<PAGE>
As filed with the Securities and Exchange Commission on May 5, 2000.
Registration No. __________
==============================================================================
U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
CYBERTEL COMMUNICATIONS CORP.
--------------------------
(Name of small business issuer in its charter)
Nevada 513310 86-0862532
------ ------ ----------
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
4320 La Jolla Village Drive, Suite 205
San Diego, California 92122
(858) 646-7410
--------------
(Address and telephone number of principal executive offices)
4320 La Jolla Village Drive, Suite 205
San Diego, California 92122
(858) 646-7410
--------------
(Address of principal place of business
or intended principal place of business)
Richard D. Mangiarelli
4320 La Jolla Village Drive, Suite 205
San Diego, California 92122
(858) 646-7410
--------------
(Name, address and telephone number of agent for service)
Copies to:
Branden T. Burningham, Esq.
455 East 500 South, Suite 500
Salt Lake City, Utah 84111
(801) 363-7411
Approximate date of proposed sale to the public: As soon as practicable after
the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering [_]
If this Form is a post effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering [_]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [_]
==============================================================================
CALCULATION OF REGISTRATION FEE
Title of
Each Proposed Proposed
Class of Maximum Maximum
Securities Amount Offering Aggregate Amount of
to be to be Price per Offering Registration
Registered Registered Share (1) Price (1) Fee
- ---------- ---------- --------- --------- ---
Common Stock, 49,451 $8.75 $ 432,696.25 $ 114.23
$0.001 par value shares
Common Stock 2,250,000 $8.75 $19,687,500.00 $5,197.50
underlying shares (2)
convertible
securities (2)
TOTAL. . . . . . . 2,299,451 $8.75 $20,120,196.25 $5,311.73
shares
==============================================================================
(1) Estimated solely for the purpose of calculating the registration fee
under Rule 457(c) under the Securities Act on the basis of the average of the
bid and asked price of our common stock as quoted on the OTC Electronic
Bulletin Board on May 5, 2000.
(2) Represents shares issuable upon conversion of the Company's 6%
Convertible Series A Preferred Stock and the exercise of warrants to purchase
shares of the Company's 6% Convertible Series A Preferred Stock and shares of
the Company's common stock. The Company has agreed to register 200% of the
estimated initial conversion amount of the shares and exercise amount of the
warrants to provide for the possibility of a reduction in the market price for
the shares prior to the conversion of the 6% Convertible Series A Preferred
Stock and/or the exercise of the Company's warrants. Any shares of common
stock not issued on the conversion or exercise will be removed from
registration by post-effective amendment to this Registration Statement. In
accordance with Rule 416 under the Securities Act of 1933, as amended, also
includes such indeterminate number of additional shares of common stock as may
become issuable upon conversion of such 6% Convertible Series A Preferred
Stock or exercise of such warrants (i) resulting from any adjustment in the
applicable conversion price of such preferred shares or the exercise price of
such warrants or (ii) to prevent dilution resulting from stock splits or stock
dividends.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
<PAGE>
Cybertel Communictions Corp.
2,299,451 Shares of Common Stock
This prospectus covers an aggregate of 2,299,451 shares of our
common stock, which will be sold, from time to time, by some of our
stockholders. Some of these stockholders have previously received the shares
of common stock from us. The number of shares that our selling stockholders
may sell also includes (i) shares of common stock that one of the
stockholders, Adara Investors LLC, will receive if it converts its shares of
our 6% Convertible Series A Preferred Stock; and (ii) shares of common stock
that Adara will receive if it exercises warrants to purchase shares of our
common stock. We are registering the resale of currently outstanding shares
of our common stock and shares of common stock that will be issued upon the
conversion of the 6% Convertible Series A Preferred Stock and upon the
exercise of the warrants.
We will not receive any money from the stockholders when they sell
their shares of common stock. We have agreed to pay all costs and expenses
relating to the registration of our common stock, but any stockholders who
sell their shares shall be responsible for any related commissions, taxes,
attorney's fees and related charges in connection with the offer and sale of
these securities. The stockholders may sell all or a portion of the shares
registered by this registration statement in private transactions or in the
over-the-counter market at prices related to the prevailing prices of our
common stock at the time of negotiation. The stockholders may sell their
common stock through one or more broker-dealers, and such broker-dealers may
receive compensation in the form of underwriting discounts, concessions or
commissions from the stockholders.
Our common stock is quoted on the OTC Bulletin Board of the National
Association of Securities Dealers, Inc. (the "NASD"), under the symbol "CYTP."
On May 5, 2000, the price of our common stock as quoted on the OTC Bulletin
Board was $8.25.
THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK. SEE THE CAPTION
"RISK FACTORS," BEGINNING ON PAGE 4 OF THIS PROSPECTUS.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE
SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR
PASSED UPON THE ADEQUACY OR ACCURACY OF THE PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
You may rely only on the information contained in this prospectus.
We have not authorized anyone to provide information different from that
contained in this prospectus. Neither the delivery of the prospectus nor the
sale of common stock means that information contained in this prospectus is
correct after the date of this prospectus. This prospectus is not an offer to
sell or a solicitation of an offer to buy these shares of common stock in any
circumstances under which the offer or solicitation is unlawful.
The date of this Prospectus is __________, 2000.
1
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TABLE OF CONTENTS
Available Information . . . . . . . . . . . . . . . . . . . . . . . . . 3
Prospectus Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
Determination of Offering Price and Dilution . . . . . . . . . . . . .10
Selling Security Holders . . . . . . . . . . . . . . . . . . . . . . . 11
Plan of Distribution . . . . . . . . . . . . . . . . . . . . . . . . . 12
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . .14
Directors, Executive Officers, Promoters and Control Persons . . . . . 14
Security Ownership of Certain Beneficial Owners and Management . . . . 16
Description of Securities . . . . . . . . . . . . . . . . . . . . . . .18
Interest of Named Experts and Counsel . . . . . . . . . . . . . . . . .19
Disclosure of Commission Position on Indemnification for Securities . .19
Act Liabilities
Description of Business . . . . . . . . . . . . . . . . . . . . . . . .21
Management's Discussion and Analysis or Plan of Operation . . . . . . .39
Description of Property . . . . . . . . . . . . . . . . . . . . . . . .42
Certain Relationships and Related Transactions . . . . . . . . . . . . 42
Market for Common Equity and Related Stockholder Matters . . . . . . . 44
Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . 45
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . 47
Changes in and Disagreements with Accountants on Accounting and . . . .58
Financial Disclosure
2
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AVAILABLE INFORMATION
We file periodic reports with the Securities and Exchange
Commission. These documents may be inspected and copied at the Public
Reference Room of the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549. Please call the Commission at 1-800-
SEC-0330 for additional information. Our Commission filings are also
available from the Commission's web site: http://www.sec.gov.
We have filed a registration statement with the Commission on Form
SB-2, under the Securities Act of 1933, with respect to the securities
described in this prospectus. This prospectus is filed as part of the
registration statement. It does not contain all of the information set forth
in the registrations statement and the exhibits and schedules filed with it.
For further information about us and the common stock described by this
prospectus, reference is made to the registration statement and to the
exhibits and schedules filed with it. Copies of these documents may be
inspected at or obtained from the Public Reference Branch.
PROSPECTUS SUMMARY
CYBERTEL COMMUNICATIONS CORP.
------------------------------
Since this is a summary of the terms of the common stock described
in this prospectus, it does not contain all of the information that may be
important to you. This prospectus contains "forward-looking" information
within the meaning of the Private Securities Litigation Reform Act of 1995.
We believe that the forward-looking statements contained in this prospectus
are within the meaning of the safe harbor provided by Section 27A of the
Securities Act of 1933. Forward-looking statements contained in this
prospectus involve known and unknown risks, uncertainties and other factors
that could cause actual results, financial or operating performance to differ
from the future results, financial or operating performance or achievements
expressed or implied by such forward-looking statements. You should read the
following summary and the "Risk Factors" section along with the more detailed
information , financial statements and the notes to the financial statements
appearing elsewhere in this prospectus before you decide whether to purchase
the common stock described in this prospectus.
The Company
-----------
Cybertel Communications Corp. is a provider of long distance voice
and data telecommunications services. We use the network switching and
transport facilities of Tier I long distance providers such as MCI/WorldCom;
Level 3 Communications; and Bell Atlantic Network Services, Inc., to provide a
broad array of integrated long distance telecommunications services such as
long distance, calling cards, paging and wireless communications on a seamless
and highly reliable basis.
3
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The Offering
------------
Securities offered by us . . . None
Securities that may be sold
by our stockholders . . . . . . 2,299,451 shares of our common stock.
Use of proceeds . . . . . . . . We will not receive any money from any
stockholders when they sell their shares of
common stock.
Offering Price . . . . . . . . .Market prices prevailing at the time of sale,
at prices related to the prevailing market
prices, at negotiated prices or at fixed
prices, all of which may change.
Transfer Agent . . . . . . . . .Pacific Stock Transfer Company, 5844 South
Pecos Road, Suite D, Las Vegas, Nevada 89120,
serves as the transfer agent and registrar for
our outstanding securities.
RISK FACTORS
------------
An investment in shares of our common stock is very speculative and
involves substantial risks. In addition to the general investment risks and
other information in this Prospectus, you should carefully consider the
following factors before making an investment decision.
We Have a Limited Operating History.
------------------------------------
Cybertel was incorporated in June, 1996 for the purpose of engaging
in any lawful activity. Our plan of operations calls for us to create an
international, facilities-based communications network. However, we are still
in a formative stage. Potential investors should be aware of the difficulties
normally encountered by a new enterprise in a highly competitive industry.
There is limited evidence at this time upon which to base an assumption that
we will be successful with our business plans or that we will successfully
market our products and services. As a consequence, we can not assure you
that we will be able to operate profitably in the future.
4
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We Have Had Negative Operating Results.
---------------------------------------
Cybertel is still a development stage company and has not yet earned
an annual profit. Our gross revenues and net losses for the three calendar
years ended December 31, 1999, are shown below:
Year ended Gross Net
December 31, Revenues Loss
------------ -------- ----
1997 $ 25,962 $ 72,405
1998 (Restated) $2,572,731 $1,216,792
1999 $3,105,570 $2,250,265
We can not assure you that we will not continue to report losses on
an annual basis or that our business operations will ultimately prove to be
profitable.
Any substantial downturn in economic conditions or any significant
price decreases related to the telecommunications industry could hurt our
business. Economic conditions such as inflation may also make attractive
financing rates unavailable to us or our customers and may hurt our business.
Deflation may also reduce our income to the extent that our costs of providing
services increase from the time that we sell the services until the time that
we provide them.
We Operate in a Highly Competitive Industry.
--------------------------------------------
We will be operating in a highly competitive industry; most of our
competitors have significantly greater experience in the industry and have
substantially more assets and customers than we have. We can not assure you
that we will be able to compete successfully in the telecommunications
industry. See the caption "Competitive Business Conditions" of this
Prospectus.
We Are Subject to Governmental Regulation.
------------------------------------------
Internet service providers ("ISP" or "ISPs") are generally
considered to be "enhanced service providers" within the United States and are
presently exempt from federal and state regulations governing common carriers;
however, this is an expanding medium which may be the subject of future
regulation by federal and state agencies. In April, 1998, the Federal
Communications Commission (the "FCC") indicated that it will examine whether
certain forms of "phone-to-phone" Internet protocol are information services
or telecommunication services, and in September, 1999, the FCC initiated a
notice of inquiry regarding voice or Internet telephony (both computer-to-
computer and phone-to-phone Internet telephony), seeking comment on the
availability of Internet telephony, the extent it has begun to replace
traditional telecommunications services, the percentage of disabled persons
who utilize Internet telephony and whether it falls under the purview of
Section 255 of the Telecommunications Act of 1996 (the "Telecommunications
Act"). Also, in 1998, two regional bell operating companies advised Internet
5
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telephony providers that these companies would impose access charges on
Internet telephony traffic. Petitions in Nebraska and Colorado regarding
these companies have been dismissed by these states' Public Utilities
Commissions, but Nebraska has indicated that it will hold a public hearing to
consider and seek comment on the following issues: (1) whether its preliminary
finding that traffic to ISPs is "local" in nature is correct; (2) how carriers
should compensate each other for calls placed to ISPs; (3) whether
interexchange carriers providing Internet telephony must pay intrastate access
charges; and (4) whether ISPs and providers of Internet telephony should
contribute to the state's universal service fund. We can not presently assess
the potential adverse effects, including the possibility of charging for the
use of Internet telephone use, that any such regulation may have.
We Rely Heavily on Existing Management.
---------------------------------------
Our operations depend primarily upon the experience and expertise of
Richard Mangiarelli (Chief Executive Officer, President and director) and Paul
Mills (Chairman of the Board and Secretary). The loss of either Mr.
Mangiarelli or Mr. Mills seriously impede our operations.
We also depend on our ability to attract and retain qualified
management, administrative and sales personnel to support our anticipated
growth. We can not assure you that we will be able to attract qualified
personnel. We carry $1,000,000 in key man insurance on the life of Mr.
Mangiarelli. We do not have key man insurance on the lives of our other
officers. We have entered into employment contracts with Mr. Mangiarelli and
with James D. Boring and Richard Schmidt. Each of these employment contracts
contains an Exhibit 1 titled "Employee Non-Disclosure, Non-Competition and
Assignment of Inventions Agreement." Under these agreements, Messrs.
Mangiarelli, Boring and Schmidt agreed not to engage in or have a financial
interest in any activity or business that competes with our business.
Technology in Our Industry Evolves Rapidly.
-------------------------------------------
The telecommunications industry is characterized by rapidly evolving
technology. We believe that our success will depend on our ability to offer,
on a timely basis, new services based on evolving technologies and industry
standards. We intend to develop new services; however, we can not assure you
that we will have the ability or resources to develop these new services, that
we will be able to obtain new technologies on favorable terms or that these
services and technologies will enjoy market acceptance. Our competitors may
develop products or services that are technologically superior to those that
we expect to use or that achieve greater market acceptance. Our competitors'
development of any superior technology, or our inability to successfully
respond to such a development, could make our existing products or services
obsolete and could hurt our business.
We Do Not Expect to Pay Dividends on Our Common Stock.
------------------------------------------------------
We have never paid any cash dividends on our common stock and we do
not expect to pay any dividends in the foreseeable future.
6
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The Holders of our Preferred Shares Have a Dividend Preference.
---------------------------------------------------------------
Even if we decide to pay dividends on our common stock in the
future, we must pay all accrued dividends to the holders of our Series A 6%
Convertible Preferred Stock first. This makes it even less likely that we
will pay dividends to our common stock holders in the foreseeable future. See
the heading "General" under the caption "Description of Business" and the
heading "Dividends" under the caption "Market for Common Equity and Related
Stockholder Matters."
Shares Eligible for Future Sales.
---------------------------------
Of the 4,734,243 currently issued and outstanding shares of our
common stock, approximately 2,597,108 are freely tradeable, and approximately
2,137,135 are unregistered securities. Our restricted securities are
restricted from resale other than through a transaction complying with the
provisions of Rule 144, adopted under the Securities Act of 1933, or some
other exemption from registration. Of our 2,137,135 "unregistered" and
"restricted" securities, approximately 2,000,000 have been held for over one
year and are eligible for resale under Rule 144.
Rule 144 provides, among other things, that if certain information
about the operating and financial affairs of the Company is publicly
available, persons who have held restricted securities for a period of one
year may sell in any three month period up to:
the greater of 1% of our outstanding common stock; or
the average weekly reported volume of common stock trading during
the four calendar weeks preceding the filing of a notice of
proposed sale.
Under Rule 144(k), non-affiliates may make unlimited sales of
restricted stock if they have held their shares for two years, regardless of
the other Rule 144 requirements. Future sales of our shares under Rule 144
could depress the market price of our common stock. For a discussion of the
securities that we have issued without registration, see the caption "Recent
Sales of Unregistered Securities" of this Prospectus.
We Are in Default of a Registration Rights Agreement.
-----------------------------------------------------
We have prepared this Prospectus, and have registered the shares
that the selling stockholders are selling, in accordance with a Registration
Rights Agreement that we have executed with Adara Investors LLC, a Delaware
limited liability company. The Registration Rights Agreement requires us to
pay $60,002 to Adara for every 30 days that we are in default of the
Registration Rights Agreement. We are currently in default, and will be
required to make at least one penalty payment to Adara. See the caption
"Description of Business" for a full discussion of our agreement with Adara.
7
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Our Directors and Officers May Face Conflicts of Interest.
----------------------------------------------------------
Although they have no present plans to do so, our directors and
officers may become officers, directors, controlling shareholders or partners
of other entities engaged in a variety of businesses. Their involvement in
these activities may create conflicts of interest over use of time and
corporate opportunity.
The Market Value of Our Common Stock Has No Relation to Its Book
Value.
- ------
There is no correlation between the market price of our common stock
and its book value. As of December 31, 1999, the net book value of a share of
our common stock was $(0.02). The average closing bid price of a share of our
common stock during the quarterly period ending on that date was $5.3125 per
share. This price does not necessarily bear any relationship to our asset
value, net worth or other established criteria of value and you should not
consider it to be the actual value of Cybertel or our common stock. Based on
this "book value" determination of the value of our common stock, it is highly
overvalued. We can not assure you that present or future stockholders will be
able to resell their shares at a profit.
The Limited Market for Our Shares Will Make Their Price More
Volatile.
- ---------
The market for our common stock is very limited and we can not
assure you that a larger market will ever develop or be maintained. The
market for our common stock is likely to be volatile and many factors may
affect the market. These include, for example:
Our success, or lack of success, in marketing our products and
services;
Competition;
Governmental regulations; and
Fluctuations in operating results.
The stock markets generally have experienced, and will probably
continue to experience, extreme price and volume fluctuations which have
affected the market price of the shares of many small capital companies.
These fluctuations have often been unrelated to the companies' operating
results. These broad market fluctuations, as well as general economic and
political conditions, may decrease the market price of our common stock in any
market that develops.
8
<PAGE>
Our Stock May be Considered "Penny Stock."
------------------------------------------
Our common stock may be deemed to be "penny stock" as that term is
defined in Reg. Section 240.3a51-1 of the Securities and Exchange Commission.
Penny stocks are stocks:
with a price of less than five dollars per share;
that are not traded on a "recognized" national exchange;
whose prices are not quoted on the NASDAQ automated quotation
system (NASDAQ-listed stocks must still have a price of five
dollars or more; or
in issuers with net tangible assets less than $2,000,000 (if the
issuer has been in continuous operation for at least three years)
or $5,000,000 (if in continuous operation for less than three
years), or with average revenues of less than $6,000,000 for the
last three years.
Subject to compliance with applicable listing standards, we plan to
attempt to qualify for listing on NASDAQ. However, our common stock is
currently traded on the OTC Bulletin Board of the NASD.
Section 15(g) of the 1934 Act, and Reg. Section 240.15g-2 of the
Securities and Exchange Commission require broker-dealers dealing in penny
stocks to provide potential investors with a document disclosing the risks of
penny stocks and to obtain a manually signed and dated written receipt of the
document before effecting any transaction in a penny stock for the investor's
account. We urge potential investors in our common stock to obtain and read
this disclosure carefully before purchasing any shares that are deemed to be
"penny stock."
Reg. Section 240.15g-9 of the Securities and Exchange Commission
requires broker-dealers in penny stocks to approve the account of any investor
for transactions in such stocks before selling any penny stock to that
investor. This procedure requires the broker-dealer to:
obtain from the investor information about his or her financial
situation, investment experience and investment objectives;
reasonably determine, based on that information, that transactions
in penny stocks are suitable for the investor and that the
investor has enough knowledge and experience to be able to
evaluate the risks of penny stock transactions;
provide the investor with a written statement setting forth the
basis on which the broker-dealer made his or her determination;
and
receive a signed and dated copy of the statement from the
investor, confirming that it accurately reflects the investor's
financial situation, investment experience and investment
objectives.
9
<PAGE>
Compliance with these requirements may make it harder for investors
in our common stock to resell their shares to third parties.
We Will Face Many Risks in Executing Our Growth Strategy.
---------------------------------------------------------
A principal component of our growth strategy is to build a
telecommunications network in the United States. Our ability to execute our
growth strategy depends on a number of factors, including:
the availability of attractive opportunities;
our ability to acquire these opportunities on economically
feasible terms;
our ability to obtain the money necessary to finance our
acquisition of facilities and to cover any necessary sales,
marketing and operation expenses;
our ability to market and sell services; and
our ability to manage rapidly growing operations effectively and
to our customers' satisfaction.
We can not assure you that we will be successful in any of these
areas.
USE OF PROCEEDS
---------------
We will not receive any part of the proceeds from our stockholders'
sale of our common stock.
DETERMINATION OF OFFERING PRICE AND DILUTION
--------------------------------------------
We will not receive any money from the stockholders when they sell
their shares of common stock. The stockholders may sell all or a portion of
their common stock in private transactions or in the over-the-counter market
at prices related to the prevailing prices of our common stock at the time of
negotiation. Because we can not accurately predict the prices of such sales,
we can not accurately estimate the amount of any dilution that may result from
the purchase of these shares. However, the net tangible book value of our
common stock on December 31, 1999, was $(0.02) per share. Net tangible book
value per share is determined by subtracting our total liabilities from our
total tangible assets and dividing the remainder by the number of shares of
common stock outstanding.
You should not ascribe any value to our common stock in view of the
lack of any established public market for these securities and their negative
tangible book value, as well as our limited operating history and revenues,
lack of profits and dividends, and the other risk factors discussed in this
Prospectus. You are likely to suffer significant dilution relative to any
value you may ascribe to the shares you receive under this Prospectus.
10
<PAGE>
We can not assure you that any public market for our common stock
will equal or exceed the sales price of the shares of common stock sold by our
stockholders. Purchasers of the shares face the risk that their shares will
not be worth what they paid for them.
SELLING SECURITY HOLDERS
------------------------
The following table shows for our stockholders the following
information:
The number of shares of our common stock beneficially owned by them as
of March 28, 2000 and covered by this Prospectus; and
The number of shares to be retained after this offering, if any.
Common Stock (1)
----------------
Number of Shares
Owned Prior to Number of Shares
and Registered Beneficially Owned
Name of Selling Stockholder in the Offering after the Offering(2)
- --------------------------- --------------- ------------------
Adara Investors LLC 2,250,000 (3) -0-
Jerry L. Adams 750 -0-
James A. Boston 1,688 1,520
Loretta I. Cook 2,060 2,000
Ryan D. Cravens 1,031 2,000
Nerese S. Crayton 275 -0-
Frank Grubb 750 -0-
Lois C. Hull 412 -0-
Randy P. Masciarelli 137 -0-
Douglas W. Miller 5,329 2,500
Mark F. Miller 700 -0-
Daniel J. Sevier 3,841 3,500
Richard D. Simpson 549 1,200
11
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David R. Strawn 1,000 -0-
Mark E. Stutzman 1,099 3,074
Symbion, Ltd. 14,707 -0-
Thomas E. Thompson 563 1,000
Eric M. Tice 100 100
Lauren M. Tice 100 50
Thomas M. Tice 1,860 2,000
Jimmy Villalobos 12,500 50,000
(1) We assume no purchase in this offering by any stockholder listed
above of any shares of our common stock.
(2) Assumes the sale of all shares being registered.
(3) Consists of (i) up to 1,500,000 shares issuable upon the
conversion of our 6% Convertible Series A Preferred Stock; and (ii) 750,000
shares issuable upon the exercise of warrants. Adara Investors LLC will
receive the shares offered by this Prospectus upon conversion of our 6%
Convertible Series A Preferred Stock or exercise of the warrants.
On February 15, 2000, we entered into an agreement with Adara under
which we issued shares of 6% Convertible Series A Preferred Stock and
warrants. The estimated number of shares that we can issue upon conversion of
the 6% Convertible Series A Preferred Stock is based on an estimated
conversion price of $8.33 per share of common stock. The actual number of
shares of common stock issuable upon conversion of the 6% Convertible Series A
Preferred Stock is indeterminable, is subject to adjustment and could be
materially less or more than the estimated number depending on factors that we
can not predict, including the future market price of the common stock. The
1,500,000 shares registered for issuance upon conversion of the 6% Series A
Preferred Stock represents 200% of the total amount of shares that we believe
we will issue to Adara in the conversion. We will deregister any shares that
we do not actually issue in the conversion and will not issue those shares to
Adara.
Because of the possibility that the number of outstanding shares of
common stock may increase due to a stock split, dividend or antidilution
adjustments, the number of shares of common stock issuable upon such
conversion or exercise and subject to this Prospectus is indeterminate. This
Prospectus relates to the resale of the entire indeterminate number of shares
of common stock.
PLAN OF DISTRIBUTION
--------------------
We are registering the shares of our common stock covered by this
Prospectus.
We will pay the costs, expenses and fees of registering the common
stock, but our stockholders will pay any underwriting or brokerage commissions
and similar selling expenses relating to the sale of shares of their common
stock.
Our stockholders may sell our common stock at market prices
prevailing at the time of the sale, at prices related to the prevailing market
prices, at negotiated prices or at fixed prices, any of which may change. Our
stockholders may sell some or all of their common stock through:
Ordinary broker's transactions, which may include long or short
sales;
Purchases by brokers, dealers or underwriters as principal and
resale by those purchasers for their own accounts under this
prospectus;
Market makers or into an existing market for the common stock;
Transactions in options, swaps or other derivatives; or
Any combination of the selling options described in this
prospectus, or by any other legally available means.
12
<PAGE>
In addition, our stockholders may enter into hedging transactions
with broker-dealers, who may engage in short sales of our common stock in the
course of hedging the positions they assume. Finally, our stockholders may
enter into options or other transactions with broker-dealers that require the
delivery of our common stock to those broker-dealers. Subsequently, the
shares may be resold under this Prospectus.
In their selling activities, our stockholders will be subject to
applicable provisions of the Securities Exchange Act of 1934, and its rules
and regulations, including Regulation M, which may limit the timing of
purchases and sales of our common stock by our stockholders.
Those of our stockholders and any broker-dealers involved in the
sale or resale of our common stock may qualify as "underwriters" within the
meaning of Section 2(11) of the Securities Act of 1933. In addition, the
broker-dealers' commissions, discounts or concessions may qualify as
underwriters' compensation under the Securities Act of 1933. If any broker-
dealer or any of our stockholders qualifies as an "underwriter," they will be
subject to the prospectus delivery requirements of Section 154 of the
Securities Act of 1933.
In conjunction with sales to or through brokers, dealers or agents,
our stockholders may agree to indemnify such brokers, dealers or agents
against liabilities arising under the Securities Act of 1933. We do not know
of any existing arrangements between our stockholders and any other
stockholder, broker, dealer, underwriter or agent relating to the sale or
distribution of our common stock.
In addition to selling their common stock under this Prospectus, our
stockholders may:
Transfer their common stock in other ways not involving market
makers or established trading markets, including by gift,
distribution or other transfer; or
Sell their common stock under Rule 144 of the Securities Act of
1933, if the transaction meets the requirements of Rule 144.
We have advised our stockholders that, during the time each is
engaged in distribution of their common stock, each much comply with Rule 10b-
5 and Regulation M under the Securities Exchange Act of 1934. They must do
all of the following under those rules:
Not engage in any stabilization activity in connection with our
common stock;
Furnish each broker who may be offering our common stock on behalf
of our stockholders the number of copies of this prospectus
required by each broker; and
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<PAGE>
Not bid for or purchase any of our common stock or attempt to
induce any person to purchase any of our common stock, other than
as permitted under the Securities Exchange Act of 1934.
Any of our stockholders who may be "affiliated purchasers," as
defined in Regulation M, have been further advised that they must coordinate
their sales under this prospectus with each other and us for the purposes of
Regulation M.
To the extent required by the Securities Act of 1933, a supplemental
prospectus will be filed, disclosing:
The name of any such broker-dealers;
The number of securities involved;
The price at which such securities are to be sold;
The commissions paid or discounts or concessions allowed to such
broker-dealers, where applicable;
That such broker-dealers did not conduct any investigation to
verify the information set out in this prospectus, as
supplemented; and
Other facts material to the transaction.
There is no assurance that any of our stockholders will sell any of
our common stock.
LEGAL PROCEEDINGS
-----------------
Cybertel was a party to Case No. EC18601, which was dismissed by the
Superior Court of the State of California for the County of San Diego on
December 10, 1999. For a description of this proceeding, see the heading
"Changes in Control" of the caption "Security Ownership of Certain Beneficial
Owners and Management."
To the knowledge of management, no federal, state or local
governmental agency is presently contemplating any proceeding against us. No
director, executive officer or other person who may be deemed to
be an "affiliate" of Cybertel or owner of record or beneficially of more
than five percent of its common stock is a party adverse to Cybertel or has a
material interest adverse to Cybertel in any proceeding.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
------------------------------------------------------------
The following table sets forth the names of all of our current
directors and executive officers. These persons will serve until the next
annual meeting of the stockholders or until their successors are elected or
appointed and qualified, or their prior resignation or termination.
14
<PAGE>
<TABLE>
<CAPTION>
Date of Date of
Positions Election or Termination
Name Held Designation or Resignation
- ---- ---- ----------- --------------
<S> <C> <C> <C>
<S> <C> <C> <C>
Richard D. CEO 6/96 *
Mangiarelli President 6/96 *
Director 6/96 *
Paul J. Mills Chairman 6/96 *
Director 6/96 *
Secretary 6/96 *
John E. Jordan Director 6/96 *
</TABLE>
* These persons presently serve in the capacities
indicated.
Business Experience.
- --------------------
Richard D. Mangiarelli, Chief Executive Officer, President and
Director. Mr. Mangiarelli is 59 years old. In 1985, he founded USA Energy
Corporation, a licensed general and electrical contractor dedicated to energy
conservation contracting. He was the Chief Operating Officer of Fulham
Company, an electronic ballast manufacturer, from 1993 to 1995. Mr.
Mangiarelli holds a BA degree from the University of Connecticut and an MBA
degree from Pepperdine University. He is a licensed general contractor and
licensed electrical contractor and is retired from the United States Marine
Corps at the rank of Colonel.
Paul J. Mills, Secretary and Chairman of the Board of Directors.
Mr. Mills, age 77, has been a principal in Mills and Associates, a management
and consulting firm since 1985. Prior thereto, he founded and served as
president of a marketing company called Southwest Solar Products, Inc. from
1980 to 1986.
John E. Jordan, Director. Mr. Jordan is 63 years of age. In 1959,
he founded the Jordan Companies, a group of privately held, diversified
companies engaged in energy related engineering, manufacturing and marketing
activities, defense and aerospace consulting and international negotiations
15
<PAGE>
and representation. He has served as chief executive officer and president of
these companies for over 20 years. Mr. Jordan is a graduate of Stanford
University, the Marine Corps Command and Staff College, the National Defense
University-Industrial College of the Armed Force program, the Naval War
College, and served as an Officer in both the U.S. Air Force and the Marine
Corps.
Significant Employees.
- ----------------------
Other than our executive officers, we do not have any employees who
are expected to make a significant contribution to our business.
Family Relationships.
- ---------------------
There are no family relationships between any director or executive
officer.
Involvement in Certain Legal Proceedings.
- -----------------------------------------
During the past five years, no present or former director, executive
officer or person nominated to become a director or an executive officer of
Cybertel:
(1) was a general partner or executive officer of any business
against which any bankruptcy petition was filed, either at the time of the
bankruptcy or two years prior to that time;
(2) was convicted in a criminal proceeding or named subject to a
pending criminal proceeding (excluding traffic violations and other minor
offenses);
(3) was subject to any order, judgment or decree, not subsequently
reversed, suspended or vacated, of any court of competent jurisdiction,
permanently or temporarily enjoining, barring, suspending or otherwise
limiting his involvement in any type of business, securities or banking
activities; or
(4) was found by a court of competent jurisdiction (in a civil
action), the Commission or the Commodity Futures Trading Commission to have
violated a federal or state securities or commodities law, and the judgment
has not been reversed, suspended or vacated.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------------------------------------
Security Ownership of Certain Beneficial Owners.
- ------------------------------------------------
The following table sets forth the share holdings of our directors
and executive officers and those persons who own more than five percent of our
common stock as of the date of this Prospectus.
16
<PAGE>
<TABLE>
<CAPTION>
Number of Shares Percentage
Name and Address Beneficially Owned of Class(1)
- ---------------- ------------------ --------
<S> <C> <C>
Richard D. Mangiarelli (1) 115,000 2.4%
4320 La Jolla Village Dr.
Suite 205
San Diego, California
92122
Paul J. Mills 290,000 (2) 6.1%
4320 La Jolla Village Dr.
Suite 205
San Diego, California
92122
John E. Jordan 24,000 (3) 0.5%
4320 La Jolla Village Dr.
Suite 205
San Diego, California
92122
</TABLE>
(1) The 6M Family Trust, which is controlled by Mr. Mangiarelli's
family holds all of these shares.
(2) Mr. Mills' adult children hold 190,000 of these shares. Mr.
Mills may be deemed to have voting control over these shares.
(3) The Jordan Family Trust beneficially owns these shares. The
Jordan Family Trust is controlled by Mr. Jordan.
Changes in Control.
- -------------------
On July 19, 1999, the Roman J. Kownacki, M.D. Pension Fund; and
Roman J. Kownacki and Mary Jean Kownacki, as Trustees of the Kownacki Family
Trust dated February 8, 1972 (collectively, "Kownacki"), filed a Complaint for
Judgment Debtor's Interest in Property or Debt to Satisfy Money Judgment in
the Superior Court of the State of California for the County of San Diego (the
"Complaint"). The case was designated Case No. EC18601.
The Complaint sought:
a declaration that our securities held directly or beneficially
by our President, Richard D. Mangiarelli, are the property of
Kownacki;
17
<PAGE>
an order that the securities be delivered to the marshal of the
County of San Diego for satisfaction of a judgment in the amount
of $170,470.82 that Kownacki had obtained against Mr. Mangiarelli
on May 28, 1997;
an order to show cause why we should not be enjoined from
transferring such securities to any person or otherwise disposing
of the securities;
a temporary restraining order and a preliminary injunction to that
effect; and
Kownacki's costs of suit and attorney's fees and such other relief
as the Court deemed proper.
On August 5, 1999, the Court entered an Order:
enjoining us, during the pendency of the action, from transferring
to Mr. Mangiarelli, concealing, selling or otherwise changing the
form of title on Mr. Mangiarelli's securities;
requiring us to transfer all such securities in our possession to
the Marshal of the County of San Diego upon demand, for
application to the satisfaction of the judgment in favor of
Kownacki;
that we disclose the existence of the Order to anyone who inquires
as to Mr. Mangiarelli's ownership interest in our securities;
not accept any lien or other encumbrance upon Mr. Mangiarelli's
stock, options or right to exercise stock options or acquire
shares as a condition to his employment with Cybertel; and
that we advise the Securities and Exchange Commission of the
restrictions placed upon such stock on or before August 10, 1999.
On December 10, 1999, the Kownacki suit was dismissed without the
payment of any shares beneficially owned by Mr. Mangiarelli. As a result, the
Kownacki suit will not result in any change in control of Cybertel.
DESCRIPTION OF SECURITIES
-------------------------
We have two classes of securities authorized, consisting of:
20,000,000 shares of common voting stock with a par value of one
mill ($0.001) per share; and
5,000,000 shares of preferred stock with a par value of one mill
($0.001) per share.
18
<PAGE>
Our common stock holders have one vote per share on each matter
submitted to a vote at a meeting of stockholders. Our shares of common stock
do not carry cumulative voting rights in the election of directors.
Our common stockholders have no pre-emptive rights to acquire
additional shares of common stock or other securities. The common stock
carries no subscription or conversion rights. All shares of common stock now
outstanding are fully paid and non-assessable.
Our preferred stock shall contain such rights and preferences as the
Board of Directors may authorize. Effective February 10, 2000, our Board of
Directors designated 5,000 shares of our class of preferred stock as "Series A
6% Convertible Preferred Stock." For a description of the rights and
preferences of our Series A 6% Convertible Preferred Stock, see the heading
"General" of the caption "Description of Business" and the heading "Dividends"
of the caption "Market for Common Equity and Related Stockholder Matters."
INTEREST OF NAMED EXPERTS AND COUNSEL
-------------------------------------
Our financial statements as of December 31, 1999, have been included
herein in reliance on the report of Malone & Bailey, PLLC, independent
certified public accountants, appearing elsewhere herein, and upon the
authority of said firm as experts in accounting and auditing.
We have not hired any expert or counsel on a contingent basis. No
expert or counsel will receive a direct or indirect interest in Cybertel, and
no such person was a promoter, underwriter, voting trustee, director, officer
or employee of Cybertel.
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT
LIABILITIES
-----------
Section 78.7502(1) of the Nevada Revised Statutes ("NRS")
authorizes a Nevada corporation to indemnify any director, officer, employee,
or corporate agent "who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative, except an action by or
in the right of the corporation" due to his or her corporate role. Section
78.7502(1) extends this protection "against expenses, including attorneys'
fees, judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with the action, suit or proceeding if he
acted in good faith and in a manner which he 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 his conduct was unlawful."
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<PAGE>
Section 78.7502(2) of the NRS also authorizes indemnification of
the reasonable defense or settlement expenses of a corporate director,
officer, employee or agent who is sued, or is threatened with a suit, by or in
the right of the corporation. The party must have been acting in good faith
and with the reasonable belief that his or her actions were in or not opposed
to the corporation's best interests. Unless the court rules that the party is
reasonably entitled to indemnification, the party seeking indemnification must
not have been found liable to the corporation.
To the extent that a corporate director, officer, employee, or
agent is successful on the merits or otherwise in defending any action or
proceeding referred to in Section 78.7502(1) or 78.7502(2), Section 78.7502(3)
of the NRS requires that he be indemnified "against expenses, including
attorneys' fees, actually and reasonably incurred by him in connection
with the defense."
Unless ordered by a court or advanced pursuant to Section 78.751(2),
Section 78.751(1) of the NRS limits indemnification under Section 78.7502 to
situations in which either (1) the stockholders, (2)the majority of a
disinterested quorum of directors, or (3) independent legal counsel determine
that indemnification is proper under the circumstances.
Section 78.751(2) authorizes a corporation's articles of
incorporation, bylaws or agreement to provide that directors' and officers'
expenses incurred in defending a civil or criminal action must be paid by the
corporation as incurred, rather than upon final disposition of the action,
upon receipt by the director or officer to repay the amount if a court
ultimately determines that he is not entitled to indemnification.
Section 78.751(3)(a) provides that the rights to indemnification and
advancement of expenses shall not be deemed exclusive of any other rights
under any bylaw, agreement, stockholder vote or vote of disinterested
directors. Section 78.751(3)(b) extends the rights to indemnification and
advancement of expenses to former directors, officers, employees and agents,
as well as their heirs, executors, and administrators.
Regardless of whether a director, officer, employee or agent has
the right to indemnity, Section 78.752 allows the corporation to purchase and
maintain insurance on his behalf against liability resulting from his or her
corporate role.
Article IX of our Articles of Incorporation limits the personal
liability of a director or executive officer for damages for breach of
fiduciary duty to acts or omissions involving intentional misconduct, fraud
or a knowing violation of law. In addition, Article X provides for
indemnification of the Company's directors and executive officers to
substantially the same extent as the NRS.
This is only a summary of the indemnification provisions of the NRS
and our Articles of Incorporation. You are urged to review our Articles of
Incorporation for the actual text of their indemnification provisions. See
the Exhibit Index.
20
<PAGE>
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of Cybertel pursuant to the foregoing provisions, or otherwise, we
have been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable.
DESCRIPTION OF BUSINESS
-----------------------
General.
- --------
Cybertel was organized on June 13, 1996, for the purpose of engaging
in any lawful activity. At inception, Cybertel was authorized to issue
20,000,000 shares of non-assessable common voting stock, par value one mill
($0.001) per share. In addition, we are authorized to issue 5,000,000 shares
of preferred stock having a par value of one mill ($0.001) per share, with
such rights and preferences as the Board of Directors shall determine. Until
approximately May, 1999, Cybertel was a development stage company.
In November and December, 1999, we received net proceeds of $390,238
from loans with a face value of $500,000. The loans were due six months from
the date of origination and bore interest at the rate of 14% per annum. The
note investors also received a total of 75,000 "unregistered" and "restricted"
shares of our common stock on a pro rata basis, and certain employees of
Capital Growth Resources, the placement agent, received 50,000 such shares as
a placement fee. These shares are a portion of the shares currently being
registered. See the caption "Recent Sales of 'Unregistered' Securities" of
this Prospectus.
We paid the note in full on February 29, 2000. The total payoff
amount was $508,555, including principal and accrued interest. This payoff
amount came from the proceeds of our funding with Adara. We allocated the
rest of the proceeds to working capital.
On December 30, 1999, we entered into a Reorganization Agreement
with Telenomics, Inc., a California corporation, and all of the stockholders
of Telenomics. Under the Reorganization Agreement, we issued 600,000
"unregistered" and "restricted" shares of our common stock to the Telenomics
stockholders in exchange for all of the outstanding voting securities of
Telenomics. These shares amounted to approximately 9.4% of our outstanding
voting securities immediately after the completion of the Reorganization
Agreement, taking into account the securities that we issued as outlined in
the next paragraph. Telenomics became a wholly-owned subsidiary of Cybertel
on the closing of the Reorganization Agreement.
Telenomics is a Hewlett Packard Channel Partner, providing telephone
accounting and management software solutions on HP servers since 1983. It
is also a Hewlett Packard equipment reseller of the HP/9000, HP/3000 and HP
workstations through a national authorized reseller license with Hewlett
Packard with a "best in class" status.
21
<PAGE>
Telenomics and its authorized resellers manufacture and distribute
PWARE software products that are designed to reside on Hewlett Packard servers
in an open environment, allowing easy interface to existing modules on the
server, such as financial, human resources and other applications. PWARE is
also designed to reduce dependency on software vendors and to replace the
stand alone PC call accounting system sold through telephone vendors. PWARE
is a multi-user system with both an unlimited terminals-based server and a
per-seat MS Windows Client Server based front end.
Also on December 30, 1999, Cybertel entered into an Agreement
and Plan of Reorganization with T. J. Knowles, the sole stockholder of Like
Dat Music, Inc., a California corporation. Under the Plan of Reorganization,
we issued 100,000 "unregistered" and "restricted" shares of our common stock
to Mr. Knowles in exchange for all of the outstanding voting securities of
Like Dat Music. These shares amounted to approximately 1.6% of our
outstanding voting securities immediately after the completion of the
Telenomics and Like Dat Music acquisitions. Like Dat Music became a
wholly-owned subsidiary of Cybertel on the closing of the Plan of
Reorganization.
As part of the Telenomics acquisition, we acquired computer and
office furniture with a book value of approximately $70,000. The only other
asset of Telenomics was its software code for its call accounting software;
the development expenses of this software have been deducted as an expense and
are not reflected on its balance sheet.
Like Dat Music is an established and award-winning commercial music
and sound design company which produces original music for sale or license to
the advertising, broadcast and film industries. Its products and services are
used in television and radio commercials, television network and cable
promotions, corporate industrial and trade films and shows, feature film
trailers and motion pictures, television programming, and in Internet-
related applications such as on-site kiosks and web sites. It also provides
specialized digital sound recording services and innovative consumer music
products for sale, private labeling and license.
Like Dat Music had virtually no tangible assets, except its
copyright music. The development expenses of these assets have also been
deducted as an expense, and there is no carrying value for these assets on its
balance sheet.
Effective February 10, 2000, our Board of Directors designated 5,000
shares of our class of preferred stock as "Series A 6% Convertible Preferred
Stock," with holders thereof being entitled to receive dividends equal to 6%
of the Liquidation Preference (i.e., $1000 per share of Series A Preferred
Stock) per year. At our election, we may pay these dividends either in shares
of our common stock or in cash. If Cybertel is dissolved, the holders of
Series A Preferred Stock will be entitled to receive the Liquidation
Preference, plus any accrued but unpaid dividends, whether or not we have
declared them. Each holder of Series A Preferred Stock is also entitled vote
as if he or she owned the number of whole shares of common stock into which
his or her shares of Series A Preferred Stock are convertible immediately
after the close of business on the record date for determining the
stockholders who are entitled to notice of and to vote at any stockholder
22
<PAGE>
meeting or, in the case of matters that are approved by the consent of
stockholders without a meeting, on the date of such consent.
Each holder of Series A Preferred Stock may convert his or her
shares, at any time, into the number of shares of our common stock that is
determined by dividing $1000, plus the amount of any accrued but unpaid
dividends, by the Conversion Price. The Conversion Price is the lower of
110% of the average closing bid price of our common stock for the
five trading days immediately preceding the initial closing date
of our Securities Purchase Agreement as discussed below; and
80% of the average of the three lowest closing bid prices of our
common stock for the 25 trading days immediately preceding the
conversion date. If the closing bid price of our common stock is
$8 per share, Adara has the option to convert any or all shares of
Series A Preferred Stock into common stock.
On about February 14, 2000, we commenced a private placement of a
minimum of 100,000 shares, and a maximum of 1,000,000 "unregistered" and
"restricted" shares of our common stock at a price of $8 per share. Subject to
the completion of the minimum offering, our placement agent, Capital Growth
Resources, of El Cajon, California, will receive a sales commission of 10% of
the gross proceeds of the offering, together with:
2% of the gross proceeds as a wholesaling fee;
2% of the gross proceeds as a "due diligence" fee;
2% of the gross proceeds as an unaccountable expense allowance;
and
12.5 warrants for every 100 shares sold (together with an
additional 20,000 warrants if the offering is completed within 90
days). Each warrant grants Capital Growth the right to acquire
one "unregistered" and "restricted" share of our common stock for
a period of one year, at a price of $0.01 per share.
As of the date of this Prospectus, we have raised the minimum gross
proceeds under this offering, and the offering is continuing.
Effective February 15, 2000, we entered into a Securities Purchase
Agreement with Adara Investors, LLC, a Delaware limited liability company.
Under the Securities Purchase Agreement, we sold to Adara:
3,000 Shares of our Series A Preferred Stock, at a price of
$3,000,000;
Warrants to purchase 225,000 shares of our common stock; and
23
<PAGE>
For $100, a Supplemental Warrant to purchase an additional 2,000
shares of Series A Preferred Stock (the "Additional Shares") for
$2,000,000, and Stock Purchase Warrants to purchase up to 150,000
additional shares of common stock.
Adara can exercise the Warrants until February 15, 2004, at a price
of $16.86 per share. It can exercise the Supplemental Warrant until November
15, 2000.
Also on February 15, 2000, Cybertel and Adara executed a
Registration Rights Agreement under which we agreed to file, within 45 days of
the initial closing date of the Securities Purchase Agreement, a Registration
Statement on Form SB-2, covering the resale of two times:
the number of shares of common stock that Adara would be able to
receive from the conversion of the Shares and the Additional
Shares on the date of filing; and
the maximum number of shares of common stock that Adara would be
able to receive upon exercise of all Warrants that we issued to
Adara under the Securities Purchase Agreement.
We must keep the Registration Statement effective until the earlier
of:
the date on which Adara has sold all of the registered securities;
the date on which Adara may sell the registered securities
immediately, without restriction; and
24 months after the date on which the Registration Statement is
declared effective.
We must pay 2% of Adara's $3,000,100 purchase price for every 30 day
period during which:
we have not filed the Registration Statement with the Securities
and Exchange Commission within 45 days of the closing date of the
Securities Purchase Agreement;
the Registration Statement is not effective within 90 days of the
closing of the Securities Purchase Agreement or, if the Commission
does not review it, within three days after we or our counsel
receive notice that there will be no review;
for any period of five days after the effectiveness deadline, we
do not have enough shares listed for trading or reserved for
issuance upon the conversion of Adara's convertible securities; or
for any period of five days after the effectiveness deadline, we
become aware of any event that makes any statement in this
Prospectus untrue or misleading, or that the Securities and
Exchange Commission has suspended the Registration Statement.
24
<PAGE>
For each 30 day default period during which we have cured the
default, the penalty will be prorated.
The Securities Purchase Agreement closed on February 15, 2000, and
we are currently in default of the first penalty provision. We can not assure
you that we will be able to cure this or any other default in a timely manner.
If we can not, we will have to pay Adara $60,002 for every 30 days that we are
in default.
The Registration Rights Agreement also gives Adara "piggyback"
registration rights with respect to these securities.
On or about February 16, 2000, we entered into a letter of intent
with LDVL, Inc., a New Jersey corporation, which set forth the proposed terms
of an Agreement and Plan of Merger by which we will issue 625,000
"unregistered" and "restricted" shares of our common stock to the stockholders
of LDVL in exchange for all of the outstanding securities of LDVL. LDVL is a
Digital Subscriber Line (DSL) provider. The letter of intent is not intended
to be legally binding. As of the date of this Prospectus, the parties have
taken no further action with respect to our acquisition of LDVL, and we can
not assure you that we will execute any definitive agreement.
Due to a typographical error in our Articles of Incorporation, our
original name was "Cybertel, Communications Corp." On March 15, 2000, we
filed with the Nevada Secretary of State a Certificate of Correction to show
that our correct name is "Cybertel Communications Corp." with no comma.
Principal Products or Services and Their Markets.
- -------------------------------------------------
Long Distance Service.
----------------------
Cybertel intends to offer basic "1 plus" and "800" long distance
services. Management believes it will be successful as a provider of these
basic services because of the volume discounts it has been able to negotiate
with underlying carriers and its ability to direct customer call traffic over
the transmission networks of more than one carrier. We have negotiated
pricing ranging from $0.049 to $0.056 per minute for switchless services, and
ranging from $0.041 to $0.044 with guarantees to the carriers of certain
minimum monthly volume. If we do not meet these minimum volumes, we will
still be responsible for paying for them. As we expand our network of
switching facilities, we will be better able to choose among the transmission
networks of different carriers to take advantage of the most favorable rates.
We negotiate with each carrier for the best rates we can get. Volume
and "ramp up" periods affect our costs. If we are able to project substantial
volumes in the mid-term future, underlying carriers are willing to
negotiate a better rate. We have no way to gauge what underlying carriers
charge to others, as that is not public information. However, management knows
that Cybertel's charges to its customers are very competitive. As an example,
a customer using 200 minutes per month and subscribing to AT&T's 7 cent per
minute plan would pay $19.95 when AT&T's $5.95 monthly recurring charge is
25
<PAGE>
added. A Cybertel customer using the same 200 minutes would pay $19.80 at our
9.9 cent per minute rate.
Initially, we will charge our customers on the basis of minutes or
partial minutes of usage. Our rates which may vary with the distance,
duration, time of day of the call and the type of call. The facilities
selected for call transmission do not affect our rates, but the type of call
does.
Our wholly-owned subsidiary, Telenomics, does our billing for us.
In the near future, we hope to provide our customers a flat rate
long distance calling service throughout the United States. We will bill
in six-second increments.
Debit and Prepaid Calling Cards.
--------------------------------
We offer travel and debit cards with low long distance rates. We
charge either per unit fees or bill subscriber monthly. Our cards work the
same as other calling cards. The absences of transaction fees per call as
well as lower per minute charges make these cards extremely attractive.
Prepaid calling cards also limit the user's liability for lost, stolen or
abused cards, since the minutes are preset and added to each card in limited
amounts at the subscriber's direction. We began receiving revenues from these
cards in August, 1999.
Internet Access.
----------------
This is generally the newest and fastest growing product for
telecommunications providers. Cybertel packages a service which includes
domain registration and services such as design, placement, and advertising;
Web sites; monthly access to the Internet for dial-up and dedicated usage
(telecommunications lines reserved for use by particular customers); and
a discounted 800 service to respond to the customers' eventual order flow. We
expect that this package will include E-mail, Web browser, Internet dialer,
and search engines, all priced substantially below major carrier providers for
software and initial access. We expect to price these services at $16.50 per
month, as compared to monthly rates for other internet service providers
ranging from $19.95 to $21.95 per month. The bundling of these services will
provide a "one-stop" arrangement for small and middle-sized business
subscribers. Since many small businesses do not employ computer specialists
and are owned or managed by people who are not Internet experts, we believe
that a one-stop approach gives us easy access to a steadily growing demand.
Distribution Methods of the Products or Services.
- -------------------------------------------------
26
<PAGE>
Affinity Groups.
----------------
Cybertel is expanding the reseller concept of transporting
data through a facilities-based carrier that bills and collects from the
end-user customers. We do this by targeting our products to specific niche
markets. We market to large associations whose members form a loyal base and
are loyal to their organization and wish to support it financially. We offer
these associations discounted long distance services at wholesale prices, and
part of the long distance charges go to the subscribers' organization when
they pay their monthly bills. We solicit the long distance services through
the subscriber's organization.
We believe that our strategy will let us introduce and sell our
services to many more users than we could contact directly or get through
advertising. The sponsoring group has a vested interest in obtaining
all telecommunications business from its affiliated members because it stands
to gain substantial commissions once the group's calls reach certain volume
levels. Our strategy also applies to fund raisers and promotional events, and
personalized prepaid calling cards provide an excellent promotion for the
sponsoring entity.
Management hopes to increase market share in each market segment of
our business through a combination of direct sales efforts targeted to
corporate and individual clients and through acquisition of competitive firms
in our industry. We will use public relations tactics to conserve resources
and to increase our credibility and visibility. These tactics will include
editorial coverage in industry-specific media and general interest
publications.
Other marketing opportunities include:
industry trade shows;
membership in professional and business organizations;
cross promotional events;
direct mail and lead-generated promotional literature;
direct sales; and
in-house telemarketing.
Cybertel intends to hire sales and marketing staff to help us create
a strong direct response campaign. We will emphasize quality service at a low
price and superior customer service. We train our customer service
representatives to be courteous and helpful. Our representatives can access
a customer's account instantaneously and bring up the type of information that
will help them solve the customer's problem.
To date, we have marketed our products primarily through Affinity
Groups. We intend to finance its marketing activities in the short term
through equity financing, and in the long term through cash flow.
