIETARY INFORMATION
IX.1 Identification. Each Party recognizes and acknowledges that, in connection
with the Service to be provided hereunder, it may disclose to the other Party
proprietary or confidential customer, technical or business information in
written, graphic, oral or other tangible or intangible forms. In order for such
information to be considered "Proprietary Information" under this Agreement, it
must be marked "Confidential" or "Proprietary" or bear a marking of similar
import; provided, however, that Automatic Message Accounting and other billing
data shall be Proprietary Information even though it is not so marked. Orally
disclosed information shall be considered Proprietary Information only if
contemporaneously identified as such and reduced to writing and delivered to the
other Party with a statement or marking of confidentiality within twenty (20)
calendar days after oral disclosure.
IX.2 Nondisclosure. Subject to Sections 9.3 through 9.6, the Party (the
"Receiving Party") that receives Proprietary Information from the other Party
(the "Disclosing Party.") agrees:
(a) That all Proprietary Information shall be and shall remain the exclusive
property of the Disclosing Party.
(b) To limit access to such Proprietary Information to authorized employees who
have a need to know the Proprietary Information in order to perform its
obligations under this Agreement; provided, however, that Affiliated Networks
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may disclose Proprietary Information to its Merchants who agree to be bound by
the terms and conditions of this Agreement.
(c) To keep such Proprietary Information confidential and to use the same level
of care to prevent disclosure or unauthorized use of the received Proprietary
Information as it exercises in protecting its own Proprietary Information of a
similar nature.
(d) For a period of three (3) years following any disclosure, not to copy or
publish or disclose such Proprietary Information to others or authorize anyone
else to copy or publish or disclose such Proprietary Information to others
without the prior written approval of the Disclosing Party.
(e) To return promptly any copies of such Proprietary Information to the
Disclosing Party at its request.
(f) To use such Proprietary Information only for purposes of performing its
obligations under this Agreement and for other purposes only upon such terms as
may be agreed upon between the Parties in writing.
IX.3 Required Disclosures. The Receiving Party agrees to give notice to the
Disclosing Party of any demand to disclose or provide Proprietary Information of
the Disclosing Party to another person, under lawful process, prior to
disclosing or furnishing such Proprietary Information. Further, the Receiving
Party agrees to reasonably cooperate if the Disclosing Party deems it necessary
to seek protective arrangements. The Receiving Party may disclose or provide
Proprietary Information of the Disclosing Party: (a) to implement, effect and
enforce the Party's tariffs; (b) to meet the requirements of a court, regulatory
body or government agency having jurisdiction over the Party; provided, however,
that the Receiving Party shall notify the Disclosing Party so as to give the
Disclosing Party a reasonable opportunity to object to such disclosure. The
Disclosing Party may not unreasonably withhold approval of protective
arrangements provided by any such court, regulatory body or government agency.
Nothing herein requires either Party to support the position of any person or
entity as to whether any particular Proprietary Information is proprietary under
applicable law or this Article IX.
IX.4 Exceptions. Notwithstanding anything to the contrary contained in this
Agreement, the Proprietary Information described herein shall not be deemed
confidential or proprietary and the Receiving Party shall have no obligation to
prevent disclosure of such Proprietary Information if such Proprietary
Information:
(a) is already known to the Receiving Party;
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(b) is or becomes publicly known, through publication, inspection of the
product, or otherwise, and through no wrongful act of the Receiving Party;
(c) is received from a third party without similar restriction and without
breach of this Article IX;
(d) is independently developed, produced or generated by the Receiving Party;
(e) is furnished to a third party by the Disclosing Party without a similar
restriction on the third party's rights; or
(f) is approved for release by written authorization of the Disclosing Party.
IX.5 Permitted Uses. GTE shall be permitted to use Proprietary Information
obtained through recording the usage of GTE-provisioned facilities for the
purposes of: (a) estimation of facilities usage for jurisdictional separations;
(b) engineering and network planning of facilities; and (c) measurement for
billing purposes.
IX.6 Legal Requirements. Notwithstanding anything to the contrary contained in
this Agreement, a Party's ability to disclose Proprietary Information or use
disclosed Proprietary Information is subject to all applicable statutes,
decisions and regulatory rules concerning the disclosure and use of such
Proprietary Information which, by their express terms, mandate a different
handling of such information.
IX.7 Attachments. The Parties acknowledge that the attachments to this Agreement
may contain confidential information provided by Affiliated Networks and
identified as such and agree to limit distribution of portions of the Agreement
containing such information to those individuals in their respective
organizations with a need to know the contents of the Agreement. The Parties
further agree to seek confidential status for these portions of the Agreement
with any regulatory commission, with which the Agreement must be filed, to the
extent such a designation can be secured.
ARTICLE X - TERM AND TERMINATION
X.1 Term. This Agreement shall become effective on the date it is executed by
both Parties, and shall remain in effect for one (1) year (the "Initial Term"),
and shall continue after the Initial Term for subsequent terms of one (1) year
each except that either Party may terminate this Agreement upon thirty (30)
calendar days written notice.
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X.2 Termination for Breach. Notwithstanding anything to the contrary contained
herein, either Party shall have the right to terminate this Agreement, in whole
or in part, by written notice if either Party fails to cure or begin a good
faith effort to cure a material breach of any provision of this Agreement within
thirty (30) calendar days following written notice of such violation.
ARTICLE XI - MISCELLANEOUS
XI.1 Survival Provisions. The provisions of Section VII.5 (Ownership), Article
IX (Limitation of Liability and Indemnification), Article IX (Proprietary
Information) shall survive the expiration or the termination of this Agreement.
XI.2 Amendments, Waivers. This Agreement (or any part thereof, including
attachments or documents referred to herein) may be modified or additional
provisions may be added by written agreement signed by or on behalf of both
Parties. No amendment or waiver of any provision of this Agreement and no
consent to any default under this Agreement shall be effective unless the same
shall be in writing and signed by or on behalf of the Party against whom such
amendment, waiver or consent is claimed. In addition, no course of dealing or
failure of any Party to strictly enforce any term, right or condition of this
Agreement shall be construed as a waiver of such term, right or condition. In
the event GTE and Affiliated Networks subsequently agree that GTE shall provide
additional or enhanced services not otherwise described in this Agreement, then
Parties may by appropriate addenda provide for such services and their cost and
make the same subject to the terms and conditions included within this
Agreement.
XI.3 Assignment. Any assignment by either Party of any right, obligation or
duty, in whole or in part, or of any interest, without the written consent of
the other Party shall be void, except that either Party may assign all of its
rights, obligations and duties to any legal entity which is a subsidiary or
affiliate of that Party without consent, but with prior written notification.
Such written consent shall not be unreasonably withheld or delayed.
XI.4 Trademarks and Trade Names. Except as specifically set out in this
Agreement, nothing in this Agreement shall grant, suggest, or imply any
authority for one Party to use the name, trademarks, service marks, or trade
names of the other for any purpose whatsoever.
XI.5 Third Party Beneficiaries. This Agreement is for the benefit of the Parties
and creates no rights or entitlements for any person or organization that is not
a named party to this Agreement.
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XI 6 Governing Law This Agreement shall be governed by the substantive laws of
the State of Texas.
XI.7 Notices and Demands.
(a) Except as otherwise provided under this Agreement, all notices, demands or
requests which may be given by any Party to the other Party shall be in writing
and shall be deemed to have been duly given on the date delivered in person or
deposited, postage prepaid, in the United States mail, return receipt requested
and addressed as follows:
To GTE: Monna Roberson, Sr. Administrator- Contract Management
GTE Intelligent Network Services Incorporated
5525 MacArthur Boulevard, Suite 302
Irving, TX 75038
972/751-4051
To AFFILIATED NETWORKS:
Affiliated Networks Incorporated
2701 South Bayshore Drive, Suite 403
Coconut Grove, Florida 33133
Attn: David A. Schwedel, President
(b) If personal delivery is selected as the method of giving notice, a receipt
of such delivery shall be obtained.
(c) The address to which such notices, demands, requests, elections or other
communications is to be given by either Party may be changed by written notice
given by such Party to the other Party pursuant to this Agreement.