27
<PAGE>
Internet Protocol Network.
--------------------------
Cybertel is building a telecommunications network in the United
States. We plan to build local networks in 56 cities. The networks will
connect with a national long distance network. We will focus primarily on the
residential market in order to complement our Affinity Group marketing
programs. The Internet Protocol ("IP") based network will provide a full
range of communications services including long distance and data transmission
as well as other enhanced services to the domestic and international markets.
Additionally, we will offer a range of Internet access services at varying
capacity levels such as 56 kilobits per second or 1.5 megabits per second. We
will offer different features and security levels to meet the needs of
our residential and business customers. In June, 1999, we established our
first IP Gateway, which digitizes a communications signal and transports it
over the internet, in San Diego, California.
We believe that the shift toward IP-based networks is as important
as the shift from the telegraph to the telephone and from mainframe to
personal computers. The move toward IP-based networks is a move from
traditional "circuit switched" networks that were designed primarily for voice
communications, and which have existed form almost a century, to newer "packet
switched" networks using IP. The new technology makes it possible to move
information at a much lower cost, because packet switching technology makes
more efficient use of network capacity.
The internet is a worldwide communications network of interconnected
computers that share information, generally over high-bandwidth fiber optic
cables. Information that moves over the internet is broken down into pieces
known as "packets." Each packet is coded with address information for
delivery to the proper destination, sent through the internet and reassembled
into its original form so the recipient can use the information upon delivery.
This process is made possible using two important internet communications
protocols: Transmission Control Protocol ("TCP"); and Internet Protocol
("IP"). TCP divides and reassembles the packets. IP ensures that the packets
reach the correct destination.
By contrast, the basic design of the telephone network has not
changed for more than 100 years. The telephone system is a circuit-switched
network. This technology dedicates a circuit for the entire duration of the
transmission.
In an IP network there is no single, unbroken connection between
sender and receiver. When information is sent, it is broken into small
packets that share lines with other transmissions, over many different routes
at the same time, which are then reassembled at the receiving end. As a
result, the internet is much more efficient than the present circuit-switched
network. A call on a circuit-switched network is like a single car taking up
an entire stretch of freeway by itself, while an IP network can fill all lanes
of the freeway with hundreds of vehicles, all destined for different exits.
28
<PAGE>
Major communications carriers would like to add IP-based switching
technology to portions of their networks, but because of the immense
investment that these companies have already made in their existing networks,
they continue to retain extensive networks based on the older and less
efficient circuit switching technology. Cybertel believes it is well
positioned for the fundamental shift to the new technology because we
have no investment in, or commitment to, the older technology. We plan to
design the network to be upgradeable, so that it can evolve as the technology
evolves.
In March, 1999, we signed a service agreement with General Telecom,
Inc., a Massachusetts corporation, which allows us to use General Telecom's
telecommunications equipment for a one-year term, renewable for five
additional one-year periods. Our fees will be based on usage volume and line
types, with a minimum monthly payment of $3,250 per month.
We executed an agreement with Level 3 Communications on March 12,
1999. Under the agreement, Level 3 agreed to allow us to "co-locate" our
internet access equipment and switches in Level 3's switching centers in all
50 states and to use Level 3's state of the art fiber optic network. This
allows us to place our telecommunications equipment in Level 3's co-location
cabinets and send voice and data traffic over the Internet without having to
build a fiber optic network of our own. This save us money. The agreement
with Level 3 is for a term of three years. We pay a flat rate of $2,800 per
month.
On October 1, 1999, Cybertel and WorldCom Network Services, Inc., a
Delaware corporation, entered into a Telecommunications Services Agreement
under which WorldCom agreed to provide certain telecommunications services for
us to resell. These services included:
switched domestic and international outbound long distance
telephone service;
switched toll-free service;
calling cards; and
dedicated outbound and toll-free service.
The per-minute rates for these services vary by geographic area and
are set forth in Amendment No. 1 to the Telecommunications Services Agreement.
We pay our charges within 30 days of the date of invoice. A late charge of 1-
1/2% (or the maximum legal rate, if less) applies to any unpaid balance.
We have also entered into a contract with Bell Atlantic Corporation.
The contract gives us the right to terminate IP long distance and data traffic
on Bell Atlantic's network. This will allow us to deliver IP telephony calls
originating outside of Bell Atlantic's region through the Public Service
Telephone Network 24 hours per day, seven days per week, on Bell Atlantic's
29
<PAGE>
Termination Gateways. The agreement also allows us to sell wholesale
termination on Bell Atlantic's lines to third parties and will make it
possible for us to deliver calls from anywhere in the world to the Northeast
Corridor of the United States via Bell Atlantic's IP telephony network. We
pay all charges within 30 days of Bell Atlantic's invoice, with interest at a
rate of 1.25% per month on all overdue balances. Bell Atlantic also reserves
the right to terminate service, upon seven days' notice, if we become more
than 30 days delinquent in our account.
Under our agreement with Bell Atlantic, we pay Bell Atlantic a rate
based on the number of minutes that Bell Atlantic's Termination Gateways are
being used, with a minimum monthly payment of $4,800. The term of the
agreement is one year, with automatic yearly renewals until either party gives
the other notice of non-renewal at least 90 days before the expiration of the
current term.
Acquisition Strategy.
---------------------
Cybertel wants to become a one-stop service provider for a variety
of services. Management believes Cybertel can do this through an acquisition
strategy that:
enhances our sales force capability;
broadens our service offerings; and
increases our customer base and revenue.
Status of any Publicly Announced New Product or Service.
- --------------------------------------------------------
On July 7, 1999, we publicly announced our contract with Bell
Atlantic.
Competitive Business Conditions.
- ---------------------------------
The communications and information services industry is highly
competitive. Many of our existing and potential competitors have financial,
personnel, marketing, customer bases and other resources significantly greater
than ours.
We face significant competition within the telecommunications
industry. Our principal competitors include Level 3, IDT, Delta 3 and USA
Talks. The first three competitors are national and the last is regional.
All of these entities possess significantly greater financial, sales and
marketing, personnel and other resources than we do. As a result, they may be
able to grow faster and more profitably. We believe that consolidation in the
telecommunications industry will increase competition.
The marketing and pricing activities of major competitors such as
AT&T, MCI/WorldComm and Sprint significantly influence the industry. We
30
<PAGE>
believe that AT&T, MCI/WorldCom and Sprint historically have chosen not to
concentrate their direct sales efforts on small and medium sized businesses,
but these carriers still control about 85% of that market. AT&T, MCI/WorldCom
and Sprint have also introduced new service and pricing options that are
attractive to smaller commercial users, and they may market to these customers
more aggressively in the future. AT&T and, as an interim measure, the
structurally separate interexchange affiliates of the seven regional Bell
operating companies ("RBOCs") have recently been reclassified as non dominant
carriers and, can now meet competition by modifying rates and service
offerings without pricing constraints or extended waiting periods. These
reclassifications may make it more difficult for us to compete for long
distance customers. In addition, many large regional long distance carriers
and new entrants in the industry compete directly with us by concentrating
their marketing and direct sales efforts on small to medium sized commercial
users. These activities include national advertising campaigns and
telemarketing programs.
The suppliers with whom we will contract for call transmission may
also be our competitors. Both the interexchange carriers and local exchange
carriers that will be providing transmission services for us have access to
information about our customers for whom they provide the actual call
transmission. Interexchange carriers, or "IXCs," are telecommunications
companies that provide interstate or intrastate telecommunications services
between local exchanges. Local exchange carriers, or "LECs,"are
telecommunications companies that provide telecommunications services in a
geographic area in which calls generally are transmitted without toll charges.
Because these IXCs and LECs are potential competitors of ours, they could use
information about our customers, such as their calling volume and patterns of
use, to their advantage. The Telecommunications Act, which became law in
1996, has strengthened the rules which govern the privacy of customer
proprietary information by expressly prohibiting telecommunications carriers
which receive this information from resale carriers for purposes of providing
telecommunications services to those resale carriers from using it for their
own marketing purposes.
In addition, our success will depend on our ability to continue to
buy transmission services and access from these carriers at a significant
discount below the rates that they make available to our targeted customers.
Regulatory trends have had, and may continue to have, a significant
impact on competition in the telecommunications industry. As a result of the
recently enacted Telecommunications Act, the RBOCs can now provide, and are
providing or have announced their intention to provide, long distance service
originating (or in the case of "800" service, terminating) outside their local
service areas or offered with other services, such as wireless services.
Following application to and upon a finding by the Federal Communications
Commission that an RBOC faces facilities-based competition and has satisfied a
congressionally mandated "competitive checklist" of interconnection and access
obligations, an RBOC can provide long distance service within its local
service area. The entry of these well-capitalized and well-known entities
into the long distance service market could significantly change the
competitive environment in which we operate.
31
<PAGE>
The Telecommunications Act also removes all legal barriers to
entry into the local telecommunications market. It directs incumbent local
exchange carriers to:
allow competing telecommunications service providers to
interconnect their facilities with the local exchange network;
acquire network components on an unbundled basis; and
resell local telecommunications services.
Incumbent local exchange carriers, or "ILECs," are companies
historically providing local telephone service. The Telecommunications Act
also seeks to facilitate local telecommunications competition by requiring
ILECs, among other things, to allow end users to retain their telephone
numbers when changing service providers and to place short-haul toll calls
without dialing long access codes. In response to these regulatory changes,
MCI/WorldCom and AT&T have each announced their intention to enter the local
telecommunication market. MCI/WorldCom has announced that it will invest more
than $2 billion in fiber optic rings and local switching equipment in major
metropolitan markets throughout the United States. AT&T has announced
that it filed applications in all 50 states to provide local
telecommunications services.
Even though the Telecommunications Act opens new markets to
Cybertel, the nature and value of these business opportunities will partly
depend on subsequent regulatory interpretation of the statute's
requirements. The FCC has promulgated rules implementing the local
competition provisions of the Telecommunications Act. Each state must now
individually adopt regulations applying the new national guidelines. We
expect that ILECs will actively resist competitive entry into the
local telecommunications market and will try to undermine the operations and
the service offerings of competitive providers. This would leave carriers
such as Cybertel, which are dependent on ILECs for network services,
vulnerable to anti-competitive abuses. We can not assure you that federal and
state regulators will implement and enforce the local competition provisions
of the Telecommunications Act in a way that will permit us to compete in the
local telecommunications market or that subsequent legislative or judicial
actions will not hurt our ability to do so.
In addition, federal and state regulators are likely to provide
ILECs with increased pricing flexibility for their services as competition in
the local market increases. If regulators allow ILECs to lower their rates
substantially, provide excessive volume and term discount pricing, charge
excessive fees for network interconnection or access to unbundled network
elements, or refuse resale services at wholesale rates, we could lose our
ability to competitively provide local service.
Sources and Availability of Raw Materials.
- ------------------------------------------
None; not applicable.
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<PAGE>
Dependence on One or a Few Major Customers.
- -------------------------------------------
None; not applicable.
Need for Governmental Approval of Principal Products or Services.
- -----------------------------------------------------------------
Our communications service business will face varying degrees of
federal, state, local and international regulation.
Effect of Existing or Probable Governmental Regulations on the Business.
- ------------------------------------------------------------------------
Regulatory Background
---------------------
Today's domestic long distance telecommunications industry was
principally shaped by a 1984 court decree that:
required ATT&T to divest itself of its 22 Bell operating
companies, or "BOCs";
organized the BOCs under seven regional Bell operating companies,
or "RBOCs"; and
divided the country into some 200 Local Access Transport Areas, or
"LATAs."
The decree gave the ILECs, which include the seven RBOCs as well as
independent local exchange carriers, the right to provide local telephone
service, local access service to long distance carriers and intra-LATA long
distance service. However, the decree prohibited the RBOCs from providing
inter-LATA service. The decree gave AT&T and the other interexchange carriers
the right to provide inter-LATA service. IXCs were prohibited from providing
local telephone service.
A typical inter-LATA long distance telephone call begins with the
local exchange carrier, or "LEC," transmitting the call through its local
network to a connection point with an IXC. The IXC, through its switching
and transmission network, transmits the call to the LEC serving the area where
the recipient of the call is located. The receiving LEC then completes the
call over its local facilities. For each long distance call, the originating
LEC charges an access fee. The IXC also charges a fee for its transmission of
the call. A portion of the fee consists of a terminating fee, which is passed
on to the LEC which delivers the call. To encourage the development of
competition in the long distance market, the decree required LECs to provide
all IXCs with access to local exchange services "equal in type, quality and
price" to that provided to AT&T. The goal of these "equal access" and related
provisions was to prevent preferential treatment of AT&T. As a result of the
33
<PAGE>
decree, customers of all long distance companies were eventually allowed to
initiate their calls through simple "1 plus" dialing, rather than having to
dial longer access or identification numbers and codes.
The Telecommunications Act will significantly alter the
telecommunications industry. The decree has been lifted and the
Telecommunications Act has eliminated all restrictions and obligations
associated with it. The seven RBOCs may now provide long distance service
originating (or in the case of "800" service, terminating) outside their local
service areas or offered with other services, including wireless services.
Following application to the FCC, and upon a finding by the FCC that an RBOC
faces facilities based competition and has satisfied a congressionally
mandated "competitive checklist" of interconnection and access obligations, an
RBOC will be permitted to provide long distance service within its local
service area. However, in so doing, it will face a variety of structural and
nonstructural safeguards intended to minimize abuse of its market power in
these local service areas.
Having opened the interexchange market to RBOC entry, the
Telecommunications Act also removes all legal barriers to competitive entry by
interexchange and other carriers into the local telecommunications market and
directs RBOCs to allow competing telecommunications service providers such as
Cybertel to interconnect their facilities with the local exchange network, to
acquire network components on an unbundled basis, and to resell local
telecommunications services. In addition, the Telecommunications Act prevents
IXCs that serve more than five percent of pre-subscribed access lines in the
U.S. from jointly marketing their local and long distance services until the
RBOCs have been permitted to enter the long distance market or for three
years, whichever is sooner. This gives all other long distance providers a
competitive advantage over the larger long distance providers in the newly
opened local telecommunications market. As a result of the Telecommunications
Act, long distance carriers will face significant new competition in the long
distance telecommunications market, but will also have significant new
business opportunities in the local telecommunications market.
Legislative, judicial and technological factors have helped to
create the foundation for smaller long distance providers to emerge as
legitimate alternatives to AT&T, MCI/WorldCom and Sprint for long distance
telecommunication services. The FCC has required that all IXCs allow the
resale of their services, and the decree substantially eliminated different
access arrangements as distinguishing features among long distance carriers.
In recent years, national and regional network providers have substantially
upgraded the quality and capacity of their domestic long distance networks.
This has resulted in significant excess transmission capacity for voice and
data communications. Cybertel believes that, as a result of digital fiber
optic technology, excess capacity has been, and will continue to be, an
important factor in long distance telecommunications. As a consequence, not
only have smaller long distance service providers received legal protection to
compete with the network based carriers, they also represent a source of
traffic to carriers with excess capacity. Resellers have now become an
integral part of the long distance telecommunications industry.
34
<PAGE>
Federal
-------
The FCC classifies Cybertel as a non-dominant carrier. As a result,
we are subject to relaxed regulation. Historically, the FCC has either excused
or presumed non-dominant carriers' compliance with many of the statutory
requirements and regulations to which dominant carriers are subject. These
include most reporting, accounting and record keeping obligations. However,
the FCC imposes many of these requirementson non-dominant carriers whose
annual operating revenues exceed $100 million. The FCC retains the
jurisdiction to impose fines or other penalties on, or to act upon complaints
against, any common carrier, including non-dominant carriers, for failure to
comply with its statutory or regulatory obligations. The FCC also has the
authority to impose more stringent regulatory requirements on Cybertel and to
change its regulatory classification. In the current regulatory atmosphere,
however, we believe that the FCC is unlikely to do so.
Non-dominant carriers also face miscellaneous regulations that, for
instance, dictate the materials required to document and the procedures
necessary to verify a consumer's election to change its preferred long
distance telephone provider, mandate disclosure of rate and other data
associated with the provision of operator services and require contribution to
a variety of FCC-mandated funds and payment of various regulatory and other
fees. The FCC and the states have generally increased enforcement of these
regulations, particularly with respect to those that govern the verification
of consumer elections to change long distance service providers.
Among domestic carriers, only the ILECs are classified as dominant
carriers, although ILECs currently would only be classified as dominant in
their provision of long distance telecommunications services if they were to
provide such services other than through structurally separate affiliates. As
a consequence, the FCC regulates many of their rates, charges and services to
a greater degree than Cybertel's, although the FCC is currently evaluating
proposals to streamline and otherwise relax its regulation. The structurally
separate inter-exchange affiliates of the RBOCs have recently been
reclassified as non-dominant carriers and, accordingly, have the same
flexibility as Cybertel in meeting competition by modifying rates and service
offerings without pricing constraints or extended waiting periods. We can not
gauge the impact on us of the reclassification of AT&T and the RBOC
interchange affiliates as non-dominant carriers, but it could make it more
difficult for us to compete for long distance customers.
With the passage of the Telecommunications Act, the RBOCs are now
free to offer local service outside their respective local telephone service
areas as well as local service bundled with wireless, enhanced and other
ancillary services. Following application to and upon a finding by the FCC
that an RBOC faces facilities-based competition and has satisfied a
congressionally mandated "competitive checklist" of interconnection and access
obligations, the RBOC will be permitted to provide long distance service
within its local service area. In so doing, it will face a variety of
structural and nonstructural safeguards intended to minimize abuse of its
35
<PAGE>
market power in these local service areas. As a result of the removal
of the legal barriers to competitive entry into the local market, long
distance carriers like Cybertel will be allowed to compete with the RBOCs
in the provision of local service. It is impossible to predict the impact of
RBOC entry into the long distance telecommunications market on our business
and prospects, but it could make it more difficult for us to compete for long
distance customers.
We have all necessary authority to provide domestic interstate
telecommunications services under current laws and regulations. The FCC has
granted us authority to provide international telecommunications services
through the resale of switched services of U.S. facilities-based carriers.
The FCC reserves the right to condition, modify or revoke this international
authority for violations of federal law or rules. It also reserves the right
to approve assignments and transfers of control of this authority.
Both domestic and international non-dominant carriers must maintain
tariffs on file with the FCC. Although the FCC has the authority to review
the tariffs of non-dominant carriers, and the rates and charges they specify,
they are presumed to be lawful and are seldom contested. As a domestic
non-dominant carrier, we are permitted to make tariff filings on a single
day's notice and without cost support to justify specific rates. As an
international non-dominant carrier, we have always been required to include,
and have included, detailed rate schedules in our international tariffs. As a
result of recent FCC action, we may now make tariff filings on a single day's
notice.
Prior to a 1995 court decision, Southwestern Bell v. FCC, 43 F.3rd
1515 (D.C.Cir. 1995), the FCC permitted domestic non-dominant carriers to
charge a "reasonable range of rates" instead of the detailed schedules of
individual charges required of dominant carriers. In reliance on the FCC's
past practice of allowing relaxed tariff filing requirements for non-dominant
domestic carriers, Cybertel and most of its competitors did not maintain
detailed rate schedules for domestic offerings in their tariffs. Until the
two year statute of limitation expires, we could be held liable for damages
for our failure to do so, although we believe that such an outcome is highly
unlikely and would not hurt our operations.
To date, the FCC has exercised its regulatory authority to set rates
only with respect to the rates of dominant carriers, and it has increasingly
relaxed its control in this area. The FCC does not regulate our rates
or those of any other long distance telecommunications provider, including
AT&T, although it would regulate the rates charged by any ILEC that elected to
provide interexchange services other than through a structurally separate
affiliate. While the FCC continues to cap the prices that determine
interstate calls, it has allowed the ILECs some geographically restricted
pricing flexibility when they face competition in a given market.
The FCC plans to start a comprehensive review of its access charge
structure, evaluating embedded costs and subsidies that produce current access
charge levels. It is currently conducting a rulemaking procedure to
36
<PAGE>
implement the universal service provisions of the Telecommunications Act and
will be determining in that proceeding the contributions that
telecommunications companies such as Cybertel will be required to make to
support universal service. The FCC also has completed a rulemaking proceeding
to implement the local competition provisions of the Telecommunications Act.
In that proceeding, the FCC has set forth comprehensive national rules and
guidelines for states and local competitors to follow. Among other things,
the guidelines govern the interconnection obligations among telecommunications
carriers, including interconnection with the local exchange network, and
access to a minimum set of unbundled network elements, as required by the
Telecommunications Act. The FCC also has established pricing methodologies
for both the FCC and the states to follow in implementing the
Telecommunications Act's requirement that interconnection and access to
unbundled network elements be made available by ILECs at cost-based rates with
a reasonable profit.
The FCC has tried to respond to the Telecommunications Act's goal of
increased competition through its so-called "trilogy" of access charge reform,
universal service and local competition proceedings. The FCC does not expect
this framework to be complete until state public service commissions complete
their own efforts to implement the Telecommunications Act's provisions. Until
the FCC's "trilogy" of proceedings is completed, and until these state actions
are taken, we will not be able to judge the final impact of the FCC's
arrangements on our operations.
The Telecommunications Act grants the FCC authority to forbear from
applying any statutory requirement or regulation to classes of carriers or
services if it determines that it would be unnecessary and contrary to the
public interest. Using this authority, the FCC has already reduced, and has
proposed further reductions in, its regulation of non dominant IXCs such as
Cybertel. It has also proposed "mandatory de-tariffing" for the domestic
offerings of non-dominant IXCs. This proposed rule, if adopted, would not
only relieve us of our obligation to file tariffs for our domestic
interexchange offerings, but would prohibit all non-dominant IXCs, including
AT&T, Sprint and MCI/WorldComm, from filing such tariffs. We can not
presently estimate the impact on us of mandatory de-tariffing. However, such
an action would make it more difficult for the FCC to enforce its resale and
nondiscrimination requirements.
State
- -----
Our intrastate long distance telecommunications operations are also
subject to various state laws and regulations, including initial
certification, registration and notification, and various tariffing and
reporting requirements. We are certified in 23 states and are going through
the certification process in the remaining 27 states. We intend to
continuously monitor regulatory developments in all 50 states and intend to
obtain licenses wherever feasible. Once we become certified, we will have to
file an annual statement with each state's Public Utilities Commission.
37
<PAGE>
Research and Development.
- -------------------------
Other than developing and expanding its telecommunications network,
Cybertel does not intend to undertake any research and development activities.
We have not incurred any research and development expenses since our
inception. However, Telenomics incurred research and development expenses of
$145,848 and $144,000 during our December 31, 1999, and 1998, calendar years.
Costs and Effects of Compliance with Environmental Laws.
- --------------------------------------------------------
None; not applicable. However, environmental laws, rules and
regulations may have an adverse effect on any business venture that we view
as an attractive acquisition, reorganization or merger candidate. These
factors may limit the number of potential candidates available to the Company
for acquisition, reorganization or merger.
Number of Employees.
- --------------------
The Company presently employs 18 full-time employees and two part-
time employees.
Reports to Security Holders.
- ----------------------------
The National Association of Securities Dealers, Inc. requires that
all issuers maintaining quotations of their securities on the OTC Bulletin
Board file periodic reports under the Securities Exchange Act of 1934, and
Cybertel does file periodic reports with the Securities and Exchange
Commission under Section 13 of the 1934 Act.
The public may read and copy any materials that we file with the
Securities and Exchange Commission at the Commission's Public Reference Room
at 450 Fifth Street, N.W., Washington, D.C. 20549. The public may obtain
information on the operation of the Public Reference Room by calling the
Commission at 1-800-SEC-0330. The Commission maintains an Internet site that
contains reports, proxy and information statements and other information
regarding issuers that file electronically with the Commission. The address
of that site is http://www.sec.gov.
We intend to furnish to our stockholders annual reports containing
financial statements audited and reported upon by our independent accounting
firm and such other periodic reports as we may determine to be appropriate or
as the law may require.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
---------------------------------------------------------
Cybertel began actively marketing in April, 1999. During the
calendar year ended December 31, 1999, it produced revenues of $3,105,570,
with net income of $(2,250,265). We expect to produce approximately
$12,762,000 in the calendar year ended December 31, 2000. In the next 12
months, we intend to employ 56 IP Gateways throughout the United States in
order to transport long-haul Voice Over the Internet traffic, both
domestically and internationally. Voice Over the Internet, or "VOIP," is long
distance voice traffic transported as digital electronic data packets over the
internet. Our financing requirements in this regard are discussed under the
heading "Liquidity," below.
As discussed under the heading "Internet Protocol Network," our
agreements with Bell Atlantic and Level 3 Communications allow us to collocate
our Gateway equipment and terminate traffic in areas that we have not or do
not intend to locate Gateways. We have very actively begun to employ our
affinity group marketing strategy and have contracted with three of our seven
targeted groups. We are negotiating with the remaining four. The total
membership population of our seven targeted groups is over 40 million.
Management expects that our marketing efforts will be financed through our
fundraising efforts.
We have contracted with the Tailhook Association; Miles Ahead
Ministries; and the Marine Corps Reserve Officers Association. Each affinity
group agreement requires the affinity group to forward a marketing piece to
its members. The marketing pieces will recommend a telecommunications plan to
the members. These plans will include long distance, toll free service,
paging, cellular service, internet access, pre-paid and regular calling cards
and other telecommunications services. We will provide each group with a
billing summary of all participants' accounts each month and will pay each
group a percentage of each participant's net telephone bill. The contracts
will be in place for periods of time ranging from 12 months to 36 months, with
each group having an option to renew for an additional term.
We also intend to build a captive agent network to conduct direct
marketing and supplement our affinity group marketing programs. We have
conducted a test marketing program with the Southwestern Companies to perform
door-to-door residential solicitation of new customers. These operations
began on October 3, 1999. We have also begun our telemarketing efforts,
through which we contact members of the Marine Corps Reserve Officers
Association and the Tailhook Association. The Southwestern Companies are
entitled to a commission of 20% of gross sales from their efforts. As of the
date of this Prospectus, Cybertel and the Southwestern Companies do not have a
written contract.
Management is also seeking viable acquisition candidates. We intend
to make acquisitions that will allow us to offer value-added services and
products to our customer base. We can not assure you that we will be
successful in locating acquiring any suitable candidate. Even if we are
successful in this regard, we can not assure you that any acquisition will be
profitable.
39
<PAGE>
We base our projections on the following assumptions and
limitations.
Our business plan details a stair-step process under which we will
lease telecommunications services that can be marketed directly to our primary
affinity groups. We currently have contracts with three of the seven affinity
organizations that we have targeted. The combined membership of these three
affinity groups is 25,000 members. Our acceptance rate is about 38%.
We are currently in contract discussions with three more affinity
groups. We expect that all seven groups will be contracted by year end,
although we can make no assurances in this regard. The total membership of
the seven affinity groups is 40 million members. We believe this population
and our current acceptance rate should provide the revenues detailed in the
projections, although we can not make any guarantees.
The wholesaling of telecommunications services is our second revenue
source. We are buying international telecommunication services from Flat Rate
Communications and selling these services to LD Exchange.Com, Inc. We are
currently pursuing other wholesale agreements as well. The profit margin is
3% to 4% on the wholesaling of telecommunications services.
For the 2000 fiscal year, management projects revenues from our
affinity group program and our wholesaling operations to be $6,762,000 and
$6,000,000, respectively.
In arriving at its revenue projections for its affinity groups
program, Cybertel assumes that on average each residential customer will
use approximately 200 minutes per month at a cost to the customer of
approximately $0.10 per minute, and that the number of residential customers
will increase from approximately 600 in September, 1999, to approximately
60,300 in December, 2000.
The cost of goods sold currently reflects the cost of a leased
network through which we can transmit customer calls. The cost of goods
reflects the use of the telephone lines, billing and collections and customer
service. The rate used in the projections to reflect these costs is $0.07.
To control costs, we have entered into subcontract arrangements to
facilitate billing and collections and customer service.
Our projections for our wholesaling operations assume volume of
2,000,000 monthly minutes through December 2000, at an average rate of $0.25
per minute. We project cost of goods sold will be $0.25 per minute through
December 2000.
Cybertel has begun developing its own Internet Protocol Network. We
expect that the network will be operational by early 2000. With this network
in place, we will have control of our pricing for the transmission of
telecommunications services.
The projection reflects a modest decrease in the cost of goods sold
when the network is operational. We believe that the reduction of cost will
be more substantial but are reflecting a modest reduction to be conservative.
40
<PAGE>
We believe that our selling, general and administrative costs will
be reduced through the subcontracting of significant services such as billing
and collections and customer service. The maintenance of our Internet
Protocol Network and the marketing to and maintenance of affinity group
relationships will be our largest costs.
The telecommunication industry is highly competitive and requires
abundant capital. We are building our own IP Network so that we can control
our prices. To build this network, we have sought out internet-compatible
technology.
The foregoing contains "forward-looking" statements and information,
all of which is modified by reference to the caption "Risk Factors" and the
following additional factors:
Cybertel's business operations have yet to generate a profit.
Our present customer base, amounting to approximately 1,800
residential customers providing gross monthly revenues of
approximately $15,000 per month, is insufficient to cover monthly
general and administrative expenses of approximately $50,000. The
cost of leased telephone lines is in addition to general and
administrative expenses.
Sales of "restricted securities" by persons who will have
satisfied the required holding period for resale under Rule 144 of
the Securities and Exchange Commission in the very near future
will substantially increase the number of shares available in the
"public float," and to the extent any recent price increases in
the trading market for shares of Cybertel's common stock was the
result of a greater demand over the supply, these additional
shares will have an adverse effect on the trading market for our
common stock on the OTC Bulletin Board. Also, the filing of
Notices on Form 144 can have the effect of a "cap" on the market,
until the shares covered thereby are sold. See the caption
"Market for Common Equity and Related Stockholder Matters" of this
Prospectus.
The initial planned 10 IP Gateways of our Internet Protocol
Network, estimated to take approximately three months to complete,
depending upon funding, will cost approximately $2,500,000,
including hardware, software and setup costs. These gateways
would allow us to originate telecommunications traffic in 10
cities. A complete Internet Protocol Network throughout the
United States would require approximately 56 gateways at a cost of
approximately $14,000,000, and, depending upon available funding,
as to which we can provide no assurance, would take approximately
six months to complete.
A completed Internet Protocol Network will not ensure the success
of our present or proposed business operations. Any anticipated
revenues would not come for several months after completion and
until there was a sufficient customer base; or we could wholesale
traffic at very low margins, which would substantially alter our
projected revenues.
41
<PAGE>
Cybertel may not be able to build its Internet Protocol Network
with satisfactory technology to attract customers.
Targeted affinity group members may choose not to switch long
distance carriers, regardless of whether the affinity group to
which they belong determines to align with Cybertel; this
development would adversely effect our revenue projections and our
potential for success.
Actual results may differ significantly from those projected in our
forward-looking statements. We can not assure you that we will obtain the
projected results.
Results of Operations.
- ----------------------
At December 31, 1999, we had total assets of $853,031, as compared
with total assets of $399,563 at December 31, 1998.
During the calendar years ended December 31, 1999, and 1998, we had
net losses of ($2,250,265) and ($1,216,792), respectively. We received
revenues of $3,105,570 and $2,572,731 in our two most recent calendar years.
Liquidity and Capital Resources.
- --------------------------------
We had cash resources of $643,952 and $146,209, respectively, at
December 31, 1999 and 1998. Management believes that our current cash on hand
will be sufficient to meet its expenses during the next 12 months.
DESCRIPTION OF PROPERTY
-----------------------
We lease our principal executive offices, which are located at 4320
La Jolla Village Drive, Suite 205, San Diego, California. These offices
consist of approximately 3698 square feet of office space. We pay $8,000 per
month in rent. The lease began on March 1, 2000, and will expire on December
31, 2001.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
Transactions with Management and Others.
- ----------------------------------------
Except as indicated below, during the calendar year ended December
31, 1999, there were no material transactions, series of similar transactions,
currently proposed transactions, or series of similar transactions, to which
Cybertel or any of its subsidiaries was or is to be a party, in which the
42
<PAGE>
amount involved exceeded $60,000 and in which any director or executive
officer, or any security holder who is known to Cybertel to own of record or
beneficially more than five percent of its common stock, or any member of the
immediate family of any of the foregoing persons, had a material interest.
On March 29, 1999, Cybertel issued 30,000 shares to the 6M Family
Trust, in consideration of $3,900.
Certain Business Relationships.
- -------------------------------
Except as indicated under the heading "Transactions with Management
and Others," during the calendar year ended December 31, 1999, there were no
material transactions, series of similar transactions, currently proposed
transactions, or series of similar transactions, to which Cybertel or any
of its subsidiaries was or is to be a party, in which the amount involved
exceeded $60,000 and in which any director or executive officer, or any
security holder who is known to Cybertel to own of record or beneficially
more than five percent of its common stock, or any member of the
immediate family of any of the foregoing persons, had a material interest.
Indebtedness of Management.
- ---------------------------
Except as indicated under the heading "Transactions with Management
and Others," during the calendar year ended December 31, 1999, there were no
material transactions, series of similar transactions, currently proposed
transactions, or series of similar transactions, to which Cybertel or any
of its subsidiaries was or is to be a party, in which the amount involved
exceeded $60,000 and in which any director or executive officer, or any
security holder who is known to Cybertel to own of record or beneficially
more than five percent of the its common stock, or any member of the
immediate family of any of the foregoing persons, had a material interest.
Parents of the Issuer.
- ----------------------
Cybertel has no parents.
Transactions with Promoters.
- ----------------------------
Except as indicated under the heading "Transactions with Management
and Others," during the calendar year ended December 31, 1999, there were no
material transactions, series of similar transactions, currently proposed
transactions, or series of similar transactions, to which Cybertel or any
of its subsidiaries was or is to be a party, in which the amount involved
exceeded $60,000 and in which any promoter or founder, or any member of the
immediate family of any of the foregoing persons, had a material interest.
43
<PAGE>
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
--------------------------------------------------------
Market Information.
- -------------------
Quotation of our common stock on the OTC Bulletin Board of the NASD
only commenced August 3, 1998. We can not assure you that any established
market for our common stock will develop or sustain itself. Even if a market
develops, members of management and others may sell "restricted securities"
under Rule 144 of the Securities and Exchange Commission. These sales may
bring down the price for our stock. Rule 144 requires that a seller hold his
or her shares for at least one year before reselling them. We must also make
sure that the public has access to information about us. We will meet this
requirement by filing our periodic reports on time with the Commission.
Sellers under Rule 144 will also have to limit the number of "restricted
securities" that they sell in any 90 day period and will probably have to file
a Notice of Sale with the Commission.
The National Quotation Bureau, LLC, provided the following
quotations. They do not represent actual transactions and they do not
reflect dealer markups, markdowns or commissions.
<TABLE>
<CAPTION>
STOCK QUOTATIONS*
CLOSING BID
Quarter ended: High Low
- -------------- ---- ---
<S> <C> <C>
August 3, 1998 2.125 1.375
(first available date)to
September 30, 1998
December 31, 1998 2 1.01
March 31, 1999 8.375 1.65625
June 30, 1999 6.1875 3.875
September 30, 1999 6.4375 3.375
December 31, 1999 7.50 3.125
March 31, 2000 20.125 5.0
</TABLE>
44
<PAGE>
Holders.
- --------
As of the date of this Prospectus, we have approximately 209
stockholders of record.
Dividends.
- ----------
We have not declared any cash dividends on our common stock, and we
do not intend to declare dividends in the foreseeable future.
The holders of our Series A Preferred Stock are entitled to receive,
out of funds legally available therefor, dividends equal to 6% of the
Liquidation Preference (i.e., $1000 per share of Series A Preferred Stock) per
annum. Cybertel has the option to pay these dividends either in shares of our
common stock or in cash.
We must pay dividends on our Series A Preferred Stock before paying
dividends on our common stock. If you are a common stock holder, you will not
receive any dividends at least until we pay all dividends owed to the Series A
Preferred Stock holders.
EXECUTIVE COMPENSATION
----------------------
The following table sets forth the aggregate compensation that we
have paid for services rendered during the periods indicated:
Summary Compensation Table
--------------------------
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long Term Compensation
Annual Compensation Awards Payouts
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Secur-
ities All
Name and Year or Other Rest- Under- LTIP Other
Principal Period Salary Bonus Annual rictedlying Pay- Comp-
Position Ended ($) ($) Compen-Stock Optionsouts ensat'n
- -----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Richard 12/31/97 -0- -0- -0- -0- -0- -0- -0-
Mangiarelli 12/31/98 -0- -0- -0- -0- -0- -0- -0-
CEO, Pres. 12/31/99 49,038 -0- -0- -0- -0- -0- -0-
and Director
45
<PAGE>
Paul J. 12/31/97 -0- -0- -0- -0- -0- -0- -0-
Mills 12/31/98 -0- -0- -0- -0- -0- -0- -0-
Secretary 12/31/99 -0- -0- -0- -0- -0- -0- -0-
and Chairman
John E. 12/31/97 -0- -0- -0- -0- -0- -0- -0-
Jordan 12/31/98 -0- -0- -0- -0- -0- -0- -0-
Director 12/31/99 -0- -0- -0- -0- -0- -0- -0-
</TABLE>
We did not issue or grant any cash compensation, deferred
compensation or long-term incentive plan awards to our management during the
years ended December 31, 1998, or December 31, 1999. In April, 1999, we began
paying our Chief Executive Officer and President, Richard D. Mangiarelli, an
annual salary of $75,000. As of December 31, 1999, we had paid Mr.
Mangiarelli $49,038 in salary. Effective October 1, 1999, we increased Mr.
Mangiarelli's salary to $200,000 per year.
Compensation of Directors.
- --------------------------
We do not have any arrangements to compensate our directors for any
services provided as a director. We do not pay any additional amounts to our
directors for committee participation or special assignments.
Employment Contracts and Termination of Employment and Change-in-Control
Arrangements.
- -------------
On October 1, 1999, we entered into Employment Agreements with
Richard Mangiarelli, James Boring and Richard Schmidt. Each of these
Agreements lasts for a period of three years. Upon the first anniversary of
each Agreement, and each anniversary afterward, the Agreements will be
automatically extended unless we give each employee written notice within 30
days of the anniversary date. Mr. Mangiarelli receives a salary of $200,000,
and Mr. Boring's salary is $72,000 per year. From October 1, 1999, to January
31, 2000, Mr. Schmidt's salary was $5,000 per month. On February 1, 2000, it
increased to $100,000 per year. Messrs. Mangiarelli, Boring and Schmidt are
also entitled to the same benefits as other Cybertel executives receive,
including paid vacation and holidays and leaves of absence. In addition, we
agreed to issue 100,000 "unregistered" and "restricted" shares of our common
stock to Mr. Schmidt in 36 equal monthly installments, beginning November 1,
1999.
The Employment Agreements also permit Messrs. Mangiarelli, Boring
and Schmidt to receive 90 days' salary if Cybertel terminates them without
good reason, and a lump sum payment within 30 days of termination if Cybertel
terminates them for good reason. Other than these provisions, we do not have
any employment contracts, compensatory plans or arrangements which would
result in payments to any director or executive officer because of his or her
resignation, retirement or other termination of employment with us or our
subsidiaries, any change in control of Cybertel, or a change in the person's
responsibilities following a change in control Cybertel.
46
<PAGE>
FINANCIAL STATEMENTS
--------------------
Financial Statements for the years ended
December 31, 1999 and 1998
Independent Auditors' Report
Balance Sheet - December 31, 1999
Statement of Operations for the years ended
December 31, 1999 and 1998 (restated)
Statements of Consolidated Stockholders' Equity for the
years ended December 31, 1999 and 1998
Statements of Consolidated Cash Flows for the years ended
December 31, 1999 and 1998
Notes to the Financial Statements
47
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Cybertel Communications Corp.
La Jolla, California
We have audited the accompanying consolidated balance sheets of Cybertel
Communications Corp. as of December 31, 1999 and 1998, and the related
statements of consolidated income, stockholders' equity and cash flows for
each of the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our 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 provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Cybertel
Communications Corp. as of December 31, 1999 and 1998, and the results of its
operations and its cash flows for each of the years then ended.
/s/ Malone & Bailey
MALONE & BAILEY, PLLC
February 25, 2000
Houston, Texas
48
<PAGE>
<TABLE>
CYBERTEL COMMUNICATIONS CORP.
CONSOLIDATED BALANCE SHEETS
December 31, 1999 and 1998
<CAPTION>
(restated)
1999 1998
ASSETS
<S> <C> <C>
Current Assets
Cash $ 643,952 $ 146,209
Accounts receivable 41,542 105,583
Other current assets 25,000 34,500
Total Current Assets 710,494 286,292
Equipment, net of $195,931 and $108,116
accumulated depreciation 138,038 108,116
Deposits 4,500 5,155
TOTAL ASSETS 853,031 399,563
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities
Current portion of long-term debt 3,774 31,271
Notes payable 485,754 47,676
Accounts payable 211,105 107,282
Accounts payable to shareholders 146,946
Accrued expenses 240,805 80,582
Deferred revenue 144,500
Total Current Liabilities 941,438 558,257
Long-term Debt 2,332 2,575
Total Liabilities 943,770 560,832
STOCKHOLDERS' EQUITY
Preferred stock, no par value, 5,000,000 shares
authorized, no shares issued or outstanding
Common stock, $.001 par value, 20,000,000
shares authorized, 4,515,659 and 3,506,659
shares issued and outstanding, respectively 4,515 3,507
Paid in capital 3,646,318 1,326,531
Retained (deficit) (3,741,571) (1,491,306)
TOTAL STOCKHOLDERS' EQUITY ( 90,738) ( 161,269)
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 853,032 $ 399,563
</TABLE>
See accompanying accounting policies
and notes to financial statements.
49
<PAGE>
<TABLE>
CYBERTEL COMMUNICATIONS CORP.
CONSOLIDATED INCOME STATEMENTS
For the Years Ended December 31, 1999 and 1998
<CAPTION>
(restated)
1999 1998
<S> <C> <C>
Revenues $ 3,105,570 $ 2,572,731
Cost of sales 2,391,843 1,770,864
713,727 801,867
Operating Expenses
Selling 119,661 166,593
General and administrative
- paid in cash or accrued 1,443,215 670,417
- paid in stock 1,045,500 976,218
Research and development 145,848 144,000
Depreciation 59,855 50,084
Interest (income) ( 11,503) ( 2,875)
Interest expense 161,416 14,222
Total Operating Expenses 2,963,992 2,018,659
</TABLE>
See accompanying accounting policies
and notes to financial statements.
50
<PAGE>
<TABLE>
CYBERTEL COMMUNICATIONS CORP.
STATEMENTS OF CONSOLIDATED STOCKHOLDERS' EQUITY
For the Years Ended December 31, 1999 and 1998
<CAPTION>
Stock
Common Stock Subscrip. Paid in Retained
Shares $ Rec. Capital Deficit Totals
<S> <C> <C> <C> <C> <C> <C>
Balances,
December 31, 1997 1,716,050 $1,716 $(25,000) $304,686 $(274,515) $ 6,887
Shares issued for
purchase of
Telenomics: 600,000 600 (206,143) (205,543)
Like Dat Music: 100,000 100 19,361 19,461
Stock issued
- - for cash 393,750 394 376,606 377,000
- - less:
subscriptions
receivable (88,500) (88,500)
- - for services 696,859 697 1,393,021 1,393,718
- - less costs of
fundraising
- in cash paid (30,000) (30,000)
- in stock issued (417,500) (417,500)
Net income (loss)
- - Cybertel (1,164,640)(1,164,640)
- - Telenomics 128,819 128,819
- - Like Dat Music (180,970) (180,970)
Balances,
December 31, 1998
(as restated) 3,506,659 3,507 (113,500)1,440,031(1,491,306) ( 161,269)
Stock issued
- - for cash 654,550 654 1,160,646 1,161,300
- - less:
subscriptions
receivable (6,000) (6,000)
- - for services 229,100 229 1,145,271 1,145,500
- - for debt
interest 125,000 125 116,870 116,995
- - less costs of
fundraising
- in stock
issued (97,000) (97,000)
Net (loss)
- - Cybertel (2,237,854)(2,237,854)
- - Telenomics (121,682) (121,682)
- - Like Dat Music 109,271 109,271
Balances,
December 31, 1999 4,515,309 $4,515$(119,500)$3,765,818 $(3,741,571)$(90,738)
</TABLE>
See accompanying accounting policies
and notes to financial statements.
51
<PAGE>
<TABLE>
CYBERTEL COMMUNICATIONS CORP.
STATEMENTS OF CONSOLIDATED CASH FLOWS
For the Years Ended December 31, 1999 and 1998
<CAPTION>
(restated)
1999 1998
<S> <C> <C>
CASH FLOWS USED BY OPERATING ACTIVITIES
Net income (loss) $(2,250,265)$(1,216,792)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation 59,855 50,084
Stock issued for services & interest 1,165,495 992,218
Changes in:
Accounts receivable 64,041 18,907
Other current assets ( 25,000) 800
Accounts payable 128,655 11,255
Amounts payable to shareholders ( 12,100) ( 17,169)
Accrued expenses 29,303 ( 1,334)
Deferred revenue ( 144,500) 144,500
NET CASH USED BY OPERATING ACTIVITIES ( 984,516) ( 17,531)
CASH FLOWS USED BY INVESTING ACTIVITIES
Purchase of equipment ( 89,776) ( 3,073)
Deposit refund 655
NET CASH USED BY INVESTING ACTIVITIES ( 89,121) ( 3,073)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from short-term private debt placement 390,238
Repurchase of stock ( 35,000)
Payments on installment debt ( 27,043) ( 29,146)
Net change in credit lines 22,285
Sales of common stock, net of
costs of fundraising 1,185,900 224,000
NET CASH FLOWS FROM FINANCING ACTIVITIES 1,571,381 159,854
NET INCREASE IN CASH 497,743 139,250
CASH BALANCES
- Beginning of period 146,209 6,959
- End of period $ 643,952 $ 146,209
SUPPLEMENTAL DISCLOSURES
Interest paid $ 16,591 $ 13,460
Income taxes paid 0 0
</TABLE>
See accompanying accounting policies
and notes to financial statements.
52
<PAGE>
NOTE 1 - ACCOUNTING POLICIES
Nature of Business. Cybertel Communications Corp. ("Company") was
incorporated in Nevada in June, 1996. The Company sells telecommunications
services to commercial customers and began operations in 1997. In early 2000,
the Company ceased buying long-distance capacity from large carriers, and
signed contracts with MCI-Worldcom, Bell Atlantic, and Level (3)
Communications, LLC to install and support leased switches, to carry long-
distance traffic. In December 1999, the Company acquired Telenomics, Inc.
("Telenomics") and Like Dat Music, Inc. ("LDM") by exchanging stock in
transactions recorded using the pooling-of-interests method of accounting (see
Note 2).
Telenomics sells Hewlett-Packard HP3000 minicomputers and develops and markets
telephone productivity management and accounting software, principally using
the Oracle and Informix databases running on the HP3000.
LDM is a full-service digital music producer and licensing agent for post-
scoring, lyrics and sound design. LDM sells to ad agencies, networks, and
multi-media companies.
1999 and 1998 financial statements are prepared on a consolidated basis, and
have been restated to show the acquisitions of Telenomics and LDM as if they
occurred on January 1, 1998, with consolidated operations since that date.
Estimates and assumptions. Preparing financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets, liabilities,
revenue and expenses at the balance sheet date and for the period then ended.
Actual results could differ from these estimates.
Revenue recognition occurred when products or services are delivered. The
Company earns a fractional portion of long-distance charges as a referral fee.
Beginning May 1999, the Company began purchasing time from carriers and
reselling it to its customers.
Equipment is computer-related and is stated at cost. Depreciation is computed
by the straight-line method using rates based on estimated 3- to 5-year lives
of the related assets.
Income taxes are computed using the tax liability method of accounting,
whereby deferred income taxes are determined based on differences between
financial reporting and tax bases of assets and liabilities and are measured
using the enacted tax rates that will be in effect when the differences
reverse.
Loss per share is reported under Statement No. 128 of the Financial Accounting
Standards Board ("FAS 128"). FAS 128 replaced the calculation of primary and
fully diluted earnings per share with basic and diluted earnings per share.
Unlike primary earnings per share, basic earnings per share exclude any
dilutive effects of options, warrants, and convertible securities. Diluted
earnings per share are very similar to the previously reported fully diluted
earnings per share. All earnings per share amounts for all periods have been
53
<PAGE>
presented and, where appropriate, restated to conform to the FAS 128
requirement. For 1998, warrants outstanding are not included in the earnings
calculation because their effect in a loss year would be antidilutive.
NOTE 2 - ACQUISITIONS OF TELENOMICS AND LDM
Telenomics was formed in 1982 and was acquired by the Company on December 23,
1999, by exchanging 600,000 shares of Company stock for 100% of the
outstanding shares of Telenomics. LDM was formed in 1995 and was acquired by
the Company on December 28, 1999, by exchanging 100,000 shares of Company
stock for 100% of the outstanding shares of LDM. These two acquisitions were
accounted for as poolings of interests and accordingly prior period financial
statements have been restated to include the combined results of operations,
financial position and cash flows of Telenomics and LDM.
There were no material transactions between the Company, Telenomics and LDM
prior to the acquisitions. All accounting policies used are consistent.
SFAS No. 131, "Disclosures about Segments of an Enterprise" require
disclosures of information about operating segments in annual financial
statements. Operating segments are defined as components of an enterprise for
which separate financial information is available that is evaluated regularly
by the chief operating decision maker(s) in deciding how to allocate resources
and in assessing performance. Here, both Telenomics and LDM were closely held
prior to their acquisition by the Company. The owners of both continue to
manage each business, and each is a distinctly different business. Telenomics
and LDM will continue to be managed as separate business segments.
There are no foreign sales of any entity.
The following information presents certain balance sheet and income statement
data as required by both SFAS No. 131 and APB Opinion No. 16:
Cybertel Telenomics LDM Totals
As of December 31, 1999:
Current assets $ 411,940 $ 297,542 $ 1,013 $ 710,495
Fixed assets
Balances, 12-31-97 11,912 114,921 33,449 160,282
Additions, 1998 3,073 3,073
Additions, 1999 89,776 89,776
Depreciation, '98 & '99 (28,029) (54,116) (28,449) (110,594)
Total fixed assets 76,732 60,805 5,000 142,537
Total assets $488,671 $358,347 $ 6,013 $ 853,032
As of December 31, 1998:
Total assets $ 98,706 $259,505 $41,352 $ 399,563
Year Ended December 31, 1999:
Revenues $1,601,689 $1,084,916 $418,965 $3,105,570
Cost of sales 1,612,855 705,667 73,321 2,391,843
54
<PAGE>
Selling, general and
administrative 2,059,695 324,110 224,571 2,608,376
Research and development 145,848 145,848
Depreciation 25,629 23,121 11,105 59,855
Interest (income) (11,503) (11,503)
Interest expense 152,866 7,853 697 161,416
Net income (loss) $(2,237,853) $(121,683) $109,271 $(2,250,265)
Year Ended December 31, 1998:
Revenues $ 16,004 $2,302,209 $254,518 $ 2,572,731
Cost of sales 1,579,313 191,551 1,770,864
Selling, general and
administrative 1,177,909 409,135 226,184 1,813,228
Research and development 144,000 144,000
Depreciation 2,400 30,995 16,689 50,084
Interest (income) (1,926) (949) (2,875)
Interest expense 2,262 10,896 1,064 14,222
Net income (loss) $(1,164,641) $ 128,819 $(180,970) $(1,216,792)
Major customers (> 10% of individual segment sales revenues) include
Telenomics (Clark County, Washington, 36% in 1999; Gregg Appliances, Inc., 15%
in 1998), and LDM (Prolong Super Lubricants, Inc., 69% in 1999). Telenomics
buys substantially all of its Hewlett-Packard computer equipment from a single
distributor, but has the right to buy from other authorized distributors. No
other single customers nor any vendors comprise more than 10% of any single
segment's total revenues or costs.
NOTE 3 - NOTES PAYABLE
In November and December 1999, the Company obtained net proceeds of $390,238
in loans with a face value of $500,000, due 6 months from origination. Total
interest costs include the $109,762 discount, face interest at 14% and the
value of 125,000 shares issued in connection with this transaction. The
interest is accrued along the 6-month life of the loans. As of December 31,
1999, total interest charges of $769,762 is allocated $144,093 to 1999 and
$625,669 to 2000. The carrying amount of $417,336 includes the $390,238
principal plus $27,098 in accrued interest.
Telenomics has a $50,000 line of credit with Bank of America, N.A. This
account allows for the extension of credit on demand, and is not
collateralized. The credit line accrues interest at Bank's prime rate plus
4.525%. The balance as of December 31, 1999, is $47,388.
Other notes payable total $21,030 to various banks and credit cards, is
unsecured, and bears interest at 12% - 18%.
NOTE 3 - INSTALLMENT DEBT
The Company capitalized three equipment leases payable in 16 to 26 equal
remaining monthly installments totaling $370, using a 10% discount factor.
55
<PAGE>
The debt is secured by the equipment, with a net book value as of December 31,
1999, of $6,069. The total remaining principal portion of $6,106 is due
$3,774 in 2000, $2,044 in 2001, and $288 in 2002.
NOTE 3 - ACCOUNTS PAYABLE TO SHAREHOLDERS
In 1997, a Company founding shareholder loaned $12,700 to the Company. This
loan was repaid in 1999. The founding shareholder of Telenomics was owed
accrued salary of $145,746 as of December 31, 1997. Portions were paid in
1998 and 1999, with the balance remaining at $130,946 as of December 31, 1999.
NOTE 4 - INCOME TAXES
As of December 31, 1999, the Company has approximately $3,600,000 in unused
unconsolidated net operating loss carryforwards which expire $250,000 in 2014,
1,150,000 in 2018 and $2,200,000 in 2019. Internal Revenue Code Section 382
restricts the ability to use these carryforwards whenever an ownership change
as defined occurs. The Company incurred such an ownership change on September
28, 1998, when the total of cash sales to the public and stock issued for
services exceeded this 50% level. As a result of this ownership change,
$800,000 of the Company's net operating loss available to offset future
profits is restricted to $140,000 per year.
Net prior operating losses of Telenomics are not available to offset future
income as the ownership of the Company changed 100% when it was acquired by
the Company. LDM was an S Corporation, with all income and losses passing
through to its shareholders until its acquisition by the Company.
NOTE 5 - COMMON STOCK
During 1999 and 1998, the Company sold 651,550 and 393,750 shares of stock for
net proceeds of $1,155,300 and $377,000, respectively, pursuant to two
placement offerings exempt from registration under Rule 504 of the Securities
and Exchange Commission. "Subscriptions receivable" represents shares issued
for cash in 1998 and collected in early 1999. The $88,500 balance is shown as
a reduction in Stockholders' Equity.
General and administrative expenses paid in stock were $1,045,500 and $976,218
in 1999 and 1998, respectively.
NOTE 6 - PRIOR STOCK REPURCHASE BY SUBSIDIARY
At formation in 1995, LDM had a 90% majority shareholder and a California
couple as 10% minority shareholders. The 10% minority shareholders loaned the
Company $240,000 in 1995 and 1996. As partial consideration for the loan, an
additional 10% of LDM was transferred by the majority to the minority
shareholders. One of the minority shareholders died in early 1998. LDM
negotiated a settlement with the surviving spouse whereby the $240,000 loan
and accrued interest was contributed to capital and the stock was repurchased
by LDM for $35,000, which was paid March 27, 1998.
56
<PAGE>
NOTE 7 - OPERATING LEASES
The Company maintains office space in La Jolla and Temecula, California.
Total rent obligations are $10,536 per month for up to 36 months. Minimum
lease payments due are $107,896 in 2000, $126,432 in 2001, $30,432 in 2002,
and $2,536 in 2003.
NOTE 8 - SUBSEQUENT EVENTS
In January 2000, the Company issued 1,000,000 stock optins to its president,
Richard Mangiarelli, pursuant to the discretion of its Board of Directors.
These options have a $5 exercise price, a 5-year life, and vest immediately.
The Company received net proceeds of $2,830,125 in February 2000 in connection
with a private placement of $3 million in 6% Convertible Preferred Stock.
This preferred stock is convertible to Company common stock at any time at a
formula approximating market value. 225,000 warrants were issued to investors
in connection with this funding, and these have an exercise price of $17.40
per share.
On February 14, 2000, the Company began another private placement to sell up
to 1 million common shares at $8 per share. As of February 25, 2000, 15,000
shares have been sold in this offering for $120,000 gross proceeds.
57
<PAGE>
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
----------
Cybertel has not dismissed any principal independent accountant, and
no such accountant has resigned or declined to stand for re-election, since
Cybertel's inception in June, 1996.
- -------------------------------------------------------------------------------
- -----------------------------------------------------------------------------
58
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors And Officers
-----------------------------------------
Section 78.7502(1) of the Nevada Revised Statutes ("NRS")
authorizes a Nevada corporation to indemnify any director, officer, employee,
or corporate agent "who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative, except an action by or
in the right of the corporation" due to his or her corporate role. Section
78.7502(1) extends this protection "against expenses, including attorneys'
fees, judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with the action, suit or proceeding if he
acted in good faith and in a manner which he 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 his conduct was unlawful."
Section 78.7502(2) of the NRS also authorizes indemnification of
the reasonable defense or settlement expenses of a corporate director,
officer, employee or agent who is sued, or is threatened with a suit, by or in
the right of the corporation. The party must have been acting in good faith
and with the reasonable belief that his or her actions were in or not opposed
to the corporation's best interests. Unless the court rules that the party is
reasonably entitled to indemnification, the party seeking indemnification must
not have been found liable to the corporation.
To the extent that a corporate director, officer, employee, or
agent is successful on the merits or otherwise in defending any action or
proceeding referred to in Section 78.7502(1) or 78.7502(2), Section 78.7502(3)
of the NRS requires that he be indemnified "against expenses, including
attorneys' fees, actually and reasonably incurred by him in connection
with the defense."
Unless ordered by a court or advanced pursuant to Section 78.751(2),
Section 78.751(1) of the NRS limits indemnification under Section 78.7502 to
situations in which either (1) the stockholders, (2)the majority of a
disinterested quorum of directors, or (3) independent legal counsel determine
that indemnification is proper under the circumstances.
Section 78.751(2) authorizes a corporation's articles of
incorporation, bylaws or agreement to provide that directors' and officers'
expenses incurred in defending a civil or criminal action must be paid by the
corporation as incurred, rather than upon final disposition of the action,
upon receipt by the director or officer to repay the amount if a court
ultimately determines that he is not entitled to indemnification.
Section 78.751(3)(a) provides that the rights to indemnification and
advancement of expenses shall not be deemed exclusive of any other rights
under any bylaw, agreement, stockholder vote or vote of disinterested
directors. Section 78.751(3)(b) extends the rights to indemnification and
advancement of expenses to former directors, officers, employees and agents,
as well as their heirs, executors, and administrators.
59
<PAGE>
Regardless of whether a director, officer, employee or agent has
the right to indemnity, Section 78.752 allows the corporation to purchase and
maintain insurance on his behalf against liability resulting from his or her
corporate role.
Article IX of our Articles of Incorporation limits the personal
liability of a director or executive officer for damages for breach of
fiduciary duty to acts or omissions involving intentional misconduct, fraud
or a knowing violation of law. In addition, Article X provides for
indemnification of the Company's directors and executive officers to
substantially the same extent as the NRS.
The foregoing is only a summary of the indemnification provisions of
our Articles of Incorporation. See the Exhibit Index.
Item 25. Other Expenses of Issuance And Distribution
-------------------------------------------
The following table sets forth the expenses which we expect to incur
in connection with the registration of the shares of common stock being
registered hereby. All of these expenses, except for the Commission
registration fee, are estimated:
Securities and Exchange Commission registration fee........$ 5,311.73
Legal fees and expenses....................................$60,000
Accounting fees............................................$ 1,500
Printing and engraving expenses............................$ 500
Transfer agent fees........................................$ 1,500
Miscellaneous..............................................$ 2,500
--------
Total................................................$71,311.73
Item 26. Recent Sales of Unregistered Securities
---------------------------------------
The following table reflects the sales of our unregistered securities
from inception through December 31, 1999:
<TABLE>
<CAPTION>
Common Stock
------------
Date Number of Aggregate
Name Acquired Shares Consideration
---- -------- --------- -------------
<S> <C> <C> <C>
Founders 8/1/96 2,000,000 (1)
Subscribers of
offering under
Rule 504 (2) 125,000 (3) $250,000
60
<PAGE>
Subscribers under (4) 350,000 $ 45,500
second Rule 504
offering
Paul Mills 6/1/97 90,000 $180,000
Kaplan Trust 6/1/97 50,000 $ 10,000
Paul Ferandell 6/1/97 50,000 $ 25,000
Tony Cesare 6/1/97 10,000 $ 2,500
Equity Advisors
International 187,500
Four consultants 8/17/98 133,000 Services
valued at
$266,000
Jimmy Villalobos 8/17/98 3,000 $ 750
Daniel J. Sevier 8/17/98 4,000 $ 1,000
Five consultants 8/21/98 36,800 Services
valued at
$73,600
Southwest Products 12/23/98 25,000 $ 50,000
Southwest Products 1/21/99 10,000 $ 20,000
Three consultants 2/2/99 12,000 Services
valued at
$24,000
National Capital
Merc. 2/19/99 16,000 $ 40,800
National Capital
Merc. 3/25/99 20,000 $110,000
Rufus Young, Jr. 3/26/99 3,300 Services
valued at
$16,500
Jeffery Rush 4/20/99 10,000 Services
valued at
$20,000
Telebil 4/20/99 100,000 Services
valued at
$200,000
61
<PAGE>
26 consultants 5/27/99 97,400 Services
valued at
$194,800
Holders of warrants
issued under Rule
504 offering (5) 375,000 $737,100
Eight consultants (6) Warrants to Services
purchase valued at
195,077 $390,154
shares
Five consultants 7/27/99 46,100 Services
valued at
$230,500
Two consultants 8/12/99 58,000 Services
valued at
$290,000
Note holders 11/19/99 75,000 (7)
Capital Growth 11/19/99 50,000 (8)
Resources
Atlas Securities 12/22/99 100,000 $250,000
T.J. Knowles 12/27/99 100,000 Like Dat Music
acquisition
Telenomics 12/28/99 600,000 Telenomics
stockholders acquisition
(1) Of this amount, we authorized a total of 1,783,000 for
issuance on August 1,1996. These shares were issued on April
16, 1998, for a combination of cash and services.
(2) The purchasers under this offering made their subscriptions
at various times from January, 1998 through July, 1998.
(3) We offered 125,000 units, at a price of $2.00 per
unit. Each unit consisted of one share of our
common stock and warrants to purchase up to three additional
shares at a price of $2.00 per share. As of the date of this
Registration Statement, the warrant holders have exercised all
or substantially all of these warrants.
(4) Various persons subscribed to this offering in March, 1998.
(5) The warrant holders exercised these warrants over a period of
time ranging from approximately February 19, 1999, to February
28, 1999.
62
<PAGE>
(6) We issued these warrants from June, 1997 to February, 1998.
They expired on or about March 10, 1999.
(7) We issued these shares to the holders of the notes on our
$500,000 bridge loan as partial consideration for
such loan.
(8) We issued these shares as a placement fee in connection with
our $500,000 bridge loan.
</TABLE>
Management believes each of the foregoing persons or entities was
either an "accredited investor," or "sophisticated investor" as defined in
Rule 506 of Regulation D of the Securities and Exchange Commission. Each had
access to all material information about Cybertel prior to the offer, sale or
issuance of these "restricted securities." We believe these shares were
exempt from the registration requirements of the Securities Act of
1933, as amended (the "1933 Act"), pursuant to Section 4(2) (with respect to
all issuances other than issuances as part our offerings under Rule 504) or
3(b) thereof (with respect to the issuances under the Rule 504 offerings).
We have taken the following factors into account in determining the
valuations of these shares: (i) the fact that the shares are "restricted"
(with the exception of the shares issued under Rule 504 of the Securities and
Exchange Commission); (ii) the limited market for our common stock on the OTC
Bulletin Board of the NASD; (iii) the low book value per share ($0.038 at
December 31, 1998); and (iv) our history of limited revenues ($25,962 and
$16,004 in 1997 and 1998, respectively).
Item 27. Exhibits
--------
The following exhibits are filed as a part of this Registration
Statement:
<TABLE>
<CAPTION>
Exhibit
Number Description*
- ------ ------------
<S> <C>
3.1 Articles of Incorporation dated June 13, 1996.
3.2 Certificate of Correction
3.3 Bylaws
5.1 Opinion of Branden T. Burningham, Esq. regarding legality
63
<PAGE>
10.1 Agreement and Plan of Reorganization.
Exhibit A-Stockholders of Like Dat Music.
Exhibit B-Cybertel Financial Statements.**
Exhibit C-Exceptions.
Exhibit D-Like Dat Music Financial Statements.
Exhibit E-Exceptions.
Exhibit F-Investment Letter.
Exhibit G-Cybertel Compliance Certificate.
Exhibit H-Like Dat Music Compliance
Certificate.
10.2 Reorganization Agreement.
Schedule A-Telenomics Stockholder.
Schedule of Debt and Equity Holders.
Schedule B-Conflicts or Contract Defaults.
Schedule C-Subsidiaries and Prior Dealings.
Schedule D-List of Assets.
Schedule E-Exceptions to Titles.
Schedule F-Material Change to Financials.
Schedule G-Permits, Franchises and Licenses.
Schedule H-Contracts Affecting Assets.
Schedule I-Contracts Requiring Future
Performance.
Schedule J-Disposition of Assets.
Schedule K-Insurance.
Schedule l-Employee Pensions and Sick Leave
Policies.
Schedule M-Litigation.
Schedule N-Cybertel Subsidiaries.
Schedule O-Cybertel Securities and Exchange
Commission Filings.
Schedule P-Cybertel Disclosure Documents.
Exhibit 1-Telenomics Financial Statements.
Exhibit 2-Investment Letter.
Exhibit 3-Cybertel Financial Statements.**
Exhibit 4-Shareholders Agreement.
Exhibit 5-Finders.
Exhibit 6-Telenomics Promissory Note
10.3 Securities Purchase Agreement, with exhibits thereto
10.4 Employment Agreement with Richard Mangiarelli
10.5 Employment Agreement with James Boring
10.6 Employment Agreement with Richard Schmidt
10.7 Telecommunications Services Agreement with Worldcom
Network Services, Inc., with Amendment No. 1 thereto
10.8 Carrier Service Agreement with Flat Rate Communications, Inc.
10.9 Carrier Service Agreement with LD Exchange.com, Inc.
21.1 List of Subsidiaries
23.1 Consent of Malone & Bailey, PLLC
23.2 Consent of Branden T. Burningham, Esq.
27 Financial Data Schedule
64
<PAGE>
* Summaries of all exhibits contained within this
Registration Statement are modified in their
entirety by reference to these Exhibits.
** Incorporated by reference from our Registration
Statement on Form 10-SB, as amended, and our
Quarterly Report on Form 10-QSB for the quarterly
period ended September 30, 1999.
Item 28. Undertakings
------------
Cybertel hereby undertakes:
(1) To file, during any period in which it offers or sells
securities, a post-effective amendment to this Registration Statement to:
(i) include any prospectus required by Section 10(a)(3) of
the Securities Act;
(ii) reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the information in
the registration statement; and
(iii) include any additional or changed material information
on the plan of distribution.
(2) For determining liability under the Securities Act, to treat
each post-effective amendment as a new registration statement of the
securities offered, and the offering of the securities at that time shall be
deemed to be the initial bona fide offering.
(3) To file a post-effective amendment to remove from
registration any of the securities that remain unsold at the end of the
offering.
(4) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to our directors, executive officers
and controlling persons the foregoing provisions or otherwise, we have been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. If a claim for indemnification against such
liabilities (other than our payment of expenses incurred or paid by any of our
directors, executive officers or controlling persons in the successful defense
of any action, suit or proceeding) is asserted by such director, executive
officer or controlling person in connection with the securities being
registered, we will, unless in the opinion of our counsel the matter has been
settled by a controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by us is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
65
<PAGE>
SIGNATURES
----------
In accordance with the requirements of the Securities Act of 1933,
the registrant certifies that it has reasonable grounds to believe that it
meets all of the requirements of filing of Form SB-2 and authorized this
registration statement to be signed on its behalf by the undersigned in the
City of La Jolla, State of California, on May 5, 2000.
CYBERTEL COMMUNICATIONS CORP.
By /s/ Richard D. Mangiarelli
---------------------------------
Richard D. Mangiarelli, CEO,
President and Director
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following person in the capacities
and on the dates stated.
/s/ Richard D. Mangiarelli
---------------------------------
Richard D. Mangiarelli, CEO,
President and Director
/s/ Paul J. Mills
----------------------------------
Paul J. Mills, Secretary and
Director
/s/ John E. Jordan
----------------------------------
John E. Jordan, Director
66
<PAGE>
Date Filed: May 5, 2000 SEC File No. _________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
EXHIBITS
TO
FORM SB-2 REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
CYBERTEL COMMUNICATIONS CORP.
</TABLE>
ARTICLES OF INCORPORATION
OF
CYBERTEL, COMMUNICATIONS CORP.
KNOW ALL MEN BY THESE PRESENTS:
That we, the undersigned, have this day voluntarily associated ourselves
together for the purpose of forming a Corporation under and pursuant to the
laws of the State of Nevada, and we do hereby certify that:
ARTICLE I - NAME: The exact name of this Corporation is:
Cybertel, Communications Corp.
ARTICLE II - RESIDENT AGENT:
The Resident Agent of the Corporation is Max C. Tanner, Esq., The Law
Offices of Max C. Tanner, 2950 East Flamingo Road, Suite G, Las Vegas, Nevada
89121.
ARTICLE III - DURATION: The Corporation shall have perpetual existence.
ARTICLE IV - PURPOSES: The purpose, object and nature of the business for
which this Corporation is organized are:
(a) To engage in any lawful activity;
(b) To carry on such business as may be necessary, convenient, or
desirable to accomplish the above purposes, and to do all other
things incidental thereto which are not forbidden by law or by
these Articles of Incorporation.
ARTICLE V - POWERS: The powers of the Corporation shall be those powers
granted by 78.060 and 78.070 of the Nevada Revised Statutes under which this
corporation is formed. In addition, the Corporation shall have the following
specific powers:
(a) To elect or appoint officers and agents of the Corporation and to
fix their compensation;
(b) To act as an agent for any individual, association, partnership,
corporation or other legal entity;
(c) To receive, acquire, hold, exercise rights arising out of the
ownership or possession thereof, sell, or otherwise dispose of,
shares or other interests in, or obligations of, individuals,
associations, partnerships, corporations, or governments;
(d) To receive, acquire, hold, pledge, transfer, or otherwise dispose
of shares of the corporation, but such shares may only be
purchased, directly or indirectly, out of earned surplus;
(e) To make gifts or contributions for the public welfare or for
charitable, scientific or educational purposes, and in time of
war, to make donations in aid of war activities.
ARTICLE VI - CAPITAL STOCK:
Section 1. Authorized Shares. The total number of shares which this
Corporation is authorized to issue is 25,000,000 shares of Common Stock
at $.001 par value per share.
(a) The total number of shares of Common Stock which this Corporation
is authorized to issue is 20,000,000 shares at $.001 par value per
share.
(b) The total number of shares of Preferred Stock which this
Corporation is authorized to issue is 5,000,000 shares at $.001
par value per share, which Preferred Stock may contain special
preferences as determined by the Board of Directors of the
Corporation, including, but not limited to, the bearing of
interest and convertibility into shares of Common Stock of the
Corporation.
Section 2. Voting Rights of Shareholders. Each holder of the Common
Stock shall be entitled to one vote for each share of stock standing in
his name on the books of the Corporation.
Section 3. Consideration for Shares. The Common Stock shall be issued
for such consideration, as shall be fixed from time to time by the Board
of Directors. In the absence of fraud, the judgment of the Directors as
to the value of any property for shares shall be conclusive. When
shares are issued upon payment of the consideration fixed by the Board
of Directors, such shares shall be taken to be fully paid stock and
shall be non-assessable. The Articles shall not be amended in this
particular.
Section 4. Pre-emptive Rights. Except as may otherwise be provided by
the Board of Directors, no holder of any shares of the stock of the
Corporation, shall have any preemptive right to purchase, subscribe for,
or otherwise acquire any shares of stock of the Corporation of any class
now or hereafter authorized, or any securities exchangeable for or
convertible into such shares, or any warrants or other instruments
evidencing rights or options to subscribe for, purchase, or otherwise
acquire such shares.
Section 5. Stock Rights and Options. The Corporation shall have the
power to create and issue rights, warrants, or options entitling the
holders thereof to purchase from the corporation any shares of its
capital stock of any class or classes, upon such terms and conditions
and at such times and prices as the Board of Directors may provide,
which terms and conditions shall be incorporated in an instrument or
instruments evidencing such rights. In the absence of fraud, the
judgment of the Directors as to the adequacy of consideration for the
issuance of such rights or options and the sufficiency thereof shall be
conclusive.
ARTICLE VII - ASSESSMENT OF STOCK: The capital stock of this Corporation,
after the amount of the subscription price has been fully paid in, shall not
be assessable for any purpose, and no stock issued as fully paid up shall ever
be assessable or assessed. The holders of such stock shall not be individually
responsible for the debts, contracts, or liabilities of the Corporation and
shall not be liable for assessments to restore impairments in the capital of
the Corporation.
ARTICLE VIII - DIRECTORS: For the management of the business,and for the
conduct of the affairs of the Corporation, and for the future definition,
limitation, and regulation of the powers of the Corporation and its directors
and shareholders, it is further provided:
Section 1. Size of Board. The members of the governing board of the
Corporation shall be styled directors. The number of directors of the
Corporation, their qualifications, terms of office, manner of election,
time and place of meeting, and powers and duties shall be such as are
prescribed by statute and in the by-laws of the Corporation. The name
and post office address of the directors constituting the first board of
directors, which shall be One (1) in number are:
NAME ADDRESS
Max C. Tanner 2950 East Flamingo Road
Suite G
Las Vegas, NV 89121
Section 2. Powers of Board. In furtherance and not in limitation of
the powers conferred by the laws of the State of Nevada, the Board of
Directors is expressly authorized and empowered:
(a) To make, alter, amend, and repeal the By-Laws subject to the power
of the shareholders to alter or repeal the By-Laws made by the
Board of Directors.
(b) Subject to the applicable provisions of the ByLaws then in effect,
to determine, from time to time, whether and to what extent, and
at what times and places, and under what conditions and
regulations, the accounts and books of the Corporation, or any of
them, shall be open to shareholder inspection. No shareholder
shall have any right to inspect any of the accounts, books or
documents of the Corporation, except as permitted by law, unless
and until authorized to do so by resolution of the Board of
Directors or of the Shareholders of the Corporation;
(c) To issue stock of the Corporation for money, property,services
rendered, labor performed, cash advanced, acquisitions for other
corporations or for any other assets of value in accordance with
the action of the board of directors without vote or consent of
the shareholders and the judgment of the board of directors as to
value received and in return therefore shall be conclusive and
said stock, when issued, shall be fully-paid and non-assessable.
(d) To authorize and issue, without shareholder consent, obligations
of the Corporation, secured and unsecured, under such terms and
conditions as the Board, in its sole discretion, may determine,
and to pledge or mortgage, as security therefore, any real or
personal property of the Corporation, including after-acquired
property;
(e) To determine whether any and, if so, what part, of the earned
surplus of the Corporation shall be paid in dividends to the
shareholders, and to direct and determine other use and
disposition of any such earned surplus;
(f) To fix, from time to time, the amount of the profits of the
Corporation to be reserved as working capital or for any other
lawful purpose;
(g) To establish bonus, profit-sharing, stock option, or other types
of incentive compensation plans for the employees, including
officers and directors, of the Corporation, and to fix the amount
of profits to be shared or distributed, and to determine the
persons to participate in any such plans and the amount of their
respective participations.
(h) To designate, by resolution or resolutions passed by a majority of
the whole Board, one or more committees, each consisting of two or
more directors, which, to the extent permitted by law and
authorized by the resolution or the By-Laws, shall have and may
exercise the powers of the Board;
(i) To provide for the reasonable compensation of its own members by
By-Law, and to fix the terms and conditions upon which such
compensation will be paid;
(j) In addition to the powers and authority herein before, or by
statute, expressly conferred upon it, the Board of Directors may
exercise all such powers and do all such acts and things as may be
exercised or done by the corporation, subject, nevertheless, to
the provisions of the laws of the State of Nevada, of these
Articles of Incorporation, and of the By-Laws of the Corporation.
Section 3. Interested Directors. No contract or transaction between
this Corporation and any of its directors, or between this Corporation
and any other corporation, firm, association, or other legal entity
shall be invalidated by reason of the fact that the director of the
Corporation has a direct or indirect interest, pecuniary or otherwise,
in such corporation, firm, association, or legal entity, or because the
interested director was present at the meeting of the Board of Directors
which acted upon or in reference to such contract or transaction, or
because he participated in such action, provided that: (1) the
interest of each such director shall have been disclosed to or known by
the Board and a disinterested majority of the Board shall have
nonetheless ratified and approved such contract or transaction (such
interested director or directors may be counted in determining whether a
quorum is present for the meeting at which such ratification or approval
is given); or (2) the conditions of N.R.S. 78.140 are met.
ARTICLE IX - LIMITATION OF LIABILITY OF OFFICERS OR DIRECTORS: The personal
liability of a director or officer of the corporation to the corporation or
the Shareholders for damages for breach of fiduciary duty as a director or
officer shall be limited to acts or omissions which involve intentional
misconduct, fraud or a knowing violation of law.
ARTICLE X - INDEMNIFICATION: Each director and each officer of the
corporation may be indemnified by the corporation as follows:
(a) The corporation may indemnify any person who was or is a party,
or is threatened to be made a party, to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the
right of the corporation), by reason of the fact that he is or was
a director, officer, employee or agent of the corporation, or is
or was serving at the request of the corporation as a director,
officer, employee or agent of
another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement, actually and
reasonably incurred by him in connection with the action, suit or
proceeding, if he acted in good faith and in a manner which he
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 his conduct was
unlawful. The termination of any action, suite or proceeding, by
judgment, order, settlement, conviction or upon a plea of nolo
contendere or its equivalent, does not of itself create a
presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the
best interests of the corporation, and that, with respect to any
criminal action or proceeding, he had reasonable cause to believe
that his conduct was unlawful.
(b) The corporation may indemnify any person who was or is a party,
or is threatened to be made a party, to any threatened, pending
or completed action or suit by or in the right of the corporation,
to procure a judgment in its favor by reason of the fact that he
is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise
against expenses including amounts paid in settlement and
attorneys' fees actually and reasonably incurred by him in
connection with the defense or settlement of the action or suit,
if he acted in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interests of the
corporation. Indemnification may not be made for any claim, issue
or matter as to which such a person has been adjudged by a court
of competent jurisdiction, after exhaustion of all appeals there
from, to be liable to the corporation or for amounts paid in
settlement to the corporation, unless and only to the extent that
the court in which the action or suit was brought or other court
of competent jurisdiction determines upon application that in view
of all the circumstances of the case the person is fairly and
reasonably entitled to indemnity for such expenses as the court
deems proper.
(c) To the extent that a director, officer, employee or agent of a
corporation has been successful on the merits or otherwise in
defense of any action, suit or proceeding referred to in
subsections (a) and (b) of this Article, or in defense of any
claim, issue or matter therein, he
must be indemnified by the corporation against expenses, including
attorney's fees, actually and reasonably incurred by him in
connection with the defense.
(d) Any indemnification under subsections (a) and (b) unless ordered
by a court or advanced pursuant to subsection (e), must be made by
the corporation only as authorized in the specific case upon a
determination that indemnification of the director, officer,
employee or agent is proper in the circumstances. The
determination must be made:
(i) By the stockholders;
(ii) By the board of directors by majority vote of a
quorum consisting of directors who were not
parties to the act, suit or proceeding;
(iii) If a majority vote of a quorum consisting of directors
who were not parties to the act, suit or proceeding so
orders, by independent legal counsel in a written
opinion; or
(iv) If a quorum consisting of directors who were not
parties to the act, suit or proceeding cannot be
obtained, by independent legal counsel in a written
opinion.
(e) Expenses of officers and directors incurred in defending a civil
or criminal action, suit or proceeding must be paid by the
corporation as they are incurred and in advance of the final
disposition of the action, suit or proceeding, upon receipt of an
undertaking by or on behalf of the director or officer to repay
the amount if it is ultimately determined by a court of competent
jurisdiction that he is not entitled to be indemnified by the
corporation. The provisions of this subsection do not affect any
rights to advancement of expenses to which corporate personnel
other than directors or officers may be entitled under any
contract or otherwise by law.
(f) The indemnification and advancement of expenses authorized in or
ordered by a court pursuant to this section:
(i) Does not exclude any other rights to which a person seeking
indemnification or advancement of expenses may be entitled
under the certificate or articles of incorporation or any
bylaw, agreement, vote of stockholders or disinterested
directors or otherwise, for either an action in his official
capacity or an action in another capacity while holding his
office, except that indemnification, unless ordered by a
court pursuant to subsection (b) or for the advancement of
expenses made pursuant to subsection (e) may not be made to
or on behalf of any director or officer if a final
adjudication establishes that his acts or omissions involved
intentional misconduct, fraud or a knowing violation of the
law and was material to the cause of action.
(ii) Continues for a person who has ceased to be a director,
officer, employee or agent and inures to the benefit of the
heirs, executors and administrators of such a person.
ARTICLE XI - PLACE OF MEETING; CORPORATE BOOKS: Subject to the laws of the
State of Nevada, the shareholders and the Directors shall have power to hold
their meetings, and the Directors shall have power to have an office or
offices and to maintain the books of the Corporation outside the State of
Nevada, at such place or places as may from time to time be designated in the
By-Laws or by appropriate resolution.
ARTICLE XII - AMENDMENT OF ARTICLES: The provisions of these Articles of
Incorporation may be amended, altered or repealed from time to time to the
extent and in the manner prescribed by the laws of the State of Nevada, and
additional provisions authorized by such laws as are then in force may be
added. All rights herein conferred on the directors, officers and
shareholders are granted subject to this reservation.
ARTICLE XIII - INCORPORATOR: The name and address of the sole incorporator
signing these Articles of Incorporation is as follows:
NAME POST OFFICE ADDRESS
1. Max C. Tanner 2950 East Flamingo Road, Suite G
Las Vegas, Nevada 89121
IN WITNESS WHEREOF, the undersigned incorporator has executed these
Articles of Incorporation this 12th day of June, 1996.
/s/ Max C. Tanner
-----------------
Max C. Tanner
STATE OF NEVADA )
)ss:
COUNTY OF CLARK )
On June 12, 1996, personally appeared before me, a Notary Public, Max C.
Tanner, who acknowledged to me that he executed the foregoing Articles of
Incorporation for Cybertel, Communications Corp., a Nevada corporation.
/s/ Trisha Chapman
--------------------
Notary Public
CERTIFICATE OF CORRECTION
1. The name of the Corporation is Cybertel, Communications Corp. (the
"Corporation").
2. Description of the original document for which correction is being made:
Articles of Incorporation.
3. Filing date of the original document: June 13, 1996.
4. Description of the incorrect statement and the reason it is incorrect or
the manner in which the execution or other formal authentication was
defective: There should be no comma after "Cybertel."
5. The mistake was due to a typographical error.
6. Pursuant to Section 78.0295 of the Nevada Revised Statutes, the Articles
of Incorporation of the Corporation shall be corrected as follows: The
name of the Corporation shall be Cybertel Communications Corp.
IN WITNESS THEREOF, the undersigned officer of the Corporation,
certifying that the foregoing is true and correct under penalty of perjury,
has set his hand this 14 day of March, 2000.
/s/ Richard D. Mangiarelli
--------------------------
Richard D. Mangiarelli, President
BY-LAWS OF
CYBERTEL, COMMUNICATIONS INC.
ARTICLE I
SHAREHOLDERS
Section 1.01 Annual Meeting. The annual meeting of the shareholders
shall be held at such date and time as shall be designated by the board of
directors and stated in the notice of the meeting or in a duly-executed waiver
of notice thereof. If the corporation shall fail to provide notice of the
annual meeting of the shareholders as set forth above, the annual meeting of
the shareholders of the corporation shall be held during the month of November
or December of each year as determined by the Board of Directors, for the
purpose of electing directors of the corporation to serve during the ensuing
year and for the transaction of such other business as may properly come
before the meeting. If the election of the directors is not held on the day
designated herein for any annual meeting of the shareholders, or at any
adjournment thereof, the president shall cause the election to be held at a
special meeting of the shareholders as soon thereafter as is convenient.
Section 1.02 Special Meetings. Special meetings of the shareholders
may be called by the president or the Board of Directors and shall be called
by the president at the written request of the holders of not less than 51% of
the issued and outstanding shares of capital stock of the corporation.
All business lawfully to be transacted by the shareholders may be
transacted at any special meeting at any adjournment thereof. However, no
business shall be acted upon at a special meeting, except that referred to in
the notice calling the meeting, unless all of the outstanding capital stock of
the corporation is represented either in person or by proxy. Where all of the
capital stock is represented, any lawful business may be transacted and the
meeting shall be valid for all purposes.
Section 1.03 Place of Meetings. Any meeting of the shareholders of the
corporation may be held at its principal office in the State of Nevada or such
other place in or out of the United States as the Board of Directors may
designate. A waiver of notice signed by the shareholders entitled to vote may
designate any place for the holding of such meeting.
Section 1.04 Notice of Meetings.
(a) The secretary shall sign and deliver to all shareholders of
record written or printed notice of any meeting at least ten (10) days,
but not more than sixty (60) days, before the date of such meeting;
which notice shall state the place, date and time of the meeting, the
general nature of the business to be transacted, and, in the case of any
meeting at which directors are to be elected, the names of nominees, if
any, to be presented for election.
(b) In the case of any meeting, any proper business may be
presented for action, except that the following items shall be valid
only if the general nature of the proposal is stated in the notice or
written waiver of notice:
(1)Action with respect to any contract or transaction between
the corporation and one or more of its directors or another firm,
association, or corporation in which one or more of its directors
has a material financial interest;
(2)Adoption of amendments to the Articles of Incorporation; or
(3) Action with respect to the merger, consolidation,
reorganization, partial or complete liquidation, or dissolution of
the corporation.
(c) The notice shall be personally delivered or mailed by first
class mail to each shareholder of record at the last known address
thereof, as the same appears on the books of the corporation, and the
giving of such notice shall be deemed delivered the date the same is
deposited in the United States mail, postage prepaid. If the address of
any shareholder does not appear upon the books of the corporation, it
will be sufficient to address any notice to such shareholder at the
principal office of the corporation.
(d) The written certificate of the person calling any meeting,
duly sworn, setting forth the substance of the notice, the time and
place the notice was mailed or personally delivered to the several
shareholders, and the addresses to which the notice was mailed shall be
prima facie evidence of the manner and fact of giving such notice.
Section 1.05 Waiver of Notice. If all of the shareholders of the
corporation shall waive notice of a meeting, no notice shall be required, and,
whenever all of the shareholders shall meet in person or by proxy, such
meeting shall be valid for all purposes without call or notice, and at such
meeting any corporate action may be taken.
Section 1.06 Determination of Shareholders of Record.
(a) The Board of Directors may at any time fix a future date as
a record date for the determination of the shareholders entitled to
notice of any meeting or to vote or entitled to receive payment of any
dividend or other distribution or allotment of any rights or entitled to
exercise any rights in respect of any other lawful action. The record
date so fixed shall not be more than sixty (60) days prior to the date
of such meeting nor more than sixty (60) days prior to any other action.
When a record date is so fixed, only shareholders of record on that date
are entitled to notice of and to vote at the meeting or to receive the
dividend, distribution or allotment of rights, or to exercise their
rights, as the case may be, notwithstanding any transfer of any shares
on the books of the corporation after the record date.
(b) If no record date is fixed by the Board of Directors, then
(1) the record date for determining shareholders entitled to notice of
or to vote at a meeting of shareholders shall be at the close of
business on the business day next preceding the day on which notice is
given or, if notice is waived, at the close of business on the day next
preceding the day on which the meeting is held; (2) the record date for
determining shareholders entitled to give consent to corporate action in
writing without a meeting, when no prior action by the Board of
Directors is necessary, shall be the day on which written consent is
given; and (3) the record date for determining shareholders for any
other purpose shall be at the close of business on the day on which the
Board of Directors adopts the resolution relating thereto, or the
sixtieth (60th) day prior to the date of such other action, whichever is
later.
Section 1.07 Quorum: Adjourned Meetings.
(a) At any meeting of the shareholders, a majority of the issued
and outstanding shares of the corporation represented in person or by
proxy, shall constitute a quorum.
(b) If less than a majority of the issued and outstanding shares
are represented, a majority of shares so represented may adjourn from
time to time at the meeting, until holders of the amount of stock
required to constitute a quorum shall be in attendance. At any such
adjourned meetingat which a quorum shall be present, any business may be
transacted which might have been transacted as originally called. When
a shareholders' meeting is adjourned to another time or place, notice
need not be given of the adjourned meeting if the time and place thereof
are announced at the meeting at which the adjournment is taken, unless
the adjournment is for more than ten (10) days in which event notice
thereof shall be given.
Section 1.08 Voting.
(a) Each shareholder of record, such shareholder's duly
authorized proxy or attorney-in-fact shall be entitled to one (1) vote
for each share of stock standing registered in such shareholder's name
on the books of the corporation on the record date.
(b) Except as otherwise provided herein, all votes with respect
to shares standing in the name of an individual on the record date
(included pledged shares) shall be cast only by that individual or such
individual's duly authorized proxy or attorney-in-fact. With respect to
shares held by a representative of the estate of a deceased shareholder,
guardian, conservator, custodian or trustee, votes may be cast by such
holder upon proof of capacity, even though the shares do not stand in
the name of such holder. In the case of shares under the control of a
receiver, the receiver may cast votes carried by such shares even though
the shares do not stand in the name of the receiver provided that the
order of the court of competent jurisdiction which appoints the receiver
contains the authority to cast votes carried by such shares. If shares
stand in the name of a minor, votes may be cast only by the
duly-appointed guardian of the estate of such minor if such guardian has
provided the corporation with written notice and proof of such
appointment.
(c) With respect to shares standing in the name of a corporation
on the record date, votes may be cast by such officer or agents as the
by-laws of such corporation prescribe or, in the absence of an
applicable by-law provision, by such person as may be appointed by
resolution of the Board of Directors of such corporation. In the event
no person is so appointed, such votes of the corporation may be cast by
any person (including the officer making the authorization) authorized
to do so by the Chairman of the Board of Directors, President or any
Vice President of such corporation.
(d) Notwithstanding anything to the contrary herein contained,
no votes may be cast by shares owned by this corporation or its
subsidiaries, if any. If shares are held by this corporation or its
subsidiaries, if any, in a fiduciary capacity, no votes shall be cast
with respect thereto on any matter except to the extent that the
beneficial owner thereof possesses and exercises either a right to vote
or to give the corporation holding the same binding instructions on how
to vote.
(e) With respect to shares standing in the name of two or more
persons, whether fiduciaries, members of a partnership, joint tenants,
tenants in common, husband and wife as community property, tenants by
the entirety, voting trustees, persons entitled to vote under a
shareholder voting agreement or otherwise and shares held by two or more
persons (including proxy holders) having the same fiduciary relationship
respect in the same shares, votes may be cast in the following manner:
(1)If only one such person votes, the votes of such person
binds all.
(2)If more than one person casts votes, the act of the majority
so voting binds all.
(3)If more than one person casts votes, but the vote is evenly
split on a particular matter, the votes shall be deemed cast
proportionately as split.
(f) Any holder of shares entitled to vote on any matter may cast
a portion of the votes in favor of such matter and refrain from casting
the remaining votes or cast the same against the proposal, except in the
case of elections of directors. If such holder entitled to vote fails
to specify the number of affirmative votes, it will be conclusively
presumed that the holder is casting affirmative votes with respect to
all shares held.
(g) If a quorum is present, the affirmative vote of holders of a
majority of the shares represented at the meeting and entitled to vote
on any matter shall be the act of the shareholders, unless a vote of
greater number or voting by classes is required by the laws of the State
of Nevada, the Articles of Incorporation and these By-Laws.
Section 1.09 Proxies. At any meeting of shareholders, any holder of
shares entitled to vote may authorize another person or persons to vote by
proxy with respect to the shares held by an instrument in writing and
subscribed to by the holder of such shares entitled to vote. No proxy shall
be valid after the expiration of six (6) months from the date of execution
thereof, unless coupled with an interest or unless otherwise specified in the
proxy. In no event shall the term of a proxy exceed seven (7) years from the
date of its execution. Every proxy shall continue in full force and effect
until its expiration or revocation. Revocation may be effected by filing an
instrument revoking the same or a duly-executed proxy bearing a later date
with the secretary of the corporation.
Section 1.10 Order of Business. At the annual shareholders meeting,
the regular order of business shall be as follows:
(1)Determination of shareholders present and existence of
quorum;
(2)Reading and approval of the minutes of the previous meeting
or meetings;
(3)Reports of the Board of Directors, the president, treasurer
and secretary of the corrporation, in the order named;
(4)Reports of committee;
(5)Election of directors;
(6)Unfinished business;
(7) New business;
(8)Adjournment.
Section 1.11 Absentees Consent to Meetings. Transactions of any
meeting of the shareholders are as valid as though had at a meeting duly-held
after regular call and notice if a quorum is present, either in person or by
proxy, and if, either before or after the meeting, each of the persons
entitled to vote, not present in person or by proxy (and those who, although
present, either object at the beginning of the meeting to the transaction of
any business because the meeting has not been lawfully called or convened or
expressly object at the meeting to the consideration of matters not included
in the notice which are legally required to be included therein), signs a
written waiver of notice and/or consent to the holding of the meeting or an
approval of the minutes thereof. All such waivers, consents, and approvals
shall be filed with the corporate records and made a part of the minutes of
the meeting. Attendance of a person at a meeting shall constitute a waiver of
notice of such meeting, except when the person objects at the beginning of the
meeting to the transaction of any business because the meeting is not lawfully
called or convened and except that attendance at a meeting is not a waiver of
any right to object to the consideration of matters not included in the notice
if such objection is expressly made at the beginning. Neither the business to
be transacted at nor the purpose of any regular or special meeting of
shareholders need be specified in any written waiver of notice, except as
otherwise provided in Section 1.04(b) of these By-Laws.
Section 1.12 Action Without Meeting. Any action which may be taken by
the vote of the shareholders at a meeting may be taken without a meeting if
consented to by the holders of a majority of the shares entitled to vote or
such greater proportion as may be required by the laws of the State of Nevada,
the Articles of Incorporation, or these ByLaws. Whenever action is taken by
written consent, a meeting of shareholders needs not be called or noticed.
ARTICLE II
DIRECTORS
Section 2.01 Number, Tenure and Qualification. Except as otherwise
provided herein, the Board of Directors of the corporation shall consist of at
least one (1) but no more than nine (9) persons, who shall be elected at the
annual meeting of the shareholders of the corporation and who shall hold
office for one (1) year or until their successors are elected and qualify.
Section 2.02 Resignation. Any director may resign effective upon
giving written notice to the chairman of the Board of Directors, the
president, or the secretary of the corporation, unless the notice specifies a
later time for effectiveness of such resignation. If the Board of Directors
accepts the resignation of a director tendered to take effect at a future
date, the Board or the shareholders may elect a successor to take office when
the resignation becomes effective.
Section 2.03 Reduction in Number. No reduction of the number of
directors shall have the effect of removing any director prior to the
expiration of his term of office.
Section 2.04 Removal.
(a) The Board of Directors or the shareholders of the
corporation, by a majority vote, may declare vacant the office of a
director who has been declared incompetent by an order of a court of
competent jurisdiction or convicted of a felony.
Section 2.05 Vacancies.
(a) A vacancy in the Board of Directors because of death,
resignation, removal, change in number of directors, or otherwise may be
filled by the shareholders at any regular or special meeting or any
adjourned meeting thereof or the remaining director(s) by the
affirmative vote of a majority thereof. A Board of Directors consisting
of less than the maximum number authorized in Section 2.01 of ARTICLE II
constitutes vacancies on the Board of Directors for purposes of this
paragraph and may be filled as set forth above including by the election
of a majority of the remaining directors. Each successor so elected
shall hold office until the next annual meeting of shareholders or until
a successor shall have been duly-elected and qualified.
(b) If, after the filling of any vacancy by the directors, the
directors then in office who have been elected by the shareholders shall
constitute less than a majority of the directors then in office, any
holder or holders of an aggregate of five percent (5%) or more of the
total number of shares entitled to vote may call a special meeting of
shareholders to be held to elect the entire Board of Directors. The
term of office of any director shall terminate upon such election of a
successor.
Section 2.06 Regular Meetings. Immediately following the adjournment
of, and at the same place as, the annual meeting of the shareholders, the
Board of Directors, including directors newly elected, shall hold its annual
meeting without notice, other than this provision, to elect officers of the
corporation and to transact such further business as may be necessary or
appropriate. The Board of Directors may provide by resolution the place, date
and hour for holding additional regular meetings.
Section 2.07 Special Meetings. Special meetings of the Board of
Directors may be called by the chairman and shall be called by the chairman
upon the request of any two (2) directors or the president of the corporation.
Section 2.08 Place of Meetings. Any meeting of the directors of the
corporation may be held at its principal office in the State of Nevada, or at
such other place in or out of the United States as the Board of Directors may
designate. A waiver or notice signed by the directors may designate any place
for the holding of such meeting.
Section 2.09 Notice of Meetings. Except as otherwise provided in
Section 2.06, the chairman shall deliver to all directors written or printed
notice of any special meeting, at least three (3) days before the date of such
meeting, by delivery of such notice personally or mailing such notice first
class mail, or by telegram. If mailed, the notice shall be deemed delivered
two (2) business days following the date the same is deposited in the United
States mail, postage prepaid. Any director may waive notice of any meeting,
and the attendance of a director at a meeting shall constitute a waiver of
notice of such meeting, unless such attendance is for the express purpose of
objecting to the transaction of business threat because the meeting is not
properly called or convened.
Section 2.10 Quorum: Adjourned Meetings.
(a) A majority of the Board of Directors in office shall
constitute a quorum.
(b) At any meeting of the Board of Directors where a quorum is
not present, a majority of those present may adjourn, from time to time,
until a quorum is present, and no notice of such adjournment shall be
required. At any adjourned meeting where a quorum is present, any
business may be transacted which could have been transacted at the
meeting originally called.
Section 2.11 Action Without Meeting. Any action required or permitted
to be taken at any meeting of the Board of Directors or any committee thereof
may be taken without a meeting if a written consent thereto is signed by all
of the members of the Board of Directors or of such committee. Such written
consent or consents shall be filed with the minutes of the proceedings of the
Board of Directors or committee. Such action by written consent shall have
the same force and effect as the unanimous vote of the Board of Directors or
committee.
Section 2.12 Telephonic Meetings. Meetings of the Board of Directors
may be held through the use of a conference telephone or similar
communications equipment so long as all members participating in such meeting
can hear one another at the time of such meeting. Participation in such a
meeting constitutes presence in person at such meeting.
Section 2.13 Board Decisions. The affirmative vote of a majority of
the directors present at a meeting at which a quorum is present shall be the
act of the Board of Directors.
Section 2.14 Powers and Duties.
(a) Except as otherwise provided in the Articles of
Incorporation or the laws of the State of Nevada, the Board of Directors
is invested with the complete and unrestrained authority to manage the
affairs of the corporation, and is authorized to exercise for such
purpose as the general agent of the corporation, its entire corporate
authority in such manner as it sees fit. The Board of Directors may
delegate any of its authority to manage, control or conduct the current
business of the corporation to any standing or special committee or to
any officer or agent and to appoint any persons to be agents of the
corporation with such powers, including the power to sub-delegate, and
upon such terms as may be deemed fit.
(b) The Board of Directors shall present to the shareholders at
annual meetings of the shareholders, and when called for by a majority
vote of the shareholders at a special meeting of the shareholders, a
full and clear statement of the condition of the corporation, and shall,
at request, furnish each of the shareholders with a true copy thereof.
(c) The Board of Directors, in its discretion, may submit any
contract or act for approval or ratification at any annual meeting of
the shareholders or any special meeting properly called for the purpose
of considering any such contract or act, provided a quorum is present.
The contract or act shall be valid and binding upon the corporation and
upon all the shareholders thereof, if approved and ratified by the
affirmative vote of a majority of the shareholders at such meeting.
(d) In furtherance and not in limitation of the powers conferred
by the laws of the State of Nevada, the Board of Directors is expressly
authorized and empowered to issue stock of the Corporation for money,
property, services rendered, labor performed, cash advanced,
acquisitions for other corporations or for any other assets of value in
accordance with the action of the Board of Directors without vote or
consent of the shareholders and the judgment of the Board of Directors
as to the value received and in return therefore shall be conclusive and
said stock, when issued, shall be fully-paid and non-assessable.
Section 2.15 Compensation. The directors shall be allowed and paid all
necessary expenses incurred in attending any meetings of the Board, but shall
not receive any compensation for their services as directors until such time
as the corporation is able to declare and pay dividends on its capital stock.
Section 2.16 Board Officers.
(a) At its annual meeting, the Board of Directors shall elect,
from among its members, a chairman to preside at the meetings of the
Board of Directors. The Board of Directors may also elect such other
board officers and for such term as it may, from time to time, determine
advisable.
(b) Any vacancy in any board office because of death,
resignation, removal or otherwise may be filled by the Board of
Directors for the unexpired portion of the term of such office.
Section 2.17 Order of Business. The order of business at any meeting
of the Board of Directors shall be as follows:
(1)Determination of members present and existence of quorum;
(2)Reading and approval of the minutes of any previous meeting
or meetings;
(3)Reports of officers and committeemen;
(4)Election of officers;
(5)Unfinished business;
(6) New business;
(7)Adjournment.
ARTICLE III
OFFICERS
Section 3.01 Election. The Board of Directors, at its first meeting
following the annual meeting of shareholders, shall elect a president, a
secretary and a treasurer to hold office for one (1) year next coming and
until their successors are elected and qualify. Any person may hold two or
more offices. The Board of Directors may, from time to time, by resolution,
appoint one or more vice presidents, assistant secretaries, assistant
treasurers and transfer agents of the corporation as it may deem advisable;
prescribe their duties; and fix their compensation.
Section 3.02 Removal; Resignation. Any officer or agent elected or
appointed by the Board of Directors may be removed by it whenever, in its
judgment, the best interest of the corporation would be served thereby. Any
officer may resign at any time upon written notice to the corporation without
prejudice to the rights, if any, of the corporation under any contract to
which the resigning officer is a party.
Section 3.03 Vacancies. Any vacancy in any office because
of death, resignation, removal, or otherwise may be filled by the
Board of Directors for the unexpired portion of the term of such
office.
Section 3.04 President. The president shall be the general manager and
executive officer of the corporation, subject to the supervision and control
of the Board of Directors, and shall direct the corporate affairs, with full
power to execute all resolutions and orders of the Board of Directors not
especially entrusted to some other officer of the corporation. The president
shall preside at all meetings of the shareholders and shall sign the
certificates of stock issued by the corporation, and shall perform such other
duties as shall be prescribed by the Board of Directors.
Unless otherwise ordered by the Board of Directors, the president shall
have full power and authority on behalf of the corporation to attend and to
act and to vote at any meetings of the shareholders of any corporation in
which the corporation may hold stock and, at any such meetings, shall possess
and may exercise any and all rights and powers incident to the ownership of
such stock. The Board of Directors, by resolution from time to time, may
confer like powers on any person or persons in place of the president to
represent the corporation for these purposes.
Section 3.05 Vice President. The Board of Directors may elect one or
more vice presidents who shall be vested with all the powers and perform all
the duties of the president whenever the president is absent or unable to act,
including the signing of the certificates of stock issued by the corporation,
and the vice president shall perform such other duties as shall be prescribed
by the Board of Directors.
Section 3.06 Secretary. The secretary shall keep the minutes of all
meetings of the shareholders and the Board of Directors in books provided for
that purpose. The secretary shall attend to the giving and service of all
notices of the corporation, may sign with the president in the name of the
corporation all contracts authorized by the Board of Directors or appropriate
committee, shall have the custody of the corporate seal, shall affix the
corporate seal to all certificates of stock duly issued by the corporation,
shall have charge of stock certificate books, transfer books and stock
ledgers, and such other books and papers as the Board of Directors or
appropriate committee may direct, and shall, in general perform all duties
incident to the office of the secretary. All corporate books kept by the
secretary shall be open for examination by any director at any reasonable
time.
Section 3.07 Assistant Secretary. The Board of Directors may appoint
an assistant secretary who shall have such powers and perform such duties as
may be prescribed for him by the secretary of the corporation or by the Board
of Directors.
Section 3.08 Treasurer. The treasurer shall be the chief financial
officer of the corporation, subject to the supervision and control of the
Board of Directors, and shall have custody of all the funds and securities of
the corporation. When necessary or proper, the treasurer shall endorse on
behalf of the corporation for collection checks, notes and other obligations,
and shall deposit all monies to the credit of the corporation in such bank or
banks or other depository as the Board of Directors may designate, and shall
sign all receipts and vouchers for payments made by the corporation. Unless
otherwise specified by the Board of Directors, the treasurer shall sign with
the president all bills of exchange and promissory notes of the corporation,
shall also have the care and custody of the stocks, bonds, certificates,
vouchers, evidence of debts, securities and such other property belonging to
the corporation as the Board of Directors shall designate, and shall sign all
papers required by law, by these By-laws or by the Board of Directors to be
signed by the treasurer. The treasurer shall enter regularly in the books of
the corporation, to be kept for that purpose, full and accurate accounts of
all monies received and paid on account of the corporation and whenever
required by the Board of Directors, the treasurer shall render a statement of
any or all accounts. The treasurer shall at all reasonable times exhibit the
books of account to any directors of the corporation and shall perform all
acts incident to the position of treasurer subject to the control of the Board
of Directors. The treasurer shall, if required by the Board of Directors,give
a bond to the corporation in such sum and with such security as shall be
approved by the Board of Directors for the faithful performance of all the
duties of the treasurer and for restoration to the corporation in the event of
the treasurer's death, resignation, retirement, or removal from office, of all
books, records, papers, vouchers, money and other property belonging to the
corporation. The expense of such bond shall be borne by the corporation.
Section 3.09 Assistant Treasurer. The Board of Directors may appoint
an assistant treasurer who shall have such powers and perform such duties as
may be prescribed by the treasurer of the corporation or by the Board of
Directors, and the Board of Directors may require the assistant treasurer to
give a bond to the corporation in such sum and with such security as it may
approve,for the faithful performance of the duties of assistant treasurer, and
for the restoration to the corporation, in the event of the assistant
treasurer's death, resignation, retirement or removal from office, of all
books, records, papers, vouchers, money and other property belonging to the
corporation. The expense of such bond shall be borne by the corporation.
ARTICLE IV
CAPITAL STOCK
Section 4.01 Issuance. Shares of capital stock of the corporation
shall be issued in such manner and at such times and upon such conditions as
shall be prescribed by the Board of Directors.