XI.8 Publicity. GTE and Affiliated Networks agree to submit to the other Party
any advertising, sales promotion, press releases or other publicity matter
relating to this Agreement wherein corporate or trade names, logos, trademarks
or service marks or the other Party or its affiliates are mentioned and each
Party further agrees not to publish or use such advertising, sales promotions,
press releases or publicity matters without the other Party's prior written
approval. NOTWITHSTANDING THE FOREGOING, BOTH PARTIES AGREE TO PROVIDE THE OTHER
PARTY PRIOR WRITTEN RESPONSE WITHIN TEN (10) BUSINESS DAYS FROM RECEIPT--OF SUCH
REQUESTS. SUCH APPROVAL SHALL NOT BE UNREASONABLY WITHHELD.
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XI.9 Executed in Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but such counterparts shall
together constitute but one and the same document.
XI.10 Headings. The headings in this Agreement are for convenience and shall not
be construed to define or limit any of the terms herein or affect the meanings
or interpretation of this Agreement.
XI.11 Binding Effect. This Agreement shall be binding upon the Parties hereto
and their respective successors and permitted assigns.
XI.12 Severability. In the event that one or more of the provisions contained in
this Agreement shall be invalid, illegal or unenforceable in any respect under
applicable statute, regulatory requirement or rule of law, then such provisions
shall be considered inoperative to the extent of such invalidity, illegality or
unenforceability and the remainder of this Agreement shall continue in full
force and effect.
XI.13 Entire Agreement. This Agreement (including all attachments hereto)
constitutes the entire understanding between the Parties and supersedes all
prior understandings, oral or written representation, statements, negotiations,
proposals and undertakings with respect to the subject matter thereof. In the
event of conflict between the terms and conditions of this Agreement and any
attachment hereto, the terms and conditions of this Agreement shall control.
XI.14 Authority. Each signatory to this Agreement represents and warrants that
he or she has authority to bind the entity on whose behalf he or she is
executing this Agreement.
XI.15 No Offer. Submission by GTE of this Agreement to AFFILIATED NETWORKS for
examination or signature does not constitute an offer by GTE for the products or
services described herein. This Agreement shall be effective only upon execution
and delivery by both AFFILIATED NETWORKS and GTE.
XI.16 Relationship of the Parties. This Agreement shall not be construed to
create a joint venture, partnership, employment relationship or franchise or any
other legal relationship between the parties. None of the parties shall share or
be responsible for the debts and liabilities of the other party, or have the
authority to legally bind the other in any matter.
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IN WITNESS WHEREOF, the Parties have entered into this Agreement
effective on the last date shown below.
GTE INTELLIGENT NETWORK SERVICES INCORPORATED D/B/A GTE INTERNETWORKING
By: /s/ Harry A. Coleman, II
------------------------------------------------
Name: Harry A. Coleman, II
------------------------------------------------
Title: Vice President/General Manager, On-line Services
------------------------------------------------
Date: 8/5/98
------------------------------------------------
AFFILIATED NETWORKS INCORPORATED
By: /s/ David A. Schwedel
------------------------------------------------
Name: David A. Schwedel
------------------------------------------------
Title: President
------------------------------------------------
Date: 7/29/98
------------------------------------------------
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SERVICE ATTACHMENT 1
INTERNET DIAL-UP SERVICES
SERVICE DESCRIPTION
GTE INTERNETWORKING DIAL-UP ACCESS SERVICE
Designed for residential and small business customers who periodically access
the Internet for information, browsing and file transferring;
ANALOG CONNECTION SERVICES WITH SPEEDS UP TO 56 KBPS INCLUDE:
Personal Edition of an Internet browser software;
Full Internet Access (browser, e-mail and newsgroups);
2 Megabytes of drive space on web server for personal home page;
24 hour, 7 day technical support;
$19.95* per month for dialup access;
$15 one-time set-up fee.
ISDN INTEMET ACCESS SERVICE INCLUDES:
ISDN 1B channel, dynamically assigned IP address
Personal Edition of an Internet browser software;
Full Internet Access (browser, e-mail and newsgroups);
2 Megabytes of drive space on web server for personal home page;
24 hour, 7 day technical support;
$39.95* per month includes dial-up access;
$40.00 one time set-up fee.
Prices include Internet access only and do not include local telephone line
charges. Prices subject to change and may require applicable sales taxes. 800
Number Dial-Up: Subscribers accessing the service from outside the local calling
scope can use the toll-free number. Additional charges of $5.95/per hour may
apply.
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EXHIBIT A
SUBSCRIBER END-USER AGREEMENT
See Attachment
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GTE INTELLIGENT NETWORK SERVICES INCORPORATED ("GTE")
INTERNET ACCESS AGREEMENT
____ calling to access the Internet, Subscriber, and/or any person
using Subscriber's login identification name, or login identification names
ordered by Subscriber, is deemed to have accepted the terms and conditions
contained in this Internet Access Agreement (the "Agreement") and shall be bound
thereby.
1. DEFINITIONS:
(a) "Subscriber," as used herein, means an individual, a corporation, or
a legal entity who incurs usage charges for the Service for its own
use or who incurs such charges on behalf of a third party, i.e., a
User.
(b) "User," as used herein, means a Subscriber who uses Service or an
individual, a corporation, or a legal entity whose Service usage
charges are incurred by a third party, i.e., Subscriber.
2. SERVICE: GTE will provide Subscriber and its Users analog or digital
access to the internet depending upon the rate plan selected (the
"Service"), subject to conditions generally beyond the control of GTE,
including the type and condition of the equipment (personal computer,
modem, etc.) of Subscriber and/or its Users. Service may be temporarily
unavailable or limited because of capacity limitations and may be
temporarily interrupted or curtailed due to equipment modifications,
upgrades, relocations, repairs, and similar activities necessary for the
proper operation of Service.
3. ACCEPTABLE USAGE OF DLAL-UP ACCOUNTS: Subscriber and its Users agree to
use dialup accounts solely on an active "dial-up" basis, meaning only as
needed and in no way on a standby or inactive basis in order to maintain a
connection. Without limitation of the foregoing, Subscriber and its Users
shall abide by the following provisions regarding usage:
(a) A dial-up account may be used for World Wide Web browsing, reading
or posting to Usenet (see Section 13 below) newsgroups, sending,
receiving and reading electronic mail and transferring files via the
file transfer protocol.
(b) A dial-up account shall not be used to host a dedicated server site
on the Internet.
(c) A dial-up account shall not be accessed simultaneously by multiple
users using the same user ID.
(d) A dial-up account has only one mailbox for incoming electronic mail
unless additional mail boxes have been purchased.
(e) Automated processes may not be used such as checking e-mail or
pinging the host to maintain a constant connection.
(f) User ID Names will be issued to Subscriber by GTE based upon
availability. If the User ID name is surrendered by Subscriber for
any reason, GTE shall not be obliged to reserve that name.
(g) GTE shall not be obligated to retain electronic mail for longer than
one month.
(h) A dial-up account has only 2 megabytes of server space for
Subscriber web pages unless additional web space has been purchased
or otherwise expressly allocated. And no such space shall be
available for accounts that are promotional until they become
billable accounts (unless such space is made available during the
promotional period, at GTE's sole discretion.
<PAGE> 19
4. INACTIVITY DISCONNECT POLICY: GTE reserves the right to disconnect a
dial-up account after 15 minutes of inactivity, as detected by GTE through
electronic means. This time is approximate and subject to change without
notice in GTE' sole discretion. Electronic or mechanical means to avoid an
inactivity disconnect are strictly prohibited. Electronic or mechanical
means include, but are not limited to, "pinging" the mail server,
employing electronic or software autodialer features to maintain an active
connection or repeatedly checking for e-mail by autolog-in to the mail
server. GTE reserves the right to electronically audit connections to
enforce the above requirements.
5. ACCESS: Service access will be provided via a local telephone number where
available. GTE is not responsible for any toll or other charges in the
event service access is not provided via a local telephone number, for
instance, if service access is provided via a toll call. If a local
telephone number is not available, the Service may be remotely accessed
via an 800 series number at an additional charge.
6. PRICE: Subscriber shall pay to GTE the charges associated with the rate
plan selected, including applicable taxes, 800 series number, etc. If
service access is not provided via a local telephone number, Subscriber
may also be responsible for toll or other charges.
7. PAYMENT: Subscriber shall be billed on a monthly basis. Payment will be
deemed made when received by GTE.