Section 4.02 Certificates. Ownership in the corporation shall be
evidenced by certificates for shares of stock in such form as shall be
prescribed by the Board of Directors, shall be under the seal of the
corporation and shall be signed by the president or the vice president and
also by the secretary or an assistant secretary. Each certificate shall
contain the name of the record holder, the number, designation, if any, class
or series of shares represented, a statement of summary of any applicable
rights, preferences, privileges, or restrictions thereon, and a statement that
the shares are assessable, if applicable. All certificates shall be
consecutively numbered. The name and address of the shareholder, the number
of shares, and the date of issue shall be entered on the stock transfer books
of the corporation.
Section 4.03 Surrender: Lost or Destroyed Certificates. All
certificates surrendered to the corporation, except those representing shares
of treasury stock, shall be canceled and no new certificates shall be issued
until the former certificate for a like number of shares shall have been
canceled, except that in case of a lost, stolen, destroyed or mutilated
certificate, a new one may be issued therefor. However, any shareholder
applying for the issuance of a stock certificate in lieu of one alleged to
have been lost, stolen, destroyed or mutilated shall, prior to the issuance of
a replacement, provide the corporation with his, her or its affidavit of the
facts surrounding the loss, theft, destruction or mutilation and an indemnity
bond in an amount and upon such terms as the treasurer, or the Board of
Directors, shall require. In no case shall the bond be in amount less than
twice the current market value of the stock and it shall indemnify the
corporation against any loss, damage, cost or inconvenience arising as a
consequence of the issuance of a replacement certificate.
Section 4.04 Replacement Certificate. When the Articles of
Incorporation are amended in any way affecting the statements contained in the
certificates for outstanding shares of capital stock of the corporation or it
becomes desirable for any reason, including, without limitation, the merger or
consolidation of the corporation with another corporation or the
reorganization of the corporation, to cancel any outstanding certificate for
shares and issue a new certificate therefor conforming to the rights of the
holder, the Board of Directors may order any holders of outstanding
certificates for shares to surrender and exchange the same for new
certificates within a reasonable time to be fixed by the Board of Directors.
The order may provide that a holder of any certificate(s) ordered to be
surrendered shall not be entitled to vote, receive dividends or exercise any
other rights of shareholders until the holder has complied with the order
provided that such order operates to suspend such rights only after notice and
until compliance.
Section 4.05 Transfer of Shares. No transfer of stock shall be valid
as against the corporation except on surrender and cancellation by the
certificate therefor, accompanied by an assignment or transfer by the
registered owner made either in person or under assignment. Whenever any
transfer shall be expressly made for collateral security and not absolutely,
the collateral nature of the transfer shall be reflected in the entry of
transfer on the books of the corporation.
Section 4.06 Transfer Agent. The Board of Directors may appoint one or
more transfer agents and registrars of transfer and may require all
certificates for shares of stock to bear the signature of such transfer agent
and such registrar of transfer.
Section 4.07 Stock Transfer Books. The stock transfer books shall be
closed for a period of ten (10) days prior to all meetings of the shareholders
and shall be closed for the payment of dividends as provided in Article V
hereof and during such periods as, from time to time, may be fixed by the
Board of Directors, and, during such periods, no stock shall be transferable.
Section 4.08 Miscellaneous. The Board of Directors shall have the
power and authority to make such rules and regulations not inconsistent
herewith as it may deem expedient concerning the issue, transfer and
registration of certificates for shares of the capital stock of the
corporation.
ARTICLE V
DIVIDENDS
Section 5.01Dividends may be declared, subject to the provisions of the
laws of the State of Nevada and the Articles of Incorporation, by the Board of
Directors at any regular or special meeting and may be paid in cash, property,
shares of corporate stock, or any other medium. The Board of Directors may
fix in advance a record date, as provided in Section 1.06 of these By-laws,
prior to the dividend payment for the purpose of determining shareholders
entitled to receive payment of any dividend. The Board of Directors may close
the stock transfer books for such purpose for a period of not more than ten
(10) days prior to the payment date of such dividend.
ARTICLE VI
OFFICES; RECORDS; REPORTS; SEAL AND FINANCIAL MATTERS
Section 6.01 Principal Office. The principal office of the corporation
in the State of Nevada shall be the Law Offices of Max C. Tanner, 2950 East
Flamingo Road, Suite G, Las Vegas, Nevada 89121, and the corporation may have
an office in any other state or territory as the Board of Directors may
designate.
Section 6.02 Records. The stock transfer books and a certified copy of
the By-laws, Articles of Incorporation, any amendments thereto, and the
minutes of the proceedings of the shareholders, the Board of Directors, and
committees of the Board of Directors shall be kept at the principal office of
the corporation for the inspection of all who have the right to see the same
and for the transfer of stock. All other books of the corporation shall be
kept at such places as may be prescribed by the Board of Directors.
Section 6.03 Financial Report on Request. Any shareholder or
shareholders holding at least five percent (5%) of the outstanding shares of
any class of stock may make a written request for an income statement of the
corporation for the three (3) month, six (6) month, or nine (9) month period
of the current fiscal year ended more than thirty (30) days prior to the date
of the request and a balance sheet of the corporation as of the end of such
period. In addition, if no annual report for the last fiscal year has been
sent to shareholders, such shareholder or shareholders may make a request for
a balance sheet as of the end of such fiscal year and an income statement and
statement of changes in financial position for such fiscal year. The
statement shall be delivered or mailed to the person making the request within
thirty (30) days thereafter. A copy of the statements shall be kept on file
in the principal office of the corporation for twelve (12) months, and such
copies shall be exhibited at all reasonable times to any shareholder demanding
an examination of them or a copy shall be mailed to each shareholder. Upon
request by any shareholder, there shall be mailed to the shareholder a copy of
the last annual, semiannual or quarterly income statement which it has
prepared and a balance sheet as of the end of the period. The financial
statements referred to in this Section 6.03 shall be accompanied by the report
thereon, if any, of any independent accountants engaged by the corporation or
the certificate of an authorized officer of the corporation that such
financial statements were prepared without audit from the books and records of
the corporation.
Section 6.04 Right of Inspection.
(a) The accounting books and records and minutes of proceedings
of the shareholders and the Board of Directors and committees of the
Board of Directors shall be open to inspection upon the written demand
of any shareholder or holder of a voting trust certificate at any
reasonable time during usual business hours for a purpose reasonably
related to such holder's interest as a shareholder or as the holder of
such voting trust certificate. This right of inspection shall extend to
the records of the subsidiaries, if any, of the corporation. Such
inspection may be made in person or by agent or attorney, and the right
of inspection includes the right to copy and make extracts.
(b) Every director shall have the absolute right at any
reasonable time to inspect and copy all books, records and documents of
every kind and to inspect the physical properties of the corporation
and/or its subsidiary corporations. Such inspection may be made in
person or by agent or attorney, and the right of inspection includes the
right to copy and make extracts.
Section 6.05 Corporate Seal. The Board of Directors may, by
resolution, authorize a seal, and the seal may be used by causing it, or a
facsimile, to be impressed or affixed or reproduced or otherwise. Except when
otherwise specifically provided herein, any officer of the corporation shall
have the authority to affix the seal to any document requiring it.
Section 6.06 Fiscal Year. The fiscal year-end of the corporation shall
be the calendar year or such other term as may be fixed by resolution of the
Board of Directors.
Section 6.07 Reserves. The Board of Directors may create, by
resolution, out of the earned surplus of the corporation such reserves as the
directors may, from time to time, in their discretion, think proper to provide
for contingencies, or to equalize dividends or to repair or maintain any
property of the corporation, or for such other purpose as the Board of
Directors may deem beneficial to the corporation, and the directors may modify
or abolish any such reserves in the manner in which they were created.
ARTICLE VII
INDEMNIFICATION
Section 7.01 Indemnification. The corporation shall, unless prohibited
by Nevada Law, indemnify any person (an "Indemnitee") who is or was involved
in any manner (including, without limitation, as a party or a witness) or is
threatened to be so involved in any threatened, pending or completed action
suit or proceeding, whether civil, criminal, administrative, arbitrative or
investigative, including without limitation, any action, suit or proceeding
brought by or in the right of the corporation to procure a judgment in its
favor (collectively, a "Proceeding") by reason of the fact that he is or was a
director, officer, employee or agent of the corporation, or is or was serving
at the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust, employee benefit plan
or other entity or enterprise, against all Expenses and Liabilities actually
and reasonably incurred by him in connection with such Proceeding. The right
to indemnification conferred in this Article shall be presumed to have been
relied upon by the directors, officers, employees and agents of the
corporation and shall be enforceable as a contract right and inure to the
benefit of heirs, executors and administrators of such individuals.
Section 7.02 Indemnification Contracts. The Board of Directors is
authorized on behalf of the corporation, to enter into, deliver and perform
agreements or other arrangements to provide any Indemnitee with specific
rights of indemnification in addition to the rights provided hereunder to the
fullest extent permitted by Nevada Law. Such agreements or arrangements may
provide (i) that the Expenses of officers and directors incurred in defending
a civil or criminal action, suit or proceeding, must be paid by the
corporation as they are incurred and in advance of the final disposition of
any such action, suit or proceeding provided that, if required by Nevada Law
at the time of such advance, the officer or director provides an undertaking
to repay such amounts if it is ultimately determined by a court of competent
jurisdiction that such individual is not entitled to be indemnified against
such expenses, (iii) that the Indemnitee shall be presumed to be entitled to
indemnification under this Article or such agreement or arrangement and the
corporation shall have the burden of proof to overcome that presumption, (iii)
for procedures to be followed by the corporation and the Indemnitee in making
any determination of entitlement to indemnification or for appeals therefrom
and (iv) for insurance or such other Financial Arrangements described in
Paragraph 7.02 of this Article, all as may be deemed appropriate by the Board
of Directors at the time of execution of such agreement or arrangement.
Section 7.03 Insurance and Financial Arrangements. The corporation
may, unless prohibited by Nevada Law, purchase and maintain insurance or make
other financial arrangements ("Financial Arrangements") on behalf of any
Indemnitee for any liability asserted against him and liability and expenses
incurred by him in his capacity as a director, officer, employee or agent, or
arising out of his status as such, whether or not the corporation has the
authority to indemnify him against such liability and expenses. Such other
Financial Arrangements may include (i) the creation of a trust fund, (ii) the
establishment of a program of self-insurance, (iii) the securing of the
corporation's obligation of indemnification by granting a security interest or
other lien on any assets of the corporation, or (iv) the establishment of a
letter of credit, guaranty or surety.
Section 7.04 Definitions. For purposes of this Article:
Expenses. The word "Expenses" shall be broadly construed and,
without limitation, means (i) all direct and indirect costs incurred,
paid or accrued, (ii) all attorneys' fees, retainers, court costs,
transcripts, fees of experts, witness fees, travel expenses, food and
lodging expenses while traveling, duplicating costs, printing and
binding costs, telephone charges, postage, delivery service, freight or
other transportation fees and expenses, (iii) all other disbursements
and out-of-pocket expenses, (iv) amounts paid in settlement, to the
extent permitted by Nevada Law, and (v) reasonable compensation for time
spent by the Indemnitee for which he is otherwise not compensated by the
corporation or any third party, actually and reasonably incurred in
connection with either the appearance at or investigation, defense,
settlement or appeal of a Proceeding or establishing or enforcing a
right to indemnification under any agreement or arrangement, this
Article, the Nevada Law or otherwise; provided, however, that "Expenses"
shall not include any judgments or fines or excise taxes or penalties
imposed under the Employee Retirement Income Security Act of 1974, as
amended ("ERISA") or other excise taxes or penalties.
Liabilities. "Liabilities" means liabilities of any
type whatsoever, including, but not limited to, judgments or
fines, ERISA or other excise taxes and penalties, and
amounts paid in settlement.
Nevada Law. "Nevada Law" means Chapter 78 of the Nevada Revised
Statutes as amended and in effect from time to time or any successor or
other statutes of Nevada having similar import and effect.
This Article. "This Article" means Paragraphs 7.01 through 7.04
of these bylaws or any portion of them.
Power of Stockholders. Paragraphs 7.01 through 7.04, including
this Paragraph, of these Bylaws may be amended by the stockholders only
by vote of the holders of sixty-six and two-thirds percent (66 2/3%) of
the entire number of shares of each class, voting separately, of the
outstanding capital stock of the corporation (even though the right of
any class to vote is otherwise restricted or denied); provided, however,
no amendment or repeal of this Article shall adversely affect any right
of any Indemnitee existing at the time such amendment or repeal becomes
effective.
Power of Directors. Paragraphs 7.01 through 7.04 and this
Paragraph of these Bylaws may be amended or repealed by the Board of
Directors only by vote of eighty percent (80%) of the total number of
Directors and the holders of sixty-six and two-thirds percent (66 2/3)
of the entire number of shares of each class, voting separately, of the
outstanding capital stock of the corporation (even though the right of
any class to vote is otherwise restricted or denied); provided, however,
no amendment or repeal of this Article shall adversely affect any right
of any Indemnitee existing at the time such amendment or repeal becomes
effective.
ARTICLE VIII
BY-LAWS
Section 8.01 Amendment. Amendments and changes of these By-Laws may be
made at any regular or special meeting of the Board of Directors by a vote of
not less than all of the entire Board, or may be made by a vote of, or a
consent in writing signed by the holders of a majority of the issued and
outstanding capital stock.
Section 8.02 Additional By-Laws. Additional by-laws not inconsistent
herewith may be adopted by the Board of Directors at any meeting of the Board
of Directors at which a quorum is present by an affirmative vote of a majority
of the directors present or by the unanimous consent of the Board of Directors
in accordance with Section 2.11 of these By-laws.
CERTIFICATION
I, the undersigned, being the duly elected Presient of the Corporation,
do hereby certify that the foregoing By-laws were adopted by the Board of
Directors on the 13th day of June, 1996.
/s/ Richard Mangiarelli
-----------------------
Richard Mangiarelli, President
[LETTERHEAD OF BRANDEN T. BURNINGHAM]
April 10, 2000
Cybertel Communications Corp.
4320 La Jolla Village Drive, Suite 205
San Diego, California 92122
Re: Cybertel Communications Corp., a Nevada corporation (the "Company")
Ladies and Gentlemen:
I refer to the Company's Registration Statement on Form SB-2 under
the Securities Act of 1933, as amended (the "Registration Statement"), which
will be filed with the Securities and Exchange Commission. The Registration
Statement relates to the registration of approximately 2,299,451 shares of the
Company's one mill ($0.001) par value common stock (the "Common Stock"), to be
offered and sold by the holders thereof (the "Selling Stockholders").
Assumptions
In rendering the opinion expressed below, I have assumed, with
your permission and without independent verification or investigation:
1. That all signatures on documents I have examined in
connection herewith are genuine and that all items submitted to me as original
are authentic and all items submitted to me as copies conform with originals;
2. Except for the documents stated herein, there are no
documents or agreements between the Company and/or any third parties which
would expand or otherwise modify the respective rights and obligations of the
parties as set forth in the documents referred to herein or which would have
an effect on the opinion;
3. That each of the documents referred to constitutes the
legal, valid and binding obligation of the party executing the same; and
4. That as to all factual matters, each of the representations
and warranties contained in the documents referred to herein is true, accurate
and complete in all material respects, and the opinion expressed herein is
given in reliance thereon.
I have examined the following documents in connection with this
matter:
1. Articles of Incorporation of the Company;
2. Bylaws of the Company;
3. The Registration Statement;
4. Unanimous Consents of the Board of Directors and of the
majority stockholders of the Company; and
5. Securities Purchase Agreement with Adara Investors LLC, a
Delaware corporation, with all exhibits and schedules thereto, including a
Registration Rights Agreement (Exhibit D thereto).
I have also examined various other documents, books, records,
instruments and certificates of public officials, directors, executive
officers and agents of the Company, and have made such investigations as I
have deemed reasonable, necessary or prudent under the circumstances. Also,
in rendering this opinion, I have reviewed various statutes and judicial
precedence as I have deemed relevant or necessary.
Based upon my examination mentioned above, and relying on the
statements of fact contained in the documents that I have examined, I am of
the opinion that the Common Stock, when sold, will be legally issued, fully
paid and non-assessable.
I hereby consent to the filing of this opinion as Exhibit 5.1 to
the Registration Statement and the reference to me in the Prospectus under the
caption "Legal Opinions."
Sincerely yours,
/s/ Branden T. Burningham
Branden T. Burningham
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is
made this 28th day of December, 1999, among Cybertel, Communications Corp., a
Nevada corporation ("Cybertel"); Like Dat Music, Inc., a California
corporation ("LDM"); and T.J. Knowles, the sole stockholder of LDM as listed
on Exhibit A hereto and who will execute and deliver a copy of the Agreement
(the "LDM Stockholder").
W I T N E S S E T H:
RECITALS
WHEREAS, the respective Boards of Directors of Cybertel and LDM
have adopted resolutions pursuant to which Cybertel shall acquire and the LDM
Stockholder shall exchange 100% of the outstanding common stock of LDM; and
WHEREAS, the sole consideration for 100% interest in LDM shall be
the exchange of $0.001 par value common stock of Cybertel (which shares are
all "restricted securities" as defined in Rule 144 of the Securities and
Exchange Commission) as outlined in Exhibit A; and
WHEREAS, the LDM Stockholder shall acquire in exchange the
"restricted securities" of Cybertel in a reorganization within the meaning of
Section 368(a)(1)(B), Section 351 or other available sections, laws or rules
and regulations of the Internal Revenue Code of 1986, as amended;
NOW, THEREFORE, in consideration of the mutual covenants and
promises contained herein, it is agreed:
Section 1
Exchange of Stock
1.1 Number of Shares. The LDM Stockholder agrees to
transfer to
Cybertel at the closing (the "Closing") 100% of the outstanding securities of
LDM, listed in Exhibit A, which is attached hereto and incorporated herein by
reference (the "LDM Shares"), in exchange for 100,000 shares of common stock
of Cybertel, as outlined in Exhibit A. Taking into account the current
outstanding shares of Cybertel's common stock, amounting to approximately
5,638,309 shares, there will be approximately 5,738,309 outstanding shares of
the reorganized Cybertel on the Closing.
1.2 Delivery of Certificates by LDM Stockholder. The
transfer
of the LDM Shares by the LDM Stockholder shall be effected by the delivery to
Cybertel at the Closing of stock certificate or certificates representing the
transferred shares duly endorsed in blank or accompanied by stock powers
executed in blank with all signatures witnessed or guaranteed to the
satisfaction of Cybertel and with all necessary transfer taxes and other
revenue stamps affixed and acquired at the LDM Stockholder's expense.
1.3 Further Assurances. At the Closing and from time to
time
thereafter, the LDM Stockholder shall execute such additional instruments and
take such other action as Cybertel may request in order to exchange and
transfer clear title and ownership in the LDM Shares to Cybertel.
1.4 Closing. The Agreement will be deemed to be
completed on
receipt of the signature of the LDM Stockholder.
Section 2
Closing
The Closing contemplated by Section 1 shall be held at the offices
of Leonard W. Burningham, Esq., Suite 205 Hermes Building, 455 East 500 South,
Salt Lake City, Utah 84111, on or before ten days following the execution and
delivery of this Agreement, unless another place or time is agreed upon in
writing by the parties. The Closing may be accomplished by wire, express mail
or other courier service, conference telephone communications or as otherwise
agreed by the respective parties or their duly authorized representatives.
Section 3
Representations and Warranties of Cybertel
Cybertel represents and warrants to, and covenants with, the LDM
Stockholder and LDM as follows:
3.1 Corporate Status. Cybertel is a corporation duly organized,
validly existing and in good standing under the laws of the State of Nevada
and is licensed or qualified as a foreign corporation in all states in which
the nature of its business or the character or ownership of its properties
makes such licensing or qualification necessary. Cybertel is a publicly held
company, having previously and lawfully offered and sold a portion of its
securities in accordance with applicable federal and state securities laws,
rules and regulations.
3.2 Capitalization. The current pre-Agreement authorized
capital stock of Cybertel consists of 20,000,000 shares of $0.001 par value
common voting stock, of which approximately 5,638,309 shares are issued and
outstanding, all fully paid and non-assessable; and 5,000,000 shares of $0.001
par value preferred stock, none of which are issued and outstanding. Except
as otherwise provided herein, there are no outstanding options, warrants or
calls pursuant to which any person has the right to purchase any authorized
and unissued common or preferred stock of Cybertel.
3.3 Financial Statements. The financial statements of Cybertel
furnished to the LDM Stockholder and LDM, consisting of audited financial
statements for the years ended December 31, 1998 and 1997, and the period
ended September 30, 1999, attached hereto as Exhibit B and incorporated herein
by reference, are correct and fairly present the financial condition of
Cybertel at such dates and for the periods involved; such statements were
prepared in accordance with generally accepted accounting principles
consistently applied, and no material change has occurred in the matters
disclosed therein, except as indicated in Exhibit C, which is attached hereto
and incorporated herein by reference. Such financial statements do not
contain any untrue statement of a material fact or omit to state a material
fact necessary in order to make the statements made, in light of the
circumstances under which they were made, not misleading.
3.4 Undisclosed Liabilities. Cybertel has no liabilities of any
nature except to the extent reflected or reserved against in its balance
sheets, whether accrued, absolute, contingent or otherwise, including, without
limitation, tax liabilities and interest due or to become due, except as set
forth in Exhibit C.
3.5 Interim Changes. Since the date of its balance sheets,
except as set forth in Exhibit C, there have been no (1) changes in financial
condition, assets, liabilities or business of Cybertel which, in the
aggregate, have been materially adverse; (2) damages, destruction or losses of
or to property of Cybertel, payments of any dividend or other distribution in
respect of any class of stock of Cybertel, or any direct or indirect
redemption, purchase or other acquisition of any class of any such stock; or
(3) increases paid or agreed to in the compensation, retirement benefits or
other commitments to its employees.
3.6 Title to Property. Cybertel has good and marketable title
to all properties and assets, real and personal, reflected in its balance
sheets, and the properties and assets of Cybertel are subject to no mortgage,
pledge, lien or encumbrance, except for liens shown therein or in Exhibit C,
with respect to which no default exists.
3.7 Litigation. There is no litigation or proceeding pending,
or to the knowledge of Cybertel, threatened, against or relating to Cybertel,
its properties or business, except as set forth in Exhibit C. Further, no
officer, director or person who may be deemed to be an "affiliate" of Cybertel
is party to any material legal proceeding which could have an adverse effect
on Cybertel (financial or otherwise), and none is party to any action or
proceeding wherein any has an interest adverse to Cybertel.
3.8 Books and Records. From the date of this Agreement to the
Closing, Cybertel will (1) give to the LDM Stockholder and LDM or their
respective representatives full access during normal business hours to all of
Cybertel's offices, books, records, contracts and other corporate documents
and properties so that the LDM Stockholder and LDM or their respective
representatives may inspect and audit them; and (2) furnish such information
concerning the properties and affairs of Cybertel as the LDM Stockholder and
LDM or their respective representatives may reasonably request.
3.9 Tax Returns. Cybertel has filed all federal and state
income or franchise tax returns required to be filed or has received currently
effective extensions of the required filing dates.
3.10 Confidentiality. Until the Closing (and thereafter if there
is no Closing), Cybertel and its representatives will keep confidential any
information which they obtain from the LDM Stockholder or from LDM concerning
the properties, assets and business of LDM. If the transactions contemplated
by this Agreement are not consummated by December 31, 1999, Cybertel will
return to LDM all written matter with respect to LDM obtained by Cybertel in
connection with the negotiation or consummation of this Agreement.
3.11 Corporate Authority. Cybertel has full corporate power and
authority to enter into this Agreement and to carry out its obligations
hereunder and will deliver to the LDM Stockholder and LDM or their respective
representatives at the Closing a certified copy of resolutions of its Board of
Directors authorizing execution of this Agreement by Cybertel's officers and
performance thereunder, and that the directors adopting and delivering such
resolutions are the duly elected and incumbent directors of Cybertel.
3.12 Due Authorization. Execution of this Agreement and
performance by Cybertel hereunder have been duly authorized by all requisite
corporate action on the part of Cybertel, and this Agreement constitutes a
valid and binding obligation of Cybertel and performance hereunder will not
violate any provision of the Articles of Incorporation, Bylaws, agreements,
mortgages or other commitments of Cybertel.
3.13 Environmental Matters. Cybertel has no knowledge of any
assertion by any governmental agency or other regulatory authority of any
environmental lien, action or proceeding, or of any cause for any such lien,
action or proceeding related to the business operations of Cybertel or
Cybertel' predecessors. In addition, to the best knowledge of Cybertel, there
are no substances or conditions which may support a claim or cause of action
against Cybertel or any of Cybertel' current or former officers, directors,
agents or employees, whether by a governmental agency or body, private party
or individual, under any Hazardous Materials Regulations. "Hazardous
Materials" means any oil or petrochemical products, PCB's, asbestos, urea
formaldehyde, flammable explosives, radioactive materials, solid or hazardous
wastes, chemicals, toxic substances or related materials, including, without
limitation, any substances defined as or included in the definition of
"hazardous substances," "hazardous wastes," "hazardous materials," or "toxic
substances" under any applicable federal or state laws or regulations.
"Hazardous Materials Regulations" means any regulations governing the use,
generation, handling, storage, treatment, disposal or release of hazardous
materials, including, without limitation, the Comprehensive Environmental
Response, Compensation and Liability Act, the Resource Conservation and
Recovery Act and the Federal Water Pollution Control Act.
3.14 Access to Information Regarding LDM. Cybertel acknowledges
that it has been delivered copies of what has been represented to be
documentation containing all material information respecting LDM and LDM's
present and contemplated business operations, potential acquisitions,
management and other factors; that it has had a reasonable opportunity to
review such documentation and discuss it, to the extent desired, with its
legal counsel, directors and executive officers; that it has had, to the
extent desired, the opportunity to ask questions of and receive responses from
the directors and executive officers of LDM, and with the legal and accounting
firms of LDM, with respect to such documentation; and that to the extent
requested, all questions raised have been answered to Cybertel's complete
satisfaction.
Section 4
Representations, Warranties and Covenants of LDM
and the LDM Stockholder
LDM and the LDM Stockholder represent and warrant to, and covenant
with, Cybertel as follows:
4.1 Ownership. The LDM Stockholder owns the LDM Shares, free
and clear of any liens or encumbrances of any type or nature whatsoever, and
each has full right, power and authority to convey the LDM Shares owned
without qualification.
4.2 Corporate Status. LDM is a corporation duly organized,
validly existing and in good standing under the laws of the State of
California and is licensed or qualified as a foreign corporation in all states
or foreign countries and provinces in which the nature of LDM's business or
the character or ownership of LDM properties makes such licensing or
qualification necessary.
4.3 Capitalization. The authorized capital stock of LDM
consists of 1,000 shares of common stock, no par value per share, of which 350
shares are issued and outstanding, all fully paid and non-assessable. Except
as otherwise provided herein, there are no outstanding options, warrants or
calls pursuant to which any person has the right to purchase any authorized
and unissued common stock of LDM.
4.4 Financial Statements. The financial statements of LDM
furnished to Cybertel, consisting of an unaudited balance sheet as of November
30, 1999, and an unaudited Statement of Income for the eleven months ended
November 30, 1999, attached hereto as Exhibit D and incorporated herein by
reference, are correct and fairly present the financial condition of LDM as of
these dates and for the periods involved, and such statements were prepared by
management in good faith from the books and records of LDM, and no material
change has occurred in the matters disclosed therein, except as indicated in
Exhibit E, which is attached hereto and incorporated herein by reference.
These financial statements do not contain any untrue statement of a material
fact or omit to state a material fact necessary in order to make the
statements made, in light of the circumstances under which they were made, not
misleading.
4.5 Undisclosed Liabilities. LDM has no material liabilities of
any nature except to the extent reflected or reserved against in the trial
balance sheet, whether accrued, absolute, contingent or otherwise, including,
without limitation, tax liabilities and interest due or to become due, except
as set forth in Exhibit E attached hereto and incorporated herein by
reference.
4.6 Interim Changes. Since the date of the trial balance sheet,
except as set forth in Exhibit E, there have been no (1) changes in the
financial condition, assets, liabilities or business of LDM, in the aggregate,
have been materially adverse; (2) damages, destruction or loss of or to the
property of LDM, payment of any dividend or other distribution in respect of
the capital stock of LDM, or any direct or indirect redemption, purchase or
other acquisition of any such stock; or (3) increases paid or agreed to in the
compensation, retirement benefits or other commitments to their employees.
4.7 Title to Property. LDM has good and marketable title to all
properties and assets, real and personal, proprietary or otherwise, reflected
in the trial balance sheet, and the properties and assets of LDM are subject
to no mortgage, pledge, lien or encumbrance, except as reflected in the
balance sheet or in Exhibit E, with respect to which no default exists.
4.8 Litigation. There is no litigation or proceeding pending,
or to the knowledge of LDM, threatened, against or relating to LDM or its
properties or business, except as set forth in Exhibit E. Further, no
officer, director or person who may be deemed to be an affiliate of LDM is
party to any material legal proceeding which could have an adverse effect on
LDM (financial or otherwise), and none is party to any action or proceeding
wherein any has an interest adverse to LDM.
4.9 Books and Records. From the date of this Agreement to the
Closing, the LDM Stockholder will cause LDM to (1) give to Cybertel and its
representatives full access during normal business hours to all of its
offices, books, records, contracts and other corporate documents and
properties so that Cybertel may inspect and audit them; and (2) furnish such
information concerning the properties and affairs of LDM as Cybertel may
reasonably request.
4.10 Tax Returns. LDM has filed all federal and state income or
franchise tax returns required to be filed or has received currently effective
extensions of the required filing dates.
4.11 Confidentiality. Until the Closing (and continuously if
there is no Closing), LDM, the LDM Stockholder and their representatives will
keep confidential any information which they obtain from Cybertel concerning
its properties, assets and business. If the transactions contemplated by this
Agreement are not consummated by December 31, 1999, LDM and the LDM
Stockholder will return to Cybertel all written matter with respect to
Cybertel obtained by them in connection with the negotiation or consummation
of this Agreement.
4.12 Investment Intent. The LDM Stockholder are acquiring the
shares to be exchanged and delivered to them under this Agreement for
investment and not with a view to the sale or distribution thereof, and the
LDM Stockholder have no commitment or present intention to liquidate the
Company or to sell or otherwise dispose of the Cybertel shares. The LDM
Stockholder shall execute and deliver to Cybertel on the Closing an Investment
Letter attached hereto as Exhibit F and incorporated herein by reference,
acknowledging the "unregistered" and "restricted" nature of the shares of
Cybertel being received under the Agreement in exchange for the LDM Shares;
receipt of certain material information regarding Cybertel; and whereby each
is compromising and/or waiving any claims each has or may have against LDM by
reason of the purchase of any securities of LDM by each or any of them prior
to the Closing of the Agreement.
4.13 Corporate Authority. LDM has full corporate power and
authority to enter into this Agreement and to carry out its obligations
hereunder and will deliver to Cybertel or its representative at the Closing a
certified copy of resolutions of its Board of Directors authorizing execution
of this Agreement by its officers and performance thereunder.
4.14 Due Authorization. Execution of this Agreement and
performance by LDM hereunder have been duly authorized by all requisite
corporate action on the part of LDM, and this Agreement constitutes a valid
and binding obligation of LDM and performance hereunder will not violate any
provision of the Articles of Incorporation, Bylaws, agreements, mortgages or
other commitments of LDM.
4.15 Environmental Matters. LDM and the LDM Stockholder have no
knowledge of any assertion by any governmental agency or other regulatory
authority of any environmental lien, action or proceeding, or of any cause for
any such lien, action or proceeding related to the business operations of LDM
or its predecessors. In addition, to the best knowledge of LDM, there are no
substances or conditions which may support a claim or cause of action against
LDM or any of its current or former officers, directors, agents, employees or
predecessors, whether by a governmental agency or body, private party or
individual, under any Hazardous Materials Regulations. "Hazardous Materials"
means any oil or petrochemical products, PCB's, asbestos, urea formaldehyde,
flammable explosives, radioactive materials, solid or hazardous wastes,
chemicals, toxic substances or related materials, including, without
limitation, any substances defined as or included in the definition of
"hazardous substances," "hazardous wastes," "hazardous materials," or "toxic
substances" under any applicable federal or state laws or regulations.
"Hazardous Materials Regulations" means any regulations governing the use,
generation, handling, storage, treatment, disposal or release of hazardous
materials, including, without limitation, the Comprehensive Environmental
Response, Compensation and Liability Act, the Resource Conservation and
Recovery Act and the Federal Water Pollution Control Act.
4.16 Access to Information Regarding Cybertel. LDM and the LDM
Stockholder acknowledge that they have been delivered copies of what has been
represented to be documentation containing all material information respecting
Cybertel and its present and contemplated business operations, potential
acquisitions, management and other factors; that they have had a reasonable
opportunity to review such documentation and discuss it, to the extent
desired, with their legal counsel, directors and executive officers; that they
have had, to the extent desired, the opportunity to ask questions of and
receive responses from the directors and executive officers of Cybertel, and
with the legal and accounting firms of Cybertel, with respect to such
documentation; and that to the extent requested, all questions raised have
been answered to their complete satisfaction.
Section 5
Conditions Precedent to Obligations of LDM
and the LDM Stockholder
All obligations of LDM and the LDM Stockholder under this
Agreement are subject, at their option, to the fulfillment, before or at the
Closing, of each of the following conditions:
5.1 Representations and Warranties True at Closing. The
representations and warranties of Cybertel contained in this Agreement shall
be deemed to have been made again at and as of the Closing and shall then be
true in all material respects and shall survive the Closing.
5.2 Due Performance. Cybertel shall have performed and complied
with all of the terms and conditions required by this Agreement to be
performed or complied with by it before the Closing.
5.3 Officers' Certificate. LDM and the LDM Stockholder shall
have been furnished with a certificate signed by the President of Cybertel, in
such capacity, attached hereto as Exhibit G and incorporated herein by
reference, dated as of the Closing, certifying (1) that all representations
and warranties of Cybertel contained herein are true and correct; and (2) that
since the date of the financial statements (Exhibit B hereto), there has been
no material adverse change in the financial condition, business or properties
of Cybertel, taken as a whole.
Section 6
Conditions Precedent to Obligations of Cybertel
All obligations of Cybertel under this Agreement are subject, at
Cybertel's option, to the fulfillment, before or at the Closing, of each of
the following conditions:
6.1 Representations and Warranties True at Closing. The
representations and warranties of LDM and the LDM Stockholder contained in
this Agreement shall be deemed to have been made again at and as of the
Closing and shall then be true in all material respects and shall survive the
Closing.
6.2 Due Performance. LDM and the LDM Stockholder shall have
performed and complied with all of the terms and conditions required by this
Agreement to be performed or complied with by them before the Closing.
6.3 Officers' Certificate. Cybertel shall have been furnished
with a certificate signed by the President of LDM, in such capacity, attached
hereto as Exhibit H and incorporated herein by reference, dated as of the
Closing, certifying (1) that all representations and warranties of LDM and the
LDM Stockholder contained herein are true and correct; and (2) that since the
date of the financial statements (Exhibit D), there has been no material
adverse change in the financial condition, business or properties of LDM,
taken as a whole.
6.4 Books and Records. The LDM Stockholder or the Board of
Directors of LDM shall have caused LDM to make available all books and records
of LDM, including minute books and stock transfer records; provided, however,
only to the extent requested in writing by Cybertel at Closing.
6.5 Stockholder's Consent. The LDM Stockholder, who is the sole
stockholder of LDM, shall have executed and delivered the Agreement.
Section 7
Termination
Prior to Closing, this Agreement may be terminated (1) by mutual
consent in writing; (2) by either the directors of Cybertel or LDM and the LDM
Stockholder if there has been a material misrepresentation or material breach
of any warranty or covenant by the other party; or (3) by either the directors
of Cybertel or LDM and the LDM Stockholder if the Closing shall not have taken
place, unless adjourned to a later date by mutual consent in writing, by the
date fixed in Section 2.
Section 8
General Provisions
8.1 Further Assurances. At any time, and from time to time,
after the Closing, each party will execute such additional instruments and
take such action as may be reasonably requested by the other party to confirm
or perfect title to any property transferred hereunder or otherwise to carry
out the intent and purposes of this Agreement.
8.2 Waiver. Any failure on the part of any party hereto to
comply with any of Cybertel obligations, agreements or conditions hereunder
may be waived in writing by the party to whom such compliance is owed.
8.3 Brokers. Each party represents to the other parties
hereunder that no broker or finder has acted for it in connection with this
Agreement, and agrees to indemnify and hold harmless the other parties against
any fee, loss or expense arising out of claims by brokers or finders employed
or alleged to have been employed by he/she/it.
8.4 Notices. All notices and other communications hereunder
shall be in writing and shall be deemed to have been given if delivered in
person or sent by prepaid first-class registered or certified mail, return
receipt requested, as follows:
If to Cybertel: 4275 Executive Square, Suite 510
La Jolla, California 92037
With a copy to: Leonard W. Burningham, Esq.
455 East 500 South, #205
Salt Lake City, Utah 84111
If to LDM: P. O. Box 9476
Rancho Santa Fe, CA 92067
If to the LDM
Stockholder: To the address listed on Exhibit A
8.5 Entire Agreement. This Agreement constitutes the entire
agreement between the parties and supersedes and cancels any other agreement,
representation or communication, whether oral or written, between the parties
hereto relating to the transactions contemplated herein or the subject matter
hereof.
8.6 Headings. The section and subsection headings in this
Agreement are inserted for convenience only and shall not affect in any way
the meaning or interpretation of this Agreement.
8.7 Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of Nevada,
except to the extent pre-empted by federal law, in which event (and to that
extent only), federal law shall govern.
8.8 Assignment. This Agreement shall inure to the benefit of,
and be binding upon, the parties hereto and their successors and assigns.
8.9 Counterparts. This Agreement may be executed simultaneously
in two or more counterparts, each of which shall be deemed an original, but
all of which together shall constitute one and the same instrument.
8.10 Default. In the event of any default hereunder, the
prevailing party in any action to enforce the terms and provisions hereof
shall be entitled to recover reasonable attorney's fees and related costs.
IN WITNESS WHEREOF, the parties have executed this
Agreement and Plan of Reorganization effective the day and year first above
written.
CYBERTEL, COMMUNICATIONS CORP.
Date: 28 Dec 1999. By/s/Richard D. Mangiarelli
Richard D. Mangiarelli, President
LIKE DAT MUSIC, INC.
Date: 12/28/99. By/s/T. J. Knowles
T. J. Knowles, President
Date: 12/28/99. /s/T. J. Knowles
T. J. Knowles
<PAGE>
EXHIBIT A
Number of Shares of
Number of Shares Cybertel
Owned of to be
Name Like Dat Music Received in Exchange
T. J. Knowles 350 100,000
P. O. Box 9476
Rancho Santa Fe, CA 92067
<PAGE>
EXHIBIT B
CYBERTEL, COMMUNICATIONS CORP.
FINANCIAL STATEMENTS
FOR THE YEARS ENDED
DECEMBER 31, 1998 and 1997
AND
SEPTEMBER 30, 1999
See Cybertel's 10QSB for the quarter ended September 30, 1999
<PAGE>
EXHIBIT C
None.
<PAGE>
EXHIBIT D
LIKE DAT MUSIC, INC.
UNAUDITED FINANCIAL STATEMENTS
AS OF NOVEMBER 30, 1999
<PAGE>
<PAGE>
LIKE DAT MUSIC, INC.
Balance Sheet at November 30, 1999
Assets
Cash 2,381
Accounts receivable 770
Total assets 3,151
Liabilities and Stockholders Equity
Accounts payable 31,223
Accrued payroll and payroll taxes 24,590
Total liabilities
Stockholder's equity:
Common stock 71,720
Retained earnings (124,382)
Total stockholder's equity (52,682)
Total liab. and stockholder's equity $ 3,151
<PAGE>
LIKE DAT MUSIC, INC.
Statement of Income
Eleven month period ended November 30, 1999
Amount Percent
Revenue;
Commercial license fees $93,100 33.96
Original commercial fees 28,500 10.40
C.D. sales 144,486 52.70
Other 8,084 2.95
Total revenue 274,170 100.00
Operating expenses (see schedule) 232,718
Income before income taxes 41,452 15.12
State income taxes 800 0.29
------- ------
Net income $40,652 14.83
<PAGE>
LIKE DAT MUSIC, INC.
Schedule of Operating Expenses
Eleven month period ended November 30, 1999.
Amount Percent
Payroll $47,019 3.00
Payroll taxes 4,655 1.70
Vehicle 7,699 2.81
Credit card expense 43,995 16.05
Equipment rental 3,287 1.20
insurance 6,405 2.34
Office expense 1,992 0.73
Postage 1,989 0.73
Production 9,065 3.31
Post-production 40,681 14.84
Professional services 5,448 1.99
Rent 7,416 2.71
Meals a entertainment 1,157 0.42
Travel 1,661 0.61
Telephone 5,930 2.16
Royalties 28,725 10.48
Web site expense 8,269 3.02
other 7,323 2.67
Total operating expenses $232,718 84.88
<PAGE>
EXHIBIT E
None.
<PAGE>
<PAGE>
EXHIBIT F
Pacific Stock Transfer
P. O. Box 93385
Las Vegas, Nevada 89193-3385
Cybertel, Communications Corp.
4275 Executive Square, Suite 510
LaJolla, California 92037
Re: Exchange of shares of Like Dat Music, Inc., a
California corporation ("LDM"), for shares of
Cybertel, Communications Corp., a Nevada corporation
("Cybertel or "the Company")
Dear Ladies and Gentlemen:
Pursuant to that certain Agreement and Plan of Reorganization (the
"Agreement") between the undersigned, LDM and Cybertel, I acknowledge that I
have approved this exchange; that I am aware of all of the terms and
conditions of the Agreement; that I have received and personally reviewed a
copy of any and all material documents regarding the Company, including, but
not limited to Articles of Incorporation, Bylaws, minutes of meetings of
directors and stockholders, financial statements and the Company's 10-SB
Registration Statement and Form 10-QSB for the quarter ended September 30,
1999. I represent and warrant that no director or officer of the Company or
any associate of either has solicited this exchange; that I am an "accredited
investor" as that term is known under the Rules and Regulations of the
Securities and Exchange Commission (see Exhibit "A" hereto); and/or, I
represent and warrant that I have sufficient knowledge and experience to
understand the nature of the exchange and am fully capable of bearing the
economic risk of the loss of my entire cost basis.
I understand that you have and will make books and records of your
Company available to me for my inspection in connection with the contemplated
exchange of my shares, and that I have been encouraged to review the
information and ask any questions I may have concerning the information of any
director or officer of the Company or of the legal and accounting firms for
the Company. I understand that the accounting firm for Cybertel is Malone &
Bailey PLLC, 5444 Westheimer, #2080, Houston, Texas 77056; Telephone #713-840-
1210; and that legal counsel for Cybertel is Leonard W. Burningham, Esq., 455
East 5th South, Suite 205, Salt Lake City, Utah 84111, Telephone #801-363-
7411.
I also understand that I must bear the economic risk of ownership
of any of the Cybertel shares for a long period of time, the minimum of which
will be one (1) year, as these shares are "unregistered" shares and may not be
sold unless any subsequent offer or sale is registered with the United States
Securities and Exchange Commission or otherwise exempt from the registration
requirements of the Securities Act of 1933, as amended (the "Act"), or other
applicable laws, rules and regulations.
I intend that you rely on all of my representations made herein
and those in the personal questionnaire (if applicable) I provided to LDM for
use by Cybertel as they are made to induce you to issue me the shares of
Cybertel under the Agreement, and I further represent (of my personal
knowledge or by virtue of my reliance on one or more personal
representatives), and agree as follows, to-wit:
1. That the shares being acquired are being received for
investment purposes and not with a view toward further distribution;
2. That I have a full and complete understanding of the phrase
"for investment purposes and not with a view toward further distribution";
3. That I understand the meaning of "unregistered shares" and
know that they are not freely tradeable;
4. That any stock certificate issued by you to me in connection
with the shares being acquired shall be imprinted with a legend restricting
the sale, assignment, hypothecation or other disposition unless it can be made
in accordance with applicable laws, rules and regulations;
5. I agree that the stock transfer records of your Company
shall reflect that I have requested the Company not to effect any transfer of
any stock certificate representing any of the shares being acquired unless I
shall first have obtained an opinion of legal counsel to the effect that the
shares may be sold in accordance with applicable laws, rules and regulations,
and I understand that any opinion must be from legal counsel satisfactory to
the Company and, regardless of any opinion, I understand that the exemption
covered by any opinion must in fact be applicable to the shares;
6. That I shall not sell, offer to sell, transfer, assign,
hypothecate or make any other disposition of any interest in the shares being
acquired except as may be pursuant to any applicable laws, rules and
regulations;
7. I fully understand that my shares which are being exchanged
for shares of the Company are "risk capital," and I am fully capable of
bearing the economic risks attendant to this investment, without
qualification; and
8. I also understand that without approval of counsel for
Cybertel, all shares of Cybertel to be issued and delivered to me in exchange
for my shares of LDM shall be represented by one stock certificate only and
which such stock certificate shall be imprinted with the following legend or a
reasonable facsimile thereof on the front and reverse sides thereof:
The shares of stock represented by this certificate
have not been registered under the Securities Act of
1933, as amended, and may not be sold or otherwise
transferred unless compliance with the registration
provisions of such Act has been made or unless
availability of an exemption from such registration
provisions has been established, or unless sold
pursuant to Rule 144 under the Act.
Any request for more than one stock certificate must be
accompanied by a letter signed by the requesting stockholder setting forth all
relevant facts relating to the request. Cybertel will attempt to accommodate
any stockholders' request where Cybertel views the request is made for valid
business or personal reasons so long as in the sole discretion of Cybertel,
the granting of the request will not facilitate a "public" distribution of
unregistered shares of common voting stock of Cybertel.
You are requested and instructed to issue a stock certificate as
follows, to-wit:
Thomas J. and Laura Diann Knowles, JTRS
(Name(s) and Number of Shares)
P.O. Box 9476
(Address)
Rancho Santa Fe, CA 92067
(City, State and Zip Code)
If joint tenancy with full rights of survivorship is
desired, put the initials JTRS after your names.
Dated this 28 day of December, 1999.
Very truly yours,
/s/Thomas J. Knowles
/s/Laura Diann Knowles
<PAGE>
EXHIBIT G
CERTIFICATE OF OFFICER PURSUANT TO
AGREEMENT AND PLAN OF REORGANIZATION
The undersigned, the President of Cybertel, Communications Corp.,
a Nevada corporation ("Cybertel"), represents and warrants the following as
required by the Agreement and Plan of Reorganization (the "Agreement") between
Cybertel and Like Dat Music, Inc., a California corporation ("LDM"), and the
sole stockholder of LDM (the "LDM Stockholder"):
1. That he is the President of Cybertel and has been authorized
and empowered by its Board of Directors to execute and deliver this
Certificate to LDM and the LDM Stockholder.
2. Based on his personal knowledge, information, belief and
opinions of counsel for Cybertel regarding the Agreement:
(i) All representations and warranties of Cybertel
contained within the Agreement are true and correct;
(ii) Cybertel has complied with all terms and provisions
required of it pursuant to the Agreement; and
(iii) There have been no material adverse changes in the
financial position of Cybertel as set forth in its
financial statements for the periods ended December
31, 1998 and 1997, and September 30, 1999, except as
set forth in Exhibit C to the Agreement.
CYBERTEL, COMMUNICATIONS CORP.
By /s/ Richard Mangiarelli
Richard Mangiarelli, President
<PAGE>
EXHIBIT H
CERTIFICATE OF OFFICER PURSUANT TO
AGREEMENT AND PLAN OF REORGANIZATION
The undersigned, the President of Like Dat Music, Inc., a Nevada
corporation ("LDM"), represents and warrants the following as required by the
Agreement and Plan of Reorganization (the "Agreement") between LDM, its sole
stockholder (the "LDM Stockholder") and Cybertel, Communications Corp., a
Nevada corporation ("Cybertel"):
1. That he is the President of LDM and has been authorized and
empowered by its Board of Directors to execute and deliver this Certificate to
Cybertel.
2. Based on his personal knowledge, information, belief:
(i) All representations and warranties of LDM contained
within the Agreement are true and correct;
(ii) LDM has complied with all terms and provisions
required of it pursuant to the Agreement; and
(iii) There have been no material adverse changes in the
financial position of LDM as set forth in its
unaudited balance sheet as of November 30, 1999, and
its unaudited statement of income for the eleven
months ended November 30, 1999, except as set forth in
Exhibit E to the Agreement.
LIKE DAT MUSIC, INC.
By/s/ T. J. Knowles
T. J. Knowles, President
/s/ T. J. Knowles
T. J. Knowles, Personally
REORGANIZATION AGREEMENT
This Reorganization Agreement ("Agreement") is made and entered into as of
this 23 rd day of December, 1999, between and among (i) Cybertel
Communications Corp., a Nevada corporation, which is referred to herein as the
"Company," (ii) Telenomics, Inc., a California corporation, which is referred
to herein as "Telenomics," and (iii) each person identified in Schedule A
attached hereto, who are, collectively the beneficial owners of 60,162.5
shares of the authorized stock of Telenomics, which constitutes 100% of the
issued and outstanding capital stock of Telenomics, who are referred to herein
individually as a "Telenomics Shareholder and collectively as the "Telenomics
Shareholders").
WHEREAS, the Telenomics Shareholders, as set forth in Schedule A
hereto, own and have the right to sell, transfer and convey, collectively,
60,162.5 shares of the authorized stock of Telenomics, which constitutes one
hundred percent (100%) of the issued and outstanding capital stock of
Telenomics; and
WHEREAS, the Company wishes to acquire one hundred percent (100%) of
the issued and outstanding capital stock of Telenomics, from the Telenomics
Shareholders; and
WHEREAS, the Telenomics Shareholders have agreed to deliver 60,162.5
shares of the authorized stock of Telenomics which constitutes one hundred
percent (100%) of the issued and outstanding shares of common stock of
Telenomics to the Company in exchange for that consideration set forth in
Schedule A hereto; and
WHEREAS, the parties hereto wish to formalize the above mentioned
agreements and thereafter accomplish such exchange on the terms and conditions
set forth herein.
NOW THEREFORE, for and in consideration of the premises, and the
agreement, covenants, representations and warranties hereinafter set forth,
and other good and valuable considerations, the receipt and adequacy all of
which are forever acknowledged and confessed, the parties hereto agree as
follows:
1. REPRESENTATIONS AND WARRANTIES BY TELENOMICS, AND THE TELENOMICS
SHAREHOLDERS. Telenomics and the Telenomics Shareholders hereby jointly and
severally make the following express representations and warranties to the
Company:
A. Telenomics is a corporation duly organized, validly existing and in
good standing under the laws of the State of California.
B. Telenomics and the Telenomics Shareholders have taken all
necessary steps to assure that Telenomics has the corporate power
and is duly authorized, qualified and licensed under all applicable
laws, regulations, ordinances and orders of public authorities to
own the property and conduct its business in the places and in the
manner now conducted. Copies of the Articles of Incorporation and
By-Laws of Telenomics have heretofore been furnished to the
Company by Telenomics and/or the Telenomics Shareholders, and
all such copies are true, correct and complete copies of the
original Articles of Incorporation and By-Laws including all
amendments thereto.
C. Telenomics has the corporate authority to issue a total of 100,000
shares of stock which have not been classified and which have no
par value designated, of which 60,162.5 shares have been issued
and are presently outstanding.
D. The execution, delivery and performance of this Agreement by
Telenomics and the Telenomics Shareholders and the transactions
contemplated hereby:
(i) Are within the corporate powers of Telenomics, are not in
contravention of the terms of any of the terms of the Articles of
Incorporation, Bylaws or any amendments thereto of Telenomics, and
have been duly authorized by the Board of Directors of Telenomics, and
to the best knowledge of the officers of Telenomics and the Telenomics
Shareholders are not in contravention of law;
(ii) Except as disclosed in Schedule B hereto, will neither conflict
with nor result in any breach or contravention of, or the creation of
any lien under, any indenture, agreement, lease, instrument or
understanding to which Telenomics or any Telenomics Shareholder is a
party or by which any of the Assets of Telenomics is or are bound; and
(iii) Are and will constitute the valid and legally binding
obligations of Telenomics and of each and every Telenomics
Shareholder, enforceable in accordance with the terms of this
Agreement.
E Except as disclosed in Schedule C hereto, Telenomics has no subsidiaries
and does not own any security of any corporation. Further, except as
disclosed in Schedule C, none of the Telenomics Shareholders has conducted the
business of Telenomics or any business similar to the business of Telenomics
or related to the business of Telenomics under any other name or identity
within the last three years.
F. Telenomics and the Telenomics Shareholders have prepared and delivered to
the Company an accurate list of any and all assets employed or possessed by
Telenomics as set forth on Schedule D hereto (the "Assets") which list
includes, but is not limited to all: (i) leasehold interests in all
properties, together with all improvements, and fixtures thereon (collectively
"Leasehold Interests"), (ii) all equipment, tool and machinery, (iii) the
value of all prepaid supplies as carried on the books of Telenomics, (iv) the
value of prepaid expenses of Telenomics as carried on the books of Telenomics,
(v) a listing of all cash, reserves, deposits, investments and all other cash
items of Telenomics, (vi) a listing of all accounts receivable of Telenomics,
whether recorded or unrecorded or assigned for collection, (vii) a listing of
all financial records, customer lists, personnel records, account receivable
records, equipment records, libraries, customer billing records, documents,
catalogs, books, records, files, operating manuals, and existing financial
data relating to the ownership and operation of Telenomics which is currently
in the possession of Telenomics or in the possession of a third party known to
Telenomics and/or the Telenomics Shareholders, (viii) a listing of those
commitments, contracts, leases and agreements relating to the business of
Telenomics ("Contracts"), (ix) a listing of all licenses and permits held by
Telenomics relating to the ownership, development and operations of the
Assets and of the business of Telenomics, (x) a listing of the trade
names or variations thereof (and associated goodwill) relating to
the Assets and to the business of Telenomics, and (xi) a listing of
all property, real or personal, tangible or intangible, arising or
acquired in the ordinary course of its business between the effective
date hereof and Closing. Telenomics shall hold good and marketable title to
the Assets and all parts thereof free and clear of all agreements,
liabilities, claims, security interest, liens, restrictions and encumbrances,
except as expressly noted in Schedule E hereto.