8. TERM AND TERMINATION: This Agreement becomes effective upon registration
of Subscriber's login identification name and shall remain in effect for
the period indicated in the rate plan selected or until terminated as
provided herein. This Agreement shall continue in effect for consecutive
additional terms following the initial Term until either Party gives the
other party on-line notice or other notice of termination at least thirty
(30) calendar days prior to the expiration of the then-current term. In
the event Subscriber terminates the Service hereunder, then without
limitation to any other remedy GTE may have, Subscriber will pay to GTE
upon discontinuance of the Service a termination charge equal to the
applicable monthly rate times the number of months remaining in the term.
9. CREDIT: There shall be no credits, reductions, or setoff against the
charges far Service for downtime or interruption of Service unless such
Service interruption exceeds 24 hours in duration. GTE shall provide
Subscriber with a credit equal to 1/30 of the recurring monthly charge for
Service for each twenty-four hour period from the time of notice of
interruption
<PAGE> 20
until Service restoration, provided Subscriber notifies GTE of the Service
interruptions. No adjustments shall be made by accumulating periods of
non-continuous interruption. A credit allowance will not be given for
mistakes, omissions, interruptions, delays, errors, defects or
curtailments in the Service caused by the negligence or willful act of
Subscriber or others, or mistakes, omissions, interruptions, delays,
errors or defects caused by failure of equipment or of Service as
described in Section 2.
10. LIMITATION OF LIABILITY: GTE SHALL NOT BE LIABLE FOR INTERRUPTIONS CAUSED
BY FAILURE OF EQUIPMENT OR SERVICES NOT PROVIDED BY GTE, FAILURE OF
COMMUNICATIONS, POWER OUTAGES, OR OTHER INTERRUPTION NOT WITHIN THE
COMPLETE CONTROL OF GTE, NOR SHALL GTE BE LIABLE FOR PERFORMANCE
DEFICIENCIES CAUSED OR CREATED BY SUBSCRIBER'S OR ITS USERS' EQUIPMENT.
SUBSCRIBER AND USER HEREBY RELEASE GTE FROM LIABILITY ARISING FROM ANY
CONTENT ACCESSED VIA THE SERVICE. GTE'S PERFORMANCE UNDER THIS AGREEMENT
SHALL BE EXCUSED IN CASE OF LABOR DIFFICULTIES, GOVERNMENTAL ORDERS, CIVIL
COMMOTIONS, ACTS OF GOD, OR OTHER CONDITIONS OR CIRCUMSTANCES BEYOND ITS
REASONABLE CONTROL. GTE SHALL NOT BE LIABLE IF CHANGES IN OPERATION,
PROCEDURES, OR SERVICES REQUIRE MODIFICATION OR ALTERATION OF SUBSCRIBER'S
OR ITS USERS' EQUIPMENT, RENDER THE SAME OBSOLETE OR OTHERWISE AFFECT ITS
PERFORMANCE. IN NO EVENT SHALL GTE BE LIABLE FOR ANY INCIDENTAL, SPECIAL,
CONSEQUENTIAL, OR PUNITIVE DAMAGES INCLUDING BUT NOT LIMITED TO LOSS OF
PROFITS, LOSS OF BUSINESS OR BUSINESS OPPORTUNITY, LOSS OF USE, ETC. THE
LIABILITY OF GTE FOR ACTUAL PROVEN DAMAGES FOR ANY CAUSE WHATSOEVER,
INCLUDING BUT NOT LIMITED TO ANY FAILURE OF OR DISRUPTION OF SERVICE,
REGARDLESS OF THE FORM OF ACTION, WHETHER IN CONTRACT OR IN TORT OR
OTHERWISE, INCLUDING NEGLIGENCE, SHALL BE LIMITED TO AN AMOUNT EQUIVALENT
TO CHARGES PAYABLE BY SUBSCRIBER UNDER THIS AGREEMENT FOR THE SERVICE
DURING THE PERIOD SUCH DAMAGES OCCUR. GTE MAKES NO OTHER WARRANTIES OR
REPRESENTATIONS, EITHER EXPRESS OR IMPLIED, CONCERNING THE SERVICE, AND
EXPRESSLY DISCLAIMS WARRANTIES OF FITNESS FOR A PARTICULAR USE OR PURPOSE,
THE WARRANTY OF MERCHANTABILITY AND ANY OTHER WARRANTY IMPLIED BY LAW.
11. INDEMNITY: Subscriber and User shall indemnify and hold harmless GTE from
and against any loss, cost, claim, liability, damage, or expense
(including reasonable attorneys' fees) to third parties, relating to or
arising from the use of the Service by Subscriber, User, or any of their
personnel, whether or not Subscriber or User has knowledge of or has
authorized such access or use, including, without limitation, claims for
libel, slander, invasion of privacy, infringement of copyright, patent
infringement (where Subscriber or User has used, connected, or combined
the Service with the products or services of others), negligence, or
tortious behavior. Subscriber agrees to indemnify GTE along with any
parties from whom GTE obtains network services, and to hold them harmless
from any claims resulting from the use of the Service by Subscriber or its
Users that damage another party or that violate the law.
12. SUBSCRIBER RESPONSIBILITY: Subscriber shall ensure that its Users shall
comply with the terms and conditions of this Agreement. Any access to
other networks connected to GTE's network must comply with the rules of
the other networks. Subscriber shall not use or permit its end users to
use the Services in ways that violate laws, infringe the rights of others,
interfere with users of our network or other networks, or otherwise
violate our Acceptable Use Policy set forth at http://www.bbn.com/aup/.
For example, you shall not distribute chain letters or unsolicited bulk
electronic mail ("spamming"); propagate computer worms or viruses; use a
false identity; attempt to gain unauthorized entry to any site or network;
distribute child pornography, obscenity or defamatory material over the
internet; or infringe copyrights, trademarks or other intellectual
property rights. Subscriber further agrees to comply with U.S. export laws
concerning the transmission of technical data and other regulated
materials via the Services.
13. USE OF SERVICE: Subscriber and its Users agree to abide by and comply with
the following terms and conditions:
(a) Misuse of Service: Subscriber and its Users shall not use the
Service to make foul or profane expressions, to impersonate another
person with fraudulent or malicious intent, to contact another
person so as to annoy, abuse, threaten, or harass such other person,
or for any purpose in violation of law, or in such a manner as to
interfere unreasonably with the use of the Service by any of GTE's
customers. Subscriber and its Users shall not distribute chain
letters or "junk" mail (any unsolicited mail of a business or
commercial nature) or engage in "Ponzi" or "pyramid" schemes. The
Service and underlying network may only be used for lawful purposes.
Transmission of any material in violation of any U.S. or state
regulation is prohibited. This includes, but is not limited to:
copyrighted material, material which is threatening or obscene, or
material protected by trade secret. In addition, GTE generally
reserves the right in its sole discretion to either temporarily
discontinue, or permanently terminate furnishing the Service upon
notice to Customer in the event Customer uploads any information
that is libelous, defamatory or that violates or infringes any right
of privacy of any Persons; uploads any messages, data, images or
programs that are indecent, obscene or pornographic; use the
facilities and capabilities of GTE to conduct or solicit the
performance of any illegal activity or to conduct any other activity
that infringes the rights of GTE or any third party; or upload any
information, messages, data, images or programs that is
discriminatory or otherwise offensive as determined by GTE in its
sole discretion.
(b) INTERFERENCE WITH THE RIGHTS OF THIRD PARTIES: In the event that GTE
receives notice from a third party, or in the event that GTE
reasonably believes, that Subscriber's or any User's use of the
Service, either alone or in connection with products or services of
others, constitutes, causes, results in, induces or contributes to
either (i) defamation, invasion of privacy, or unfair competition,
or (ii) misuse, misappropriation or infringement of any patent,
copyright, trademark, trade secret or other proprietary or
intellectual property right of such third party, then GTE shall have
the right, in its sole and exclusive option and discretion, without
prior notification to Subscriber or to User(s), and without limiting
any other rights or remedies GTE might have or incurring any
obligation or liability to Subscriber or to User(s), to temporarily
discontinue or permanently terminate, in whole or in part,
furnishing of Services to Subscriber or to User(s).
-2-
<PAGE> 21
(c) Usenet Policy and Posting Restrictions: Usenet comprises a system of
bulletin boards called newsgroups. Usenet access is provided to
dial-up customers of GTE. Subscriber and its Users shall not post to
newsgroups until they have familiarized themselves with the subjects
and established guidelines and restrictions of the newsgroup. All
such Usenet guidelines and restrictions are hereby incorporated
herein by reference and Subscriber and its Users unconditionally
agree to adhere to them. These guidelines and restrictions include,
but are not limited to, the following:
- Only post articles that are relevant to the newsgroup.