G. Telenomics and the Telenomics Shareholders have delivered to the Company
copies of those financial statements set forth on Exhibit I hereto respecting
operation of Telenomics, prepared by Malone & Bailey, PLLC ("Existing
Financial Statements").
The audited balance sheets and income statements have been prepared by
Telenomics and the Telenomics Shareholders from the books and records of
Telenomics and, to the best of their knowledge, accurately reflect the status
and results of operations of Telenomics as of the dates specified therein.
Except as disclosed in Schedule F, since June 30, 1999 (the "Balance Sheet
Date"), to the best knowledge of Telenomics and the Telenomics Shareholders
there have occurred no material adverse changes in the financial condition or
business of Telenomics as reflected in such Existing Financial Statements,
other than changes in the ordinary course of business which have not had any
material adverse effect on the business or financial condition of Telenomics,
or any of its Assets.
H. Telenomics and the Telenomics Shareholders have delivered to the Company
an accurate list and summary description (See Schedule G) as of the Balance
Sheet Date of all licenses, permits, franchises, certificates of need,
certificate of need applications, trademarks, trade names, patents, patent
applications and copyrights, owned or held by Telenomics relating to the
ownership, development or operations of Telenomics, all of which are now
valid, in good standing, not subject to renewal prior to Closing. Except as
disclosed in Schedule G, Telenomics and the Telenomics Shareholders are not
aware of any licenses, permits, franchises, certificates of need, certificate
of need applications, trademarks, trade names, patents, patent applications
and copyrights which are not possessed or held by which taken together with
the business of Telenomics such failure to possess or hold the same would
materially adversely effect the ability of Telenomics to conduct its
existing business or any proposed business.
I. Telenomics and the Telenomics Shareholders have delivered to the Company
an accurate list (Schedule H) as of the Balance Sheet Date of all material
agreements which relate to or may affect the Assets or the operation of the
Telenomics, to which Telenomics is a party or by which Telenomics or any of
its Assets is bound, and have made copies of such agreements available to the
Company for inspection. None of such agreements unduly burdens or restricts
Telenomics in conducting its current ordinary course of businesses.
Telenomics has, complied with all material commitments and obligations under
all such agreements; such agreements constitute the entire agreements by and
between the parties as respectively indicated on Schedule H.
Telenomics is not a party to nor are its Assets bound by:
(i) Except as expressly set forth in Schedule H, any contracts or commitments
affecting ownership of, title to, use of, or any interest in the Assets;
(ii) Except as expressly set forth in Schedule H, any patent licensing
agreements or any other agreements or commitments with respect to patents,
patent applications, trademarks, trade names, technical assistance, copyrights
or other like terms;
(iii) Except as expressly set forth in Schedule H, any incentive compensation,
pension, retirement, profit sharing or other like employee pension or welfare
plans of any nature whatsoever, other than sick leave and vacation policies
for any of the employees of Telenomics;
(iv) Except as expressly set forth in Schedule H, any collective bargaining
agreements or other contracts or commitments to or with any labor unions or
other employee representatives or groups of employees affecting or which could
affect the Assets;
(v) Except as expressly set forth in Schedule H, any employment contracts or
any other contracts, agreements or commitments to or with individual employees
or agents affecting or which could affect its business or the Assets extending
for a period of more than ninety (90) days from the Closing Date, or which
cannot be terminated without cause upon not more than ninety (90) days notice
without payment of penalty or equivalent thereof;
(vi) Except as expressly set forth in Schedule H, any other contracts or
commitments providing for payments based in any way on the revenues, purchases
or profits of Telenomics; or
(vii) Except as expressly set forth in Schedule I, any contract or commitment,
not in the ordinary course of business, which involves future payments,
performance of services or delivery of goods or materials, to or by Telenomics
or the Telenomics Shareholders of any amount or value in excess of Five
Thousand Dollars ($5,000) in the aggregate affecting or which affects or which
could affect the business or the Assets of Telenomics.
J. Telenomics and the Telenomics Shareholders have delivered to the Company a
list and description of the Contracts. Telenomics and the Telenomics
Shareholders warrant and represent that:
(i) The Contracts constitute the entire agreements by and between the
respective parties thereto; and
(ii) In all material respects, all obligations required to be performed under
the terms of the Contracts have been performed, and each of the Contracts is
now and, except as noted in one or more of the schedules hereto, will be, upon
and after the Closing Date, in full force and effective without default on the
part of the parties thereto; and
(iii) With respect to any leases respecting real estate:
(a) Telenomics and the Telenomics Shareholders, to the best of their
knowledge, have not received any notice of violation of any applicable
ordinance or other law, order, regulation or requirement, or notice of
condemnation, lien, assessment or the like, relating to any part of
the real property at which any business conducted by Telenomics are
located or from which they are operated;
(b) To the best knowledge of Telenomics and the Telenomics
Shareholders, each operation of Telenomics, wherever located, is in
compliance with all applicable zoning ordinances and the consummation
of transactions contemplated herein will not result in a violation of
any applicable zoning ordinance or termination of any applicable
zoning variance now existing;
(c) All fixtures and improvements within or upon real estate utilized
by Telenomics is in operating condition and in a reasonable state of
maintenance and repair, except for deterioration caused by normal wear
and tear in the ordinary course of business;
K. All the inventory and prepaid supplies constituting any part of the Assets
are of a quality usable and salable in the ordinary course of the business of
Telenomics.
L. Telenomics and the Telenomics Shareholders have delivered to the Company
an accurate list and a substantially complete description (Schedule C of all
the equipment (including all software) associated with, or constituting any
part of the Assets as of the Balance Sheet Date, designating which of the
equipment is owned or leased by Telenomics. The equipment included in Schedule
C), except as noted, is adequate in all material respects to fully equip and
operate Telenomics as now being operated and is in operating condition and in
a reasonable state of maintenance and repair, except for deterioration caused
by normal wear and tear in the ordinary course of business;
Except as disclosed in Schedule J, since the Balance Sheet Date, Telenomics
has not acquired or sold or otherwise disposed of any equipment associated
with, or constituting any part of, the Assets, other than in the ordinary
course of business.
M. Telenomics will have good and marketable title to all properties, assets
and leasehold estates, real and personal, constituting or associated with the
Assets or any part thereof, subject to no mortgage, lien, pledge, security
interest, conditional sales agreement, encumbrance or charge, except as set
forth on Schedule E and liens for current taxes and assessments, if any, with
respect to which no default exists.
N. Telenomics and the Telenomics Shareholders have delivered to the Company
an accurate schedule (Schedule K) as of the Balance Sheet Date reflecting the
insurance policies covering the ownership and operations of the Assets by
Telenomics, which Schedule K reflects the policies' numbers, terms, identity
of insurers, amounts and coverage. All of such policies are now and will be
until Closing in full force and effect on an occurrence basis with no premium
arrearages. True and correct copies of all such policies and any endorsements
thereto have been made available for inspection by the Company.
0. Telenomics currently employs those individuals set forth in Schedule L
hereto at the salary levels set forth therein. Telenomics and the Telenomics
Shareholders have provided to the Company access to all materials containing
policies and procedures governing employees of Telenomics. Except as set forth
in Schedule L, Telenomics does not have and has never had any pension, profit
sharing, deferred compensation or other employee pension or welfare benefit
plan or arrangement relating to the operations of Telenomics (other than sick
leave and vacation policies as expressly set forth in Schedule L. There is not
pending and, to the knowledge of Telenomics or the Telenomics Shareholders,
there is not threatened, any employee strike or work stoppage affecting
Telenomics. Further, no employee has threatened to leave the employ or has
left the employ of Telenomics for the preceding twelve months except as set
forth in Schedule L hereto. Schedule L hereto sets forth all employment
contracts entered into between Telenomics and any employees of Telenomics,
copies of which have been provided to the Company.
P. Telenomics and the Telenomics Shareholders have delivered to the Company
an accurate list and summary description (Schedule M) as of the Balance Sheet
Date of all litigation, complaints or proceedings to which Telenomics or any
Telenomics Shareholder is a party as the same relates to or in any way is
connected with the operation of Telenomics. Telenomics is not in default under
any law or regulation, or under any order of any court or federal, state,
municipal or other governmental department, commission, board, bureau, agency
or instrumentality wherever located which would have a material adverse effect
on the Assets or the operation of Telenomics and, except to the extent set
forth on Schedule M there are no claims, actions, suits, proceedings or
investigations pending or to the best knowledge of Telenomics and/or the
Telenomics Shareholders threatened against or affecting Telenomics and/or the
Assets or the Telenomics Shareholders, at law or in equity, or before or by
any federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality wherever located.
Q. Since the Balance Sheet Date, except as disclosed in the Schedules
attached hereto, there has not been, other than in the ordinary course of
business:
(i) Any material adverse change in the financial condition, assets,
liabilities (contingent or otherwise), income or business of Telenomics;
(ii) Any damage, destruction or loss (whether or not covered by insurance)
materially adversely affecting the properties or business of Telenomics;
(iii) Any material increase in the compensation payable or to become payable
by Telenomics to any Telenomics: employee, officers, or agents, or any bonus
payment or arrangement made to or with any thereof,
(iv) Any labor dispute, proposed law or regulation or any event or condition
of any character materially adversely affecting the business or future
prospects of Telenomics; or
(v) Any transaction by Telenomics outside the ordinary course of its business.
R. The Telenomics Shareholders are acquiring the Shares of the Company solely
for their own account, for investment, and not with a view to any subsequent
"distribution" thereof within the meaning of the Securities Act of 1933, as
amended (said Act and rules and regulations promulgated thereunder being
hereinafter referred to as the "Act"). The Telenomics Shareholders understand
that the Company's Shares have not been registered under the Act or Securities
laws of any State ("State Act") by reason of the specific exemptions
therefrom, which exemptions depend in part upon their subjective investment
intent as expressed herein. In furtherance of the foregoing, each shall be
required to execute and deliver to the Company an Investment Letter, in the
form attached hereto as Exhibit 2, as a condition precedent to the issuance of
the Company's securities issuable to them hereunder.
S. The Telenomics Shareholders hereby acknowledges that they are:
(I) "Accredited Investors" as such term is defined in Regulation D
promulgated under the Act, or they have such knowledge and experience
in financial and business matters that they are capable of evaluating
the merits and risks of the proposed transaction and their acquisition
of the Company's Shares, and
(ii) That they are able to bear the economic risks associated with the
acquisition of the Company's Shares and are able to protect their own
interests in an investment of this nature.
T. Each Telenomics Shareholder possesses good title to his respective shares
of Telenomics common stock, free and clear of all liens, charges, encumbrances
and restrictions, except restrictions as to resale imposed by state and
federal securities laws. No consent, approval or authorization of any
government, administrative agency or court, domestic or foreign having
jurisdiction over the Telenomics Shareholders is legally required for the sale
or the transfer of the Telenomics Shares to the Company in the manner
contemplated by this Agreement.
U. The Shares of Telenomics common stock, to be tendered by each Telenomics
Shareholder to the Company pursuant to this Agreement were, when issued and
remain, duly and validly issued and authorized by Telenomics and remain issued
on a fully paid basis with no further right of assessment by the Company.
V. Those person designated in Schedule A hereto, who are husband and wife,
each reside in the State of California. The shares of Telenornics common stock
to be tendered by them to the Company are property of their respective marital
community estates. It is their intent and desire, which intent and desire is
hereby affirmed and acknowledged through execution and delivery of this
Agreement, to transfer the Telenomics Shares for and on behalf of their
respective marital community estates as such and in connection therewith, upon
tender of such shares of Telenomics common stock on Closing, each waives any
further interest as to such Shares for and on behalf of their respective
marital community estates.
Telenomics and each of the Telenomics Shareholders further represents
and warrants that all of the representations and warranties set forth above
are true as of the date of this Agreement, and shall be true at the Closing
Date. The Telenomics Shareholder's obligations with respect to the
truthfulness of said representations as of the date of Closing shall survive
the closing for a period of 90 days after the date of Closing. Further, the
Exhibits and Schedules hereto and all other documents and information
furnished to the Company and the Company's representatives by Telenomics and
the Telenomics Shareholders pursuant hereto do not and will not include any
untrue statement of a material fact or omit to state any material fact
necessary to make the statements made and to be made not misleading.
2. REPRESENTATIONS AND WARRANTIES BY THE COMPANY. The Company hereby
makes the following express representations and warranties to Telenomics and
the Telenomics Shareholders:
A. The Company is a corporation duly organized, validly existing and in good
standing under the laws of the State of Nevada and has the corporate power to
own its properties and carry on its business as now being conducted. Certified
copies of the Company's Articles of Incorporation and By-Laws have heretofore
been furnished to Telenomics and the Telenomics Shareholders by the Company,
and all such copies are true, correct and complete copies of the original
Articles of Incorporation and By-Laws including all amendments thereto.
B. The Company has the corporate authority to issue a total of 20,000,000
shares of $0.001 par value per share common stock and 5,000,000 shares of
$0.001 par value per share preferred stock. As of the date of closing, the
Company will have issued and outstanding a total of 3,513,309 shares of common
stock. No shares of preferred stock are issued and outstanding.
C. The Company's has those subsidiaries set forth in Schedule N hereto.
D. Attached hereto as Schedule 0 is a list of all documents filed by the
Company with the United States Securities & Exchange Commission for the past
twelve months as of the date of this Agreement. The Company has provided to
each of the Telenomics Shareholders copies of each item set forth on Schedule
0.
E. The audited Financial Statements of the Company contained in the Company's
form lOKSB included in the Disclosure Information described in Schedule P
hereto (the "Company's Financial Statements") constitute substantially true
and correct statements of the financial condition of the Company and the
Company's assets, liabilities and income as of such date. Since the date of
the Balance Sheet contained in the Financial Statements, the Company has not:
(i) Issued any additional shares of its common stock to any person;
(ii) Paid or declared any dividends or distributions of capital,
surplus, or profits with respect to any of its issued and
outstanding shares of common stock;
(iii)Paid or agreed to pay any consideration in redemption of any of
its issued and outstanding shares of common stock; or
(iv) Entered into any other transaction or agreements that would, or
might, materially impair the shareholder's equity of the Company
as reflected in such Balance Sheet.
F. The execution and delivery of this Agreement, and issuance of the
Company's Shares required to be issued hereunder, will have been duly
authorized by all necessary corporate action and neither the execution nor
delivery of this Agreement nor issuance of the Company's Shares, nor the
performance, observance or compliance with the terms and provisions of this
Agreement will violate any provision of law, any order of any court or other
governmental agency, the Articles of Incorporation or By-Laws of the Company
or any indenture, agreement or other instrument to which the Company is a
party, or by which it is bound or by which any of its property is bound.
G. The Company is not involved in any pending litigation which would, or
might, materially affect its financial condition and which has not been:
(i) Provided for in the Company's Financial Statements, and
(ii) Disclosed to Telenomics, and/or the Telenomics Shareholders in
writing.
H. There are no unpaid assessments or proposed assessments of State or
Federal income taxes pending against the Company. All liabilities for Federal
and State income or franchise taxes, as shown on the tax returns filed, or to
be filed, by the Company, have been paid or the liability therefor has been
provided for in the attached Balance Sheet and all Federal and State income or
franchise taxes for periods subsequent to the periods covered by said returns
likewise have been paid or adequately accrued.
I. The shares of the Company's $0.001 par value per share common stock which
will be delivered to the Telenomics Shareholders pursuant to the terms of this
Agreement will, on delivery in accordance with the terms hereof, be duly
authorized, validly issued and fully paid and non assessable.
The Company further represents and warrants that all of the representations
and warranties set forth above are true as of the date of this Agreement. The
Company's obligations with respect to the truthfulness of said representations
as of the date of Closing shall survive the closing for a period of 90 days
after the date of Closing.
3. COVENANTS OF TELENOMICS AND THE TELENOMICS SHAREHOLDERS PRIOR TO
CLOSING. Between the date of this Agreement and the Closing Date:
A. Telenomics and the Telenomics Shareholders shall afford to the officers and
authorized representatives of the Company reasonable access to the properties,
books and records of Telenomics, and will furnish the Company with such
additional financial and operating data and other information as to the
business and properties of Telenomics as the Company may from time to time
reasonably request without regard to where such information may be located.
Telenomics and Telenomics Shareholders shall cooperate with the Company, the
Company's representatives and counsel in the preparation of any document or
other material which may be required in connection with any document or
material required by any governmental agency as a predicate to or result of
the transaction herein contemplated. The Company shall cause all information
obtained in connection with the negotiation and performance of this Agreement
to be treated as confidential (except such information as the Company may be
required to disclose to any governmental agency) and will not use, and will
not knowingly permit others to use, any such information in a manner
detrimental to Telenomics or the Telenomics Shareholders.
B. With respect to the ownership, operations and development of Telenomics,
Telenomics and the Telenomics Shareholders agree to:
(i) Carry on the business of Telenomics in substantially the same manner
as heretofore and not make any material change in personnel, operations,
finance, accounting policies, or real or personal property;
(ii) Maintain the Assets and all parts thereof in as good working order
and condition as at present, ordinary wear and tear excepted;
(iii) Perform all of the obligations of Telenomics under agreements
relating to or affecting the assets, properties and rights of Telenomics;
(iv) Keep in full force and effect present insurance policies or other
comparable insurance coverage;
(v) Maintain and preserve the business organization of Telenomics
intact, retain the present employees of Telenomics and maintain the
relationship of Telenomics with suppliers, customers and others having
business relations with Telenomics;
C. With respect to the ownership, operation and development of Telenomics,
Telenomics and the Telenomics Shareholders will not, without the prior written
consent of the Company:
(i) Except in the normal course of business, enter into any contract or
commitment or incur or agree to incur any liability, or make any capital
expenditures, greater than $5,000.00 in the aggregate or extending for a
period in excess of ninety (90) days following Closing;
(ii) Increase compensation payable or to become payable, or make a bonus
payment to or otherwise enter into one or more agreements with; except as
disclosed in the Schedules hereto any officer, employee or agent;
(iii) Create, assume or permit to exist any new mortgage, pledge or
other lien or encumbrance upon any of the Assets
(iv) Except as disclosed in the Schedules hereto, sell, assign, lease
or otherwise transfer or dispose of any of the Assets; or
(v) Merge or consolidate or agree to merge or consolidate with or
into any other entity.
4. COVENANTS OF THE COMPANY SUBSEQUENT TO CLOSING.
Within 45 days following the Closing Date:
A. The Company shall adopt such employee and executive incentive plans as the
Company and the Telenomics Shareholders shall mutually agree covering both
employees and executives of the Company and Telenomics.
B. The Company and Telenomics shall adopt mutually agreed upon procedures and
protocols respecting the protection of proprietary information.
C. The Boards of Directors of Cybertel and the Company shall authorize and
appoint a "Joint Management Committee" which shall be composed of two nominees
from the Company and two nominees from Telenomics with a fifth member to be
mutually appointed by these four appointees, for a total of five members.
Such Joint Management Committee shall be responsible for the strategic
planning, implementation and oversight of both the Company and the Telenomics.
5. CASUALTY. If any part of the Assets is damaged or destroyed in whole
or in part prior to Closing, the Company may, at its option: (i) abandon the
transaction contemplated hereby: (ii) proceed with the Closing but reduce the
Purchase Price by the replacement cost of the Assets damaged or destroyed, and
return all insurance proceeds attributable to said loss for the sole account
and benefit of the Telenomics Shareholders, or (iii) proceed with the Closing
and retain the proceeds of applicable insurance attributable to said loss,
and.
6. INDEMNITY.
A. The Company shall indemnify and hold Telenomics and the Telenomics
Shareholders harmless from and against any and all liability, loss, damage or
deficiency resulting from any material misrepresentation, material breach of
warranty or material non fulfillment of any agreement on the part of the
Company under this Agreement, and from any material misrepresentation in or
occasioned by any certificate or other instrument furnished or to be furnished
by the Company hereunder, and from the management and conduct of the Company's
ownership and operation of Telenomics subsequent to Closing (except with
respect to acts performed by any Telenomics Shareholder) and from any material
act or material negligence of the Company and its employees in or about the
Assets subsequent to Closing (except with respect to acts or negligence of any
Telenomics Shareholder. To be entitled to such indemnification, the party
seeking indemnification shall give the Company prompt written notice of the
assertion by a third party of any claim with respect to which it might bring a
claim for indemnification hereunder, and in all events must have provided such
notice within the applicable period for defense of such claim by the Company.
The Company shall have the right, at the Company's own expense, to defend and
litigate any such third party claim. In no event shall the Company be liable
for the acts or omissions of prior owners, operators or managers of Telenomics
and/or their agents, contractors and/or employees.
B. The Telenomics Shareholders shall indemnify and hold the Company harmless
from and against any and all liability, loss, damage or deficiency resulting
from any material misrepresentation, material breach of warranty or material
non fulfillment of any agreement on their part or the part of Telenomics under
this Agreement, and from any misrepresentation in or occasioned by any
certificate or other instrument furnished or to be furnished by them or
Telenomics hereunder. To be entitled to such indemnification, the Company
shall give the Telenomics Shareholders prompt written notice of the assertion
by a third party of any claim with respect to which the Company might bring a
claim for indemnification hereunder, and in all events must have supplied such
notice to the Telenomics Shareholders within the applicable period for defense
of such claim by the Telenomics Shareholders. The Telenomics Shareholders
shall have the rights, at their own expense, to defend and litigate any such
third party claim. If the Telenomics Shareholders do not elect to so defend
the claims, the Company shall advance all costs of and fully defend against
the claims to the fullest extent possible. In connection therewith, the
Telenomics Shareholders hereby agree, prior to the expenditure of funds by the
Company in such defense, to secure the repayment of any costs advanced by the
Company in defending such claims, by pledge of the Company's Shares tendered
to them hereunder and in connection therewith agree to execute any all
documents necessary to perfect such security interest.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY. The obligations of the
Company hereunder are, at the option of the Company, subject to the
satisfaction, on or prior to the Closing Date, of the following conditions
unless waived in writing by the Company:
A. The representations and warranties of Telenomics and the Telenomics
Shareholders contained in this Agreement shall be true when made and on and as
of the Closing Date, as though such representations and warranties had been
made on and as of such Closing Date; and each and all of the terms, covenants
and conditions of this Agreement to be complied with or performed by
Telenomics and/or the Telenomics Shareholders on or before the Closing Date
pursuant to the terms hereof shall have been duly complied with and performed.
B. The Company shall have obtained documentation or other evidence
satisfactory to the Company confirming the following:
(i) The Company's verification of the financial statements of Telenomics
for the three most recent fiscal years;
(ii) The Company's confirmation of acceptable title to the Assets;
(iii) The Company's confirmation from all applicable licensing agencies
that upon Closing, all licenses required by law to operate Telenomics as
currently operated will, at the Company's discretion, be transferred to, or
reissued in the name of, the Company;
(iv) Approval from all governmental agencies whose approval is necessary
to complete the transactions herein contemplated;
(v) The Company's confirmation that no uncorrected material deficiencies
exist with respect to the condition or operations of Telenomics according to
one or more governmental and accreditation agencies.
C. No material adverse change in the results of operations, financial
condition or business of Telenomics shall have occurred, and Telenomics
Shareholders shall not have suffered any material change, loss or damage to
its business or to the Assets, whether or not covered by insurance, since the
Balance Sheet Date.
D. Telenomics and the Telenomics Shareholders shall have delivered to the
Company an accurate and updated Schedule D as of the Closing Date, (I) listing
the name of each depository. in which Telenomics has accounts or safe deposit
boxes, (ii) listing the names in which the accounts or boxes are held, (iii)
listing the name of each person authorized to draw thereon or have access
thereto and (iv) amounts held in such accounts or boxes.
E. Telenomics and the Telenomics Shareholders shall have delivered to the
Company accurate updated Schedules D, E, H and I, as of the Closing Date,
showing all contracts and commitments relating to the operation of Telenomics
and its Assets entered into by Telenomics and or the Telenomics Shareholders
since the Balance Sheet Date, which agreements the Company may assume at its
option.
F. Telenomics and the Telenomics Shareholders shall have furnished to the
Company, upon the Company's election, in form acceptable to the Company and
approved by the Company's legal counsel, deeds, licensing agreements, bills of
sale, assignments or other instruments of transfer and (except in minor
instances) consents and waivers by others, necessary or appropriate to
transfer to and effectively vest in the Company, at the Company's option, all
right, title and interest of Telenomics in and to its Assets, in proper
statutory form for recording if such recording is necessary or appropriate.
G. All consents of third parties which are necessary, in the opinion of the
Company, effectively to complete the transaction herein contemplated shall
have been obtained and will be in form and substance satisfactory to the
Company.
CONDITIONS TO THE OBLIGATIONS OF TELENOMICS AND THE TELENOMICS SHAREHOLDERS.
The obligations of the Telenomics Shareholders and Telenomics hereunder are
subject to the following conditions:
The Telenomics Shareholders and Telenomics shall not have discovered any
material error or misstatement in any of the representations and warranties
made by the Company herein and all the terms and conditions of this Agreement
to be performed and complied with by the Company have been performed and
complied with.
B. There shall have been no substantial adverse changes in the financial
condition, business or operations of the Company, except for changes resulting
from those operations in the usual ordinary course of the business, and no
business and assets of the Company shall have been materially adversely
affected as the result of any fire, explosion, earthquake, flood, accident,
strike, lockout, combination of the workmen, taking over of any such assets by
any governmental authorities, riot, activities of armed forces, or Acts of God
or of the public enemies.
C. At the time of Closing of the Reorganization, the Company shall provide
or shall have provided Telenomics a total of $250,000 in working capital
through a loan, which shall be evidenced by a promissory note in the form of
Exhibit 6 hereto.
D. The Company shall have received a financing commitment from Capital Growth
Planning, respecting the provision of up to $2,000,000 in funding to the
Company within six months following the contemplated Reorganization (the
"Subsequent Financing"). Such Subsequent Financing commitment shall include a
use of proceeds which shall provide for an allocation of not less than $
1,000,000 (less finding provided in paragraph C herein above) in working
capital to Telenomics from the Subsequent Financing proceeds payable in
installments of $250,000 every ninety days, until paid in full.
9. CLOSING DATE. The Closing of this Agreement (the "Closing" or" Closing
Date") shall take place on or before January 1, 2000.
10. ACTIONS AT CLOSING. Subject to the terms and conditions set forth
herein. At the time of the Closing referred to in Section 9 hereof, the
Company will issue and deliver, or cause to be issued and delivered to the
Telenomics Shareholders, identified in Schedules A hereto, certificates
evidencing the ownership of the securities as designated therein and
concurrently therewith the Telenomics Shareholders, identified in Schedule A
hereto, shall directly or through their agent deliver or cause to be delivered
to the Company, certificates evidencing the ownership of securities as
designated therein, all duly endorsed to the Company, and each party shall pay
any and all Federal and State taxes required to be paid in connection with the
issuance and the delivery of their own securities. All stock certificates
shall be in the name of the party to which the same is deliverable. In
addition to the above-mentioned exchange of certificates, the following
transactions will take place at the Closings.
The Company will deliver to the Telenomics Shareholders and Telenomics:
A. Duly certified copies of corporate resolutions and other corporate
proceedings taken by the Company to authorize the execution, delivery and
performance of this Agreement;
B. A certificate executed by a principal officer of the Company attesting to
the fact that all of the foregoing representations and warranties of the
Company are true and correct as of the Closing Date and that all of the
conditions to the obligations of Telenomics, and Telenomics Shareholders which
are to be performed by the Company have been performed as of the Closing Date;
and
C. A certificate of corporate good standing for the Company from the State of
Nevada which shall be dated no more than 60 days prior to the Closing Date;
and
The Telenomics Shareholders and Telenomics will deliver to the Company:
A. Duly certified copies of corporate resolutions and other corporate
proceedings taken by Telenomics to authorize the execution, delivery and
performance of this Agreement;
B. A certificate of corporate good standing for Telenomics from the Secretary
of State of the State of California which shall be dated no more than 60 days
prior to the Closing Date; and
C. A certificate by a principal officer of Telenomics, and the Telenomics
Shareholders that each of the representations and warranties of Telenomics and
the Telenomics Shareholders are true and correct as of the Closing Date and
that all of the conditions to the obligations of the Company which are to be
performed by Telenomics and the Telenomics Shareholders have been performed as
of the Closing Date.
D. Those schedules, list and documents required under Section 3 hereof.
11. BOARD OF DIRECTORS. Immediately after the Closing, the Boards of Directors
of the Company and Telenomics shall hold a meeting at which the Company's
Board of Directors will appoint representatives of the Company to sit on the
Telenomics board of directors, in accordance with the Articles of
Incorporation and By-Laws of Telenomics. In addition, the Company shall
nominate and place Rick Hupe and Danny Salinas on the Company's ballot for
purposes of his election by the Company's shareholders as a member of the
Company's board of directors for the year 2000.
12. FUTURE REGISTRATION. The Telenomics Shareholders understand that
because the Company's Shares to be delivered to them have not been registered
under the Act or any State Act, they cannot dispose of any or all of them
unless they are subsequently registered under the Act and any applicable State
Act, or exemptions from registration are available. The Telenomics
Shareholders acknowledge and understand that, except as provided herein, they
have no independent right to require the Company to
register the Shares. The Telenomics Shareholders further understand that the
Company may, as a condition to the transfer of any of the Shares require that
the request for transfer be accompanied by an opinion of legal counsel, in
form and substance satisfactory to the Company, provided at such Telenomics
Shareholder's expense, to the effect that the proposed transfer does not
result in violation of the Act or any applicable State Act, unless such
transfer is covered by an effective registration statement under the Act and
is in compliance with all applicable State Acts. Notwithstanding the
foregoing, the Company agrees that, if at any time within the period beginning
on the Closing Date and ending five years after the Closing Date hereunder, it
should file a registration statement with the Commission pursuant to the Act,
registering thereunder any shares held by the Company's existing shareholders
for resale by such existing shareholders, the Company, at its own expense,
will offer the holder(s) of the Shares acquired pursuant to this Agreement the
opportunity to participate in such registration; provided, however, that the
number of Shares that may be included by the Telenomics Shareholders in such
registration shall be limited to that number determined by multiplying the
number of Shares held by the Telenomics Shareholders by the ratio determined
by dividing the number of Shares held by the Telenomics Shareholders by the
total number of shares of the Company's restricted stock issued and
outstanding at the time of filing such registration. This paragraph is not
applicable to a registration statement filed by the Company with the
Commission on Form S-4 or Form S-8, or any other inappropriate form.
13. TRANSFERABILITY. All Shares which are issued to the Telenomics -
Shareholders; pursuant to the terms of this Agreement shall be "restricted
securities" within the meaning of Rule 144 of the Act. The Company shall issue
stop transfer instructions to the transfer agent for its common stock and with
respect to the Shares and shall place the following legend, or one
substantially similar thereto, on the certificates representing such Shares:
"The securities represented by this certificate have been acquired
pursuant to a transaction effected in reliance upon an exemption under the
Securities Act of 1933, as amended (the "Act"), and have not been the subject
to a Registration Statement under the Act or any state securities act. The
securities may not be sold or otherwise transferred in the absence of such
registration or applicable exemption therefrom under the Act or any applicable
state securities act."
14. ACCESS TO INFORMATION. Concurrently herewith, the Company has delivered to
the Telenomics Shareholders and their respective representatives those
materials set forth in Schedule P hereto along with correct and complete
copies of all Documents and records requested by them. In addition, the
Telenomics Shareholders have had the opportunity to ask questions of, and
received answers from, officers and directors of the Company, and persons
acting on its behalf concerning such information and the terms and conditions
of the Agreement, and have received sufficient information relating to the
Company to enable them to make an informed decision with respect to the
acquisition of the common stock.
15. NO SOLICITATION. At no time were the Telenomics Shareholders
presented with or solicited by any leaflet, public promotion meeting,
circular, newspaper or magazine article, radio or television advertisement, or
any other form of general advertising in connection with their acquisition of
the common stock.
16. SHAREHOLDERS AGREEMENT. Simultaneous with the execution and delivery
of this Agreement Paul Mills, the Six M Irrevocable Family Trust and the
Telenomics Shareholders shall each execute and deliver to the other a binding
Shareholders Agreement in the form of Exhibit 4 hereto.
17. EXPENSES. The Telenomics Shareholders Telenomics and the Company
shall each pay their respective expenses incident to this Agreement and the
transactions contemplated hereby, including all fees of their counsel and
accountants, whether or not such transactions shall be consummated..
18. FINDERS. The Telenomics Shareholders and Telenomics shall indemnify
and hold the Company harmless against and with respect to all claims or
brokerage or other commissions relative to this Agreement or the transactions
contemplated hereby, based on any agreements, arrangements, or understandings
claimed to have been made by the Telenomics Shareholders and Telenomics with
any third party. The Company shall indemnify and hold the Telenomics
Shareholders and Telenomics harmless against and with respect to all claims
for brokerage or other commissions relative to this Agreement or the
transactions contemplated hereby, based in any agreements, arrangements, or
understandings claimed to have been made by the Company with any third party.
Except as provided in Exhibit 5, each party to this Agreement represents and
warrants to each other party that it has not dealt with and does not know of
any person, firm or corporation asserting a brokerage, finder's or similar
claim in connection with the making or negotiation of this Agreement or the
transactions contemplated hereby.
19. MISCELLANEOUS.
A. Each Exhibit, Certificate and Schedule to this Agreement shall be
considered a part hereof as if set forth herein in full. Notwithstanding any
other provision herein to the contrary, all Exhibits, Certificates, Schedules
or other instruments provided for herein and not delivered at the time of
execution of this Agreement shall be delivered or completed on or before
Closing; and it shall be deemed a condition precedent to the Closing hereunder
that each such Exhibit, Certificate, Schedule or other instrument shall meet
with the approval of the party to whom such Exhibit, Certificate, Schedule or
other instrument is to be delivered hereunder.
B. The provisions of this Agreement shall be self-operative and shall not
require further agreement by the parties except as may be herein specifically
provided to the contrary; provided, however, at the request of either party,
the other party shall execute such additional instruments and take such
additional acts as the requesting party may deem necessary to effectuate this
Agreement.
C. Except as herein expressly provided to the contrary, whenever this
Agreement requires any consent or approval to be given by either party or
either party must or may exercise discretion, the parties agree that such
consent or approval shall not be unreasonably withheld or delayed and such
discretion shall be reasonably exercised.
D. In the event either party elects to incur legal expenses to enforce or
interpret any provision of this Agreement, the prevailing party will be
entitled to recover such legal expenses, including, without limitation,
attorney's fees, costs and necessary disbursements, in addition to any other
relief to which such party shall be entitled.
E. The parties agree that this Agreement shall be governed by and construed
in accordance with the laws of the State of California, and that the courts of
the State of California shall be the exclusive courts of jurisdiction and
venue for any litigation, special proceeding or other proceeding as between
the parties that may be brought, or arise out of, in connection with or by
reason of this Agreement.
F. Subject to provisions herein to the contrary, this Agreement shall inure
to the benefit of and be binding upon the parties hereto and their respective
legal representatives, successors and assigns; provided, however, that no
party may assign this Agreement without the prior written consent of the other
party, which consent shall not be unreasonably withheld. All provisions
contained herein shall be binding upon the respective parties their legal
representatives, successors and assigns unless otherwise explicitly stated;
provided however that the use of a party's name without more shall not be
deemed such an explicit statement.
G. The transactions contemplated hereby shall be effective for accounting
purposes as of the Closing Date, unless otherwise agreed in writing by the
Telenomics Shareholders and the Company.
H. The Telenomics Shareholders and the Company mutually agree that no party
hereto shall release, publish or otherwise make available to the public in any
manner whatsoever any information or announcement regarding the transactions
herein contemplated without the prior written consent of the Telenomics
Shareholders and the Company, except for information and filings reasonably
necessary to be directed to governmental. agencies to fully and lawfully
effect the transactions herein contemplated.
I. The waiver by either party of breach or violation of any provision of this
Agreement shall not operate as, or be construed to be, a waiver of any
subsequent breach of the same or other provision hereof.
J. Any notice, demand or communication required, permitted, or desired to be
given hereunder shall be deemed effectively given when personally delivered or
mailed by prepaid certified mail, return receipt requested, addressed as
follows:
If to Telenomics or the Telenomics Shareholders:
Telenomics, Inc.
41769 Enterprise Circle North
Suite 209
Temecula, California 92590
With Copy to:
William M. Belding, Esq.
2428 Main Street
Santa Monica California 90405
Los Angeles, CA 90071
If to the Company
Cybertel Communications Corp.
4275 Executive Square #5 10
La Jolla, California 92037
With Copy to:
David R. Strawn
1922 East Salt Sage Drive
Phoenix, Arizona 85048
or to such other address, and to the attention of such other person or officer
as any party may designate, with copies thereof to the respective counsel
thereof as notified by such party.
K. In the event any provision of this Agreement is held to be invalid,
illegal or unenforceable for any reason and in any respect, such invalidity,
illegality, or unenforceability shall in no event affect, prejudice or disturb
the validity of the remainder of this Agreement, which shall be in full force
and effect, enforceable in accordance with its terms.
L. Whenever the context of this Agreement requires, the gender of all words
herein shall include the masculine, feminine and neuter, and the number of all
words herein shall include the singular and plural.
M. The divisions of this Agreement into sections and subsections and the use
of captions and headings in connection therewith are solely for convenience
and shall have no legal effect in construing the provisions of this Agreement.
N. This Agreement supersedes all previous contracts, and constitutes the
entire agreement of whatsoever kind or nature existing between or among the
parties respecting the within subject matter and no party shall be entitled to
benefits other than those specified herein. As between or among the parties,
no oral statements or prior written material not specifically incorporated
herein shall be of any force and effect; the parties specifically acknowledge
that in entering into and executing this Agreement, the parties rely solely
upon the representations and agreements contained in this Agreement and no
others. All prior representations or agreements, whether written or verbal,
not expressly incorporated herein are superseded and no changes in or
additions to this Agreement shall be recognized unless and until made in
writing and signed by all parties hereto. The provisions of this Agreement
shall survive the Closing and remain of full force and effect for a period of
one year; All other agreements described, referenced or contemplated herein
shall not be merged herewith. This Agreement may be executed in two or more
counterparts, each and all of which together shall constitute but one and the
same instrument.
REORGANIZATION AGREEMENT
COUNTERPART SIGNATURE PAGE
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of
the day and year first above written.
Cybertel Communications Corp., a
Nevada corporation
By:/s/Richard Mangerelli
REORGANIZATION AGREEMENT
COUNTERPART SIGNATURE PAGE
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of
the day and year first above written.
Telenomics, , a California corporation
/s/Rick E. Hupe
<PAGE>
REORGANIZATION AGREEMENT
COUNTERPART SIGNATURE PAGE
TELENOMICS SHAREHOLDERS
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of
the day and year first above written.
/s/Rick E. Hupe
Signature
Rick E. Hupe
Print Name
/s/Roxann Hupe
Spouses Signature
Roxann Hupe
Print Name
<PAGE>
Schedule A
Telenomics Shareholders
Name Telenomics Shareholdings No. Company's Shares
Rick Hupe and Roxanne 16,100 160,565
Hupe, husband and wife
Michael Foster and Linda 17,100 170,538
K. Foster, husband and
wife
Danny Salinas and Marilyn 14,962.5 149,221
Salinas, husband and wife
Fred Heald 10,000 99,730
Bill Brisby and Patricia 1,000 9,973
Brisby, husband and wife
William M. Belding 1,000 9,973
<PAGE>
Telenomics, Inc.
Schedule of Debt and Equity Holders
The Company has no Debt Holders and has never issued any bonded indebtedness
The Company has 100,000 authorized shares of Common Stock, and the following
are the shareholders of record as of September 29, 1999:
Rick Hupe 16,100
Michael Foster 17,100
Danny Salinas 14,962.5
Fred Heald 10,000
Bill Brisby 1,000
William M. Belding 1,000
I certify that the foregoing Schedule of Debt and Equity Holders is true and
correct.
Date: September 29, 1999 /s/Rick Hupe
Rick Hupe
Chief Executive Officer
<PAGE>
Schedule B
Telenomics Conflicts or Potential Breaches of Contracts
NONE
<PAGE>
Schedule C
Telenomics Subsidiaries and Prior Business Dealings
NONE
<PAGE>
Schedule D
Telenomics Comprehensive List of Assets
Assets owned by Telenomics are set forth in full in the Financial Statements
contained in Exhibit 1 to this Reorganization Agreement. The items set forth
below reflect the only changes to the Assets set forth in the Financial
Statements as of December 15, 1999:
Bank of America General Account $ 129.59
Bank of America Payroll Account $ 836.43
Bank of America Savings Account $2,785.62
Accounts Receivable $58,034.49
Equipment $251,681.00
<PAGE>
Schedule E
Telenomics Exceptions to Tiles to Assets
NONE
<PAGE>
Schedule F
Material changes to Financial Statements
<PAGE>
Schedule G
Telenomics Required Permits, Franchises, Licenses, Etc.
NONE
<PAGE>
Schedule H
Telenomics Contracts affecting assets
NONE
<PAGE>
Schedule I
Telenomics Contracts Requiring Future Performance
NONE
<PAGE>
Schedule J
Telenomics Disposition of Assets
NONE
<PAGE>
Schedule K
Telenomics Insurance
The Company has a Commercial Package Policy with policy dates of 01-09-1999 to
01-09-2000, policy Number B0529021 with Unigard Insurance Company.
Policy attached
<PAGE>
Schedule L
Telenomics Employees, Pensions and Sick Leave Policies
NONE
<PAGE>
Schedule M
Telenomics Litigation
NONE
<PAGE>
Schedule N
Cybertel Communications Corp. Subsidiaries
NONE
<PAGE>
Schedule O
Cybertel Communications Corp.
Documents filed with the Securities and Exchange Commission
1. Form 10-SB for the period Ending December 31, 1998
<PAGE>
Schedule P
Cybertel Communications Corp.
Disclosure Materials
1. Form 10-SB for the period Ending December 31, 1998
2. Offering Memorandum dated October 1, 1999
<PAGE>
Exhibit 1
Telenomics Financial Statements
<PAGE>
Exhibit 2
Investment Letter
CYBERTEL COMMUNICATIONS CORP.
INVESTMENT LETTER
Cybertel Communications Corp.
4275 Executive Square, Suite 510
La Jolla, California 92037
Re: Acquisition of shares of Cybertel Communications Corp., a Nevada
corporation (the "Company").
Gentlemen:
Pursuant to that certain Reorganization Agreement ("Agreement") between and
among (i) Cybertel Communications Corp., a Nevada corporation, which is
referred to herein as the "Company," (ii) Telenomics, Inc., a California
corporation which is referred to herein as "Telenomics" and each person
identified in Schedule A to the Agreement, who are the holders of 60,162.5
shares of the authorized capital stock of Telenomics, which constitutes one
hundred percent (100%) of the issued and outstanding capital stock of
Telenomics who are referred to herein collectively as the "Telenomics
Shareholders and individual as a "Telenomics Shareholder", the undersigned has
agreed to exchange his shares of Telenomics, for a total of that number of
shares of the Company's $0.001 par value per share common stock as set forth
in Schedule A of the Agreement (the "Shares"). In connection therewith,
undersigned hereby acknowledges that he has approved this exchange; that he is
aware of all of the terms and conditions of the Agreement; that he has
received and personally reviewed a copy of any and all material documents
regarding the Company which have been delivered to him for his review, and,
based upon such review, desires to acquire the Shares, upon the terms set
forth in the Agreement. In connection therewith:
1 Representations and Warranties of the Undersigned.
(a) Respecting Offering Materials. The undersigned hereby represent and
warrant that he:
(1) has been furnished with those materials and documents set
forth in the Agreement ("Disclosure Materials").
(2) has been given the opportunity to ask questions of and
receive answers from the officers and directors of the Company with respect to
the issuance of the Shares pursuant to the Agreement, the Shares, the
business of the Company and any other matters which they considered to be
material to his investment decision and all such questions have been answered
to his, full satisfaction;
(3) has not relied on any information or representation other
than those set forth in the Disclosure Materials and such other written
information and representations as have been provided by the officers and
directors of the Company pursuant to a specific question or request for
additional information;
(4) has not been presented with or solicited by any leaflet,
public promotional meeting, circular, newspaper or magazine article, radio or
television advertisement, or any other form of general advertising.
(b) Respecting Investor Suitability. The undersigned hereby represents
and warrants that he:
(1) is an "Accredited Investors" as that term is defined in
Securities and Exchange Commission Regulation D, promulgated under the
Securities Act of 1933, as amended (the "Act");
(2) is capable of bearing the high degree of economic risk
associated with this investment including, but not limited to, the possibility
of complete loss of all his investment capital;
(3) has sufficient financial and other resources to provide for
anticipated financial needs, without taking into account any income which may
be generated as a result of his investment in the Shares, and has no need for
liquidity with respect to the investment in the Shares;
(4) has total investments in illiquid investments that are
reasonable in relation to his net worth and can afford the total loss of the
investment in the Shares;
(5) has had substantial experience in business of investments in
one or more of the following: (i) investment experience with securities, such
as stock and bonds; (ii) ownership of interests in new ventures and start-up
companies; and (iii) experience in business and financial dealings; and
(6) can protect his own interests in an investment of this nature
and does not have a "Purchaser Representative," as that term is defined in
Regulation D of the Act and does not need such Representative.
(7) understands and agrees that the Shares acquired pursuant to
the Agreement have not been and will not be registered under the Act, that the
Shares are being offered and sold in reliance upon the exemption from
registration afforded by Section 4(2) and Rule 506 of Regulation D as
promulgated under the and that the Shares have not been registered with any
state securities commission or other governmental authority. Undersigned
hereby acknowledge that pursuant to the requirements of Section 4(2) and Rule
506 or Regulation D, the Shares acquired from the Company may not be
transferred, sold or otherwise exchanged unless registered or in transactions
that are exempt therefrom.
(8) undersigned acknowledges that the Company is relying upon the
representations made by him herein in transferring the Shares hereunder
without registration under the Act pursuant to an exemption therefrom as
provided in Section 4(2) and Rule 506 or Regulation D promulgated thereunder.
Undersigned has consulted with legal counsel in connection with this
transaction.
(9) is purchasing the Shares exclusively for his own account and
not for the account or benefit or on behalf of another person.
(c) Respecting Investment Liquidity. The. undersigned hereby represent
and warrant that he:
(1) has been advised that the Shares have not been registered
under the Securities Act of 1933 in reliance on the exemption provided by
Section 4(2) and Rule 506 of Regulation D of the Act relating to transactions
not involving public offering;
(2) understands that the issuance of the Shares has not been
approved or disapproved by the Securities and Exchange Commission or the
securities regulatory authority of any state;
(3) understands that the Shares, are, and will continue to be,
unregistered securities which may not be assigned, sold, transferred, conveyed
or hypothecated to any person unless such are subsequently registered under
applicable Federal and state law, or unless an exemption from such
registration is available to both the undersigned and the proposed transferee
under such laws;
(4) understands that the Company has no obligation or intention to
register the Shares for sale under the Act except as provided in the
Agreement;
(5) understands that there is at present a limited public market
for the Shares and that the lack of a liquid market may make it impossible to
liquidate the Shares when desired or at then current asking prices, and there
can be no assurances that an active public market will ever develop; and
(6) understands and acknowledges that this investment may be long
term, must be held indefinitely, and is, by nature, highly speculative.
Undersigned further represents and warrants that all of the representations
and warranties set forth above are true as of the date of this Investment
Letter.
2. Representations and Warranties of the Company
a. The Company is a corporation organized under the laws of the Nevada
with full corporate authority to conduct its business as now being conducted.
b. The issuance of the Shares required to be delivered by the Company
pursuant to the Agreement, will have been duly authorized by all necessary
corporate action by the Company and will not violate any provision of the
corporate statutes or similar organic documents of the Company.
c. Neither the execution nor delivery of this Investment Letter nor the
issuance of Shares, nor the performance, observance or compliance with the
terms and provisions of this Agreement by the Company will violate any
provision of law, any order of any court or other governmental agency, or any
indenture, agreement or other instrument to which the Company is a party or by
which the Company is bound. This Investment Letter and the Agreement, upon
execution and delivery by the Company and assuming the due authorization,
execution and delivery by the other parties hereto, will be the valid,
binding, and legally enforceable obligations of the Company.
d. The Shares, when issued to undersigned will be duly and validly
authorized and issued on a fully paid basis with no further right of
assessment by the Company. In order to further compliance with the
requirements of Regulation D under the Act, the Company shall cause the
certificates delivered by the
Company's transfer agent for delivery to the Purchaser to bear the following
legend or one substantially similar thereto, to be contained on the
certificate representing the Shares:
"The securities represented by this certificate have been acquired
pursuant to a transaction effected in reliance upon an exemption
under the Securities Act of 1933, as amended (the "Act"), and have
not been the subject to a Registration Statement under the Act or
any state securities act. The securities may not be sold or
otherwise transferred in the absence of such registration or
applicable exemption therefrom under the Act or any applicable
state securities act."
e. The Company will take any and all reasonable action necessary to
assist the undersigned in obtaining timely transfer and delivery of the Shares
as contemplated hereby (including the execution and delivery of such
additional documents as may be required to effect transfer of the Shares to
the undersigned thereof as contemplated hereby).
3. Express Covenants of the Undersigned.
(a) Respecting Resales and Transfers. The undersigned expressly
represent, covenant and warrant that he:
(1) will not transfer or assign this Investment Letter or any of its
rights hereunder, and further agrees that the assignment and transferability
of the Shares shall be made only in accordance with this Investment Letter and
the Agreement; and
(2) will not, without the prior written consent of the Company,
assign, sell, transfer, convey or hypothecate any interest in the Shares to
any person, unless the proposed transfer may be lawfully completed without
such consent under the applicable provisions of the Securities and Exchange
Commission Rule 144 and/or Regulation D or pursuant to a registration.
(b) Respecting Indemnification of the Company. The undersigned
represents, warrants and agrees that he, will indemnify and hold the Company
and each of its officers, directors and principal shareholders harmless from
and against all costs and expenses, including attorney's fees, judgments and
amounts paid in settlement, which may be paid or incurred by any such person
in connection with or as a result of any claim, demand, action or right of
action which in anyway arises from or relates to any breach by the undersigned
of any representation, warranty or covenant set forth in this Investment
Letter or any incomplete, evasive or misleading answer to any question set
forth in herein which has been completed by them and submitted herewith.
4. Restrictive Legend. The Company intends to place the following restrictive
legend, or a legend similar thereto, on each certificate representing the
Shares:
"The securities represented by this certificate have been acquired pursuant to
a transaction effected in reliance upon an exemption under the Securities Act
of 1933, as amended (the "Act"), and have not been the subject to a
Registration Statement under the Act or any state securities act. The
securities may not be sold or otherwise transferred in the absence of such
registration or applicable exemption therefrom under the Act or any applicable
state securities act."
5. Notices. All notices or other communications which are, or may be, required
or permitted to be given or made hereunder shall be in writing and shall be
delivered or mailed by registered or certified mail, return receipt requested,
postage prepaid, to the Company at the address first above written and to the
undersigned at the address designated in undersigned's counterpart signature
page to this Investment Letter tendered herewith.
6. Governing Law. The offer and other transactions contemplated under this
Agreement shall be construed in accordance with the governed by the laws of
the Nevada.
7. Entire Agreement. This Agreement constitutes the entire agreement among the
parties hereto with respect to the subject matter hereof and may be amended
only by a writing executed by all parties.
IN WITNESS WHEREOF, the undersigned has executed this Investment
Letter in the City of Temecula, County of Riverside, on this 29 day of
December, 1999.
/s/Frederick K. Heald
(Signature of Subscriber) (Signature of Joint Owner)
Frederick K. Heald
(Name Printed) (Name Printed)
111 Avalon
(Street Address) (Street Address)
Vista, CA, San Diego
(City, State, County) (City, State, County)
SUBSCRIPTION ACCEPTANCE
The subscription for Shares set forth in this Investment Letter is accepted by
the Company on this _ day of , 1999.
Cybertel Communications Corp.
By
Richard Mangiarelli
Its President
<PAGE>
Exhibit 3
Cybertel Communications Corp.
Financial Statements
<PAGE>
CYBERTEL, COMMUNICATIONS CORP.
FINANCIAL STATEMENTS
Two Years Ended December 31, 1998
June 23, 1999
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Cybertel, Communications Corp.
Las Vegas, Nevada
We have audited the accompanying balance sheet of Cybertel, Communications
Corp. as of December 31, 1998, and the related statements of income,
stockholders' equity and cash flows for the two years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our 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 provides 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 Cybertel, Communications
Corp. as of December 31, 1998, and the results of its operations and its cash
flows for the two years then ended.
MALONE & BAILEY, PLLC
June 23, 1999
Houston, Texas
<TABLE>
CYBERTEL, COMMUNICATIONS CORP.
BALANCE SHEET
December 31, 1998
<CAPTION>
<S> <C>
ASSETS
Current Assets
Cash $ 50,344
Accounts receivable 1,278
Subscriptions receivable 34,500
Total Current Assets 86,122
Equipment, net of $2,612 accumulated depreciation 8,085
Deposits 4,500
TOTAL ASSETS $ 98,707
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities
Current portion of long-term debt $ 2,554
Accounts payable 2,241
Accrued interest 1,673
Loan from a founding stockholder 12,700
Total Current Liabilities 19,168
Long-term Debt 2,575
Total Liabilities 21,743
STOCKHOLDERS' EQUITY
Preferred stock, no par value, 5,000,000 shares
authorized, no shares issued or outstanding
Common stock, $.001 par value, 20,000,000
shares authorized, 2,806,659 shares
issued and outstanding 2,807
Paid in capital 1,626,813
Stock subscriptions receivable ( 113,500)
Retained (deficit) (1,439,156)
TOTAL STOCKHOLDERS' EQUITY 76,964
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 98,707
</TABLE>
See accompanying accounting policies
and notes to financial statements.