Inappropriate or irrelevant postings are not appreciated by
participants of newsgroups nor are they allowed under Usenet
protocols.
- Most newsgroups do not allow commercial postings. Users should
verify this restriction before making any such posting.
- Blanket postings to all or large numbers of newsgroups
simultaneously with disregard to the newsgroups' subject are
forbidden.
- Chain letters are not allowed to be posted.
- Unauthorized creation of newsgroups is prohibited.
(d) Harm to Equipment, Software and Processes: Subscribers agree
unconditionally to not cause harm to GTE or third party equipment,
software, or processes used in connection with furnishing the
Service. In addition to constituting a default under this Agreement,
any breach of this provision may result in civil and/or criminal
penalties pursuant to applicable local, state and federal law.
(e) Content, Accuracy of Information: GTE and its affiliates, along with
any parties from whom GTE obtains network services, exercises no
control whatsoever over the content of the information passing
through GTE's network. GTE makes no warranties of any kind, whether
express or implied, for the content of the information passing
through its network. Use of any information obtained via the GTE
network is at Subscriber's and its Users' own risk or the risk of
their affiliates. GTE specifically denies any responsibility for the
accuracy or quality of information obtained through its Service.
(f) Offensive and/or Harmful Information: The Internet hosts some
material deemed unfit for viewing and reading by minors under the
age of 18. Some sites contain information both in text and graphical
formats that Subscriber and/or Users may consider obscene and/or
harmful. Subscriber and/or Users agree to not hold GTE responsible
for sites and postings that could be considered obscene, lewd,
offensive, and/or harmful. Subscribers are responsible for their own
monitoring and viewing habits and their Users, including minors. GTE
does not block, filter or screen postings or sites on the Internet
in whole or in part.
14. DEFAULT: Upon a default by Subscriber GTE may, in its sole discretion,
without prior notification and without limiting its remedies or incurring
any liability to Subscriber, either temporarily discontinue or permanently
terminate the furnishing of Service to Subscriber in whole or in part.
"Default" means any failure by Subscriber to comply with any term of
Agreement, including without limitation, failure to make timely payment of
any amount due GTE or failure to comply with the restrictions on use of
Service set forth in Section 13. Where Subscriber's equipment is used with
Service provided by GTE in violation of any of the provisions herein, GTE
will notify Subscriber and take such action as is necessary for the
protection of the Service for use by its other customers. Subscriber shall
discontinue such use of the equipment or correct the violation immediately
and shall confirm in writing to GTE within five days that such use has
ceased or that the violation has been corrected, and if Subscriber fails
to do so, GTE will disconnect Subscriber's Service, without any credit
allowance, until such time as Subscriber complies with the provisions
hereof. GTE reserves the right to charge a reconnect fee for any
discontinued Service that is subsequently reconnected.
15. NO WARRANTIES: GTE makes no warranties, express or implied, with respect
to the Services provided pursuant to this Agreement, including, but not
limited to, the implied warranties of merchantability and fitness for a
particular purpose. No representation or statement made by GTE or any of
its agents or employees, oral or written, including, but not limited to,
any specifications, descriptions or statements provided or made to
Customer by GTE shall be binding upon GTE as a warranty or otherwise.
16. EQUIPMENT: Subscriber shall be responsible to provide for the proper
installation, operation, and maintenance of Subscriber's equipment used in
connection with the Service, and Subscriber shall ensure that such
equipment is technically and operationally compatible with the Service and
in compliance with applicable Federal Communications Commission rules and
regulations.
17. RESOLUTION OF DISPUTES:
(a) The parties desire to resolve disputes arising out of this Agreement
without litigation. Accordingly, except for action seeking a
temporary restraining order or injunction related to the purposes of
this Agreement, or suit to compel compliance with this dispute
resolution process, the parties agree to use the following
alternative dispute resolution procedure as their sole remedy with
respect to any controversy or claim arising out of or relating to
this Agreement or its breach.
(b) At the written request of a party, each party will appoint a
knowledgeable, responsible representative to meet and negotiate in
good faith to resolve any dispute arising under this Agreement. The
parties intend that these negotiations be conducted by non-lawyer,
business representatives. The location, format, frequency, duration,
and conclusion of these discussions shall be left to the discretion
of the representatives. Upon agreement, the representatives may
utilize other alternative dispute resolution procedures such as
mediation to assist in the negotiations. Discussions and
correspondence among the representatives for purposes of these
negotiations shall be treated as confidential information developed
for purposes of settlement, exempt from discovery and production
which shall not be admissible in the arbitration described below or
in any lawsuit without the concurrence of all parties. Documents
identified in or provided with such communications that are not
prepared for purposes of the negotiations are not so exempted and
may, if otherwise admissible, be admitted in evidence in the
arbitration or lawsuit.
-3-
<PAGE> 22
(c) If the negotiations do not resolve the dispute within 60 days of the
initial written request, the dispute shall be submitted to binding
arbitration by a single arbitrator pursuant to the Commercial
Arbitration Rules of the American Arbitration Association. A party
may demand such arbitration in accordance with the procedures set
out in those rules. Discovery shall be controlled by the arbitrator
and shall be permitted to the extent set out in this section. Each
party may submit in writing to a party, and that party shall so
respond, to a maximum of any combination of 35 (none of which may
have subparts) of the following: interrogatories, demands to produce
documents and requests for admission. Each party is also entitled to
take the oral deposition of one individual of another party.
Additional discovery may be permitted upon mutual agreement of the
parties. The arbitration hearing shall be commenced within 60 days
of the demand for arbitration. The arbitration shall be held in
Irving, Texas. The arbitrator shall control the scheduling so as to
process the matter expeditiously. The parties may submit written
briefs. The arbitrator shall rule on the dispute by issuing a
written opinion within 30 days after the close of hearings. The
times specified in this section may be extended upon mutual
agreement of the parties or by the arbitrator upon a showing of good
cause. Judgment upon the award rendered by the arbitrator may be
entered in any court having jurisdiction.
(d) Each party shall bear its own costs of these procedures. A party
seeking discovery shall reimburse the responding party the costs of
production of documents (to include search time and reproduction
costs). The parties shall equally split the fees of the arbitration
and the arbitrator.
18. MISCELLANEOUS: This Agreement shall be governed by, construed under, and
enforced in accordance with, the laws of the state of Texas. In the event
of a conflict between this Agreement and any applicable tariff, the tariff
shall prevail. If any provision of this Agreement shall be held to be
invalid or unenforceable, the validity and enforceability of the remaining
provisions of this Agreement shall not be affected thereby. This Agreement
embodies the entire agreement between the parties with respect to the
subject matter hereof and supersedes all prior agreements and
understandings, whether written or oral, and all contemporaneous oral
agreements and understandings relating to the subject matter hereof. GTE
may amend the terms and conditions of this Agreement by giving Subscriber
30 days' prior on-line notice. This Agreement is subject to modification
by any authorized regulatory agency. GTE may assign this Agreement without
limitation, but Subscriber may not assign this Agreement without GTE's
prior written consent. This Agreement shall be binding on the parties
hereto and their respective personal and legal representatives,
successors. and permitted assigns.
-4-
<PAGE> 1
EXHIBIT 10.5
REVOLVING NOTE
--------------
Dated as of
Up to $800,000.00 January 1, 1998
Affiliated Networks, Inc., a Florida corporation (the "BORROWER"), for
value received, unconditionally promises to pay on demand to the order of DAS
Consulting, Inc., a Florida corporation (the "LENDER"), the principal sum of
Eight Hundred Thousand Dollars ($800,000.00) (the "MAXIMUM LOAN AMOUNT") or, if
less, the aggregate unpaid principal amount of all revolving loans made from
time to time under this Revolving Note to the Borrower, in each case, together
with the then outstanding interest on the principal amount, which interest shall
accrue at the rate of two and one-half percent (2.5%) over the prime rate per
annum on the borrowed amount. Interest shall be computed for the actual number
of days elapsed on the basis of a year consisting of 360 days and twelve - 30
day months. Payment of both principal and interest are to be made in lawful
currency of the United States of America in immediately available funds. Subject
to the Maximum Loan Amount, to the extent that the Borrower has repaid any
principal amount at any time, such amount shall again be available for borrowing
hereunder.
In the event that: (i) the Borrower files a petition in bankruptcy or a
petition seeking reorganization in a case or proceeding under any applicable
bankruptcy, insolvency or similar law providing for the liquidation,
reorganization or winding-up of corporations, or (ii) David Schwedel ceases to
be employed by the Borrower, then all amounts of principal and interest shall be
immediately due and payable in the manner specified herein and this Revolving
Note shall automatically terminate.
The Borrower agrees to pay (i) all expenses, including reasonable
attorneys' fees and expenses, incurred by the holder of this Revolving Note in
endeavoring to collect any amounts payable hereunder which are not paid when
due, whether by acceleration or otherwise, and (ii) to reimburse the Lender for
any and all Florida state taxes, recurring or otherwise, incurred in connection
with this Revolving Note and the obligations set forth herein.
This Revolving Note is governed by the laws of the State of Florida.
IN WITNESS WHEREOF, the Borrower has caused this Revolving Note to be
executed and delivered in the county of Fulton, in the State of Georgia as of
the date hereof.
AFFILIATED NETWORKS, INC.
By: /s/ David Schwedel
------------------------------
Name: David Schwedel
----------------------------
Title: President
---------------------------
<PAGE> 2
STATE OF Georgia )
------------------
) SS:
COUNTY OF Fulton )
------------------
The foregoing instrument was acknowledged before me this 15th
day of March, 1999, by David Schwedel, who is personally known to me
or has produced a driver's license as identification.
/s/ William E. Cass
-----------------------------------
Printed Name: William E. Cass
----------------------
Notary Public
My Commission Expires:
[NOTARY STAMP]
Notary Public, Fulton County, Georgia
My Commission Expires Jan. 4, 20__ (illegible date)
-2-
<PAGE> 1
EXHIBIT 10.6
Affiliated Networks
Incorporated
March 16, 1998
Mr. Jack Judge
Coconut Grove Bank
2701 S. Bayshore Drive
Coconut Grove, FL 33133
HAND DELIVERED
- --------------
Re: - Affiliated Networks, Inc. Suites 403 & 310
Dear Jack:
This letter is to advise you that as of September 30, 1998 our lease will be
expiring with you. It is our intention to stay in the building as long as you
will have us as tenants. Therefore, we respectfully request that you extend our
lease for an additional two years under the existing terms and conditions as
found in our existing lease.
Thank you for your immediate attention to this matter.
Sincerely,
/s/ David A. Schwedel
David A. Schwedel
President
3/17/98
Approved
/s/ J. W. Judge
<PAGE> 2
Coconut Grove Bank
2701 South Bayshore Drive
Miami, Florida 33131
Telephone 858-6666
Fax 305 856-7052
Telex # 518939 COGROBANK
================================================================================
J.W. Judge
Building Manager
26 November 1996
Affiliated Networks, Inc.
Suite #403
Coconut Grove Bank Building
2701 So. Bayshore Drive
Miami, Fl. 33133
Dear David:
Pursuant to your letter of November 22, 1996 concerning the rental of Suite
#310, Coconut Grove Bank is in agreement with the exception of Item #2 relative
to the removal of the wall separating the reception area.
If you are in agreement with the amended proposal, please indicate so by signing
in the space provided below.
Your present lease dated August 31, 1993 will be amended to include an
additional 648 square feet located in Suite #310 effective January 1, 1997. All
other terms and conditions of the Lease will remain unchanged.
Sincerely,
/s/ J.W. Judge
J.W. JUDGE
/s/ David A. Schwedel
- -------------------------
AFFILIATED NETWORKS, INC.
<PAGE> 3
COCONUT GROVE BANK
BUILDING LEASE AGREEMENT
THIS AGREEMENT, entered into this 31st day of
LANDLORD August, 1993, A.D., between COCONUT GROVE BANK, a Florida
Banking Corporation, hereinafter referred to as "Landlord,"
and FLORIDA MARINE MANAGEMENT, INC. hereinafter referred
TENANT to as "Tenant."
W I T N E S S E T H:
THAT THE Landlord does this day lease unto
Tenant that certain space (approximately 2281
square feet), as shown outlined on the plan attached
PREMISES hereto as Schedule "A" on the Fourth (4th) floor of the
building, hereinafter referred to as "Building," known
as COCONUT GROVE BANK BUILDING located at 2701 South
Bayshore Drive, Miami, Dade County, Florida, to be used
and occupied by tenant as administrative offices and for
no other purposes or uses whatsoever.
TERM TO HAVE AND TO HOLD said premises for the term of three
(3) years, beginning October 1, 1993 and ending
September 30, 1993 at and for the agreed total base
rental of SEE ATTACHED RENTAL SCHEDULE "B" Dollars
BASE RENTAL ($____________), payable as follows: Equal monthly payments
of _______________________________ Dollars ($__________),
plus applicable sales taxes and additional rent as
$___________ as provided herein, if any. All payments are to
be made in legal tender of the United States of America to
COCONUT GROVE BANK on the first day of each and every month
in advance without demand
SEE ATTACHED SCHEDULE "A" - FLOOR PLAN
SCHEDULE "B" - RENTAL RATE
-1-
<PAGE> 4
at "Building" Manager's office, 2701 South Bayshore
Drive, Miami Dade County, Florida, or such other place
as Landlord may designate in writing, the first such
monthly rental payment to be made simultaneously with
the execution of this lease. IT IS FURTHER STIPULATED
AND COVENANTED BY AND BETWEEN THE PARTIES HERETO AS
FOLLOWS:
COMMENCEMENT The lease period shall begin when improvements for
Tenant, in accordance with specifications agreed upon in
writing by Landlord and Tenant, which are the
responsibilities of the Landlord, are complete and the
offices ready for occupancy. Rent payments shall not be
delayed due to the fault of the Tenant or failure to
complete improvements ordered by the Tenant for its own
use. If the term of this lease shall begin during a
calendar month, then the rent for such portion of the
particular calendar month at the beginning of the term
shall be apportioned and paid on the basis of a month of
thirty (30) days. Any credit due Tenant as a result of
such apportionment and its payment of the first monthly
payment shall be credited against the second monthly
payment.
SECURITY Tenant, concurrently with the execution of this lease,
has deposited with the Landlord, unless otherwise
expressly stated herein, a sum equal to one monthly
rental payment exclusive of sales tax, the receipt of
which is hereby acknowledged by Landlord, which sum
shall be retained by Landlord as security for the
payment by Tenant of the rents herein agreed to be paid
by Tenant and for the faithful performance by Tenant of
the terms and covenants of this lease. It is agreed that
Landlord, at Landlord's option, may at any time apply
said sum or any part thereof toward the payment of the
rents and all other sums payable by Tenant under this
lease, and towards the performance of each and every
Tenant's covenants under this lease, but shall thereby
be discharged only pro tanto: That Tenant shall remain
liable for any amounts that such sum shall be
insufficient to pay; that Landlord may exhaust any or
all rights and remedies against Tenant before resorting
to said sum, but nothing herein contained shall require
to be deemed to require Landlord, so to do; that, should
this lease be faithfully performed by Tenant, this
deposit shall be returned by Landlord to Tenant within
ten (10) days after the expiration of the term of this
lease. Landlord shall not be required to pay Tenant any
interest on said security deposit. Landlord shall not be
required to hold said security funds in a segregated
account.
BUILDING ACCESS Building will be open to the public Monday through
Friday of each week from 7:00 A.M. until 10:30 P.M.
Entrance is available at both the first and second floor
levels with the following exceptions. The second floor
entrance will be open and under the control of a
uniformed security guard from 5:30 P.M. until midnight,
Monday through Friday; and on Saturdays and Sundays from
9:00 A.M. until 5:00 P.M. The entrance on the first
floor will be closed from 6:00 P.M. until 6:30 A.M. and
all day on Saturday and Sunday. All persons entering the
building during the time that the building is under
security guard will have to show identification and sign
the Visitor's Log under the supervision of the security
guard. All persons leaving the building while the
building is under the control of the security guard will
have to sign out. Tenant may arrange to open building
-2-
<PAGE> 5
beyond the above hours by giving twenty-four (24) hours
advance written notice to the Building Manager and
payment to Landlord of the cost of additional security
guard service. At all times other than stated above,
including Sundays and holidays and the Monday following
Christmas and New Years, when Christmas and New Years
fall on Sunday, the Building will be under ADT
electronic surveillance and closed to all persons. The
above-referenced holidays are: Christmas Day, New Year's
Day, Memorial Day, Fourth of July, Labor Day and
Thanksgiving Day. When Christmas Eve and New Year's Eve
fall on a week day the building will close at 5:00 P.M.