2
<TABLE>
CYBERTEL, COMMUNICATIONS CORP.
INCOME STATEMENTS
For the Years Ended December 31, 1998 and 1997
<CAPTION>
1998 1997
<S> <C> <C>
Revenues $ 16,004 $ 26,862
Operating Expenses
Selling 26,657 12,851
General and administrative
- paid in cash 174,661 74,275
- paid in stock 976,218 180,000
Depreciation 2,400 212
Interest (income) (1,553) ( 236)
Interest expense 2,262 975
Total Operating Expenses 1,180,645 268,077
NET INCOME (LOSS) $(1,164,641) $(241,215)
Net (loss) per common share $(0.51) $(0.13)
Weighted average common shares
outstanding 2,298,053 1,858,025
</TABLE>
See accompanying accounting policies
and notes to financial statements.
3
<TABLE>
CYBERTEL, COMMUNICATIONS CORP.
STATEMENTS OF STOCKHOLDERS' EQUITY
For the Years Ended December 31, 1998 and 1997
<CAPTION>
Stock
Common Stock Subscrip. Paid in Retained
Shares $ Receivable Capital Deficit Totals
<S> <C> <C> <C> <C> <C> <C>
Balances,
December 31, 1996 2,000,000 $2,000 $(3,900) $ 38,000 $( 33,300) $ 2,800
Stock certificates
canceled ( 558,500) (559) 3,900 ( 3,341)
Cash contribution from
founding shareholder 8,702 8,702
Stock issued
- for cash 84,550 85 81,515 81,600
- less subscriptions
rec. (25,000) (25,000)
- for services 190,000 190 279,810 280,000
- less costs of
fundraising (100,000) (100,000)
Net (loss) (241,215) (241,215)
Balances,
December 31, 1997 1,716,050 1,716 (25,000) 304,686 (274,515) 6,887
Stock issued
- for cash 393,750 394 376,606 377,000
- less: subscriptions
rec. (88,500) (88,500)
- for services 696,859 697 1,393,021 1,393,718
- less costs of
fundraising
- in cash paid (30,000) (30,000)
- in stock issued (417,500) (417,500)
Net (loss) (1,164,641)(1,164,641)
Balances,
December 31, 1998 2,806,659 $2,807$(113,500)$1,626,813$(1,439,156) $ 76,964
</TABLE>
See accompanying accounting policies
and notes to financial statements.
4
<TABLE>
CYBERTEL, COMMUNICATIONS CORP.
STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1998 and 1997
<CAPTION>
1998 1997
<S> <C> <C>
CASH FLOWS USED BY OPERATING ACTIVITIES
Net income (loss) $(1,164,641) $(241,215)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation 2,400 212
Stock issued for services 1,393,718 180,000
Less: amount charged to equity ( 417,500)
Changes in
Accounts receivable 15,195 ( 16,473)
Accounts payable ( 1,477) 3,718
Accrued interest 762 910
NET CASH USED BY OPERATING ACTIVITIES ( 171,543) ( 72,848)
CASH FLOWS USED BY INVESTING ACTIVITIES
Purchase of equipment ( 3,073) ( 7,624)
Deposits acquired ( 4,500)
NET CASH USED BY INVESTING ACTIVITIES ( 3,073) ( 12,124)
CASH FLOWS FROM FINANCING ACTIVITIES
Debt proceeds
7,624
Repayment of debt ( 2,127) ( 367)
Loan from a shareholder 12,700
Sales of common stock, net of
costs of fundraising 224,000 65,302
NET CASH FLOWS FROM FINANCING ACTIVITIES 221,873 85,259
NET INCREASE IN CASH 47,257 287
CASH BALANCES
- Beginning of period 3,087 2,800
- End of period $ 50,344 $ 3,087
SUPPLEMENTAL DISCLOSURES
Interest paid $ 1,500 $ 64
Income taxes paid 0 0
</TABLE>
See accompanying accounting policies
and notes to financial statements.
5
NOTE 1 - ACCOUNTING POLICIES
Nature of Business. Cybertel, Communications Corp. ("Company") was
incorporated in Nevada in June, 1996. The Company sells telecommunications
services to commercial customers and began operations in 1997.
Estimates and assumptions. Preparing financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets, liabilities,
revenue and expenses at the balance sheet date and for the period then ended.
Actual results could differ from these estimates.
Revenue recognition occurred when commercial businesses are signed up with
various commercial carriers, and incur long-distance bills. The Company earns
a fractional portion of these charges as a referral fee. Beginning May 1999,
the Company began purchasing time from carriers and reselling it to its
customers.
Equipment is computer-related and is stated at cost. Depreciation is computed
by the straight-line method using rates based on an estimated 3-year life of
the related assets.
Income taxes are computed using the tax liability method of accounting,
whereby deferred income taxes are determined based on differences between
financial reporting and tax bases of assets and liabilities and are measured
using the enacted tax rates that will be in effect when the differences
reverse.
Loss per share is reported under Statement No. 128 of the Financial Accounting
Standards Board ("FAS 128"). FAS 128 replaced the calculation of primary and
fully diluted earnings per share with basic and diluted earnings per share.
Unlike primary earnings per share, basic earnings per share exclude any
dilutive effects of options, warrants, and convertible securities. Diluted
earnings per share are very similar to the previously reported fully diluted
earnings per share. All earnings per share amounts for all periods have been
presented and, where appropriate, restated to conform to the FAS 128
requirement. For 1998, warrants outstanding are not included in the earnings
calculation because their effect in a loss year would be antidilutive.
NOTE 2 - INSTALLMENT DEBT
The Company capitalized two equipment leases payable in 24 equal remaining
installments of $246, beginning December 1997, using a 10% discount factor.
The debt is secured by the equipment, valued at about $4,000. Total debt of
$5,129 is due $2,554 in 1999 and $2,575 in 2000.
NOTE 3 - LOAN FROM A FOUNDING STOCKHOLDER
In 1997, a founding shareholder loaned $12,700 to the Company. This loan is
repayable on demand, and bears no interest.
NOTE 4 - INCOME TAXES
As of December 31, 1998, the Company has approximately $0,000 in unused net
operating loss carryforwards which expire in 2018.
NOTE 5 - COMMON STOCK
During 1998, the Company sold 393,750 shares of stock for $376,100 pursuant to
a placement offering exempt from registration under Rule 504 of the Securities
and Exchange Commission. Of this amount, $253,100 was collected during 1998
and another $34,500 was collected in 1999 prior to June 23, 1999, and is
recorded as an asset "Subscriptions receivable." The $88,500 balance is shown
as a reduction in Stockholders' Equity. The Company raised another $907,400
both through additional stock sales and through the exercise of warrants at $2
per share issued with the 1998 and 1999 stock sales through June 23, 1999 and
services worth another $986,800. Total stock issued in 1999 through June 23
is 777,250 shares.
570,077 warrants to purchase Company common stock at $2 were issued in
connection with this offering and other 1998 issuances. 368,550 have been
exercised in 1999 through June 23, 1999. 1999 sales of stock through June 23,
1999 totaled 777,250 shares for net cash proceeds of $907,400 and services
valued at $986,800.
NOTE 6 - OPERATING LEASES
The Company's office in La Jolla, California has 1,500 square feet. Rent
obligations are $2,525 per month for 11 remaining months in 1999.
NOTE 7 - SUBSEQUENT EVENTS
The Company is spending its 1999 stock sales proceeds to acquire equipment to
scale up its implementation of providing long distance and data
telecommunications services. In March 1999, the Company signed a service
agreement with General Telecom, Inc. to use its telecommunications equipment
for a one year term, with five renewable one-year options. Contract pricing
is per the agreement and is based on usage volume and line types, beginning at
$6,500 per month. Total equipment purchases to date are $37,909.
<PAGE>
Exhibit 4
Shareholders Agreement
<PAGE>
SHAREHOLDER AGREEMENT
AGREEMENT made as of this 23rd day of December, 1999, among Cybertel
Communications Corp., a Nevada corporation (the "Company"), and the additional
signatories hereto, as set forth in Schedule A hereto (collectively the
"Shareholders")
WHEREAS, the Shareholders are owners of the issued and outstanding stock of
the Company as set forth in Schedule A hereto;
WHEREAS, the Company and the Shareholders desire to promote their mutual
interests and the interests of the Company by imposing certain restrictions
and obligations on themselves and the shares of stock of the Company;
NOW, THEREFORE, in consideration of the mutual promises contained herein and
other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, it is hereby agreed as follows:
1. Definitions. As used in this Agreement:
(a) The term "Stock" shall mean all issued and outstanding shares of
common stock of the Company, together with all shares of capital stock of the
Company of any class which may hereafter be issued. Moreover, all references
herein to Stock owned by a Shareholder includes the community interest, if
any, of the spouse of such Shareholder in such Stock.
(b) The term "Disposition" shall mean any inter vivos transfer,
pledge, mortgage or other encumbrance, or any other disposition of Stock
whatsoever, whether voluntary or involuntary.
(c) The term "Determination Date" shall mean the last day of the month
during which, in the case of a purchase of Stock under Section 2 hereof, the
Offer referred to in paragraph 2(a) is sent in accordance with paragraph 2(b)
or, in the case of a purchase of Stock of a deceased Shareholder under section
4 hereof or in connection with the occurrence of any event specified in
Sections 5 and 7, such event or the death of such Shareholder occurs;
provided, however, that if such determinative event occurs within two months
before or after the end of a fiscal year of the Company, the last day of such
fiscal year shall be deemed the Determination Date.
2. Offer to the Company and the Shareholders. Except as herein provided, no
Shareholder, for a period of one year from the date of this Agreement (the
"Restricted Period") shall make any Disposition of any Stock without the
written consent of the other Shareholders and the Company, or in the absence
of such written consent, except pursuant to the provisions hereinafter set
forth:
(a) Any Shareholder desiring to make a Disposition of Stock during the
Restricted Period shall first make an offer (the "Offer") to sell such Stock
to the Company and to the other Shareholders.
(b) The Offer shall be sent by certified or registered mail, return
receipt requested, to the Company and to the other Shareholders and shall
state the number of shares involved and the names of, and the price to be
paid, by any proposed purchasers. The date of the offer shall be the date on
which a notice containing the Offer has been so sent to all parties entitled
to receive it. The Offer may be withdrawn prior to the exercise of either
option granted in paragraphs 2(c) or 2(d).
(c) The Company shall have the option for thirty (30) days following the
Offer to purchase the Stock offered. The Company shall buy no such stock
unless it and the other Shareholders exercising their option pursuant to
paragraph 2(d) purchase all Stock subject to the Offer.
(d) If the Company does not exercise its option, the other Shareholders
shall have the option, for thirty (30) days following the expiration of the
Company's option, to purchase not less than all of the remaining Stock offered
in such proportions as they mutually agree. Each Shareholder electing to
purchase Stock pursuant to the offer shall have the right to purchase that
proportion of the number of shares of such stock which number of shares of
stock owned by such Shareholder bears to the total number of shares of Stock
owned by all Shareholders electing to purchase. If the Company and the other
Shareholders do not purchase all the Stock subject to an Offer, the selling
Shareholder shall be permitted, at any time or times within, but not after,
ninety (90) days after the lapse of all options arising in connection with
such Offer to sell the Stock which was the subject of such Offer; provided
however, that no such sale shall be made at a lower price or to any person
other than specified in such Offer. If after the lapse of the ninety-day
period such Stock has not been sold, the selling Shareholder must make a new
Offer prior to selling such Stock.
(e) The price per share to be paid upon the purchase of Stock under
either paragraph 2(c) or 2(d) shall be the lower of either (i) the price to be
paid by any proposed purchasers of the Stock or (ii) the price to be
determined as follows:
(1) If all the Shareholders and the Company signed a statement
setting forth the agreed value of one share of stock as of a date not more
than one year prior to the Determination Date of the Offer, the price shall be
an amount equal to such agreed value adjusted for the net earnings or losses
of the Company as determined in accordance with generally accepted accounting
principles for period from the date of such agreed value to the Determination
Date.
(2) In the absence of a statement of agreed value complying with
the preceding subparagraph (1), the price per share shall be an amount equal
to the average closing bid price for the Company's shares of common stock for
the period commencing 20 days prior to the Determination Date and terminating
twenty days thereafter. Such closing bid price shall be the bid price quoted
on the National Association of Securities Dealers Automated Quotation System
or the Bulletin Board System maintained by the NASD.
(f) The closing shall be sixty (60) days from the date of the Offer. At
least twenty-five percent (25%) of the purchase price determined under
paragraph 2(e) of the Stock being acquired by each purchaser shall be paid by
certified or cashier's check upon the closing, and any balance shall be
evidenced at such time by the negotiable promissory note of such purchaser
payable in five or fewer equal annual installments, bearing interest at the
rate of six percent (6%) per annum and secured by the Stock purchased;
provided that in no event shall an amount exceeding thirty percent (30%) of
the total purchase price be paid in any calendar year unless the total balance
of such price then remaining unpaid is paid in such year. Such check and notes
shall be actually delivered to the selling Shareholder or sent by certified or
registered mail, return receipt requested, to the address of the Selling
Shareholder. In the latter case, delivery shall be deemed to have been made to
the selling Shareholder upon the deposit of such documents in the mails.
(g) The Company and the Shareholders shall exercise their options to
purchase Stock hereunder by actual delivery to the selling Shareholder of a
written notice of intent to purchase such Stock or by sending such notice by
certified or registered mail, return receipt requested, properly stamped and
addressed to the address of the selling Shareholder. Upon the exercise of an
option, the purchaser shall be obligated to make payment at the closing as
provided in paragraph 2(f).
3. Life Insurance.
(a) To provide a fund with which to purchase Stock upon the death of a
Shareholder, the Company may apply for insurance on the lives of the
Shareholders. The Company shall be the owner and beneficiary of all insurance
policies issued pursuant to such applications. The Company shall pay all
premiums on such insurance policies and shall give proof of payment to the
Shareholders within twenty (20) days after the due date of each premium. If
any premium on any such policy shall not be paid within twenty (20) days
after its due date, the person insured under such policy shall have the right
to pay such premium and be reimbursed by the Company. The Company shall be the
sole owner of such policies and may apply any dividends toward the payment of
premiums, but during the term of this Agreement the Company shall not exercise
any rights under the policies or modify or impair any of the values of such
policies Without the written consent of all Shareholders. The policies covered
by and subject to this Agreement shall be listed in the Insurance Exhibit,
which shall be attached hereto and is hereby incorporated into this Agreement
by reference for all purposes. Upon the death of any Shareholder insured by
any such policy, the Company shall collect all proceeds of such policy, and
such proceeds shall be applied by the Company to purchase, under section 4
hereof, the stock of such decedent. If, however, the proceeds of the policy
exceed the purchase price of the Stock of such decedent, the Company shall
retain such excess proceeds.
(b) Each insurance policy on the life of a Shareholder obtained by the
Company pursuant to this Agreement may be purchased by such Shareholder at his
option (the "Option") upon the happening of either of the following events:
(1) the termination of such Shareholder's ownership of all his Stock for any
reason other than death or (2) the termination of this Agreement. The Option
shall be exercised by payment to the Company within ninety (90) days from the
date of the event giving rise to the Option (the "Date") of an amount equal to
the cash surrender value of each policy as of the Date, minus the amount of
any indebtedness outstanding against such policy, plus an amount equal to the
portion of any premium paid which covers the period beginning with the Date.
4. Sale of Stock Upon Death of a Shareholder.
(a) Upon the death of a Shareholder, the Company shall have the option
to purchase all his Stock, and each deceased Shareholders spouse and his
executor or administrator, upon exercise of such option by the Company, shall
be obligated to sell such stock to the Company. Such sale shall be consummated
within six (6) months after the date of death of the deceased Shareholder. The
price per share at which such Stock shall be purchased shall be an amount
equal to the purchase price determined as provided in paragraph 2(e) and
payable as provided in paragraph 2(f) hereof or in this section 4, whichever
is applicable. If the proceeds of any insurance policies obtained on the life
of the deceased Shareholder pursuant to this Agreement are not equal to or in
excess of the purchase price of the Stock of such deceased Shareholder, then:
(1) If the proceeds are equal to or in excess of twenty-five
percent (25%) of the purchase price determined under paragraph 2(e) of the
Stock being acquired by the Company. The balance shall be evidenced by the
promissory of the Company payable in five (5) or fewer equal annual
installments bearing interest at the rate of six percent (6%) per annum and
secured by the Stock purchased; or
(2) If the proceeds of the insurance policy are less than twenty-
five percent (25%) of the purchase price determined under paragraph 2(e) of
the Stock being acquired by the Company. The difference between the amount of
such proceeds and twenty-five percent (25%) of such purchase price shall be
paid in cash upon closing, and the balance shall be evidenced by the
promissory note of the Company payable in five (5) or fewer equal installments
bearing interest at the rate of six percent (6%) per annum and secured by the
Stock purchased. If the Company, nevertheless, is unable at that time lawfully
to purchase all the stock of the deceased Shareholder, the obligation of the
Company to buy and the obligation of the deceased Shareholder's executor or
administrator and the deceased shareholder's spouse to sell the remaining
shares which the Company could not lawfully buy shall continue until such time
as the Company may lawfully discharge such obligation and, in addition,
paragraphs 2(d) through 2(g) shall apply to all such remaining shares, the
date of the effectiveness of the option of the surviving Shareholders being,
for purposes of this paragraph 4(c), the date upon which the six (6) month
period following the death of such deceased Shareholder expires. In the event
of the exercise of the option granted by paragraph 2(d), the aforementioned
continuing obligations to buy or sell shall be discharged.
5. Disposition Upon termination of the Marital Relationship. If the marital
relationship of a Shareholder is terminated by death or divorce and such
Shareholder does not succeed to his spouse's community interest in the Stock,
he shall have the option to purchase all of his spouse's interest in the
Stock, and his spouse or the executor or administrator of her estate shall be
obligated to sell such Stock. The price per share at which such Stock shall be
purchased shall be an amount equal to the purchase price determined as
provided in paragraph 2(e) and payable as provided in paragraph 2(f). Such
option must be exercised within ninety (90) days after such death or divorce.
Should such Shareholder fail to exercise such option within such ninety (90)
day period, such failure shall constitute an Offer, and the provisions of
paragraph 2(c) through 2(g) shall apply. The date of the Offer shall be the
ninety-first (91st) day after such death or divorce.
6. Endorsement of Stock certificates. All certificates of Stock of the Company
now owned or that may hereafter be acquired by the Shareholders shall be
endorsed on the back thereof as follows:
"Reference is hereby made to that certain Shareholder Agreement dated as
of December 23, 1999 which restricts the transfer of securities, a copy
of which Shareholder Agreement is on file at the principal place of
business and registered office of Cybertel Communications Corp. subject
to the rights of reasonable examination by Shareholders of said
corporation."
Such certificates shall be endorsed on the front thereof as follows:
"See restrictions on reverse side hereof".
7. Involuntary Disposition. Prior to or upon any involuntary Disposition of
Stock, the Shareholder who owns such Stock or his representative shall send
written notice thereof by certified or registered mail, return receipt
requested, disclosing in full to the Company and the other Shareholders the
nature and details of such involuntary Disposition, and the provisions of
Paragraph 2(c) through 2(g) shall apply; provided that the option of the
Company pursuant to Paragraph 2(c) shall be for ninety (90) days from the
later of such involuntary Disposition or the sending of such notice.
8. Notice. In the event a notice or other document is required to be sent
hereunder to the Company or to any Shareholder or spouse of a Shareholder,
such notice or other document shall be sent by registered or certified mail,
return receipt requested, to the party entitled to receive such notice or
other document at the address reflected below or listed by a party hereto or
at such other address as such party shall request in a written notice, sent to
the Company and all Shareholders and spouses of Shareholders:
Cybertel Communications Corp.
4275 Executive Square #510
La Jolla, CA 92037
9. Miscellaneous Provisions.
(a) This Agreement shall be subject to and governed by the laws of the
State of California.
(b) Whenever the context requires, the gender of all words used herein
shall include the masculine, feminine and neuter, and the number of all words
shall include the singular and plural.
(c) This Agreement shall be binding upon the Company, the Shareholders,
the spouses of the Shareholders and their heirs, executors, administrators,
successors and assigns.
(d) This Agreement may be Amended from time to time by an instrument in
writing signed by all those who are parties to this Agreement at the time of
such amendment, such instrument being designated on its face as an "Amendment"
to this Agreement.
(e) This Agreement shall terminate automatically upon the bankruptcy or
dissolution of the Company, upon the occurrence of any event that reduces the
number of Shareholders to one or upon the deaths of all the Shareholders
within a period of sixty (60) days. In the last event, the ownership of the
Stock of the Company which existed immediately prior to the death of the first
Shareholder in such 60 day period shall not be altered by this Agreement. This
Agreement may also be terminated by an instrument in writing signed by all
those who are parties to this Agreement at the time of the signing of such
instrument.
(f) Any Shareholder who sells his Stock shall cease to be a party to
this Agreement and shall have no further rights hereunder.
(g) The spouses of the Shareholders are fully aware of, understand, and
fully consent and agree to the provisions of this Agreement and its binding
effect upon any community property interests they may now or hereafter own,
and agree that the termination of their marital relationship with any
Shareholder for any reason shall not have the effect of removing any Stock of
the Company otherwise subject to this Agreement from the coverage thereof and
that their awareness, understanding consent and agreement are evidenced by
their signing this Agreement and initialing this paragraph.
Initial
SHAREHOLDER
SPOUSE
(h) Any attempted Disposition in breach of this Agreement shall be void
and of no effect, and shall constitute an Offer, and the provisions of
paragraphs 2(c) and 2(g) shall apply thereto; provided that the date of the
Offer for purposes of this paragraph 9(h) shall be deemed to be the date as of
which the Company has actual knowledge of such attempted Disposition. Each
party hereto acknowledges that a remedy at law for any breach or attempted
breach of Sections 2, 4, 5 and 7 of this Agreement will be inadequate, agrees
that each other party hereto shall be entitled to specific performance and
injunctive and other equitable relief in case of any such breach or attempted
breach and further agrees to waive any requirement for the securing or posing
of any bond in connection with the obtaining of any such injunctive or other
equitable relief.
(i) The Company hereby agrees not to issue or sell shares of its Stock to any
person who is not already a party hereto unless such person and his spouse
agree to become parties to this Agreement contemporaneously with the issuance
of such shares. Any such person and his spouse shall become parties to this
Agreement by the execution of an Addendum Agreement in the form attached
hereto as Exhibit "A", which Addendum Agreement shall bind them to, and grant
them the benefits of, this Agreement as though they were original parties
hereto. For this purpose all the Shareholders hereby appoint the Company
as their agent and attorney to execute such Addendum Agreement on their behalf
and expressly bind themselves to the Addendum Agreement by the Company's
execution of that Agreement without further action on their part. Immediately
upon the execution of an Addendum Agreement by such person, his spouse and the
Company. Action shall be taken by the Shareholders to incorporate the Addendum
Agreement by reference into the By Laws of the Company.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement in
multiple counterparts each of which shall be deemed an original on the date
and year first above written.
SHAREHOLDER SPOUSE
Print Name Print Name
Address Address
<PAGE>
SCHEDULE A
LIST OF SHAREHOLDERS
Name No. Company's
Shares
Rick Hupe and Roxanne Hupe, 160,565
husband and wife
Michael Foster and Linda K. 170,538
Foster, husband and wife
Danny Salinas and Marilyn 149,221
Salinas, husband and wife
Fred Heald 99,730
Bill Brisby and Patricia Brisby, 9,973
husband and wife
William M. Belding 9,973
Paul Mills 100,000
Six M Irrevocable Family Trust 127,506
<PAGE>
Exhibit A
ADDENDUM AGREEMENT
ADDENDUM AGREEMENT made this day of by and
between ("New Shareholder') and the New
Shareholder's spouse, Cybertel Communications Corp., a Nevada corporation
(the "Company"), and the other Shareholders (the "Shareholders") of the
Company, who are parties to that certain Agreement, dated
(the "Agreement'), between the Company and its Shareholders.
W I T N E S S E T H:
WHEREAS, the Company and the Shareholders and their respective spouses entered
into the Agreement to impose certain restrictions and obligations upon
themselves and the shares of the stock (the "Stock") of the Company; and
WHEREAS, the New Shareholder is desirous of becoming a Shareholder of the
Company; and
WHEREAS, the Company and the Shareholders have required in the Agreement that
all persons being offered Stock must enter into an Addendum Agreement binding
the New Shareholder and the New Shareholder's spouse to the Agreement to the
same extent as if they were original parties thereto, so as to promote the
mutual interests of the Company, the Shareholders and the New Shareholder by
imposing the same restrictions and obligations on the New Shareholder and the
shares of Stock to be acquired by him as were imposed upon the Shareholders
under the Agreement,
NOW THEREFORE, in consideration of the mutual promises of the parties, and as
a condition of the purchase of Stock in the Company, the New Shareholder and
his spouse acknowledge that they have read the Agreement. The New Shareholder
and his spouse shall be bound by, and shall have the benefit of, all the terms
and conditions set out in the Agreement to the same extent as if they were
"Shareholders" as defined in the Agreement. This Addendum Agreement shall be
attached to and become part of the Agreement.
New Shareholder
Spouse of New Shareholder
AGREED to on behalf of the Shareholders and the Company pursuant to section
9(i) of the Agreement.
Cybertel Communications Corp.
Its President
<PAGE>
Exhibit 5
finders
NONE
<PAGE>
Exhibit 6
Telenomics Promissory Note
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT, dated as of February 15, 2000
(this "Agreement"), is entered into by and between CYBERTEL, COMMUNICATIONS
CORP., a Nevada corporation (the "Company"), and ADARA INVESTORS LLC, a
Delaware limited liability company.
W I T N E S S E T H:
WHEREAS, the Company and the Purchaser are executing and
delivering this Agreement in reliance upon the exemptions from registration
provided by Regulation D ("Regulation D") promulgated by the Securities and
Exchange Commission (the "Commission") under the Securities Act of 1933, as
amended (the "Securities Act"), and/or Section 4(2) of the Securities Act; and
WHEREAS, the Purchaser wishes to purchase, and the Company wishes
to issue and sell, upon the terms and conditions of this Agreement for an
aggregate purchase price of three million dollars ($3,000,000), (ii) three
thousand (3,000) shares (the "Initial Shares") of the Company's 6% Convertible
Series A Preferred Stock, stated value one thousand dollars ($1,000) per
share, par value $.001 per share (the "Preferred Stock") which shall be
governed by the Certificate of Designations attached hereto as Exhibit A (the
"Certificate of Designations") and (ii) warrants ("Stock Purchase Warrants")
to purchase two hundred twenty-five thousand (225,000) shares (the "Initial
Warrants") of the Company's common stock, par value $.001 per share (the
"Common Stock"); and
WHEREAS, the Series A Preferred Stock shall be convertible into
shares of the Company's Common Stock on the terms set forth in the Certificate
of Designations, and the Stock Purchase Warrants (which shall be in
substantially the form attached as Exhibit B) may be exercised for the
purchase of Common Stock, on the terms set forth therein; and
WHEREAS, the Purchaser wishes to purchase, and the Company wishes
to issue and sell, upon the terms and subject to the conditions of this
Agreement for an aggregate purchase price of one hundred dollars ($100), a
warrant (the "Supplemental Warrant"), to purchase for an aggregate purchase
price of two million dollars ($2,000,000) up to an additional two thousand
(2,000) shares of Series A Preferred Stock ("Additional Shares"), and Stock
Purchase Warrants to purchase up to an additional one hundred fifty thousand
(150,000) shares of Common Stock ("Additional Warrants"), which Supplemental
Warrant shall be in substantially the form attached as Exhibit C.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:
1. AGREEMENT TO PURCHASE; PURCHASE PRICE
Purchase of Initial Shares and Warrants. Purchaser hereby agrees to
purchase from the Company, and the Company hereby agrees to issue and sell to
the Purchaser, the Initial Shares and the Initial Warrants for an aggregate
purchase price of three million dollars ($3,000,000) which shall be payable on
the Initial Closing Date (as defined herein) in immediately available funds.
Purchase of Supplemental Warrant. Purchaser hereby agrees to
purchase from the Company, and the Company hereby agrees to issue and sell to
the Purchaser, the Supplemental Warrant for a purchase price of one hundred
dollars ($100), which shall be payable on the Initial Closing Date in
immediately available funds.
Closings. The Initial Shares, the Initial Warrants and Supplemental
Warrant to be purchased by Purchaser hereunder, in definitive form, and in
such denominations as Purchaser or its representative, if any, may request
upon at least twenty-four hours' prior notice to the Company, shall be
delivered by or on behalf of the Company for the account of Purchaser, against
payment by the Purchaser of the aggregate purchase price of three million one
hundred dollars ($3,000,100) therefor by wire transfer to an account of the
Company, all at the offices of Pryor Cashman Sherman & Flynn LLP, 410 Park
Avenue, New York, New York 10022, New York time on the date hereof, or at
such other time and date as Purchaser or their representative, if any, and the
Company may agree upon in writing, such date being referred to herein as the
"Initial Closing Date." The Closing dates for the purchase of the Additional
Shares and the Additional Warrants are as set forth in the Supplemental
Warrant.
2. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER; ACCESS TO
INFORMATION; INDEPENDENT INVESTIGATION
The Purchaser represents and warrants to, and covenants and agrees
with, the Company as follows:
a. The Purchaser is (i) experienced in making investments of the kind
described in this Agreement and the related documents, (ii) able, by reason of
the business and financial experience of its management, to protect its own
interests in connection with the transactions described in this Agreement and
the related documents, and (iii) able to afford the entire loss of its
investment in the Initial Shares, the Initial Warrants and the Supplemental
Warrant.
b. All subsequent offers and sales of the Initial Shares, the Initial
Warrants and the Supplemental Warrant, and, if the Supplemental Warrant shall
be exercised, the Additional Shares and the Additional Warrants and the Common
Stock issuable upon conversion or exercise of, or in lieu of dividend payments
on the Initial Shares and the Initial Warrants and, if the Supplemental
Warrant is exercised, the Additional Shares and the Additional Warrants, it
shall have purchased, shall be made pursuant to an effective registration
statement under the Securities Act or pursuant to an applicable exemption from
such registration.
c. The Purchaser understands that the Initial Shares, the Initial
Warrants and the Supplemental Warrant are being offered and sold to it in
reliance upon exemptions from the registration requirements of the United
States federal securities laws, and that the Company is relying upon the truth
and accuracy of the Purchaser's representations and warranties, and the
Purchaser's compliance with its agreements, each as set forth herein, in order
to determine the availability of such exemptions and the eligibility of the
Purchaser to acquire the Initial Shares, the Initial Warrants and the
Supplemental Warrant.
d. The Purchaser: (A) has been provided with sufficient information
with respect to the business of the Company and such documents relating to the
Company as the Purchaser has requested and Purchaser has carefully reviewed
the same including, without limitation, the Company's Form 10-QSB for the
quarter ended September 30, 1999 filed with the Securities and Exchange
Commission (the "Commission"), (B) has been provided with such additional
information with respect to the Company and its business and financial
condition as the Purchaser, or the Purchaser's agent or attorney, has
requested, and (C) has had access to management of the Company and the
opportunity to discuss the information provided by management of the Company
and any questions that the Purchaser had with respect thereto have been
answered to the full satisfaction of the Purchaser.
e. The Purchaser has the requisite corporate power and authority to
enter into this Agreement and the registration rights agreement, dated as of
the date hereof, between the Company and the Purchaser (the "Registration
Rights Agreement").
f. This Agreement and the Registration Rights Agreement and the
transactions contemplated hereby and thereby, have been duly and validly
authorized by the Purchaser; and such agreements, when executed and delivered
by each of the Purchaser and the Company will each be a valid and binding
agreement of the Purchaser, enforceable in accordance with their respective
terms, except to the extent that enforcement of each such agreement may be
limited by bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance or other similar laws now or hereafter in effect relating to
creditors' rights generally and to general principles of equity.
3. REPRESENTATIONS OF THE COMPANY
The Company represents and warrants to the Purchaser that:
a. Organization. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of Nevada.
Each of the Company's subsidiaries, if any, is a corporation duly organized,
validly existing and in good standing under the laws of its respective
jurisdiction. Each of the Company and its subsidiaries, if any, is duly
qualified as a foreign corporation in all jurisdictions in which the failure
to so qualify would have a material adverse effect on the Company and its
subsidiaries taken as a whole. Schedule 3(a) lists all subsidiaries of the
Company and, except as noted therein, all of the outstanding capital stock of
all such subsidiaries is owned of record and beneficially by the Company.
b. Capitalization. On the date hereof, the authorized capital of the
Company consists of (i) 20,000,000 shares of Common Stock, par value $.001 per
share, of which 4,238,309 shares are issued and outstanding and (ii) 5,000,000
shares of preferred stock, par value $.001 per share, of which no shares are
issued and outstanding. Schedule 3(b) sets forth all of the options, warrants
and convertible securities of the Company, and any other rights to acquire
securities of the Company (collectively, the "Derivative Securities") which
are outstanding on the date hereof, including in each case (i) the name and
class of such Derivative Securities, (ii) the issue date of such Derivative
Securities, (iii) the number of shares of Common Stock of the Company into
which such Derivative Securities are convertible as of the date hereof, (iv)
the conversion or exercise price or prices of such Derivative Securities as of
the date hereof, (v) the expiration date of any conversion or exercise rights
held by the owners of such Derivative Securities and (vi) any registration
rights associated with such Derivative Securities or outstanding Common Stock.
c. Concerning the Common Stock and the Warrants. The Initial Shares,
the Initial Warrants, and if the Supplemental Warrant shall be exercised, the
Additional Shares and the Additional Warrants and Common Stock issuable upon
(i) conversion of, or in lieu of dividend payments on, the Initial Shares, and
upon exercise of the Initial Warrants, and (ii) if the Supplemental Warrant is
exercised, conversion of, or in lieu of dividend payments on, the Additional
Shares, and upon exercise of the Additional Warrants when issued, shall be
duly and validly issued, fully paid and non-assessable, will not be subject to
preemptive rights and will not subject the holder thereof to personal
liability by reason of being such a holder. There are currently no preemptive
rights of any stockholder of the Company, as such, to acquire the Initial
Shares, the Initial Warrants or the Supplemental Warrant, or the Common Stock
issuable to the Purchaser pursuant to the terms of the Initial Shares, the
Initial Warrants, and, if the Supplemental Warrant is exercised, the
Additional Shares and the Additional Warrant.
d. Reporting Company Status. The Common Stock is registered under
Section 12 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). The Company has duly filed all materials and documents required to be
filed pursuant to all reporting obligations under either Section 13(a) or
15(d) of the Exchange Act, if any, prior to the offer and sale of the
Securities (as defined below). The Common Stock is listed and traded on the
OTC Bulletin Board, and the Company is not aware of any pending or
contemplated action or proceeding of any kind to suspend the trading of the
Common Stock.
e. Authorized Shares. The Company has available a sufficient number
of authorized and unissued shares of Common Stock as may be necessary to
effect (i) the conversion of the Initial Shares and the exercise of the
Initial Warrants, and (ii) if the Supplemental Warrant is exercised, the
conversion of the Additional Shares and the exercise of the Additional
Warrants. The Company understands and acknowledges the potentially dilutive
effect to the Common Stock of the issuance of shares of Common Stock upon the
(i) conversion of the Initial Shares and the exercise of the Initial Warrants,
and (ii) if the Supplemental Warrant is exercised, the conversion of the
Additional Shares and the exercise of the Additional Warrants. The Company
further acknowledges that its obligation to issue shares of Common Stock upon
(i) conversion of the Initial Shares and upon exercise of the Initial
Warrants, and (ii) if the Supplemental Warrant is exercised, the conversion of
the Additional Shares and the exercise of the Additional Warrants is absolute
and unconditional regardless of the dilutive effect that such issuance may
have on the ownership interests of other stockholders of the Company and
notwithstanding the commencement of any case under 11 U.S.C. Section 101 et seq.
(the "Bankruptcy Code"). In the event the Company becomes a debtor under the
Bankruptcy Code, the Company hereby waives to the fullest extent permitted any
rights to relief it may have under 11 U.S.C. Section 362 in respect of the
conversion of the Preferred Shares. The Company agrees, without cost or
expense to the Purchaser, to take or consent to any and all action necessary
to effectuate relief under 11 U.S.C. 362.
f. Legality. The Company has the requisite corporate power and
authority to enter into this Agreement and the Registration Rights Agreement,
and to issue and deliver the Initial Shares, the Initial Warrants, the
Supplemental Warrant and the Common Stock issuable upon conversion of, or in
lieu of dividend payments on, (i) the Initial Shares and the exercise of the
Initial Warrants, and (ii) if the Supplemental Warrant is exercised, the
conversion of the Additional Shares and the Additional Warrants.
g. Transaction Agreements. This Agreement, the Registration Rights
Agreement, the Certificate of Designations, the Supplemental Warrant and the
Stock Purchase Warrants (collectively, the "Primary Documents"), and the
transactions contemplated hereby and thereby, have been duly and validly
authorized by the Company; this Agreement has been duly executed and delivered
by the Company and this Agreement is, and the other Primary Documents, when
executed and delivered by the Company, will each be, a legal, valid and
binding agreement of the Company, enforceable in accordance with their
respective terms, except to the extent that enforcement of each of the Primary
Documents may be limited by bankruptcy, insolvency, reorganization,
moratorium, fraudulent conveyance or other similar laws now or hereafter in
effect relating to creditors' rights generally and to general principles of
equity.
h. Non-contravention. The execution and delivery of this Agreement
and each of the other Primary Documents, and the consummation by the Company
of the transactions contemplated by this Agreement and each of the other
Primary Documents, does not and will not conflict with or result in a breach
by the Company of any of the terms or provisions of, or constitute a default
under, the Articles of Incorporation or By-laws of the Company, or any
material indenture, mortgage, deed of trust or other agreement or instrument
to which the Company or any of its subsidiaries is a party or by which they or
any of their properties or assets are bound, or any existing applicable law,
rule, or regulation or any applicable decree, judgment or order of any court
or United States or foreign federal or state regulatory body, administrative
agency, or any other governmental body having jurisdiction over the Company,
its subsidiaries, or any of their properties or assets. Except as set forth
on Schedule 3(h), neither the filing of the registration statement required to
be filed by the Company pursuant to the Registration Rights Agreement nor the
offering or sale of the Initial Shares, the Initial Warrants or the
Supplemental Warrant as contemplated by this Agreement and if the Supplemental
Warrant is exercised, the Additional Warrants and Additional Shares, and the
shares of Common Stock into which all such securities may be converted or
exercised, as applicable, gives rise to any rights, other than those which
have been waived or satisfied on or prior to the Initial Closing Date, for or
relating to the registration of any shares of the Common Stock.
i. Approvals. No authorization, approval or consent of any court,
governmental body, regulatory agency, self-regulatory organization, stock
exchange or market or the stockholders of the Company is required to be
obtained by the Company for the entry into or the performance of this
Agreement and the other Primary Documents.
j. SEC Filings. None of the reports or documents filed by the Company
with the Commission (the "SEC Documents") contained, at the time they were
filed, any untrue statement of a material fact or omitted to state any
material fact required to be stated therein, or necessary to make the
statements made therein, in light of the circumstances under which they were
made, not misleading.
k. Stabilization. Neither the Company, nor any of its affiliates,
has taken or may take, directly or indirectly, any action designed to cause or
result in, or which has constituted or which might reasonably be expected to
constitute, the stabilization or manipulation of the price of the shares of
Common Stock.
l. Absence of Certain Changes. Except as disclosed in the Company's
SEC Documents, since October 15, 1999, there has been no material adverse
change nor any material adverse development in the business, properties,
operations, financial condition, prospects, outstanding securities or results
of operations of the Company.
m. Full Disclosure. There is no fact known to the Company (other
than general economic conditions known to the public generally) that has not
been disclosed in writing to the Purchaser (i) that could reasonably be
expected to have a material adverse effect upon the condition (financial or
otherwise) or the earnings, business affairs, properties or assets of the
Company or (ii) that could reasonably be expected to materially and adversely
affect the ability of the Company to perform the obligations set forth in the
Primary Documents. The representations and warranties of the Company set
forth in this Agreement (and the schedules thereto) do not contain any untrue
statement of a material fact or omit any material fact necessary to make the
statements contained herein, in light of the circumstances under which they
were made, not misleading.
n. Title to Properties; Liens and Encumbrances. The Company has good
and marketable title to all of its material properties and assets, both real
and personal, and has good title to all its leasehold interests, in each case
subject only to mortgages, pledges, liens, security interests, conditional
sale agreements, encumbrances or charges created in the ordinary course of
business.
o. Patents and Other Proprietary Rights. The Company has sufficient
title and ownership of all patents, trademarks, service marks, trade names,
copyrights, trade secrets, information, proprietary rights and processes
necessary for the conduct of its business as now conducted and as proposed to
be conducted, and such business does not and would not conflict with or
constitute an infringement on the rights of others.
p. Permits. The Company has all franchises, permits, licenses and
any similar authority necessary for the conduct of its business as now
conducted, the lack of which would materially and adversely affect the
business or financial condition of the Company. The Company is not in default
in any respect under any of such franchises, permits, licenses or similar
authority.
q. Absence of Litigation. Except as disclosed in the Company's SEC
Documents, there is no action, suit, proceeding, inquiry or investigation
before or by any court, public board or body pending or, to the knowledge of
the Company or any of its subsidiaries, threatened against or affecting the
Company or any of its subsidiaries, in which an unfavorable decision, ruling
or finding would have a material adverse effect on the properties, business,
condition (financial or other) or results of operations of the Company and its
subsidiaries, taken as a whole, or the transactions contemplated by the
Primary Documents, or which would adversely affect the validity or
enforceability of, or the authority or ability of the Company to perform its
obligations under, the Primary Documents.
r. No Default. Each of the Company and its subsidiaries is not in
default in the performance or observance of any obligation, covenant or
condition contained in any indenture, mortgage, deed of trust or other
instrument or agreement to which it is a party or by which it or its property
may be bound.
s. Transactions with Affiliates. Except as disclosed in the Company's
public filings with the Commission, there are no agreements, understandings or
proposed transactions between the Company and any of its officers, directors
or affiliates that, had they existed on October 15, 1999, would have been
required to be disclosed in the Company's Form 10-SB.
t. Employment Matters. The Company is in compliance in all respects
with all presently applicable provisions of the Employee Retirement Income
Security Act of 1974, as amended, including the regulations and published
interpretations thereunder ("ERISA"); no "reportable event" (as defined in
ERISA) has occurred with respect to any "pension plan" (as defined in ERISA)
for which the Company would have any liability; the Company has not incurred
and does not expect to incur liability under (i) Title IV of ERISA with
respect to termination of, or withdrawal from, any "pension plan" or (ii)
Sections 412 or 4971 of the Internal Revenue Code of 1986, as amended,
including the regulations and published interpretations thereunder (the
"Code"); and each "pension plan" for which the Company would have any
liability that is intended to be qualified under Section 401(a) of the Code is
so qualified in all material respects and nothing has occurred, whether by
action or by failure to act, which would cause the loss of such qualification.
u. Insurance. The Company maintains property and casualty, general
liability, personal injury and other similar types of insurance with
financially sound and reputable insurers that is adequate, consistent with
industry standards and the Company's historical claims experience. The
Company has not received notice from, and has no knowledge of any threat by,
any insurer (that has issued any insurance policy to the Company) that such
insurer intends to deny coverage under or cancel, discontinue or not renew any
insurance policy covering the Company or any of its Subsidiaries presently in
force.
v. Taxes. All applicable tax returns required to be filed by the
Company and each of its subsidiaries have been prepared and filed in
compliance with all applicable laws, or if not yet filed have been granted
extensions of the filing dates which extensions have not expired, and all
taxes, assessments, fees and other governmental charges upon the Company, its
subsidiaries, or upon any of their respective properties, income or
franchises, shown in such returns and on assessments received by the Company
or its subsidiaries to be due and payable have been paid, or adequate reserves
therefor have been set up if any of such taxes are being contested in good
faith; or if any of such tax returns have not been filed or if any such taxes
have not been paid or so reserved for, the failure to so file or to pay would
not in the aggregate have a material adverse effect on the business or
financial condition of the Company and its subsidiaries, taken as a whole.
w. Foreign Corrupt Practices Act. Neither the Company nor any of its
directors, officers or other employees has (i) used any Company funds for any
unlawful contribution, endorsement, gift, entertainment or other unlawful
expense relating to any political activity; (ii) made any direct or indirect
unlawful payment of Company funds to any foreign or domestic government
official or employee; (iii) violated or is in violation of any provision of
the Foreign Corrupt Practices Act of 1977, as amended; or (iv) made any bribe,
rebate, payoff, influence payment, kickback or other similar payment to any
person.
x. Internal Controls. The Company maintains a system of internal
accounting controls sufficient to provide reasonable assurances that
(i) transactions are executed in accordance with management's general or
specific authorization; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain accountability for assets; (iii) access
to assets is permitted only in accordance with management's general or
specific authorization; and (iv) the recorded accountability for assets is
compared with existing assets at reasonable intervals and appropriate action
is taken with respect to any differences.
y. Investment Company Act. The Company is not conducting, and will
not conduct, its business in a manner which would cause it to become, an
"investment company," as defined in Section 3(a) of the Investment Company Act
of 1940, as amended.
z. Agent Fees. Other than (i) the cash payments of five percent (5%)
of the aggregate purchase price of (x) the Initial Shares and Initial Warrants
purchased by the Purchaser on the Initial Closing Date and (y) upon exercise
of the Conditional Warrant, the Additional Shares and Additional Warrants and
(ii) the issuance of twenty thousand (20,000) Stock Purchase Warrants on the
Initial Closing Date payable to Tony Gentile, the Company has not incurred any
liability for any finder's or brokerage fees or agent's commissions in
connection with the offer and sale of the transactions contemplated by this
Agreement.
aa. Private Offering. Subject to the accuracy of the Purchaser's
representations and warranties set forth in Section 2 hereof, (i) the offer,
sale and issuance of the Initial Shares, the Initial Warrants and the
Supplemental Warrant, (ii) the issuance of Common Stock in lieu of dividend
payments on the Initial Shares, and if the Supplemental Warrant is exercised,
the Additional Warrants, (iii) if the Supplemental Warrant is exercised, the
issuance of the Additional Shares and the Additional Warrants, and (iv) the
conversion and/or exercise of such securities into shares of Common Stock,
each as contemplated by the Primary Documents are exempt from the registration
requirements of the Securities Act. The Company agrees that neither the
Company nor anyone acting on its behalf will offer any of the Preferred Stock,
the Stock Purchase Warrants or the Supplemental Warrant, or any similar
securities for issuance or sale, or solicit any offer to acquire any of the
same from anyone so as to render the issuance and sale of such securities
subject to the registration requirements of the Securities Act. The Company
has not offered or sold the Preferred Stock, the Stock Purchase Warrants or
the Supplemental Warrant by any form of general solicitation or general
advertising, as such terms are used in Rule 502(c) under the Securities Act.
bb. Year 2000 Processing. The computer systems used by the Company and
its subsidiaries (the "Systems"), both hardware and software, are in good
working order. The Company has taken steps that are reasonable to ensure that
the occurrence of the year 2000 does not materially and adversely affect the
Systems of the Company, its subsidiaries, or their business, and no material
expenditures are required in order to cause such Systems to operate properly
as a result of the change of the year 1999 to 2000. The Company and its
subsidiaries have resolved all issues discovered as a result of year 2000
inquires or compliance testing or otherwise known to the Company.
cc. Environmental Matters. Neither the Company and its subsidiaries,
nor any predecessor in interest nor, to the Company's knowledge, after due
inquiry, any other person has ever caused or permitted any Hazardous Material
(as defined below) to be released, treated or disposed of on, at, under or
within any real property owned, leased or operated by the Company and its
subsidiaries or any predecessor in interest, and no such real property has
ever been used (either by the Company and its subsidiaries, any predecessor in
interest or, to the Company's knowledge, after due inquiry, by any other
person) as a treatment, storage or disposal site for any Hazardous Material.
The Company has no liabilities with respect to Hazardous Materials, and to the
knowledge of the Company, after due inquiry, no facts or circumstances exist
which could give rise to liabilities with respect to Hazardous Materials,
which could have any reasonable likelihood of having a material adverse effect
on the Company. For purposes of this Agreement "Hazardous Materials" shall
mean (a) any pollutants or contaminations, (b) any asbestos or insulation or
other material composed of or containing asbestos and (c) any petroleum
product and any hazardous, toxic or dangerous waste, substance or material
defined as such in, or for purposes of, the Comprehensive Environmental
Response, Compensation and Liability Act, any so-called "Superfund" or
"Superlien" law, or (d) any other applicable federal, state, local or other
statute, law, ordinance, code, rule, regulation, order or decree concerning
the protection of human health or the environment or otherwise regulating,
relating to, or imposing liability or standards of conduct concerning, any
hazardous, toxic or dangerous waste, substance or material, as now or at any
time hereafter in effect.
dd. Intellectual Property. Except as set forth in the SEC Documents,
to the best of the Company's knowledge, each of the Company and its
subsidiaries owns or possesses adequate rights to use all material patents,
patent rights, inventions, trade secrets, know-how, trademarks, service marks,
trade names and copyrights which are described in the SEC Documents; except as
set forth in the SEC Documents, the Company has not received any notice of,
and has no knowledge of, any infringement of or conflict with asserted rights
of the Company by others with respect to any patent, patent rights,
inventions, trade secrets, know-how, trademarks, service marks, trade names
and copyrights which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, would have a material adverse effect
on the condition (financial or otherwise), earnings, operations, business of
the Company and its subsidiaries, taken as a whole, as presently conducted;
and, except as set forth in the SEC Documents, the Company has not received
any notice of, and has no knowledge of, any infringement of or conflict with
the asserted rights of others with respect to any patent, patent rights,
inventions, trade secrets, know-how, trademarks, service marks, trade names
and copyrights which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, would have a material adverse effect
on the condition (financial or otherwise), earnings, operations, or business
of the Company and its subsidiaries, taken as a whole, as presently conducted.