When Christmas Eve and New Year's Eve fall on Saturday
or Sunday the building will be closed to all persons on
those days.
It shall be the responsibility of the Tenant to arrange
for all of its employees and/or invitees to be out of
the building prior to the building being placed under
ADT electronic surveillance. Landlord shall have no
responsibility to any Tenant, Tenant's employees or
invitees in the event said party or persons should fail
to leave the building prior to the time the ADT
electronic surveillance is placed in effect and Tenant
agrees to indemnify and save harmless Landlord from any
claim or suit against Landlord in such event.
Landlord reserves the right to issue identification
passes and require the same for admission to the
building while under security guard. It is expressly
understood by Tenant that guard and/or ADT service is
provided for the protection of the banking facilities
located in the Building. Landlord shall have no
responsibility to Tenant to provide such service and may
discontinue same at any time. Landlord shall have no
responsibility to Tenant, its employees and/or invitees
for loss or damage to person or property caused by
theft, vandalism, or other cause or causes.
SERVICES FURNISHED Landlord will furnish Tenant, while occupying the
BY LANDLORD premises, water - cold and refrigerated - at those
points of supply provided for general use of its
Tenants, electricity for lighting and office use,
lavatory and toilet facilities, automatic self-operated
elevators, reasonable cleaning services once each day,
Monday through Friday (except Holidays as above defined)
(Provided that the premises are kept in order by Tenant
and that same are available for cleaning after 5:30 P.M.
of each day) and air conditioning (cooling) from 7:00
A.M. to 8:00 P.M. on weekdays and from 9:00 A.M. to 5:00
P.M. on Saturdays and Sundays. If Tenant requires air
conditioning at other hours, written notice twenty-four
(24) hours in advance shall be given by Tenant to
Landlord and Tenant will be billed for such use at the
rate of Twenty Five Dollars ($25.00) per hour. The
Tenant will not install or maintain electrically
operated equipment or other machinery except light
office machines normally used without first obtaining
the written consent of the Landlord and such consent of
Landlord may be conditioned upon payment by Tenant of
additional rent. Any electrical or computer equipment
which, together with Tenant's other electrically
operated equipment, requires in excess of 20 ampere -
220 volt service shall not be installed without the
prior written approval of the Landlord (this also
includes photo processing and printing equipment).
Likewise, if any Tenant requires excess use of water,
such use shall be conditioned upon written consent of
the Landlord and additional rent as compensation for
such excess use. Failure by Landlord to any extent to
furnish, or any stoppage of, these defined services
resulting from causes beyond the control of Landlord
shall not render Landlord liable in any respect for
damages to either person or property, nor be construed
as an eviction of Tenant, nor work any abatement of rent
nor relieve Tenant from fulfillment of any covenant or
agreement hereof.
-3-
<PAGE> 6
Should any equipment or machinery break down or for any
cause cease to function properly, Landlord shall use
reasonable diligence to repair the same promptly but
Tenant shall have no claim for rebate of rent or damages
on account of any interruptions in service occasioned
thereby or resulting therefrom.
Any charges against Tenant by Landlord for additional
services or work done by order of the Tenant, or
otherwise accruing under this lease, shall be considered
as rent due and shall be included in any lien for rent.
PARKING In addition to the premises described herein, the Tenant
shall be entitled to the use of seven (7) parking spaces
on the premises (which includes parking area on 27th
Avenue), the location of which shall be assigned by the
Landlord. If there are unassigned spaces in the
designated employee parking areas, the same may be used
by the Tenant until assigned specifically by the
Landlord to another Tenant. Tenant acknowledges that
there will be designated an area of visitor parking and
agrees not to park in said area so designated or permit
any of its employees to park in said area or areas.
Parking in front of the building on the East side and on
the North side of the second level parking area will be
limited to fifteen (15) minutes and/or thirty (30)
minutes, as marked. These areas will be patrolled and
cars subject to violation will be towed away at car
owner's or operator's expense. The aforesaid parking is
provided for the convenience of Tenants and guests or
customers of Tenants and shall be used at the risk of
Tenants, its guests or customers. The Landlord accepts
no responsibility for injury, damage or loss of any
automobiles, while in the parking facility provided for
the Tenant in connection with the premises. Persons
using the parking facility and adjacent area thereto use
same at their own risk, and the Landlord accepts no
responsibility whatsoever for any injury to any person
in the parking facility or any other part or portion of
the premises, office building, or any adjacent area
thereto, whether under the control of the Landlord or
some third party. The Landlord accepts no responsibility
for the regulation of the parking area nor for persons
who improperly park automobiles in spaces assigned to
another Tenant or operate automobiles in an improper
manner. Landlord is under no obligation to provide a
parking attendant or doorman, and is under no obligation
to provide security for automobiles parked in the
parking facility.
ASSIGNMENT OR Tenant will not assign this lease or allow the same to
SUBLETTING be assigned by operation of law or otherwise, or sublet
the demised premises, or any part thereof, or use or
permit the same to be used for any other purpose than as
above stipulated unless authorized by Landlord.
REPAIRS AND Tenant will, at Tenant's own cost and expense, repair or
RE-ENTRY replace any damage or injury done to the building, or
any part thereof, caused by Tenant or Tenant's agents,
employees, invitees, or visitors. If Tenant fails to
make such repairs or replacements promptly, or within
fifteen (15) days of occurrence, Landlord may, at its
option., make such repairs or replacements and Tenant
shall repay the cost thereof to Landlord on demand.
Tenant will not commit or allow any waste or damage to
be committed on any portion of the demised premises, and
shall, at the termination of
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<PAGE> 7
this lease, by lapse of time or otherwise, deliver up
said premises to Landlord in as good condition as at
date of possession of Tenant, ordinary wear and tear and
damage by fire or windstorm alone excepted, and, upon
such termination of lease, Landlord shall have the right
to re-enter and resume possession of the demised
premises.
ALTERATIONS Tenant will not make or allow to be made any alterations
ADDITIONS or physical additions in or to the demised premises
OR IMPROVEMENTS without written consent of Landlord first had and
obtained. Any and all such alterations, physical
additions or improvements when made to the demised
premises by Tenant shall be at the Tenant's cost and
expense. Any and all such alterations, physical
additions or improvements except removable fixtures or
furniture of the Tenant shall at once become the
property of the Landlord and shall be surrendered to the
Landlord upon the termination in any manner, of this
lease.
LAWFUL USE Tenant will not occupy or use, or permit any portion of
AND the demised premises to be occupied or used for any
VIOLATIONS OF business or purpose which is unlawful in part or in
INSURANCE COVERAGE whole or deemed to be disreputable in any manner, or
extra hazardous, or permit anything to be done which
will in any way increase the rate of insurance on said
building and/or its contents.
LAWS AND Tenant will keep and maintain the demised premises in a
REGULATIONS clean and healthful condition and comply with all laws,
ordinances, orders, rules and regulations (State,
Federal, Municipal and other agencies or bodies having
any jurisdiction thereof, including rules, orders and
regulations of the Southeastern Underwriters Association
for the prevention of fires), with reference to use,
conditions or occupancy of the demised premises.
RULES Tenant and Tenant's agents, employees, invitees and
OF BUILDING visitors will comply fully with all requirements of
rules of the building which are attached hereto and made
a part hereof as though fully set out herein. Landlord
shall at all times have the right to change such rules
and regulations or to amend them in any reasonable
manner as may be deemed advisable by Landlord for the
safety, care and cleanliness of the demised premises and
for preservation of good order therein, all of which
changes and amendments will be sent by Landlord to
Tenant in writing and shall be thereafter carried out
and observed by Tenant.
ENTRY FOR REPAIRS Tenant will permit Landlord or its officers, agents or
AND representatives the right to enter into and upon any and
INSPECTION all parts of the demised premises, at all reasonable
hours to inspect same or clean or make repairs or
alterations or additions as Landlord may deem necessary
or desirable and Tenant shall not be entitled to any
abatement or reduction of rent by reason thereof.
NUISANCE Tenant will conduct his business, and control his
agents, employees, invitees and visitors in such a
manner as not to create any nuisance, or interfere with,
annoy, or disturb any other Tenant or Landlord in its
management of the building.
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<PAGE> 8
CONDEMNATION In the event the whole or any part of the building
other than a part not interfering with the maintenance
or operation thereof shall be taken or condemned for any
public or quasi-public use or purpose, the Landlord may
at its option terminate this lease from the time title
to or right to possession shall vest in or be taken for
such public or quasi-public use or purpose, and the
Landlord shall be entitled to any and all income, rent,
awards or any interest therein whatsoever which may be
paid or made in connection therewith.
LOSS OR Landlord shall not be liable or responsible for any
DAMAGE loss or damage to any property or person occasioned by
theft, fire, act of God, public enemy, injunction, riot,
strike, insurrection, war, Court order, requisition or
order of governmental body or authority, or other matter
beyond the control of Landlord, or for any damage or
inconvenience which may arise through repair or
alteration of any part of the building or failure to
make any such repairs or from any cause whatever unless
caused solely by Landlord's negligence.
LIEN FOR RENT In consideration of the mutual benefits arising under
this contract, Tenant does hereby pledge and assign unto
Landlord all property of Tenant now or hereafter placed
in or upon the demised premises (except such part of any
property as may be exchanged or replaced from time to
time in its ordinary course of operations), and such
property is hereby subjected to a lien in favor of
Landlord and shall be and remain subject to such lien of
Landlord for payment of all rents and other sums agreed
to be paid by Tenant herein. Said liens shall be in
addition to and cumulative of the Landlord's liens
provided by law.
ABANDONMENT If the Tenant shall abandon or vacate said premises
before the end of the term of this lease, or shall
suffer the rent to be in arrears, the Landlord may, at
its option, forthwith cancel this lease or it may enter
said premises as the agent of the Tenant, by force or
otherwise, without being liable in any way therefor, and
relet the premises with or without any furniture that
may be therein, as the agent of the Tenant, at such
price and upon such terms and for such duration of time
as the Landlord may determine, and receive the rent
therefor, applying the same to the payment of the rent
due by these presents, and if the full rental herein
provided shall not be realized by Landlord over and
above the expenses to Landlord in such reletting,
including but not limited to the cost of renovating,
altering and decorating for a new occupant, the said
Tenant shall pay any deficiency, and if more than the
full rental is realized, Landlord will pay over to said
Tenant the excess on demand; or Landlord may sue the
Tenant as each installment of rent matures or for the
whole rent when it becomes due.
HOLDING OVER In the case of holding over by Tenant after expiration
or termination of this lease, Tenant will pay as
liquidated damages, double rent for the entire holdover
period. No holding over by Tenant after the term of this
lease, either with or without consent and acquiescence
of Landlord, shall operate to extend the lease for a
longer period than one month; and any holding over with
the consent of Landlord in writing shall thereafter
constitute this lease a lease from month to month.
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<PAGE> 9
FIRE CLAUSE In the event of damage by fire or other causes resulting
from fault or negligence of Tenant or Tenant's agents,
employees, invitees or visitors, the same shall be
repaired by and at the expense of Tenant under the
direction and supervision of Landlord. If the demised
premises, without fault or neglect of the Tenants his
agents, employees, invitees, or visitors, shall be
partially destroyed by fire or other casualty so as to
render the premises untenantable, the rental herein
recited shall cease hereafter until such time as the
demised premises are made tenantable by Landlord. In
case of the total destruction of the demised premises
without fault or neglect of the Tenant, his agents,
employees, invitees or visitors, or if from such cause
the same shall be so damaged that Landlord shall decide
not to rebuild, then all rental due up to the time of
such destruction or termination shall be paid by Tenant,
and thenceforth this lease shall cease and come to an
end. In the event of damage to the Demised Premises by
fire or other causes if the Demised Premises cannot be
restored within 120 days from the date of such damage,
Tenant, at Tenant's election, may terminate this Lease
and the rent shall be paid only to the date when such
damage occurred.
ATTORNEY'S FEES In case Tenant makes default in the performance of any
of the terms, covenants, agreements or conditions
contained in this lease, the Landlord places the
enforcement of this lease, or any part thereof, or the
collection of any rent due, or to become due hereunder,
or recovery of the possession of the demised premises in
the hands of an attorney, or files suit upon the same,
Tenant agrees to pay Landlord reasonable attorney's fees
and Court costs, provided Landlord prevails; however, if
Tenant prevails, Landlord shall pay Tenant's reasonable
attorney's fees and Court costs.
INDEMNITY LIABILITY The Tenant will indemnify and hold harmless the Landlord
against all liabilities, damages, and other expenses,
including reasonable attorney's fees, which may be
imposed upon, incurred by, or asserted against the
Landlord by reason of any of the following occurring
during the term of this lease: (a) Any use or occupancy
of the leased property by Tenant, (b) Any negligence on
the part of the Tenant or its agents, contractors,
licensees, (c) Any personal injury or property damage
occurring on or about the leased property. Landlord
shall not be liable to Tenant for any damage, loss or
injuries to persons or property of the Tenant which may
be caused by the acts or negligence of any person or
corporation, except such injury or loss resulting from
negligence of the Landlord, its agents or employees.
LIENS Tenant shall have no authority to create any liens
for labor or materials on landlord's interest in
building owned by Landlord and all persons contracting
with Tenant for labor, materials and/or supplies or the
doing of work shall look solely to Tenant and Tenant's
interest under this lease and said persons are hereby
charged with notice that they must look solely to
Tenant's interest in the demised premises. In the event
any such lien is filed against the property of the
Landlord, Tenant shall forthwith discharge the same; if
not discharged by Tenant within thirty (30) days after
the filing of said lien, either by a satisfaction
thereof or by the posting of a bond, Tenant's failure so
to do shall constitute a default under the terms of this
lease. Tenant further agrees and will hold harmless
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<PAGE> 10
Landlord from all costs, including bond premiums and
attorney's fees and/or other charges and expenses
reasonably incurred by Landlord in connection with the
discharge of any such lien or any judgment obtained
thereon. Any such expenses incurred by Landlord shall be
considered as rent due and payable on demand of
Landlord.
CERTIFICATE Upon the request of Landlord, its mortgagee,
prospective purchaser or any Federal or State Bank
Examiner, Tenant shall furnish a Certificate in writing
to the effect that its lease is in full force and effect
and that Landlord is not in default, or specifically
state any exceptions thereto. Failure to give such
Certificate within two weeks after written request shall
be conclusive evidence that the lease is full force and
effect and Landlord is not in default. Tenant shall
thereafter be estopped from asserting any such defaults
as of the date of said request.
DEFAULT BY TENANT Tenant agrees to pay promptly said rent and all other
charges that accrue under this lease. In the event that
Tenant should be in default thereof for a period of
seven (7) days after the same shall become due and
payable, Landlord shall have the option of: (1)
Terminating this lease and resuming possession of the
premises for its own account and recovering from Tenant
the damage between the rent specified in this lease and
the rental value thereof for the balance of the term,
reduced to its present worth; (2) Or, enter the premises
as agent of Tenant and rent the same for the remainder
of the term for the account of Tenant and recovery from
Tenant either at the end of the term or as each payment
becomes due, as Landlord may choose, the difference
between the rent called for in this lease and the rent
received on re-renting.
Default on Tenant's part in keeping or performing any
other term, covenant, or condition of this lease, shall
authorize Landlord, at its option at any time after such
default, and after ten (10) days' written notice thereof
to Tenant, immediately, or at any time thereafter, to
re-enter said premises and remove all persons therefrom
with or without legal process, and without prejudice to
any of its other legal rights, and all claims for
damages by reason of such re-entry are expressly waived,
as also are all claims for damages by reason of any
distress warrants or proceedings by way of sequestration
which Landlord may employ to recover said rents, or
possession of said premises, and Landlord shall have the
options set forth in the preceding paragraph pertaining
to a default in payment of rents, provided that Landlord
shall not have the right to re-enter if, within ten (10)
days after written notice of any default, Tenant fully
cures all defaults.
WAIVER Failure of Landlord to declare any default immediately
upon occurrence thereof or delay in taking action in
correction therewith shall not waive such default, but
Landlord shall have the right to declare any such
default at any time and take such action as might be
lawful or authorized hereunder, either in law or in
equity.