4. CERTAIN COVENANTS AND ACKNOWLEDGMENTS
a. Transfer Restrictions. The Purchaser acknowledges that, except as
provided in the Registration Rights Agreement, (1) neither (i) the Initial
Shares, the Initial Warrants, the Supplemental Warrant or the Common Stock
issuable upon conversion of, or in lieu of dividend payments on, the Initial
Shares or upon exercise of the Initial Warrants, nor (ii) if the Supplemental
Warrant is exercised, the Additional Shares, the Additional Warrants or the
Common Stock issuable upon conversion of, or in lieu of dividend payments on,
the Additional Shares or upon exercise of the Additional Warrants, have been,
or are being, registered under the Securities Act, and such securities may not
be transferred unless (A) subsequently registered thereunder or (B) they are
transferred pursuant to an exemption from such registration; and (2) any sale
of (i) the Initial Shares, the Initial Warrants, the Supplemental Warrant or
the Common Stock issuable upon conversion or exchange thereof (collectively,
the "Initial Securities") or (ii) if the Supplemental Warrant is exercised,
the Additional Shares, the Additional Warrants or the Common Stock issuable
upon conversion or exchange thereof, (the "Additional Securities" and,
collectively with the Initial Securities, the "Securities") made in reliance
upon Rule 144 under the Securities Act may be made only in accordance with the
terms of said Rule. The provisions of Section 4(a) and 4(b) hereof, together
with the rights of the Purchaser under this Agreement and the other Primary
Documents, shall be binding upon any subsequent transferee of the Preferred
Stock and the Stock Purchase Warrants.
b. Restrictive Legend. The Purchaser acknowledges and agrees that,
until such time as the Securities shall have been registered under the
Securities Act or the Purchaser demonstrates to the reasonable satisfaction of
the Company and its counsel that such registration shall no longer be
required, such Securities may be subject to a stop-transfer order placed
against the transfer of such Securities, and such Securities shall bear a
restrictive legend in substantially the following form:
THESE SECURITIES (INCLUDING ANY UNDERLYING SECURITIES)
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED
IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
AS TO THE SECURITIES UNDER SAID ACT OR AN OPINION OF
COUNSEL OR OTHER EVIDENCE REASONABLY SATISFACTORY TO
THE COMPANY THAT SUCH REGISTRATION SHALL NO LONGER BE
REQUIRED.
c. Filings. The Company undertakes and agrees that it will make all
required filings in connection with the sale of the Securities to the
Purchaser as required by United States laws and regulations, or by any
domestic securities exchange or trading market, and if applicable, the filing
of a notice on Form D (at such time and in such manner as required by the
Rules and Regulations of the Commission), and to provide copies thereof to the
Purchaser promptly after such filing or filings.
d. Reporting Status. So long as the Purchaser beneficially owns any of
the Securities or any shares of Common Stock issuable upon conversion thereof
(collectively with the Securities, the "Collective Securities"), the Company
shall timely file all reports required to be filed with the Commission
pursuant to Section 13 or 15(d) of the Exchange Act and shall not terminate
its status as an issuer required to file reports under the Exchange Act even
if the Exchange Act or the rules and regulations thereunder would permit such
termination.
e. State Securities Filings. The Company shall from time to time
promptly take such action as the Purchaser or any of its representatives, if
applicable, may reasonably request to qualify the Collective Securities for
offering and sale under the securities laws (other than United States federal
securities laws) of the jurisdictions in the United States as shall be so
identified to the Company, and to comply with such laws so as to permit the
continuance of sales therein, provided that in connection therewith, the
Company shall not be required to qualify as a foreign corporation or to file a
general consent to the service of process in any jurisdiction.
f. Use of Proceeds. The Company will use all of the net proceeds
from the issuance of the Collective Securities to retire the outstanding five
hundred thousand dollar ($500,000) bridge loan of the Company payable to
Capital Growth Resources and the balance for working capital.
g. Reservation of Common Stock. The Company will at all times have
authorized and reserved for the purpose of issuance a sufficient number of
shares of Common Stock to provide for the conversion of the Initial Shares and
the exercise of the Initial Warrants, if the Supplemental Warrant is
exercised, for the conversion of the Additional Shares and the exercise of the
Additional Warrants. The Company will use its best efforts at all times to
maintain a number of shares of Common Stock so reserved for issuance that is
no less than the sum of (i) two (2) times the sum of (x) maximum number of
shares of Common Stock that could be issuable upon the conversion of the
Initial Shares and (y) the maximum number that could be issuable upon
conversion of the Additional Shares and (ii) the sum of the number of shares
of Common Stock issuable upon exercise in full of the Initial Warrants and the
Additional Warrant, in each case without regard to whether the Supplemental
Warrant shall have been exercised.
h. Sales of Additional Shares. The Company shall not, directly or
indirectly, without the prior written consent of the Purchaser, offer, sell,
offer to sell, contract to sell or otherwise dispose of any shares of its
capital stock or any security or other instrument convertible into or
exchangeable for shares of Common Stock, in each case for a period of two-
hundred and seventy (270) days after the later of (A) the Initial Closing
Date, (B) any Supplemental Closing Date (as defined in the Supplemental
Warrant) or (C) the date on which a registration statement relating to Common
Stock issuable upon conversion of any of the Initial Shares, the Initial
Warrants, the Additional Shares, or the Additional Warrants is declared
effective by the Securities and Exchange Commission (the "Lock-Up Period"),
except that the Company (i) may issue securities for the aggregate
consideration of at least ten million dollars ($10,000,000) in connection with
a bona fide, firm commitment, underwritten public offering under the
Securities Act; (ii) may issue shares of Common Stock which are issued in
connection with a bona fide transaction involving the acquisition of another
business entity or segment of any such entity by the Company by merger, asset,
purchase, stock purchase or otherwise; (iii) may issue Common Stock in
connection with a stock split, stock dividend or similar recapitalization of
the Company which affects all holders of the Company's Common Stock on an
equivalent basis, in each case, without the prior written consent of the
Purchaser and (iv) may issue up to one million (1,000,000) shares of Common
Stock at an aggregate price of at least eight dollars ($8.00) per share
pursuant to that Confidential Private Placement Memorandum of the Company,
dated February 9, 2000 (the "PPM Offering"). In addition, the Company agrees
that it will not cause any shares of its capital stock that are issued in
connection with a transaction of the type contemplated by clause (ii) (or upon
the conversion or exercise of other securities that are issued in connection
with such transaction) or that were issued in connection with financing,
acquisition or other transaction that occurred prior or subsequent to the date
of this Agreement, including, the PPM Offering, to be covered by a
registration statement that is filed with the Commission or declared effective
by the Commission until the later to occur of (A) the expiration of the Lock-
Up Period or (B) the registration statement filed by the Company pursuant to
its obligations under the Registration Rights Agreement has been effective
under the Securities Act for a period of at least two hundred seventy (270)
days, during which two hundred seventy (270) day period the Company shall not
have notified the Purchaser that such registration statement or the prospectus
included in such registration statement includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein
in order to make the statements therein, in light of the circumstances under
which they were made, not misleading. Notwithstanding anything herein to the
contrary, the Company may register the fifty thousand (50,000) shares of
Common Stock, described on Schedule 4(h) attached hereto, on the registration
statement which the Company shall file pursuant to its obligations under the
Registration Rights Agreement, provided, however, that in the event that the
Commission challenges the inclusion of such shares, the Company shall remove
them from such registration statement.
i. Right of First Refusal. Subject to Section 4(i), if during the
eighteen (18) month period following the date hereof the Company shall desire
to sell, offer to sell, contract to sell or otherwise dispose of any
securities or any security or other instrument convertible into or
exchangeable for shares of Common Stock (collectively, the "Offered
Securities") to a prospective investor (the "Prospective Investor"), the
Company shall notify (the "Offer Notice") the Purchaser in accordance with
Section 10 hereof of the terms (the "Third Party Terms") on which the Company
proposes to sell, contract to sell or otherwise dispose of the Offered
Securities to the Prospective Investor. If, within the five (5) day period
following the Purchaser's receipt of the Offer Notice, the Purchaser delivers
a written notice (the "Acceptance Notice") to the Company stating its desire
to purchase all or any portion of the Offered Securities on the Third Party
Terms, the Company shall be required to sell the Offered Securities (or any
portion thereof so desired by the Purchaser) to the Purchaser at the price and
on the terms set forth in the Offer Notice and the Company shall not be
permitted to sell such Offered Securities to the Prospective Investor. If the
Purchaser does not deliver an Acceptance Notice to the Company in such five
(5) day period, then for a period of sixty (60) days following the date of the
Offer Notice the Company may sell the Offered Securities to the Prospective
Investor on the terms set forth in the Offer Notice.
j. Additional Registration Statements. At any time during the period
beginning on the date hereof and ending on the first date that follows a
period of one hundred eighty (180) consecutive days following the
effectiveness of the Registration Statement (as defined in the Registration
Rights Agreement) during which there has been no Blackout Event (as defined in
the Registration Rights Agreement) relating to such Registration Statement,
the Company agrees that it will not cause any registration statement (other
than the Registration Statement) to be declared effective by the Commission.
k. Stockholder Approval. If required in accordance with Nasdaq Rule
4310 or 4460, the Company agrees to use its best efforts (including obtaining
any vote of its stockholders required by applicable law or Nasdaq rules) to
authorize and approve the issuance of the Common Stock issuable upon
conversion of the Initial Shares, the Additional Shares and upon exercise of
the Initial Warrants and the Additional Warrants, to the extent that such
conversion or issuance results in the issuance of 20% or more of the Company's
outstanding Common Stock; provided, however, that the failure to obtain any
such stockholder approval shall not limit any of Purchaser's rights hereunder
or pursuant to any Primary Document.
l. Ownership. At no time shall the Purchaser (including its
officers, directors and affiliates) maintain in the aggregate beneficial
ownership (as defined for purposes of Section 16 of the Securities Exchange
Act of 1934, as amended) of shares of Common Stock in excess of 9.99% of the
Company's outstanding Common Stock unless the Purchaser gives the Company at
least sixty-one (61) days notice that it intends to increase its ownership
percentage.
m. Return of Certificates on Conversion and Stock Purchase Warrants
on Exercise. (i) Upon any conversion by Purchaser of less than all of the
Shares of Preferred Stock pursuant to the terms of the Certificate of
Designations, the Company shall issue and deliver to Purchaser within three
(3) days of the Series A Preferred Stock Conversion Date (as defined in the
Certificate of Designations), a new certificate or certificates for, as
applicable, the total number of shares of Preferred Stock, in each case, which
Purchaser has not yet elected to convert (with the number of and denomination
of such new certificate(s) designated by Purchaser).
(ii) Upon any partial exercise by Purchaser of Stock Purchase
Warrants, the Company shall issue and deliver to Purchaser within three (3)
days of the date on which such Stock Purchase Warrants are exercised, a new
Stock Purchase Warrant or Stock Purchase Warrants representing the number of
adjusted Shares covered thereby, in accordance with the terms thereof.
n. Replacement Certificates and Stock Purchase Warrants. (i) The
certificate(s) representing the shares of Preferred Stock, held by Purchaser
shall be exchangeable, at the option of Purchaser, at any time and from time
to time at the office of Company, for certificates with different
denominations representing, as applicable, an equal aggregate number of shares
of Preferred Stock, as requested by Purchaser upon surrendering the same. No
service charge will be made for such registration or transfer or exchange.
(ii) The Stock Purchase Warrants will be exchangeable, at the
option of Purchaser, at any time and from time to time at the office of the
Company, for other Stock Purchase Warrants of different denominations
entitling the holder thereof to purchase in the aggregate the same number of
shares of Common Stock as are purchasable under such Stock Purchase Warrants.
No service charge will be made for such transfer or exchange.
o. Bankruptcy Waiver. In the event the Company becomes a debtor
under the Bankruptcy Code, the Company hereby waives to the fullest extent
permitted any rights to relief it may have under 11 U.S.C. Section 362 in
respect of (i) the conversion of the Initial Shares and the exercise of the
Initial Warrants, and (ii) if the Supplemental Warrant is exercised, the
conversion of the Additional Shares and the exercise of the Additional Warrants.
At the direction of Purchaser, the Company agrees, without cost or expense to
the Purchaser, to take or consent to any and all action necessary to effectuate
relief under 11 U.S.C. Section 362.
5. TRANSFER AGENT INSTRUCTIONS
a. The Company warrants that no instruction, other than the
instructions referred to in this Section 5 and stop transfer instructions to
give effect to Sections 4(a) and 4(b) hereof prior to the registration and
sale under the Securities Act of the Common Stock issuable upon conversion of
the Initial Shares, the Additional Shares or the shares of Common Stock
issuable upon exercise of the Initial Warrants or the Additional Warrants,
will be given by the Company to the transfer agent and that the shares of
Common Stock issuable upon (i) conversion of, or in lieu of dividend payments
on, the Initial Shares or upon exercise of the Initial Warrants, (ii) if the
Supplemental Warrant is exercised, the conversion of, or in lieu of dividend
payments on the Additional Shares or upon exercise of the Additional Warrants,
shall otherwise be freely transferable on the books and records of the Company
as and to the extent provided in this Agreement, the Registration Rights
Agreement and applicable law. Nothing in this Section shall affect in any way
the Purchaser's obligations and agreement to comply with all applicable
securities laws upon resale of the Collective Securities. If the Purchaser
provides the Company with an opinion of counsel that registration of a resale
by the Purchaser of any of the Collective Securities in accordance with clause
(1)(B) of Section 4(a) of this Agreement is not required under the Securities
Act, the Company shall permit the transfer of the Collective Securities and,
in the case of the Common Stock, promptly instruct the Company's transfer
agent to issue one or more certificates for Common Stock without legend in
such names and in such denominations as specified by the Purchaser.
b. Purchaser shall exercise its right to (i) convert the Initial
Shares or to exercise the Initial Warrants or (ii) if the Supplemental Warrant
is exercised, to convert the Additional Shares or to exercise the Additional
Warrants, by faxing an executed and completed Notice of Conversion or Form of
Election to Purchase, as applicable, to the Company, and delivering within
five (5) business days thereafter, the original Notice of Conversion (and the
related certificates representing the shares of Preferred Stock, as
applicable) or Form of Election to Purchase (and the related original Stock
Purchase Warrants) to the Company by hand delivery or by express courier, duly
endorsed. Each date on which a Notice of Conversion or Form of Election to
Purchase is faxed in accordance with the provisions hereof shall be deemed a
"Conversion Date." The Company will transmit the certificates representing
the Common Stock issuable upon conversion of any shares of Preferred Stock or
upon exercise of any Stock Purchase Warrants (together with the shares of
Preferred Stock not so converted or the Stock Purchase Warrants not so
exercised) to the Purchaser via express courier as soon as practicable, but in
all events no later than five (5) business days after the Conversion Date
relating to shares of Preferred Stock or Stock Purchase Warrants (each such
delivery date, together with the Dividend Delivery Date referred to in
paragraph c below, is referred to herein as a "Delivery Date"). For purposes
of this Agreement, any conversion of the Initial Shares, the Additional Shares
or the exercise of the Initial Warrants or the Additional Warrants shall be
deemed to have been made immediately prior to the close of business on the
Conversion Date.
c. The Company will transmit the certificates representing the Common
Stock issuable in lieu of dividends payable on any shares of Preferred Stock
to the Purchaser via express courier as soon as practicable, but in all events
no later than five (5) business days after the dividend payment date
applicable to which such Common Stock is delivered (the "Dividend Delivery
Date").
d. In lieu of delivering physical certificates representing the
Common Stock issuable upon the conversion of, or in lieu of dividends on, the
Initial Shares, the Additional Shares or upon the exercise of the Initial
Warrants or the Additional Warrants, provided the Company's transfer agent is
participating in the Depositary Trust Company ("DTC") Fast Automated
Securities Transfer program, on the written request of the Purchaser, who
shall have previously instructed the Purchaser's prime broker to confirm such
request to the Company's transfer agent, the Company shall cause its transfer
agent to electronically transmit such Common Stock to the Purchaser by
crediting the account of the Purchaser's prime broker with DTC through its
Deposit Withdrawal Agent Commission ("DWAC") system no later than the
applicable Delivery Date.
e. The Company understands that a delay in the issuance of Common Stock
beyond the applicable Delivery Date could result in an economic loss to the
Purchaser. As compensation to the Purchaser for such loss, the Company agrees
to pay to the Purchaser for late issuance of Common Stock upon conversion of,
or in lieu of dividend payments on, the Initial Shares or the Additional
Shares or upon exercise of the Initial Warrants or the Additional Warrants,the
sum of three thousand dollars ($3,000) per day for each (i) one hundred
thousand dollars ($100,000) of aggregate Stated Value (as defined in the
Certificate of Designations) amount of Initial Shares or Additional Shares
that are being converted, or (ii) twenty-five thousand (25,000) shares of
Common Stock purchased upon the exercise of Initial Warrants or Additional
Warrants. The Company shall pay any payments that are payable to the
Purchaser pursuant to this Section 5 in immediately available funds upon
demand. Nothing herein shall limit the Purchaser's right to pursue actual
damages for the Company's failure to so issue and deliver Common Stock to the
Purchaser. Furthermore, in addition to any other remedies which may be
available to the Purchaser, in the event that the Company fails for any reason
to effect delivery of such Common Stock within five (5) business days after
the relevant Delivery Date, the Purchaser will be entitled to revoke the
relevant Notice of Conversion or Form of Election to Purchase by delivering a
notice to such effect to the Company, whereupon the Company and the Purchaser
shall each be restored to their respective positions immediately prior to
delivery of such Notice of Conversion or Form of Election to Purchase. For
purposes of this Section 5, "business day" shall mean any day in which the
financial markets of New York are officially open for the conduct of business
therein.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO ISSUE THE INITIAL SHARES, THE
INITIAL WARRANTS AND THE SUPPLEMENTAL WARRANT.
The Purchaser understands that the Company's obligation to issue the Initial
Shares, the Initial Warrants and the Supplemental Warrant on the Initial
Closing Date to the Purchaser pursuant to this Agreement is conditioned upon:
a. The accuracy on the Initial Closing Date of the representations
and warranties of the Purchaser contained in this Agreement as if made on the
Initial Closing Date and the performance by the Purchaser on or before the
Initial Closing Date of all covenants and agreements of the Purchaser required
to be performed on or before the Initial Closing Date.
b. The absence or inapplicability of any and all laws, rules or
regulations prohibiting or restricting the transactions contemplated hereby,
or requiring any consent or approval which shall not have been obtained.
7. CONDITIONS TO THE PURCHASER'S OBLIGATION TO PURCHASE THE INITIAL
SHARES, THE INITIAL WARRANTS AND THE SUPPLEMENTAL WARRANT
The Company understands that the Purchaser's obligation to
purchase the Initial Shares, the Initial Warrants and the Supplemental Warrant
on the Initial Closing Date is conditioned upon:
a. The Certificate of Designations shall have been filed with the
Secretary of State of the State of Nevada, and a copy thereof certified by
such Secretary of State shall have been delivered to the Purchaser.
b. The accuracy on the Initial Closing Date of the representations and
warranties of the Company contained in this Agreement as if made on the
Initial Closing Date, and the performance by the Company on or before the
Initial Closing Date of all covenants and agreements of the Company required
to be performed on or before the Initial Closing Date.
c. On the Initial Closing Date, the Purchaser shall have received an
opinion of counsel for the Company, dated the Initial Closing Date, in
substantially the form as attached in Exhibit E.
d. The Company shall have executed and delivered to the Purchaser (i)
a signed counterpart to the Registration Rights Agreement, (ii) the Initial
Shares, (iii) the Initial Warrants and (iv) the Supplemental Warrant.
e. On the Initial Closing Date, the Purchaser shall have received a
certificate executed by the President or the Chairman of the Company and by
the Chief Financial Officer of the Company, stating that all of the
representations and warranties of the Company set forth in this Agreement are
accurate as of the Initial Closing Date and that the Company has performed all
of its covenants and agreements required to be performed under this Agreement
on or before the Initial Closing Date.
f. On the Initial Closing Date, the Purchaser shall have received
from the Company such other certificates and documents as it or its
representatives, if applicable, shall reasonably request, and all proceedings
taken by the Company in connection with the Primary Documents contemplated by
this Agreement and the other Primary Documents and all documents and papers
relating to such Primary Documents shall be satisfactory to the Purchaser.
g. On or prior to the Initial Closing Date, there shall not have
occurred any of the following: (i) a suspension or material limitation in the
trading of securities generally on the New York Stock Exchange, NASDAQ or the
NASDAQ Bulletin Board; (ii) a general moratorium on commercial banking
activities in New York declared by the applicable banking authorities;
(iii) the outbreak or escalation of hostilities involving the United States,
or the declaration by the United States of a national emergency or war; or
(iv) a change in international, political, financial or economic conditions,
if the effect of any such event, in the judgment of the Purchaser, makes it
impracticable or inadvisable to proceed with the purchase of the Initial
Securities on the terms and in the manner contemplated in this Agreement and
in the other Primary Documents.
h. The Company shall have delivered to the Purchaser reimbursement of
the Purchaser's out-of-pocket costs and expenses incurred in connection with
the transactions contemplated by this Agreement (including fees and
disbursements of the Purchaser's legal counsel).
i. The Company shall have delivered a waiver from Capital Growth
Resources in connection with the transactions described in this Agreement and
all of the exhibits hereto.
8. EXPENSES
The Company covenants and agrees with the Purchaser that the
Company will pay or cause to be paid the following: (a) the fees,
disbursements and expenses of the Purchaser and the Purchaser's counsel in
connection with the issuance of the Collective Securities payable on the
Initial Closing Date up to a maximum of twenty-five thousand dollars
($25,000), (b) all expenses in connection with registration or qualification
of the Collective Securities for offering and sale under state securities laws
as provided in Section 4(f) hereof, and (c) all other costs and expenses
incident to the performance of its obligations hereunder which are not
otherwise specifically provided for in this Section 8, including the fees and
disbursements of the Company's counsel, accountants and other professional
advisors, if any. If the Company fails to satisfy its obligations or to
satisfy any condition set forth in this Agreement, as a result of which the
Collective Securities are not delivered to the Purchaser on the terms and
conditions set forth herein, the Company shall reimburse the Purchaser for any
out-of-pocket expenses reasonably incurred in making preparations for the
purchase, sale and delivery of the Collective Securities not so delivered.
9. GOVERNING LAW; MISCELLANEOUS
This Agreement shall be governed by and interpreted in accordance
with the laws of the State of New York, without regard to principles of
conflict of laws. Each of the parties consents to the jurisdiction of the
federal courts whose districts encompass any part of the City of New York or
the state courts of the State of New York sitting in the City of New York in
connection with any dispute arising under this Agreement or any of the
transactions contemplated hereby, and hereby waives, to the maximum extent
permitted by law, any objection, including any objections based on forum non
conveniens, to the bringing of any such proceeding in such jurisdictions.
This Agreement may be signed in one or more counterparts, each of which shall
be deemed an original. The headings of this Agreement are for convenience of
reference only and shall not form part of, or affect the interpretation of
this Agreement. This Agreement and each of the Primary Documents have been
entered into freely by each of the parties, following consultation with their
respective counsel, and shall be interpreted fairly in accordance with its
respective terms, without any construction in favor of or against either
party. If any provision of this Agreement shall be invalid or unenforceable in
any jurisdiction, such invalidity or unenforceability shall not affect the
validity or enforceability of the remainder of this Agreement or the validity
or unenforceability of this Agreement in any other jurisdiction. This
Agreement shall inure to the benefit of, and be binding upon the successors
and assigns of each of the parties hereto, including any transferees of the
Initial Shares, the Initial Warrants, the Supplemental Warrant, and, if the
Supplemental Warrant shall be exercised, the Additional Shares and the
Additional Warrants. This Agreement may be amended only by an instrument in
writing signed by the party to be charged with enforcement. This Agreement
supersedes all prior agreements and understandings among the parties hereto
with respect to the subject matter hereof.
10. NOTICES
Any notice required or permitted hereunder shall be given in
writing (unless otherwise specified herein) and shall be effective upon
personal delivery, via facsimile (upon receipt of confirmation of error-free
transmission and mailing a copy of such confirmation, postage prepaid by
certified mail, return receipt requested) or two business days following
deposit of such notice with an internationally recognized courier service,
with postage prepaid and addressed to each of the other parties thereunto
entitled at the following addresses, or at such other addresses as a party may
designate by five days advance written notice to each of the other parties
hereto.
COMPANY: Cybertel, Communications Corp.
4275 Executive Square, Suite #510
La Jolla, California 92037
Attention: Richard D. Mangiarelli
Tel: (800) 645-5557
Fax: (858) 646-7414
With a copy to:
Leonard W. Burningham, Esq.
455 East 500 South, Suite #205
Salt Lake City, Utah 84111
Tel: (801) 363-7411
Fax: (801) 355-7126
PURCHASER: ADARA Investors LLC
WEC Asset Management LLC
110 Colabaugh Pond Road
Croton-on-Hudson, New York 10520
Attention: Daniel J. Saks
Tel: (914) 271-2211
Fax: (914) 271-0889
With a copy to:
Pryor Cashman Sherman & Flynn LLP
410 Park Avenue, 10th Floor
New York, New York 10022
Attention: Mark Saks, Esq.
Tel: (212) 326-0140
Fax: (212) 326-0806
11. SURVIVAL
The agreements, covenants representations and warranties of the
Company and the Purchaser shall survive the execution and delivery of this
Agreement and the delivery of the Securities hereunder.
12. INDEMNIFICATION
The Company agrees to indemnify the Purchaser and each officer,
director, employee, agent, partner, stockholder, member and affiliate of the
Purchaser (collectively, the "Indemnified Parties") for, and hold each
Indemnified Party harmless from and against: (i) any and all damages, losses,
claims (including, without limitation, claims by brokers, finders or agents
other than Tony Gentile regarding a breach of Section 2(y)) and other
liabilities of any and every kind, including, without limitation, judgments
and costs of settlement, and (ii) any and all reasonable out-of-pocket costs
and expenses of any and every kind, including, without limitation, reasonable
fees and disbursements of counsel for such Indemnified Parties (all of which
expenses periodically shall be reimbursed as incurred), in each case, arising
out of or suffered or incurred in connection with any of the following: (a)
any misrepresentation or any breach of any warranty made by the Company herein
or in any of the other Primary Documents, (b) any breach or non-fulfillment of
any covenant or agreement made by the Company herein or in any of the other
Primary Documents and (c) any claim relating to or arising out of a violation
of applicable federal or state securities laws by the Company in connection
with the sale or issuance of the Initial Shares, Additional Shares, Initial
Warrants, Additional Warrants or Supplemental Warrant by the Company to the
Purchaser (collectively, the "Indemnified Liabilities"). To the extent that
the foregoing undertaking by the Company may be unenforceable for any reason,
the Company shall make the maximum contribution to the payment and
satisfaction of each of the Indemnified Liabilities which is permissible under
applicable law.
[Remainder of page intentionally blank, signature page follows]
IN WITNESS WHEREOF, this Securities Purchase Agreement has been
duly executed by each of the undersigned.
CYBERTEL, COMMUNICATIONS CORP.
By: /s/ Richard D. Mangiarelli
-----------------------------
Name: Richard D. Mangiarelli
Title: President
ADARA Investors LLC
By: WEC Asset Management LLC, Manager
By: /s/ Daniel J. Saks
-----------------------------
Name: Daniel J. Saks
Title: Managing Director
<PAGE>
EXHIBIT INDEX
EXHIBIT A FORM OF CERTIFICATE OF DESIGNATIONS
EXHIBIT B FORM OF STOCK PURCHASE WARRANT
EXHIBIT C FORM OF SUPPLEMENTAL WARRANT
EXHIBIT D FORM OF REGISTRATION RIGHTS AGREEMENT
EXHIBIT E OPINION OF COUNSEL
SCHEDULE INDEX
SCHEDULE 3(a) LIST OF SUBSIDIARIES
SCHEDULE 3(b) CAPITALIZATION, DERIVATIVE
SECURITIES AND REGISTRATION RIGHTS
SCHEDULE 3(h) NON-CONTRAVENTION
SCHEDULE 4(i) ADDITIONAL SHARES TO BE INCLUDED ON
REGISTRATION STATEMENT
SCHEDULE 3(a)
<PAGE>
SUBSIDIARIES
Telenomics, Inc.
California Corporation
41689 Enterprise Circle North, Suite #228
Temecula, California 92590
Like Dat Music, Inc.
California Corporation
4275 Executive Square, Suite #510
La Jolla, California 92037
<PAGE>
SCHEDULE 3(b)
CAPITALIZATION, DERIVATIVE SECURITIES
AND REGISTRATIONS RIGHTS
Warrants:
An aggregate total of 145,000 warrants (assuming all shares offered by the
Private Offering Memorandum distributed by Capital Growth Resources, Inc.
("Capital Growth Resources") hereby are sold within a 90 day period, otherwise
125,000 warrants, if the offering is completed in excess of 90 days) to
Capital Growth Resources to purchase an aggregate total of 145,000 shares at
$0.01 per share for a period of 12 months from the date of issuance, which
should be the date on which this Offering is closed. These warrants do not
carry registration rights.
Options:
A grant of a 1,000,000 share non-qualified option to Richard G. Mangiarelli,
Cybertel's President, on January 3, 2000, to acquire 1,000,000 shares at an
exercise price of $5.00 per share, fully vested and expiring five years from
the date of the grant. These options do not carry registration rights.
Registration Rights:
Registration rights respecting the 50,000 shares of common stock issued to or
for the benefit of Capital Growth Resources in connection with a $500,000
Bridge Loan Offering on or about November 11, 1999, which was placed by
Capital Growth Resources, Cybertel's Placement Agent on this offering, and for
which Capital Growth Resources received 50,000 shares of Cybertel "restricted
securities". Some of these shares were conveyed to Capital Growth Resources
sales personnel and other employees of Capital Growth Resources.
<PAGE>
SCHEDULE 3(h)
NON-CONTRAVENTION
None
<PAGE>
SCHEDULE 4(h)
ADDITIONAL SHARES TO BE INCLUDED ON REGISTRATION STATEMENT
Registration rights respecting the 50,000 shares of common stock issued to or
for the benefit of Capital Growth Resources, Inc. ("Capital Growth Resources")
in connection with a $500,000 Bridge Loan Offering on or about November 11,
1999, which was placed by Capital Growth Resources, Cybertel's Placement Agent
on this offering, and for which Capital Growth Resources received 50,000
shares of Cybertel "restricted securities". Some of these shares were
conveyed to Capital Growth Resources sales personnel and other employees of
Capital Growth Resources.
<PAGE>
EXHIBIT A
CERTIFICATE OF DESIGNATIONS OF
SERIES A 6% CONVERTIBLE PREFERRED STOCK OF
CYBERTEL, COMMUNICATIONS CORP.
Pursuant to Section 78.1955 of the General
Corporation Law of the State of Nevada
The undersigned, Richard D. Mangiarelli and Paul J. Mills, hereby
certify that:
I. They are the duly elected and acting President and
Secretary, respectively, of CYBERTEL, COMMUNICATIONS CORP., a Nevada
corporation (the "Corporation").
II. The Certificate of Incorporation of the Corporation
authorizes five million (5,000,000) shares of preferred stock, $0.001 par
value per share.
III. The following is a true and correct copy of resolutions duly
adopted by the Board of Directors of the Corporation (the "Board of
Directors") on February 10, 2000 pursuant to the Articles of Incorporation of
the Corporation and in accordance with the provisions of the General
Corporation Law of the State of Nevada.
RESOLUTIONS
WHEREAS, the Board of Directors is authorized to provide for the
issuance of the shares of preferred stock in series, and by filing a
certificate pursuant to the applicable law of the State of Nevada, to
establish and issue one or more series of preferred stock with such voting
powers, full or limited, or no voting powers, and such designations,
preferences and relative, participating, optional or other special rights, and
with such qualifications, limitations or restrictions thereon as the Board of
Directors may determine.
WHEREAS, the Board of Directors desires, pursuant to its authority
as aforesaid, to designate a new series of preferred stock, set the number of
shares constituting such series and fix the rights, preferences, privileges
and restrictions of such series.
NOW, THEREFORE, BE IT RESOLVED, that the Board of Directors hereby
designates a new series of preferred stock and the number of shares
constituting such series and fixes the rights, preferences, privileges and
restrictions relating to such series as follows:
A. Designation, Amount and Par Value. The series of preferred
stock shall be designated as the Series A 6% Convertible Preferred Stock (the
"Series A Preferred Stock"), and the number of shares so designated shall be
five thousand (5,000) (which shall not be subject to increase or decrease).
Each share of Series A Preferred Stock shall have a par value of $0.001 per
share and a stated value (the "Stated Value") of the Liquidation Preference
(as hereinafter defined in Section C(1)).
B. Dividends.
(1) Holders of the Series A Preferred Stock shall be
entitled to receive, out of funds legally available therefor, dividends at a
rate equal to 6% (the "Dividend Rate") of the Liquidation Preference per share
per annum (subject to appropriate adjustments in the event of any stock
dividend, stock split, combination or other similar recapitalization affecting
such shares), and no more, payable in accordance with the provisions of this
Certificate of Designations.
(2) At the election of the Corporation, each dividend on
Series A Preferred Stock shall be paid either in shares of Common Stock of the
Corporation, $.001 par value per share ("Common Stock") or in cash on the
Delivery Date (as defined in Subsection G(2)(a) of this Certificate of
Designations) with respect to any shares of Series A Preferred Stock which are
the subject of a Notice of Conversion (as defined in Subsection G(2) of this
Certificate of Designations). Dividends paid in shares of Common Stock shall
be paid (based on an assumed value of $1,000 per share) in full shares only,
with a cash payment equal to the value of any fractional shares. Each
dividend paid in cash shall be mailed to the holders of record of the Series A
Preferred Stock as their names and addresses appear on the share register of
the Corporation or at the office of the transfer agent on the corresponding
dividend payment date. Holders of Series A Preferred Stock will receive
written notification from the Corporation or the transfer agent if a dividend
is paid in kind, which notification will specify the number of shares of
Common Stock paid as a dividend and the recipient's aggregate holdings of
Common Stock as of that dividend payment date and after giving effect to the
dividend. All holders of shares of Common Stock issued as dividends shall be
entitled to all of the rights and benefits relating to shares of Common Stock
as set forth in the Corporation's Articles of Incorporation, as amended, and
By-laws.
(3) Holders of the Series A Preferred Stock shall be
entitled to payment of any dividends in preference and priority to any payment
of any cash dividend on Common Stock or any other class or series of capital
stock of the Corporation. Dividends on the Series A Preferred Stock shall
accrue with respect to each share of the Series A Preferred Stock from the
date on which such share is issued and outstanding and thereafter shall be
deemed to accrue from day to day whether or not earned or declared and whether
or not there exists profits, surplus or other funds legally available for the
payment of dividends, and shall be cumulative so that if such dividends on the
Series A Preferred Stock shall not have been paid, or declared and set apart
for payment, the deficiency shall be fully paid or declared and set apart for
payment before any dividend shall be paid or declared or set apart for any
Common Stock or other class or series of capital stock ranking junior to the
Series A Preferred Stock (such stock being collectively referred to herein as
the "Junior Stock") and before any purchase or acquisition of any Junior Stock
is made by the Corporation. At the earlier of: (1) the redemption or
conversion of the Series A Preferred Stock or (2) the liquidation of the
Corporation, any accrued but undeclared dividends shall be paid to the holders
of record of outstanding shares of the Series A Preferred Stock in accordance
with the provisions of this Certificate of Designations. No accumulation of
dividends on the Series A Preferred Stock shall bear interest.
C. Liquidation, Dissolution or Winding Up.
(1) In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the Corporation, the holders of
shares of the Series A Preferred Stock then outstanding shall be entitled to
be paid out of the assets of the Corporation available for distribution to its
stockholders, before any payment shall be made to the holders of Junior Stock
by reason of their ownership thereof, an amount equal to one thousand dollars
($1,000) per share of Series A Preferred Stock (the "Liquidation Preference")
plus any accrued but unpaid dividends (whether or not declared). If upon any
such liquidation, dissolution or winding up of the Corporation the remaining
assets of the Corporation available for distribution to its stockholders shall
be insufficient to pay the holders of shares of the Series A Preferred Stock
the full amount to which they shall be entitled, the holders of shares of the
Series A Preferred Stock shall share ratably in any distribution of the
remaining assets and funds of the Corporation in proportion to the respective
amounts which would otherwise be payable in respect of the shares held by them
upon such distribution if all amounts payable on or with respect to such
shares were paid in full.
(2) After the payment of all preferential amounts required
to be paid to the holders of the Series A Preferred Stock upon the
dissolution, liquidation, or winding up of the Corporation, all of the
remaining assets and funds of the Corporation available for distribution to
its stockholders shall be distributed ratably among the holders of the Series
A Preferred Stock and the Junior Stock, with each share of Series A Preferred
Stock being deemed, for such purpose, to be equal to the number of shares of
Common Stock, including fractions of a share, into which such share of Series
A Preferred Stock is convertible immediately prior to the close of business on
the business day fixed for such distribution.
D. Voting.
(1) Each holder of outstanding shares of Series A
Preferred Stock shall be entitled, at each meeting of stockholders of the
Corporation (and with respect to written consents of stockholders in lieu of
meetings) with respect to any and all matters presented to the stockholders of
the Corporation for their action or consideration, to the number of votes
equal to the number of whole shares of Common Stock into which the shares of
Series A Preferred Stock held by such holder are convertible (as adjusted from
time to time pursuant to Subsection I hereof) immediately after the close of
business on the record date fixed for such meeting or the effective date of
such written consent. Except as provided by law, and by the provisions of
Section K below, holders of Series A Preferred Stock shall vote together with
the holders Common Stock as a single class.
(2) The holders of the Series A Preferred Stock shall not
be entitled to any rights of cumulative voting with respect to their shares.
E. Other Securities. Subject to any limitations contained in
this Certificate of Designations, the Corporation's Articles of Incorporation
and/or the Primary Documents (as defined in the Securities Purchase Agreement,
dated as of the Original Closing Date (as defined therein), hereinafter the
"Securities Purchase Agreement"), the Board of Directors of the Corporation
reserves the right to establish additional classes and/or series of capital
stock of the Corporation and to designate the preferences, limitations and
relative rights of any such classes and/or series; provided, however, that no
such class and/or series may have preferences, limitations and relative rights
which are superior to or senior to the preferences, limitations and relative
rights granted to the holders of the Series A Preferred Stock.
F. Capital Reorganization. If the Corporation shall at any
time hereafter subdivide or combine its outstanding shares of Common Stock,
declare a dividend payable in Common Stock, or in case of any capital
reorganization or reclassification of the shares of Common Stock of the
Corporation, the number of shares of the Series A Preferred Stock and the
Stated Value of the Series A Preferred Stock shall be adjusted appropriately
to allow the holders of the Series A Preferred Stock, as nearly as reasonably
possible, to maintain (i) the aggregate Stated Value of the Series A Preferred
Stock and (ii) their pro rata interest in the Corporation and in the Common
Stock upon conversion of the Series A Preferred Stock, that each holder had
prior to any such subdivision, combination, stock dividend, reorganization or
reclassification.
G. Conversion.
(1) The holders of the Series A Preferred Stock shall have
conversion rights as follows (the "Series A Preferred Stock Conversion
Rights"):
(a) Each share of Series A Preferred Stock shall be
convertible, at the option of the holder thereof, at any time and from
time to time, into such number of fully paid and nonassessable shares of
Common Stock as is determined by dividing $1,000, plus the amount of any
accrued and unpaid dividends the Corporation elects to pay in Common
Stock, by the Conversion Price (as defined below) in effect at the time
of conversion. The Conversion Price at which shares of Common Stock
shall be deliverable upon conversion of Series A Preferred Stock without
the payment of additional consideration by the holder thereof (the
"Conversion Price") shall be the lower of (i) 110% of the average
Closing Bid Price of the shares of Common Stock for the five (5) trading
days immediately preceding the Initial Closing Date (as defined in the
Securities Purchase Agreement) or (ii) 80% of the average of the three
lowest Closing Bid Prices of the shares of Common Stock for the twenty-
five (25) trading days immediately preceding the Series A Preferred
Stock Conversion Date (as hereinafter defined). For purposes of these
Articles of Amendment, the term "Closing Bid Price" means, for any
security as of any date, the closing bid price on the principal
securities exchange or trading market where the Common Stock is listed
or traded as reported by Bloomberg, L.P. ("Bloomberg") or, if
applicable, the closing bid price of the Common Stock in the over-the-
counter market on the electronic bulletin board for such security as
reported by Bloomberg, or, if no closing bid price is reported for the
Common Stock by Bloomberg, then the average of the bid prices of any
market makers for such security as reported in the "pink sheets" by the
National Quotation Bureau, Inc. If the Closing Bid Price of the Common
Stock can not be calculated on such date on any of the foregoing bases,
the Closing Bid Price of the Common Stock on such date shall be the fair
market value as determined by the holders of a majority of the
outstanding shares of Series A Preferred Stock being converted for which
the calculation of the Closing Bid Price is required in order to
determine the Conversion Price of such shares. "Trading day" shall mean
any day on which the Corporation's Common Stock is traded for any period
on the principal securities exchange or other securities market on which
the Common Stock is then being traded. If, during any period following
the Initial Closing Date, as a result of the occurrence of any of the
events set forth in Section 3(f) or 3(g) of the Registration Rights
Agreement, dated as of the Initial Closing Date, by and between the
Corporation and the Purchaser set forth therein (the "Registration
Rights Agreement"), the Purchasers set forth therein are not able to
sell shares of Common Stock issuable upon conversion of, or in lieu of
dividends on, shares of Series A Preferred Stock pursuant to a
registration statement filed pursuant to such agreement, the holders of
shares of Series A Preferred Stock shall have the right, for any purpose
during such period and thereafter, to designate as the Conversion Price
any Conversion Price that would have been applicable during such period
had such Series A Preferred Stock shareholder delivered a Notice of
Conversion with respect to any such Series A Preferred Stock.
(b) In the event that the Corporation's stock is
listed on the Nasdaq SmallCap or National Market, at any time that the
number of shares of Common Stock issued (A) upon conversion of the
Series A Preferred Stock and (B) in lieu of dividend payments on the
Series A Preferred Stock, shall equal twenty percent (20%) or more of
the Corporation's outstanding Common Stock (a "Common Stock Redemption
Event"), the Corporation shall (x) redeem, at a price per share equal to
the sum of (i) one hundred twenty percent (120%) of the Stated Value per
share and (ii) all accrued but unpaid dividends on such shares of Series
A Preferred Stock, all of the outstanding Series A Preferred Stock or
(y) call a special meeting of its stockholders for the purpose of
approving the transactions contemplated by the Securities Purchase
Agreement, including the issuance of the Series A Preferred Stock on the
terms set forth therein, together with any other approvals that shall be
required so as to cause the transactions contemplated by the Securities
Purchase Agreement to remain in compliance with the Rules and
Regulations of The Nasdaq Stock Market (including Rules 4300 and 4310 of
Nasdaq's Non-Qualitative Designation Criteria in connection with
conversions of Series A Preferred Stock; such approvals are referred to
herein as the "Required Approvals"). The Corporation shall determine
within five (5) business days following the receipt of a Notice of
Conversion which of such actions it shall take, and shall promptly
furnish notice to each of the holders of Series A Preferred Stock as to
such determination, including, if applicable, a notice of redemption.
In no event shall the Corporation issue shares of Common Stock upon
conversion of, or in lieu of dividend payments on, the Series A
Preferred Stock, after the occurrence of a Common Stock Redemption Event
until the Required Approvals, if any, are obtained.
(c) If the Corporation elects to call a special
meeting of its stockholders pursuant to Subsection G(1)(b) of this
Certificate of Designations to obtain the Required Approvals, the
Corporation shall use its best efforts to obtain such Required Approvals
within thirty (30) days of the Initial Closing Date (such thirty (30)
day period is referred to herein as an "Approval Period"). If the
Corporation does not obtain the Required Approvals within the Approval
Period and the Corporation receives a Notice of Conversion after the
termination of the Approval Period, the Corporation must redeem, in
accordance with this Subsection G of this Certificate of Designations,
any shares of Series A Preferred Stock outstanding after the Corporation
has issued in excess of 847,662 shares of Common Stock in connection
with conversions of the Series A Preferred Stock.
(d) If the Corporation elects, pursuant to this
Subsection G, to redeem the Series A Preferred Stock on the occurrence
of a Common Stock Redemption Event, it shall redeem such Series A
Preferred Stock at the price determined in accordance with Subsection
G(1)(b) of this Certificate of Designations. If the Corporation shall
have elected, pursuant to this Subsection G(1), to obtain the Required
Approvals but shall not have done so by the later of the occurrence of
the Common Stock Redemption Event or the expiration of the Approval
Period, it shall furnish a redemption notice to the Purchaser within
three (3) business days after the expiration of the Approval Period.
(2) The Series A Preferred Stock Conversion Rights shall
be exercised as follows:
(a) The Corporation will permit each holder of
Series A Preferred Stock to exercise its right to convert the Series A
Preferred Stock by faxing an executed and completed notice of conversion
(the "Notice of Conversion") to the Corporation, and delivering within
three (3) business days thereafter, the original Notice of Conversion
(and the certificates representing the related shares of Series A
Preferred Stock) to the Corporation by hand delivery or by express
courier, duly endorsed. Each date on which a Notice of Conversion is
faxed in accordance with the provisions hereof shall be deemed a "Series
A Preferred Stock Conversion Date." The Corporation will transmit the
certificates representing the Common Stock issuable upon conversion of
the Series A Preferred Stock (together with certificates representing
the related shares of Series A Preferred Stock not so converted and, if
applicable, a check representing any fraction of a share not converted)
to such holder via express courier as soon as practicable, but in all
events no later than (the "Delivery Date") three (3) business days after
the Series A Preferred Stock Conversion Date. For purposes of this
Certificate of Designations, such conversion of the Series A Preferred
Stock shall be deemed to have been made immediately prior to the close
of business on the Series A Preferred Stock Conversion Date.
(b) In lieu of delivering physical certificates
representing the Common Stock issuable upon the conversion of the Series
A Preferred Stock, provided that the Corporation's transfer agent is
participating in the Depository Trust Corporation ("DTC") Fast Automated
Securities Transfer program, on the written request of a holder of Series
A Preferred Stock who shall have previously instructed such holder's
prime broker to confirm such request to the Corporation's transfer agent,
the Corporation shall use its best efforts to cause its transfer agent to
electronically transmit such Common Stock to such holder by crediting the
account of the holder's prime broker with DTC through its Deposit
Withdrawal Agent Commission system no later than the applicable Delivery
Date.
(c) The Corporation will at all times have
authorized and reserved for the purpose of issuance a sufficient number
of shares of Common Stock to provide for the conversion of the Series A
Preferred Stock. The Corporation will use its best efforts at all times
to maintain a number of shares of Common Stock so reserved for issuance
that is no less than the sum of (i) two (2) times the number that would
then actually be issuable upon the conversion of five thousand (5,000)
shares of Series A Preferred Stock and (ii) the exercise of the Initial
Warrants and the Additional Warrants (each as defined in the Securities
Purchase Agreement). Before taking any action which would cause an
adjustment reducing the Conversion Price below the established par value
of the shares of Common Stock issuable upon conversion of the Series A
Preferred Stock, the Corporation shall take any corporate action which
may, in the opinion of its counsel or in the opinion of counsel to
holders of the Series A Preferred Stock, be necessary in order that the
Corporation may validly and legally issue fully paid and nonassessable
shares of Common Stock at such adjusted Conversion Price.
(3) In the event of a liquidation of the Corporation, the
Series A Preferred Stock Conversion Rights shall terminate at the close of
business on the first full day preceding the date fixed for the payment of any
amounts distributable on liquidation to the holders of the Series A Preferred
Stock.
(4) If the conversion is in connection with an underwritten
offer of securities registered pursuant to the Securities Act of 1933, as
amended, the conversion may, at the option of any holder tendering Series A
Preferred Stock for conversion, be conditioned upon the closing with the
underwriter of the sale of securities pursuant to such offering, in which
event the person(s) entitled to receive the Common Stock issuable upon such
conversion of the Series A Preferred Stock shall not be deemed to have
converted such Series A Preferred Stock until immediately prior to the closing
of the sale of securities.
(5) At no time shall any holder of the Series A Preferred
Stock convert such amount of Series A Preferred Stock as shall result in such
Purchaser's ownership, after such conversion, exceeding 9.99% of the
Corporation's outstanding Common Stock.
(6) No fractional shares of Common Stock shall be issued
upon conversion of the Preferred Stock. In lieu of fractional shares, the
Corporation shall pay cash equal to such fraction multiplied by the then
effective and applicable Conversion Price.
(7) The Corporation will not, by amendment of its Articles
of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any
of the terms to be observed or performed under this Certificate of
Designations by the Corporation, but will at all times in good faith assist in
the carrying out of all the provisions of this Certificate of Designations and
in the taking of all such action as may be necessary or appropriate in order
to protect the Series A Preferred Stock Conversion Rights of the holders of
the Series A Preferred Stock against impairment.
(8) In the event (a) that the Corporation declares a
dividend (or any other distribution) on its Common Stock payable in Common
Stock or other securities of the Corporation, (b) that the Corporation
subdivides or combines its outstanding shares of Common Stock, (c) of any
reclassification of the Common Stock of the Corporation (other than a
subdivision or combination of its outstanding shares of Common Stock or a
stock dividend or stock distribution thereon), (d) of any consolidation or
merger of the Corporation into or with another corporation, (e) of the sale of
all or substantially all of the assets of the Corporation, or (f) of the
involuntary or voluntary dissolution, liquidation or winding up of the
Corporation, then the Corporation shall cause to be filed at its principal
office or at the office of the transfer agent of the Series A Preferred Stock,
and shall cause to be mailed to each holder of the Series A Preferred Stock at
their last address as shown on the records of the Corporation or such transfer
agent, at least ten (10) days prior to the record date specified in (i) below
or twenty (20) days before the date specified in (ii) below, a notice stating
(i) the record date of such dividend,
distribution, subdivision or combination, or, if a record is not to be
taken, the date as of which the holders of Common Stock of record to be
entitled to such dividend, distribution, subdivision or combination are
to be determined, or
(ii) the date on which such reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up is
expected to become effective, and the date as of which it is expected
that holders of Common Stock of record shall be entitled to exchange
their shares of Common Stock for securities or other property
deliverable upon such reclassification, consolidation, merger, sale,
dissolution or winding up.
H. Sinking Fund. There shall be no sinking fund for the
payment of dividends, or liquidation preferences on the Series A Preferred
Stock or the redemption of any shares thereof.
I. Redemption Events. In case one or more of the following
events, each a redemption event, shall have occurred:
(a) If the Corporation fails to have a registration
statement effective within one hundred fifty (150) days of the date of
the Stock Purchase Agreement, at the option of the Purchaser; or
(b) failure to deliver the shares of Common Stock
required to be delivered upon conversion of the shares of Series A
Preferred Stock in the manner and at the time required by Section 5 of
the Securities Purchase Agreement; or
(c) failure of the Corporation to have authorized
the number of shares of Common Stock issuable upon conversion of the
shares of Series A Preferred Stock or exercise of the Stock Purchase
Warrants (as defined in the Securities Purchase Agreement), including
conversion of any shares of Series A Preferred Stock or exercise of any
Stock Purchase Warrants, issuable upon conversion of the Supplemental
Warrant (as defined in the Securities Purchase Agreement); or
(d) failure on the part of the Corporation to duly
observe or perform any of the provisions of this Certificate of
Designations or any of its other covenants or agreements contained in
the Securities Purchase Agreement, or to cure any material breach in a
material representation or covenant contained in the Securities Purchase
Agreement or the Registration Rights Agreement for a period of ten (10)
days after the date on which written notice of such failure or breach
requiring the same to be remedied has been given by a registered holder
of shares of Series A Preferred Stock to the Corporation; or
(e) a decree or order by a court having jurisdiction
has been entered adjudging the Corporation (or any Material Subsidiary)
a bankrupt or insolvent, or approving a petition seeking reorganization
of the Corporation (or any Material Subsidiary) under any applicable
bankruptcy law and such decree or order has continued undischarged or
unstayed for a period of sixty (60) days; or a decree or order of a
court having jurisdiction for the appointment of a receiver or
liquidator or trustee or assignee in bankruptcy or insolvency of the
Corporation (or any Material Subsidiary) or of all or substantially all
of its property, or for the winding-up or liquidation of its affairs,
has been entered, and has remained in force undischarged or unstayed for
a period of sixty (60) days; or
(f) the Corporation (or any Material Subsidiary)
institutes proceedings to be adjudicated a voluntary bankrupt, or
consents to the filing of a bankruptcy proceeding against it, or files a
petition or answer or consent seeking reorganization under applicable
law, or consents to the filing of any such petition or to the
appointment of a receiver or liquidator or trustee or assignee in
bankruptcy or insolvency of it or of all or substantially all of its
property, or makes an assignment for the benefit of creditors, or admits
in writing its inability to pay its debts generally as they become due;
or if the Corporation (or any Material Subsidiary) shall suffer any writ
of attachment or execution or any similar process to be issued or levied
against it or any significant part of its property which is not
released, stayed, bonded or vacated within sixty (60) days after its
issue or levy; or if the Corporation (or any Material Subsidiary) takes
corporate action in furtherance of any of the aforesaid purposes or
conditions; or
(g) If any default shall occur under any indenture,
mortgage, agreement, instrument or commitment evidencing or under which
there is at the time outstanding any indebtedness of the Corporation (or
a Material Subsidiary, as hereinafter defined), in excess of $50,000, or
which results in such indebtedness, in an aggregate amount (with other
defaulted indebtedness) in excess of $50,000 becoming due and payable
prior to its due date and if such indenture or instrument so requires,
the holder or holders thereof (or a trustee on their behalf) shall have
declared such indebtedness due and payable; or
(h) If any of the Corporation or its subsidiaries shall default
in the observance or performance of any material term or provision of a
material agreement to which it is a party or by which it is bound, and
such default is not waived or cured within the applicable grace period;
or
(i) If a final judgment which, either alone or together with
other outstanding final judgments against the Corporation
and its subsidiaries, exceeds an aggregate of $50,000 shall be rendered
against the Corporation (or any Material Subsidiary) and such judgment
shall have continued undischarged or unstayed for thirty (30) days after
entry thereof; or
(j) If there shall occur a Change in Control of the
Corporation (as defined below). Nothing in this subsection shall limit
the right of a holder of Series A Preferred Stock to convert their
shares of Series A Preferred Stock on or prior to such Change in
Control. For purposes hereof, a "Change in Control" shall be deemed to
have occurred if (A) any person or group (as defined for purposes of
Regulation 13D of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) shall have become the beneficial owner or owners of
more than 50% of the outstanding voting stock of the Corporation; (B)
there shall have occurred a merger or consolidation in which the
Corporation or an affiliate of the Corporation is not the survivor or in
which holders of the Common Stock of the Corporation shall have become
entitled to receive cash, securities of the Corporation other than
voting common stock or securities of any other person; (C) at any time
persons constituting the Existing Board of Directors cease for any
reason whatsoever to constitute at least a majority of the members of
the Board of Directors of the Corporation; or (D) there shall have
occurred a sale of all or substantially all the assets of the
Corporation. For purposes hereof, the term "Existing Board of
Directors" shall mean the persons constituting the Board of Directors of
the Corporation on the date hereof, together with each new director
whose election, or nomination for election by the Corporation's
stockholders is approved by a vote of the majority of the members of the
Existing Board of Directors who are in office immediately prior to the
election or nomination of such director.
then, and in each and every such case, so long as such
redemption event has not been remedied, the holders of not less than
fifty-one percent (51%) of the shares of Series A Preferred Stock then
outstanding, by notice in writing to the Corporation (the date of such
notice the "Redemption Notice Date"), may demand that the Corporation
redeem, and the Corporation shall redeem, each share of Series A
Preferred Stock then outstanding at a price per share equal to one
hundred twenty-five percent (125%) of the sum of (x) the Stated Value
and (y) the aggregate accrued and unpaid dividends on such Redemption
Notice Date
For purposes of this Section I "Material Subsidiary" means any
subsidiary with respect to which the Corporation has directly or indirectly
invested, loaned, advanced or guaranteed the obligations of, an aggregate
amount exceeding fifteen percent (15%) of the Corporation's gross assets, or
the Corporation's proportionate share of the assets or net income of which
(based on the subsidiary's most recent financial statements) exceed fifteen
percent (15%) of the Corporation's gross assets or net income, respectively,
or the gross revenues of which exceed fifteen percent (15%) of the gross
revenues of the Corporation based upon the most recent financial statements of
such subsidiary and the Corporation.
J. Amendment. This Certificate of Designations constitutes an
agreement between the Corporation and the holders of the Series A Preferred
Stock. The Corporation shall not amend this Certificate of Designations or
alter or repeal the preferences, rights, powers or other terms of the Series A
Preferred Stock so as to affect adversely the Series A Preferred Stock,
without the written consent or affirmative vote of the holders of at least
sixty-six and two-thirds percent (66-2/3%) of the then outstanding shares of
Series A Preferred Stock, given in writing or by vote at a meeting, consenting
or voting (as the case may be) separately as a class.