POSSESSION If, for any reason, the demised premises shall not be
ready for occupancy by Tenant at the time of
commencement of this lease,
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<PAGE> 11
this lease shall not be affected thereby, nor shall
Tenant have any claim against Landlord by reason
thereof, but no rent shall be payable for the period
during which the premises shall not be ready for
occupancy; and all claims for damages arising out of
such delay are hereby waived and released by Tenant.
BANKRUPTCY If, voluntary bankruptcy proceedings be instituted by
Tenant, or if proceedings be instituted by any one else
to adjudge Tenant a bankrupt, or if Tenant makes an
assignment for the benefit of his creditors or if
execution be issued against him, or if the interest of
Tenant in this contract passes by operation of law to
any person other than Tenant, this lease may, at the
option of Landlord, be terminated by written notice
addressed to Tenant and mailed in the post office at
Miami, Florida.
TRANSFER OF Landlord shall have the right to transfer and assign, in
LANDLORD'S whole or in part, all and every feature of its rights
RIGHTS and obligations hereunder and in building and property
referred to herein. Such transfers or assignments may be
made either to a corporation, trust company, individual
or group of individuals, and, howsoever made, are to be
in all things respected and recognized by Tenant.
AMENDMENT OF This agreement may not be altered, changed, or amended,
LEASE except by an instrument in writing, signed by both
parties hereto.
SUBORDINATION This lease is hereby made expressly subject and
subordinate at all times to any and all mortgages, deeds
of trust, ground or underlying leases affecting the
demised premises which have been executed and delivered,
or which may at any time hereafter be executed and
delivered, and any and all extensions and renewals
thereof and substitutions therefor, and to any and all
advances made or to be made under or upon said
mortgages, deeds of trust, ground or underlying leases.
Tenant agrees to execute any instrument or instruments
which the Landlord may deem necessary or desirable to
effect the subordination of this lease to any or all
such mortgages, deeds of trust, ground or underlying
leases and, in the event the Tenant shall refuse after
reasonable notice to execute such instrument or
instruments, the Landlord may, in addition to any right
or remedy accruing hereunder, terminate this lease
without incurring any liability whatever, and the estate
hereby granted is expressly limited accordingly. TIME OF
THE ESSENCE It is understood and agreed between the
parties hereto that time is of the essence of this
contract, and this applies to all terms and conditions
contained herein.
PEACEFUL Tenant shall and may peaceably have, hold and enjoy the
ENJOYMENT demised premises subject to the other terms hereof and
provided Tenant pays the rentals herein recited and
performs all of its covenants and agreements herein
contained.
NO REPRESENTATIONS Landlord or its agents have made no representations or
BY LANDLORD promises with respect to the said building, the land
upon which it is erected or demised premises except as
herein expressly set forth and no rights, easements or
licenses are acquired by Tenant by
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<PAGE> 12
implication or otherwise except as expressly set forth
in the provisions of this lease. The taking possession
of the demised premises by Tenant shall be conclusive
evidence, as against Tenant, that Tenant accepts same
"as is" and that said premises and the building of which
the same form a part were in good and satisfactory
condition at the time such possession was so taken.
SURRENDER OF PREMISES Tenant shall surrender to Landlord, at termination of
this lease and/or upon any cancellation of this lease,
said demised premises. In the event the Tenant should
fail to surrender said premises upon termination of this
lease, Tenant will pay to Landlord any damages that
Landlord might incur on account of Tenant's failure to
deliver possession of the demised premises to Landlord
and will indemnify and hold harmless Landlord from any
and all claims made by any succeeding Tenant of said
premises on account of delay of Landlord in delivering
premises to said succeeding Tenant, to the extent such
delay is occasioned by Tenant's failure to surrender
said premises. This right of Landlord against Tenant is
in addition to the holdover provisions hereinbefore set
forth in this lease.
If Tenant should fail to remove all of its personal
property upon termination of lease, Landlord may, at its
option, remove same in any manner the Landlord shall
choose and store such effects without liability to the
Tenant for loss, and the Tenant agrees to pay to the
Landlord on demand, all expenses incurred in such
removal, including Court costs and attorney's fees, or
the Landlord may, at its option, without notice, sell
such effects or any part, at private sale without legal
process for such price as the Landlord may obtain and
apply the proceeds of such sale or any amounts due under
this lease from the Tenant to the Landlord and on the
expense incident to the removal and sale of said
effects.
CAPTIONS The Captions are inserted only as a matter of
convenience and for reference and in no way define,
limit or describe the scope of this lease nor the intent
of any provision thereof.
HEIRS The covenants, conditions and agreements contained in
AND ASSIGNS this lease shall bind and inure to the benefit of
Landlord and Tenant and their respective heirs,
distributees, executors, administrators, successors,
and, except as otherwise provided in this lease, their
assigns.
NO BROKER Tenant warrants and represents that it dealt with no
Real Estate Broker in the negotiation of this lease and
Landlord, in executing this lease, is relying upon such
representation.
NOTICES It is understood and agreed between the parties hereto
that written notice addressed to Tenant and mailed or
delivered to the premises leased hereunder shall
constitute sufficient notice to the Tenant, and written
notice addressed to Landlord and mailed or delivered to
the office of Landlord shall constitute sufficient
notice to the Landlord, to comply with the terms of this
lease.
CUMULATIVE The various rights, remedies, powers and elections of
REMEDIES Landlords reserved, expressed or contained in this
lease, are cumulative
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<PAGE> 13
and no one of them shall be deemed to be exclusive of
the others or of such other rights, remedies, powers,
options or elections as are now, or may hereafter be,
conferred upon Landlord by law.
PRONOUNS AND GENDER The terms Landlord and Tenant, as herein contained,
shall include singular and/or plural, masculine,
feminine, and/or neuter, theirs, successors, executors,
administrators, personal representatives and/or assigns
wherever the context so requires or admits and use of
and neuter gender includes all genders, wherever the
context so requires.
RELOCATION Landlord shall have the sole right to relocate any
OF TENANT Tenant, having one thousand square feet or less, to
comparable space in the building, upon giving the Tenant
ninety days prior written Notice.
-11 & 12-
<PAGE> 14
SHOWING PREMISES At anytime, within thirty days before the expiration of
this lease, Landlord or its agents shall have the right
to enter the premises during reasonable hours to exhibit
said premises to prospective tenants.
OPTION TO RENEW Landlord grants Tenant the first right of refusal to
renegotiate a new lease, commencing at the expiration of
the original term, provided Tenant shall not be in
default under the terms of this lease, and shall give
written notice of sixty (60) days before the expiration
of this lease.
COCONUT GROVE BANK, Landlord
/s/ J. W. Judge By: /s/ (illegible signature) (Seal)
- ----------------------------------- -----------------------------------
Date: 9/8/93
- ---------------------------------- ---------------------------------
(Witness as to Landlord)
Tenant:
/s/ (illegible signature) By: /s/ David A. Schwedel (Seal)
- ----------------------------------- -----------------------------------
Date: 8/31/93
- ---------------------------------- ---------------------------------
(Witness as to Tenant)
IN WITNESS WHEREOF, Landlord and Tenant have respectively signed and sealed this
lease as of the day and year first above written.
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<PAGE> 15
SCHEDULE "A"
FLOOR PLAN (DIAGRAM)
<PAGE> 16
SCHEDULE "B"
RENTAL RATE
-----------
Suite 403, 1663 Sq. Ft.
FLORIDA MARINE MANAGEMENT, INC.
3 Year Lease with 2 Year Option
FIRST YEAR: October 1, 1993 to September 30, 1994
$15.00 per sq. ft.
$24,945.00 per annum, plus tax.
SECOND YEAR: October 1, 1994 to September 30, 1995
$15.00 per sq. ft.
$24,945.00 per annum, plus tax.
THIRD YEAR: October 1, 1995 to September 30, 1996
$15.00 per sq. ft.
$24,945.00 per annum, plus tax.
OPTION PERIOD
-------------
FOURTH YEAR: October 1, 1996 to September 30, 1997
$16.00 per sq. ft.
$26,608.00 per annum, plus tax.
FIFTH YEAR: October 1, 1996 to September 30, 1997
$16.00 per sq. ft.
$26,608.00 per annum, plus tax.