K. Redemption by the Corporation.
(a) If the Closing Bid Price of the Common Stock of the Company is less
than eight dollars ($8.00) per share, the Corporation shall be permitted to
redeem for cash or immediately available funds, to the extent permitted under
law and provisions of senior and subordinated debt agreements of the
Corporation, at any time and from time to time, any or all of the shares of
Series A Preferred Stock then outstanding at a price per share equal to the
Redemption Price on the date of redemption for which the holder of such Series
A Preferred Stock has not delivered Notice of Conversion to the Corporation.
Any redemption by the Corporation of less than all shares of Series A
Preferred Stock than outstanding shall be pro rata among the holders of the
shares of Series A Preferred Stock based upon the number of shares held by
each such holder.
(b) In connection with any redemption of shares pursuant to this
Section K, the Corporation shall give at least fifteen (15) days but not more
than thirty (30) days' prior written notice of such redemption (a "Redemption
Notice"), by hand delivery, by registered or certified mail or nationally
recognized overnight delivery service (with charges prepaid) or sent via
telecopier (if within a reasonable period of time a permanent copy is given by
any of the methods described above), to all holders of record of Series A
Preferred Stock, as applicable, such notice to be addressed to each holder at
its address as it appears on the stock transfer books of the Corporation and
to specify the redemption date (the "Redemption Date") and the Redemption
Price and to state that the holders must surrender the certificates for their
shares of Series A Preferred Stock on or after the Redemption Date in order to
receive payment of the Redemption Price. Notwithstanding anything herein
contained to the contrary, all shares of Series A Preferred Stock may be
converted, including shares of Series A Preferred Stock subject to a
Redemption Notice given pursuant to this Section K, during the period from the
date of such Redemption Notice through the Redemption Date. On the Redemption
Date the Corporation shall pay the aggregate Redemption Price in cash or
immediately available funds to such shareholder for the shares of Series A
Preferred Stock being redeemed. In the event the shareholders of such Series
A Preferred Stock do not receive such aggregate Redemption Price on the
Redemption Date, the Corporation shall pay interest on any unpaid amount
payable at a rate of ten percent (10%) per month. From and after the
Redemption Date, except as set forth below, any holder of shares of Series A
Preferred Stock that has been redeemed who has not duly surrendered its Series
A Preferred Stock to be redeemed shall cease to be entitled to any rights
except the right to receive payment of the Redemption Price. Anything herein
contained to the contrary notwithstanding, in the event and to extent that the
Corporation cannot or does not make or tender full payment therefor, such
shares shall continue to be outstanding, to the extent permitted under law and
provisions of senior and subordinated debt agreements of the Corporation, and
entitled to all rights and benefits as holders of Series A Preferred Stock
until full payment is made or tendered therefor as aforesaid. Shares of
Series A Preferred Stock which have been redeemed may not be reissued by the
Corporation as shares of such series.
(c) For purposed of this Section K, "Redemption Price" shall mean an
amount per share equal to the sum of (x) one hundred twenty percent (120%) of
the Stated Value per share and (y) all accrued but unpaid dividends on such
shares of Series A Preferred Stock.
[Remainder of page intentionally blank, signature page follows]
IN WITNESS WHEREOF, the Corporation., has caused its corporate
seal to be hereunto affixed and this certificate to be signed by Richard D.
Mangiarelli, its President, and attested by Paul J. Mills, its Secretary, this
11th day of February, 2000.
CYBERTEL, COMMUNICATIONS CORP.
By:/s/ Richard D. Mangiarelli
------------------------------
Name: Richard D. Mangiarelli
Title: President
Attest:
By: /s/ Paul J. Mills
-----------------------------
Name: Paul J. Mills
Title: Secretary
<PAGE>
EXHIBIT B
THIS WARRANT AND THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY
STATE, AND MAY NOT BE TRANSFERRED IN VIOLATION OF SUCH ACT, THE RULES AND
REGULATIONS THEREUNDER OR ANY STATE SECURITIES LAWS OR THE PROVISIONS OF THIS
WARRANT.
No. of Shares of Common Stock: 225,000
WARRANT
To Purchase Common Stock of
CYBERTEL, COMMUNICATIONS CORP.
THIS IS TO CERTIFY THAT ADARA Investors LLC, a Delaware limited
liability company, or its registered assigns, is entitled, at any time from
the Warrant Issuance Date (as hereinafter defined) to the Expiration Date (as
hereinafter defined), to purchase from Cybertel, Communications Corp., a
Nevada corporation (the "Company"), two hundred twenty-five thousand (225,000)
shares of Common Stock (as hereinafter defined and subject to adjustment as
provided herein), in whole or in part, including fractional parts, at a
purchase price per share equal to sixteen dollars and eighty six cents
($16.86) (subject to any adjustments made to such amount pursuant to Section 4
hereto) on the terms and conditions and pursuant to the provisions hereinafter
set forth.
1. DEFINITIONS
As used in this Warrant, the following terms have the respective
meanings set forth below:
"Additional Shares of Common Stock" shall mean all shares of
Common Stock issued by the Company after the Initial Closing Date, other than
Warrant Stock.
"Book Value" shall mean, in respect of any share of Common Stock
on any date herein specified, the consolidated book value of the Company as of
the last day of any month immediately preceding such date, divided by the
number of Fully Diluted Outstanding shares of Common Stock as determined in
accordance with GAAP (assuming the payment of the exercise prices for such
shares) by a firm of independent certified public accountants of recognized
national standing selected by the Company and reasonably acceptable to the
Holder.
"Business Day" shall mean any day that is not a Saturday or Sunday
or a day on which banks are required or permitted to be closed in the State of
New York.
"Commission" shall mean the Securities and Exchange Commission or
any other federal agency then administering the Securities Act and other
federal securities laws.
"Common Stock" shall mean (except where the context otherwise
indicates) the Common Stock, par value $.001 per share, of the Company as
constituted on the Closing Date, and any capital stock into which such Common
Stock may thereafter be changed, and shall also include (i) capital stock of
the Company of any other class (regardless of how denominated) issued to the
holders of shares of Common Stock upon any reclassification thereof which is
also not preferred as to dividends or assets over any other class of stock of
the Company and which is not subject to redemption and (ii) shares of common
stock of any successor or acquiring corporation received by or distributed to
the holders of Common Stock of the Company in the circumstances contemplated
by Section 4.4.
"Convertible Securities" shall mean evidences of indebtedness,
shares of stock or other securities which are convertible into or
exchangeable, with or without payment of additional consideration in cash or
property, for shares of Common Stock, either immediately or upon the
occurrence of a specified date or a specified event.
"Current Warrant Price" shall mean, sixteen dollars and eighty six
cents ($16.86) subject to any adjustments to such amount made in accordance
with Section 4 hereof.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, or any successor federal statute, and the rules and regulations of
the Commission thereunder, all as the same shall be in effect from time to
time.
"Exercise Period" shall mean the period during which this Warrant
is exercisable pursuant to Section 2.1.
"Expiration Date" shall mean February 15, 2004.
"Fully Diluted Outstanding" shall mean, when used with reference
to Common Stock, at any date as of which the number of shares thereof is to be
determined, all shares of Common Stock Outstanding at such date and all shares
of Common Stock issuable in respect of this Warrant, outstanding on such date,
and other options or warrants to purchase, or securities convertible into,
including without limitation the shares of Common Stock outstanding on such
date which would be deemed outstanding in accordance with GAAP for purposes of
determining book value or net income per share.
"GAAP" shall mean generally accepted accounting principles in the
United States of America as from time to time in effect.
"Holder" shall mean the Person in whose name the Warrant or
Warrant Stock set forth herein is registered on the books of the Company
maintained for such purpose.
"Initial Closing Date" shall have the meaning set forth in the
Securities Purchase Agreement.
"Market Price" per Common Share means the average of the closing
bid prices of the Common Shares as reported on the National Association of
Securities Dealers Automated Quotation System for the National Market,
("NASDAQ") or, if such security is not listed or admitted to trading on the
NASDAQ, on the principal national security exchange or quotation system on
which such security is quoted or listed or admitted to trading, or, if not
quoted or listed or admitted to trading on any national securities exchange or
quotation system, the closing bid price of such security on the over-the-
counter market on the day in question as reported by the National Association
of Security Dealers, Inc., or a similar generally accepted reporting service,
as the case may be, for the five (5) trading days immediately preceding the
date of determination.
"Other Property" shall have the meaning set forth in Section 4.4.
"Outstanding" shall mean, when used with reference to Common
Stock, at any date as of which the number of shares thereof is to be
determined, all issued shares of Common Stock, except shares then owned or
held by or for the account of the Company or any subsidiary thereof, and shall
include all shares issuable in respect of outstanding scrip or any
certificates representing fractional interests in shares of Common Stock.
"Person" shall mean any individual, sole proprietorship,
partnership, joint venture, trust, incorporated organization, association,
corporation, institution, public benefit corporation, entity or government
(whether federal, state, county, city, municipal or otherwise, including,
without limitation, any instrumentality, division, agency, body or department
thereof).
"Registration Rights Agreement" shall mean the Registration Rights
Agreement dated a date even herewith by and between the Company and ADARA
Investors LLC, as it may be amended from time to time.
"Restricted Common Stock" shall mean shares of Common Stock which
are, or which upon their issuance on the exercise of this Warrant would be,
evidenced by a certificate bearing the restrictive legend set forth in Section
9.1(a).
"Securities Act" shall mean the Securities Act of 1933, as
amended, or any successor federal statute, and the rules and regulations of
the Commission thereunder, all as the same shall be in effect at the time.
"Securities Purchase Agreement" shall mean the Securities Purchase
Agreement dated as of a date even herewith by and between the Company and
ADARA Investors LLC, as it may be amended from time to time.
"Transfer" shall mean any disposition of any Warrant or Warrant
Stock or of any interest in either thereof, which would constitute a sale
thereof within the meaning of the Securities Act.
"Transfer Notice" shall have the meaning set forth in Section 9.2.
"Warrant Issuance Date" shall mean any date on which Warrants are
issued pursuant to the Securities Purchase Agreement.
"Warrants" shall mean this Warrant and all warrants issued upon
transfer, division or combination of, or in substitution for, any thereof.
All Warrants shall at all times be identical as to terms and conditions and
date, except as to the number of shares of Common Stock for which they may be
exercised.
"Warrant Price" shall mean an amount equal to (i) the number of
shares of Common Stock being purchased upon exercise of this Warrant pursuant
to Section 2.1, multiplied by (ii) the Current Warrant Price as of the date of
such exercise.
"Warrant Stock" shall mean the shares of Common Stock purchased by
the holders of the Warrants upon the exercise thereof.
2. EXERCISE OF WARRANT
2.1. Manner of Exercise. From and after the Warrant Issuance Date
and until 5:00 P.M., New York City time, on the Expiration Date, Holder may
exercise this Warrant, on any Business Day, for all or any part of the number
of shares of Common Stock purchasable hereunder.
In order to exercise this Warrant, in whole or in part, Holder
shall deliver to the Company at the office or agency designated by the Company
pursuant to Section 12, (i) a written notice of Holder's election to exercise
this Warrant, which notice shall specify the number of shares of Common Stock
to be purchased, (ii) payment by cash, check or bank draft payable to the
Company of the Warrant Price in cash or by wire transfer or cashier's check
drawn on a United States bank or by the Holder's surrender of Warrant Stock
(or the right to receive such number of shares) having an aggregate Market
Price equal to the Warrant Price for all shares then being purchased and
(iii) this Warrant. Such notice shall be substantially in the form of the
subscription form appearing at the end of this Warrant as Exhibit A, duly
executed by Holder or its agent or attorney. Upon receipt of the items
referred to in clauses (i), (ii) and (iii) above, the Company shall, as
promptly as practicable, and in any event within three (3) Business Days
thereafter, execute or cause to be executed and deliver or cause to be
delivered to Holder a certificate or certificates representing the aggregate
number of full shares of Common Stock issuable upon such exercise, together
with cash in lieu of any fraction of a share, as hereinafter provided. The
stock certificate or certificates so delivered shall be, to the extent
possible, in such denomination or denominations as Holder shall request in the
notice and shall be registered in the name of Holder or, subject to Section 9,
such other name as shall be designated in the notice. This Warrant shall be
deemed to have been exercised and such certificate or certificates shall be
deemed to have been issued, and Holder or any other Person so designated to be
named therein shall be deemed to have become a holder of record of such shares
for all purposes, as of the date the Warrant has been exercised by payment to
the Company of the Warrant Price. If this Warrant shall have been exercised
in part, the Company shall, at the time of delivery of the certificate or
certificates representing Warrant Stock, deliver to Holder a new Warrant
evidencing the rights of Holder to purchase the unpurchased shares of Common
Stock called for by this Warrant, which new Warrant shall in all other
respects be identical with this Warrant.
The Holder shall be entitled to exercise the Warrant
notwithstanding the commencement of any case under 11 U.S.C. Section 101 et
seq.(the "Bankruptcy Code"). In the event the Company is a debtor under the
Bankruptcy Code, the Company hereby waives to the fullest extent permitted any
rights to relief it may have under 11 U.S.C. Section 362 in respect of the
Holder's exercise right. The Company hereby waives to the fullest extent
permitted any rights to relief it may have under 11 U.S.C. Section 362 in
respect of the exercise of the Warrant. The Company agrees, without cost or
expense to the Holder, to take or consent to any and all action necessary to
effectuate relief under 11 U.S.C. Section 362.
2.2. Payment of Taxes and Charges. All shares of Common Stock
issuable upon the exercise of this Warrant pursuant to the terms hereof shall
be validly issued, fully paid and nonassessable, and without any preemptive
rights. The Company shall pay all expenses in connection with, and all taxes
and other governmental charges that may be imposed with respect to, the issue
or delivery thereof except for income taxes of the Holder relating to this
Warrant.
2.3. Fractional Shares. The Company shall not be required to issue
a fractional share of Common Stock upon exercise of any Warrant. As to any
fraction of a share which Holder would otherwise be entitled to purchase upon
such exercise, the Company shall pay a cash adjustment in respect of such
final fraction in an amount equal to the same fraction of the Market Price per
share of Common Stock on the relevant exercise date.
2.4. Continued Validity. A holder of shares of Common Stock issued
upon the exercise of this Warrant, in whole or in part (other than a holder
who acquires such shares after the same have been publicly sold pursuant to a
Registration Statement under the Securities Act or sold pursuant to Rule 144
thereunder), shall continue to be entitled with respect to such shares to all
rights to which it would have been entitled as Holder under Sections 9, 10 and
14 of this Warrant. The Company will, at the time of exercise of this
Warrant, in whole or in part, upon the request of Holder, acknowledge in
writing, in form reasonably satisfactory to Holder, its continuing obligation
to afford Holder all such rights; provided, however, that if Holder shall fail
to make any such request, such failure shall not affect the continuing
obligation of the Company to afford to Holder all such rights.
2.5. Right to Convert Warrant. The Holder shall have the right
to convert, in whole or in part, this Warrant (the "Conversion Right") at any
time prior to the expiration of the Exercise Period, into shares of Common
Stock in accordance with this Section 2.5, provided that such Conversion Right
shall not be available to the Holder in the event that the registration
statement filed pursuant to the Registration Rights Agreement covering the
Registrable Securities (as defined in the Registration Rights Agreement) is
effective. Upon exercise of the Conversion Right, the Company shall deliver to
the Holder (without payment by the Holder of the Warrant Price) that number of
shares of Common Stock equal to the quotient obtained by dividing (x) the
value of the portion of this Warrant being converted at the time the
Conversion Right is exercised (determined by subtracting the Warrant Price for
the portion of this Warrant being converted (in effect immediately prior to
the exercise of the Conversion Right) from the amount obtained by multiplying
the number of shares of Common Stock issuable upon the whole or partial
exercise of this Warrant, as the case may be, by the Market Price immediately
prior to the exercise of the Conversion Right) by (y) the Market Price of one
share of Common Stock immediately prior to the exercise of the Conversion
Right.
The Conversion Right may be exercised by the Holder, at any time
or from time to time, prior to its expiration, on any business day by
delivering a written notice (the "Conversion Notice") to the Company at the
offices of the Company, exercising the Conversion Right and specifying (i) the
total number of shares of Common Stock the Holder will purchase pursuant to
the conversion and (ii) a place and date not less than two (2) nor more than
twenty (20) Business Days from the date of the Conversion Notice for the
closing of such purchase.
At any closing under this Section 2.5, (i) the Holder will
surrender this Warrant and (ii) the Company will deliver to the Holder a
certificate or certificates for the number of shares of Common Stock issuable
upon such conversion. If this Warrant shall have been converted only in part,
the Company shall, at the time of delivery of said stock certificate or
certificates, deliver to the Holder a new Warrant evidencing the rights of the
Holder to purchase the remaining shares of Common Stock called for by this
Warrant, which new Warrant shall in all other respects be identical to this
Warrant, or, at the request of the Holder, appropriate notation may be made on
this Warrant and the same returned to the Holder. The Company shall pay all
expenses, taxes and other charges payable in connection with the preparation,
issue and delivery of such stock certificates and new Warrants, except that,
in case such stock certificates and/or new Warrants shall be registered in a
name or names other than the name of the Holder, funds sufficient to pay all
stock transfer taxes that are payable upon the issuance of such stock
certificates or new Warrants shall be paid by the Holder at the time of
delivering the notice of exercise mentioned above.
3. TRANSFER, DIVISION AND COMBINATION
3.1. Transfer. Subject to compliance with Sections 9, transfer of
this Warrant and all rights hereunder, in whole or in part, shall be
registered on the books of the Company to be maintained for such purpose, upon
surrender of this Warrant at the principal office of the Company referred to
in Section 2.1 or the office or agency designated by the Company pursuant to
Section 12, together with a written assignment of this Warrant substantially
in the form of Exhibit B hereto duly executed by Holder or its agent or
attorney. Upon such surrender, the Company shall, subject to Section 9,
execute and deliver a new Warrant or Warrants in the name of the assignee or
assignees and in the denomination specified in such instrument of assignment,
and shall issue to the assignor a new Warrant evidencing the portion of this
Warrant not so assigned, and this Warrant shall promptly be cancelled. A
Warrant, if properly assigned in compliance with Section 9, may be exercised
by a new Holder for the purchase of shares of Common Stock without having a
new Warrant issued.
3.2. Division and Combination. Subject to Section 9, this Warrant
may be divided or combined with other Warrants upon presentation hereof at the
aforesaid office or agency of the Company, together with a written notice
specifying the names and denominations in which new Warrants are to be issued,
signed by Holder or its agent or attorney. Subject to compliance with Section
3.1 and with Section 9, as to any transfer which may be involved in such
division or combination, the Company shall execute and deliver a new Warrant
or Warrants in exchange for the Warrant or Warrants to be divided or combined
in accordance with such notice.
3.3. Expenses. The Company shall prepare, issue and deliver at its
own expense the new Warrant or Warrants under this Section 3.
3.4. Maintenance of Books. The Company agrees to maintain, at its
aforesaid office or agency, books for the registration and the registration of
transfer of the Warrants.
4. ADJUSTMENTS
The number of shares of Common Stock for which this Warrant is
exercisable, or the price at which such shares may be purchased upon exercise
of this Warrant, shall be subject to adjustment from time to time as set forth
in this Section 4. The Company shall give Holder notice of any event
described below which requires an adjustment pursuant to this Section 4 at the
time of such event.
4.1. Stock Dividends, Subdivisions and Combinations. If at any time
the Company shall:
(a) take a record of the holders of its Common Stock for
the purpose of entitling them to receive a dividend payable in, or other
distribution of, Additional Shares of Common Stock,
(b) subdivide its outstanding shares of Common Stock into
a larger number of shares of Common Stock, or
(c) combine its outstanding shares of Common Stock into a
smaller number of shares of Common Stock,
then (i) the number of shares of Common Stock for which this Warrant is
exercisable immediately after the occurrence of any such event shall be
adjusted to equal the number of shares of Common Stock which a record holder
of the same number of shares of Common Stock for which this Warrant is
exercisable immediately prior to the occurrence of such event would own or be
entitled to receive after the happening of such event, and (ii) the Current
Warrant Price shall be adjusted to equal (A) the Current Warrant Price multi-
plied by the number of shares of Common Stock for which this Warrant is
exercisable immediately prior to the adjustment divided by (B) the number of
shares for which this Warrant is exercisable immediately after such
adjustment.
4.2. Certain Other Distributions.
(a) If at any time prior to the Expiration Date the
Company shall take a record of the holders of its Common Stock for the purpose
of entitling them to receive any dividend or other distribution of:
(i) cash,
(ii) any evidences of its indebtedness, any
shares of its stock or any other securities or property of
any nature whatsoever (other than cash, Convertible Securi-
ties or Additional Shares of Common Stock), or
(iii) any warrants or other rights to subscribe
for or purchase any evidences of its indebtedness, any
shares of its stock or any other securities or property of
any nature whatsoever (other than cash, Convertible
Securities or Additional Shares of Common Stock),
then Holder shall be entitled to receive such dividend or distribution as if
Holder had exercised the Warrant. A reclassification of the Common Stock
(other than a change in par value, or from par value to no par value or from
no par value to par value) into shares of Common Stock and shares of any other
class of stock shall be deemed a distribution by the Company to the holders of
its Common Stock of such shares of such other class of stock within the
meaning of this Section 4.2 and, if the outstanding shares of Common Stock
shall be changed into a larger or smaller number of shares of Common Stock as
a part of such reclassification, such change shall be deemed a subdivision or
combination, as the case may be, of the outstanding shares of Common Stock
within the meaning of Section 4.1.
(b) In case the Company shall issue any Common Stock or
any rights, options or warrants to all holders of record of its Common Stock
entitling all holders to subscribe for or purchase shares of Common Stock at a
price per share less than the Market Price per share of the Common Stock on
the date fixed for such issue, the Current Warrant Price in effect immediately
prior to the close of business on the date fixed for such determination shall
be reduced to the amount determined by multiplying such Current Warrant Price
by a fraction, the numerator of which shall be the number of shares of Common
Stock outstanding immediately prior to the close of business on the date fixed
for such determination plus the number of shares of Common Stock which the
aggregate of the offering price of the total number of shares of Common Stock
so offered for subscription or purchase would purchase at such Market Price
and the denominator of which shall be the number of shares of Common Stock
outstanding immediately prior to the close of business on the date fixed for
such determination plus the number of shares of Common Stock so offered for
subscription or purchase, such reduced amount to become effective immediately
after the close of business on the date fixed for such determination. For the
purposes of this clause (b), (i) the number of shares of Common Stock at any
time outstanding shall not include shares held in the treasury of the Company
and (ii) in the case of any rights, options or warrants which expire by their
terms not more than 60 days after the date of issue, sale, grant or assumption
thereof, no adjustment of the Current Warrant Price shall be made until the
expiration or exercise of all rights, options or warrants, whereupon such
adjustment shall be made in the manner provided in this clause (b), but only
with respect to the shares of Common Stock actually issued pursuant thereto.
Such adjustment shall be made successively whenever any event specified above
shall occur. In the event that any or all rights, options or warrants covered
by this clause (b) are not so issued or expire or terminate before being
exercised, the Current Warrant Price then in effect shall be appropriately
readjusted.
4.3. Other Provisions Applicable to Adjustments under this Section.
The following provisions shall be applicable to the making of adjustments of
the number of shares of Common Stock for which this Warrant is exercisable and
the Current Warrant Price provided for in this Section 4:
(f) When Adjustments to Be Made. The adjustments required
by this Section 4 shall be made whenever and as often as any specified event
requiring an adjustment shall occur. For the purpose of any adjustment, any
specified event shall be deemed to have occurred at the close of business on
the date of its occurrence.
(g) Fractional Interests. In computing adjustments under
this Section 4, fractional interests in Common Stock shall be taken into
account to the nearest 1/10th of a share.
(h) When Adjustment Not Required. If the Company shall
take a record of the holders of its Common Stock for the purpose of entitling
them to receive a dividend or distribution or subscription or purchase rights
and shall, thereafter and before the distribution to stockholders thereof,
legally abandon its plan to pay or deliver such dividend, distribution,
subscription or purchase rights, then thereafter no adjustment shall be
required by reason of the taking of such record and any such adjustment
previously made in respect thereof shall be rescinded and annulled.
(i) Challenge to Good Faith Determination. Whenever the
Board of Directors of the Company shall be required to make a determination
in good faith of the fair value of any item under this Section 4, such
determination may be challenged in good faith by the Holder, and any dispute
shall be resolved by an investment banking firm of recognized national
standing selected by the Holder and reasonably acceptable to the Company.
4.4. Reorganization, Reclassification, Merger, Consolidation or
Disposition of Assets. In case the Company shall reorganize its capital,
reclassify its capital stock, consolidate or merge with or into another
corporation (where the Company is not the surviving corporation or where there
is a change in or distribution with respect to the Common Stock of the
Company), or sell, transfer or otherwise dispose of all or substantially all
its property, assets or business to another corporation and, pursuant to the
terms of such reorganization, reclassification, merger, consolidation or
disposition of assets, shares of common stock of the successor or acquiring
corporation, or any cash, shares of stock or other securities or property of
any nature whatsoever (including warrants or other subscription or purchase
rights) in addition to or in lieu of common stock of the successor or
acquiring corporation ("Other Property"), are to be received by or distributed
to the holders of Common Stock of the Company, then Holder shall have the
right thereafter to receive, upon exercise of the Warrant, the number of
shares of common stock of the successor or acquiring corporation or of the
Company, if it is the surviving corporation, and Other Property receivable
upon or as a result of such reorganization, reclassification, merger,
consolidation or disposition of assets by a holder of the number of shares of
Common Stock for which this Warrant is exercisable immediately prior to such
event. In case of any such reorganization, reclassification, merger,
consolidation or disposition of assets, the successor or acquiring corporation
(if other than the Company) shall expressly assume the due and punctual
observance and performance of each and every covenant and condition of this
Warrant to be performed and observed by the Company and all the obligations
and liabilities hereunder, subject to such modifications as may be deemed
appropriate, subject to the Holder's consent, in order to provide for
adjustments of shares of Common Stock for which this Warrant is exercisable
which shall be as nearly equivalent as practicable to the adjustments provided
for in this Section 4. For purposes of this Section 4.4, "common stock of the
successor or acquiring corporation" shall include stock of such corporation of
any class which is not preferred as to dividends or assets over any other
class of stock of such corporation and which is not subject to redemption and
shall also include any evidences of indebtedness, shares of stock or other
securities which are convertible into or exchangeable for any such stock,
either immediately or upon the arrival of a specified date or the happening of
a specified event and any warrants or other rights to subscribe for or pur-
chase any such stock. The foregoing provisions of this Section 4.4
shallsimilarly apply to successive reorganizations, reclassifications,
mergers, consolidations or disposition of assets.
4.5. Other Action Affecting Common Stock. In case at any time or
from time to time the Company shall take any action in respect of its Common
Stock, other than any action taken in the ordinary course of the Company's
business or any action described in this Section 4, which would have a
material adverse effect upon the rights of the Holder, the number of shares of
Common Stock and/or the purchase price thereof shall be adjusted in such
manner as may be equitable in the circumstances, as determined in good faith
by an investment bank selected by Holder.
4.6. Certain Limitations. Notwithstanding anything herein to the
contrary, the Company agrees not to enter into any transaction which, by
reason of any adjustment hereunder, would cause the Current Warrant Price to
be less than the par value per share of Common Stock.
4.7. No Voting Rights. This Warrant shall not entitle its Holder to
any voting rights or other rights as a shareholder of the Company.
5. NOTICES TO HOLDER
5.1. Notice of Adjustments. Whenever the number of shares of Common
Stock for which this Warrant is exercisable, or whenever the price at which a
share of such Common Stock may be purchased upon exercise of the Warrants,
shall be adjusted pursuant to Section 4, the Company shall forthwith prepare a
certificate to be executed by an executive officer of the Company setting
forth, in reasonable detail, the event requiring the adjustment and the method
by which such adjustment was calculated, specifying the number of shares of
Common Stock for which this Warrant is exercisable and (if such adjustment was
made pursuant to Section 4.4 or 4.5) describing the number and kind of any
other shares of stock or Other Property for which this Warrant is exercisable,
and any change in the purchase price or prices thereof, after giving effect to
such adjustment or change. The Company shall promptly cause a signed copy of
such certificate to be delivered to the Holder in accordance with Section
14.2. The Company shall keep at its office or agency designated pursuant to
Section 12 copies of all such certificates and cause the same to be available
for inspection at said office during normal business hours by the Holder, its
representatives, or any prospective purchaser of a Warrant designated by the
Holder.
5.2. Notice of Corporate Action. If at any time
(a) the Company shall take a record of the holders of its
Common Stock for the purpose of entitling them to receive a dividend or other
distribution, or any right to subscribe for or purchase any evidences of its
indebtedness, any shares of stock of any class or any other securities or
property, or to receive any other right, or
(b) there shall be any capital reorganization of the
Company, any reclassification or recapitalization of the capital stock of the
Company or any consolidation or merger of the Company with, or any sale,
transfer or other disposition of all or substantially all the property, assets
or business of the Company to, another corporation, or
(c) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Company;
then, in any one or more of such cases, the Company shall give to Holder
(i) at least thirty (30) Business Days' prior written notice of the date on
which a record date shall be selected for such dividend, distribution or right
or for determining rights to vote in respect of any such reorganization,
reclassification, merger, consolidation, sale, transfer, disposition,
dissolution, liquidation or winding up, and (ii) in the case of any such
reorganization, reclassification, merger, consolidation, sale, transfer,
disposition, dissolution, liquidation or winding up, at least thirty (30)
Business Days' prior written notice of the date when the same shall take
place. Such notice in accordance with the foregoing clause also shall specify
(i) the date on which any such record is to be taken for the purpose of such
dividend, distribution or right, the date on which the holders of Common Stock
shall be entitled to any such dividend, distribution or right, and the amount
and character thereof, and (ii) the date on which any such reorganization,
reclassification, merger, consolidation, sale, transfer, disposition,
dissolution, liquidation or winding up is to take place and the time, if any
such time is to be fixed, as of which the holders of Common Stock shall be
entitled to exchange their shares of Common Stock for securities or other
property deliverable upon such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, dissolution, liquidation or
winding up. Each such written notice shall be sufficiently given if addressed
to Holder at the last address of Holder appearing on the books of the Company
and delivered in accordance with Section 14.2.
6. NO IMPAIRMENT
The Company shall not by any action, including, without
limitation, amending its certificate of incorporation or through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue
or sale of securities or any other voluntary action, avoid or seek to avoid
the observance or performance of any of the terms of this Warrant, but will at
all times in good faith assist in the carrying out of all such terms and in
the taking of all such actions as may be necessary or appropriate to protect
the rights of Holder against impairment. Without limiting the generality of
the foregoing, the Company will (a) not increase the par value of any shares
of Common Stock receivable upon the exercise of this Warrant above the amount
payable therefor upon such exercise immediately prior to such increase in par
value, (b) take all such action as may be necessary or appropriate in order
that the Company may validly and legally issue fully paid and nonassessable
shares of Common Stock upon the exercise of this Warrant, and (c) use its best
efforts to obtain all such authorizations, exemptions or consents from any
public regulatory body having jurisdiction thereof as may be necessary to
enable the Company to perform its obligations under this Warrant.
Upon the request of Holder, the Company will at any time during
the period this Warrant is outstanding acknowledge in writing, in form
reasonably satisfactory to Holder, the continuing validity of this Warrant and
the obligations of the Company hereunder.
7. RESERVATION AND AUTHORIZATION OF COMMON STOCK
From and after the Initial Closing Date, the Company shall at all
times reserve and keep available for issue upon the exercise of Warrants such
number of its authorized but unissued shares of Common Stock as will be
sufficient to permit the exercise in full of all outstanding Warrants. All
shares of Common Stock which shall be so issuable, when issued upon exercise
of any Warrant and payment therefor in accordance with the terms of such
Warrant, shall be duly and validly issued and fully paid and nonassessable,
and not subject to preemptive rights.
Before taking any action which would cause an adjustment reducing
the Current Warrant Price below the then par value, if any, of the shares of
Common Stock issuable upon exercise of the Warrants, the Company shall take
any corporate action which may be necessary in order that the Company may
validly and legally issue fully paid and non-assessable shares of such Common
Stock at such adjusted Current Warrant Price.
Before taking any action which would result in an adjustment in
the number of shares of Common Stock for which this Warrant is exercisable or
in the Current Warrant Price, the Company shall obtain all such authorizations
or exemptions thereof, or consents thereto, as may be necessary from any
public regulatory body or bodies having jurisdiction thereof.
8. TAKING OF RECORD; STOCK AND WARRANT TRANSFER BOOKS
In the case of all dividends or other distributions by the Company
to the holders of its Common Stock with respect to which any provision of
Section 4 refers to the taking of a record of such holders, the Company will
in each such case take such a record as of the close of business on a Business
Day. The Company will not at any time close its stock transfer books or
Warrant transfer books so as to result in preventing or delaying the exercise
or transfer of any Warrant.
9. RESTRICTIONS ON TRANSFERABILITY
The Warrants and the Warrant Stock shall not be transferred,
hypothecated or assigned before satisfaction of the conditions specified in
this Section 9, which conditions are intended to ensure compliance with the
provisions of the Securities Act with respect to the Transfer of any Warrant
or any Warrant Stock. Holder, by acceptance of this Warrant, agrees to be
bound by the provisions of this Section 9.
9.1. Restrictive Legend. The Holder by accepting this Warrant
and any Warrant Stock agrees that this Warrant and the Warrant Stock issuable
upon exercise hereof may not be assigned or otherwise transferred unless and
until (i) the Company has received an opinion of counsel for the Holder that
such securities may be sold pursuant to an exemption from registration under
the Securities Act or (ii) a registration statement relating to such
securities has been filed by the Company and declared effective by the
Commission.
(a) Each certificate for Warrant Stock issuable hereunder shall
bear a legend substantially worded as follows unless such securities have been
sold pursuant to an effective registration statement under the Securities Act:
"The securities represented by this
certificate have not been registered under the
Securities Act of 1933, as amended (the "Act")
or any state securities laws. The securities
may not be offered for sale, sold, assigned,
offered, transferred or otherwise distributed
for value except (i) pursuant to an effective
registration statement under the Act or any
state securities laws or (ii) pursuant to an
exemption from registration or prospectus
delivery requirements under the Act or any state
securities laws in respect of which the Company
has received an opinion of counsel satisfactory
to the Company to such effect. Copies of the
agreement covering both the purchase of the
securities and restricting their transfer may be
obtained at no cost by written request made by
the holder of record of this certificate to the
Secretary of the Company at the principal
executive offices of the Company."
(b) Except as otherwise provided in this Section 9, the Warrant
shall be stamped or otherwise imprinted with a legend in substantially the
following form:
"This Warrant and the securities
represented hereby have not been registered
under the Securities Act of 1933, as amended, or
any state securities laws and may not be
transferred in violation of such Act, the rules
and regulations thereunder or any state
securities laws or the provisions of this
Warrant."
9.2. Notice of Proposed Transfers. Prior to any Transfer or
attempted Transfer of any Warrants or any shares of Restricted Common Stock,
the Holder shall give five (5) days' prior written notice (a "Transfer
Notice") to the Company of Holder's intention to effect such Transfer,
describing the manner and circumstances of the proposed Transfer, and obtain
from counsel to Holder an opinion that the proposed Transfer of such Warrants
or such Restricted Common Stock may be effected without registration under the
Securities Act or state securities laws. After the Company's receipt of the
Transfer Notice and opinion, such Holder shall thereupon be entitled to
Transfer such Warrants or such Restricted Common Stock, in accordance with the
terms of the Transfer Notice. Each certificate, if any, evidencing such
shares of Restricted Common Stock issued upon such Transfer and the Warrant
issued upon such Transfer shall bear the restrictive legends set forth in
Section 9.1, unless in the opinion of such counsel such legend is not required
in order to ensure compliance with the Securities Act.
9.3. Required Registration. Pursuant to the terms and conditions
set forth in the Registration Rights Agreement, the Company shall prepare and
file with the Commission not later than the forty-fifth (45th) day after the
Initial Closing Date, a Registration Statement relating to the offer and sale
of the Common Stock issuable upon exercise of the Warrants and shall use its
best efforts to cause the Commission to declare such Registration Statement
effective in accordance with the terms set forth in Section 2(a) of the
Registration Rights Agreement.
9.4. Termination of Restrictions. Notwithstanding the foregoing
provisions of Section 9, the restrictions imposed by this Section upon the
transferability of the Warrants, the Warrant Stock and the Restricted Common
Stock (or Common Stock issuable upon the exercise of the Warrants) and the
legend requirements of Section 9.1 shall terminate as to any particular
Warrant or share of Warrant Stock or Restricted Common Stock (or Common Stock
issuable upon the exercise of the Warrants) (i) when and so long as such
security shall have been effectively registered under the Securities Act and
applicable state securities laws and disposed of pursuant thereto or (ii) when
the Company shall have received an opinion of counsel that such shares may be
transferred without registration thereof under the Securities Act and
applicable state securities laws. Whenever the restrictions imposed by
Section 9 shall terminate as to this Warrant, as hereinabove provided, the
Holder hereof shall be entitled to receive from the Company upon written
request of the Holder, at the expense of the Company, a new Warrant bearing
the following legend in place of the restrictive legend set forth hereon:
"THE RESTRICTIONS ON TRANSFERABILITY OF
THE WITHIN WARRANT CONTAINED IN SECTION 9 HEREOF
TERMINATED ON ________, 20__, AND ARE OF NO
FURTHER FORCE AND EFFECT."
All Warrants issued upon registration of transfer, division or combination of,
or in substitution for, any Warrant or Warrants entitled to bear such legend
shall have a similar legend endorsed thereon. Whenever the restrictions
imposed by this Section shall terminate as to any share of Restricted Common
Stock, as hereinabove provided, the holder thereof shall be entitled to
receive from the Company, at the Company's expense, a new certificate
representing such Common Stock not bearing the restrictive legends set forth
in Section 9.1.
9.5. Listing on Securities Exchange. If the Company shall list any
shares of Common Stock on any securities exchange, it will, at its expense,
list thereon, maintain and, when necessary, increase such listing of, all
shares of Common Stock issued or, to the extent permissible under the
applicable securities exchange rules, issuable upon the exercise of this
Warrant so long as any shares of Common Stock shall be so listed during the
Exercise Period.
10. SUPPLYING INFORMATION
The Company shall cooperate with Holder in supplying such
information as may be reasonably necessary for Holder to complete and file any
information reporting forms presently or hereafter required by the Commission
as a condition to the availability of an exemption from the Securities Act for
the sale of any Warrant or Restricted Common Stock.
11. LOSS OR MUTILATION
Upon receipt by the Company from Holder of evidence reasonably
satisfactory to it of the ownership of and the loss, theft, destruction or
mutilation of this Warrant and indemnity reasonably satisfactory to it (it
being understood that the written agreement of the Holder shall be sufficient
indemnity), and in case of mutilation upon surrender and cancellation hereof,
the Company will execute and deliver in lieu hereof a new Warrant of like
tenor to Holder; provided, in the case of mutilation, no indemnity shall be
required if this Warrant in identifiable form is surrendered to the Company
for cancellation.
12. OFFICE OF THE COMPANY
As long as any of the Warrants remain outstanding, the Company
shall maintain an office or agency (which may be the principal executive
offices of the Company) where the Warrants may be presented for exercise,
registration of transfer, division or combination as provided in this Warrant,
such office to be initially located at 4275 Executive Square, Suite #510, La
Jolla, California 92037, fax: (858) 646-7414, provided, however, that the
Company shall provide prior written notice to Holder of a change in address no
less than thirty (30) days prior to such change.
13. LIMITATION OF LIABILITY
No provision hereof, in the absence of affirmative action by
Holder to purchase shares of Common Stock, and no enumeration herein of the
rights or privileges of Holder hereof, shall give rise to any liability of
Holder for the purchase price of any Common Stock or as a stockholder of the
Company, whether such liability is asserted by the Company or by creditors of
the Company.
14. MISCELLANEOUS
14.1. Nonwaiver and Expenses. No course of dealing or any delay
or failure to exercise any right hereunder on the part of Holder shall operate
as a waiver of such right or otherwise prejudice Holder's rights, powers or
remedies, notwithstanding all rights hereunder terminate on the Expiration
Date. If the Company fails to make, when due, any payments provided for
hereunder, or fails to comply with any other provision of this Warrant, the
Company shall pay to Holder such amounts as shall be sufficient to cover any
direct and indirect losses, damages, costs and expenses including, but not
limited to, reasonable attorneys' fees, including those of appellate
proceedings, incurred by Holder in collecting any amounts due pursuant hereto
or in otherwise enforcing any of its rights, powers or remedies hereunder.
14.2. Notice Generally. Except as may be otherwise provided
herein, any notice or other communication or delivery required or permitted
hereunder shall be in writing and shall be delivered personally or sent by
certified mail, postage prepaid, or by a nationally recognized overnight
courier service, and shall be deemed given when so delivered personally or by
overnight courier service, or, if mailed, three (3) days after the date of
deposit in the United States mails, as follows:
(a) if to the Company, to: Cybertel, Communications Corp.
4275 Executive Square, Suite #510
La Jolla, California 92037
Attention: Richard D. Mangiarelli
Tel: (800) 645-5557
Fax: (858) 646-7414
with a copy to: Leonard W. Burningham, Esq.
455 East 500 South, Suite #205
Salt Lake City, Utah 84111
Tel: (801) 363-7411
Fax: (801) 355-7126
(b) if to the Purchaser to: ADARA Investors LLC
WEC Asset Management LLC
110 Colabaugh Pond Road
Croton-on-Hudson, New York 10520
Attention: Daniel J. Saks
Tel: (914) 271-2211
Fax: (914) 271-0889
with a copy to: Pryor Cashman Sherman & Flynn LLP
410 Park Avenue
New York, New York 10022
Attention: Mark Saks, Esq.
Tel: (212) 326-0140
Fax: (212) 326-0806
The Company or the Holder may change the foregoing address by notice given
pursuant to this Section 14.2.
14.3. Indemnification. The Company agrees to indemnify and hold
harmless Holder from and against any liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, claims, costs, attorneys' fees,
expenses and disbursements of any kind which may be imposed upon, incurred by
or asserted against Holder in any manner relating to or arising out of any
failure by the Company to perform or observe in any respect any of its
covenants, agreements, undertakings or obligations set forth in this Warrant.
14.4. Remedies. Holder in addition to being entitled to
exercise all rights granted by law, including recovery of damages, will be
entitled to specific performance of its rights under this Warrant. The
Company agrees that monetary damages would not be adequate compensation for
any loss incurred by reason of a breach by it of the provisions of this
Warrant and hereby agrees to waive the defense in any action for specific
performance that a remedy at law would be adequate.
14.5. Successors and Assigns. Subject to the provisions of
Sections 3.1 and 9, this Warrant and the rights evidenced hereby shall inure
to the benefit of and be binding upon the successors of the Company and the
successors and assigns of Holder. The provisions of this Warrant are intended
to be for the benefit of all Holders from time to time of this Warrant and,
with respect to Section 9 hereof, holders of Warrant Stock, and shall be
enforceable by any such Holder or holder of Warrant Stock.
14.6. Amendment. This Warrant and all other Warrants may be
modified or amended or the provisions hereof waived only with the prior
written consent of the Company and the Holder.
14.7. Severability. Wherever possible, each provision of this
Warrant shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Warrant shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the
extent of such prohibition or invalidity, without invalidating the remainder
of such provision or the remaining provisions of this Warrant.
14.8. Headings. The headings used in this Warrant are for the
convenience of reference only and shall not, for any purpose, be deemed a part
of this Warrant.
14.9. Governing Law. This Warrant shall be governed by the laws
of the State of New York, without regard to the provisions thereof relating to
conflict of laws. The Company consents to the jurisdiction of the federal
courts whose districts encompass any part of the City of New York or the state
courts of the State of New York sitting in the City of New York in connection
with any dispute arising under this Warrant or any of the transactions
contemplated hereby, and hereby waives, to the maximum extent permitted by
law, any objection, including any objections based on forum non conveniens, to
the bringing of any such proceeding in such jurisdictions.
[Remainder of page intentionally blank, signature page follows]
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed and its corporate seal to be impressed hereon and attested by its
Secretary or an Assistant Secretary.
Dated: February 15, 2000
CYBERTEL, COMMUNICATIONS CORP.
By:/s/ Richard D. Mangiarelli
-----------------------------
Name: Richard D. Mangiarelli
Title: President
Attest:
By:/s/ Paul J. Mills
------------------------
Name: Paul J. Mills
Title: Secretary
<PAGE>
EXHIBIT A
SUBSCRIPTION FORM
[To be executed only upon exercise of Warrant]
The undersigned registered owner of this Warrant irrevocably exercises this
Warrant for the purchase of ------ Shares of Common Stock of Cybertel,
Communications Corp., and herewith makes payment therefor in cash or by check
or bank draft made payable to the Company, all at the price and on the terms
and conditions specified in this Warrant and requests that certificates for
the shares of Common Stock hereby purchased (and any securities or other
property issuable upon such exercise) be issued in the name of and delivered
to ------------- whose address is ----------------- and, if such shares of
Common Stock shall not include all of the shares of Common Stock issuable as
provided in this Warrant, that a new Warrant of like tenor and date for the
balance of the shares of Common Stock issuable hereunder be delivered to the
undersigned.
-------------------------------
(Name of Registered Owner)
-------------------------------
(Signature of Registered Owner)
-------------------------------
(Street Address)
-------------------------------
(City) (State) (Zip Code)
NOTICE: The signature on this subscription must correspond with the
name as written upon the face of the within Warrant in every particular,
without alteration or enlargement or any change whatsoever.
<PAGE>
EXHIBIT B
ASSIGNMENT FORM
FOR VALUE RECEIVED the undersigned registered owner of this
Warrant hereby sells, assigns and transfers unto the Assignee named below all
of the rights of the undersigned under this Warrant, with respect to the
number of shares of Common Stock set forth below:
Name and Address of Assignee No. of Shares of
Common Stock
and does hereby irrevocably constitute and appoint ---------
- ---------------- attorney-in-fact to register such transfer on the books of
Cybertel, Communications Corp., maintained for the purpose, with full power of
substitution in the premises.
Dated:------------------ Print Name:-------------------
Signature:--------------------
Witness:----------------------
NOTICE: The signature on this assignment must correspond with the
name as written upon the face of the within Warrant in every particular,
without alteration or enlargement or any change whatsoever.
<PAGE>
EXHIBIT C
THE WARRANT REPRESENTED BY THIS CERTIFICATE AND THE SECURITIES ISSUABLE UPON
EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), AND MAY NOT BE OFFERED OR SOLD EXCEPT (i) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, (ii) TO THE EXTENT APPLICABLE,
PURSUANT TO RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT
RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) UPON THE DELIVERY BY THE
HOLDER HEREOF TO THE COMPANY OF AN OPINION OF COUNSEL STATING THAT AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS THEN AVAILABLE.
CYBERTEL, COMMUNICATIONS CORP.
SUPPLEMENTAL WARRANT TO PURCHASE 6%
CONVERTIBLE SERIES A PREFERRED STOCK
AND WARRANTS TO PURCHASE COMMON STOCK
The Transferability of this Supplemental Warrant
Is Restricted as Provided in Section 2.
Void after November 15, 2000 Right to Purchase 2,000 Shares of Convertible
Series A Preferred Stock and Warrants to
Purchase 150,000 Shares of Common Stock
PREAMBLE
CYBERTEL, COMMUNICATIONS CORP. (the "Company"), a Nevada corporation,
hereby certifies that, for value received, ADARA INVESTORS LLC, whose address
is One World Trade Center, Suite 4563, New York, New York 10048, or its
registered assigns (hereinafter, the "Registered Holder"), is, subject to the
terms set forth herein, entitled to purchase from the Company at any time or
from time to time before 5:00 P.M. New York time, on the date nine (9) months
from the date hereof (such time, the "Expiration Time"), up to (i) two
thousand (2,000) fully paid and non-assessable shares of the Company's
Convertible Series A Preferred Stock with such terms as set forth in the
Certificate of Designations substantially in the form of Exhibit A to the
Securities Purchase Agreement (as defined below), par value $.001 per share,
stated value one thousand dollars ($1,000) per share (the "Series A Preferred
Stock") at the purchase price per share of one thousand ($1,000) and (ii)
warrants (the "Stock Purchase Warrants") to purchase seventy-five thousand
(75,000) shares of common stock, par value $.001 per share (the "Common
Stock") for each one thousand (1,000) shares of Series A Preferred Stock
purchased hereunder. For purposes of this Supplemental Warrant the aggregate
price paid by the Registered Holder for the Series A Preferred Stock and the
Warrants, as applicable, is referred to herein as the "Purchase Price".
Subject to the terms set forth herein from time to time beginning ninety
(90) days after the date on which the registration statement covering the
Securities is declared effective by the Commission and ending at the
Expiration Time at the election of the Company upon delivery of a Supplemental
Exercise Notice to the Registered Holder, the Registered Holder shall at any
time or from time to time before the Expiration Time be required to exercise
this Warrant and purchase up to two thousand (2,000) shares of Series A
Preferred Stock and Stock Purchase Warrants to purchase up to one hundred
fifty thousand (150,000) shares of Common Stock (minus any such shares of
Series A Preferred Stock and Stock Purchase Warrants previously purchased
hereunder), at the Purchase Price; provided, that, the Registered Holder shall
not be required to exercise and purchase any such shares if at any time from
and after the delivery to the Registered Holder of the Supplemental Exercise
Notice through the Supplemental Closing Date (the "Interim Period") any of the
Closing Conditions (as defined below) shall not have been satisfied.
This Warrant is the Supplemental Warrant (the "Supplemental Warrant") to
purchase up to two thousand (2,000) shares of Series A Preferred Stock and
Stock Purchase Warrants to purchase up to one hundred fifty thousand (150,000)
shares of Common Stock issued pursuant to the Securities Purchase Agreement
(the "Securities Purchase Agreement"), dated as of February 15, 2000, by and
between the Company and ADARA Investors LLC. The Securities Purchase
Agreement contains certain additional terms that are binding upon the Company
and each Registered Holder of this Supplemental Warrant. A copy of the
Securities Purchase Agreement, including the Exhibits thereto, may be obtained
by any Registered Holder of the Supplemental Warrant from the Company upon
written request. Capitalized terms used but not defined herein shall have the
meanings set forth in the Securities Purchase Agreement, including the
Exhibits thereto.
As used herein the following terms, unless the context otherwise
requires, have the following respective meanings:
(a) The term "Company" includes any corporation which shall succeed to
or assume the obligations of the Company hereunder.
(b) The term "Common Stock" includes all shares of any class or classes
(however designated) of the Company, authorized on or after the date hereof,
the holders of which shall have the right, without limitation as to amount,
either to all or to a share of the balance of current dividends and
liquidating dividends after the payment of dividends and distributions on any
shares entitled to preference, and the holders of which shall ordinarily be
entitled to vote for the election of directors of the Company (even though the
right so to vote has been suspended by the happening of a contingency).
(c) The term the "Supplemental Exercise Notice" shall mean a written
notice delivered not less than ten (10) business days nor more than twenty
(20) business days prior to the Supplemental Closing Date which sets forth the
number of shares of Series A Preferred Stock and the number of shares of
Common Stock purchasable pursuant to the Stock Purchase Warrant.
(d) The term the "Supplemental Closing Date" shall mean the date
specified in a duly delivered Supplemental Exercise Notice.
(e) The term "Major Transaction" shall be deemed to have occurred at
such time as any of the following events: (i) the consolidation, merger or
other business combination of the Company with or into another person (other
than (A) pursuant to migratory merger effected solely for the purpose of
changing the jurisdiction of incorporation of the Company, or (B) a
consolidation, merger or other business combination in which the Company is
the surviving entity and holders of the Company's voting power immediately
prior to the transaction continue after the transaction to hold, directly or
indirectly, the voting power necessary to elect a majority of the members of
the board of directors of the Company); (ii) the sale or transfer of all or
substantially all of the Company's assets; or (iii) consummation of a
purchase, tender or exchange offer made to the holders of more than thirty
percent (30%) of the outstanding shares of Common Stock.
(f) The term "Material Adverse Change" means any change, event, result
or happening involving, directly or indirectly, the Company or any of its
subsidiaries resulting in a material adverse effect on the business, financial
condition or results of operations of the Company and its subsidiaries, taken
as a whole.
(g) The term "Other Securities" refers to any class of shares (other
than Common Stock) and other securities of the Company or any other person
(corporate or otherwise) which the holder of this Supplemental Warrant at any
time shall be entitled to receive, or shall have received, upon the exercise
of the Supplemental Warrant, in lieu of or in addition to the shares of Series
A Preferred Stock and Stock Purchase Warrants, or which at any time shall be
issuable or shall have been issued in exchange for or in replacement of the
Series A Preferred Stock or Stock Purchase Warrants or Other Securities.
(h) The term "Triggering Event" shall be deemed to have occurred at
such time as any of the following events: (i) the failure of the Initial
Registration Statement to be declared effective by the Securities and Exchange
Commission on or prior to the Effectiveness Deadline; (ii) while the Initial
Registration Statement is required to be maintained effective pursuant to the
terms of the Registration Rights Agreement, the effectiveness of the Initial
Registration Statement lapses for any reason (including, without limitation,
the issuance of a stop order) or is unavailable to the holder of the Series A
Preferred Stock for sale of the Registrable Securities (as defined in the
Registration Rights Agreement) in accordance with the terms of the
Registration Rights Agreement, and such lapse or unavailability continues for
a period of five (5) consecutive trading days, provided that the cause of such
lapse or unavailability is not due to factors solely within the control of
such holders of Registrable Securities; (iii) the suspension from listing or
the failure of the Common Stock to be listed on the OTC Bulletin Board, the
Nasdaq SmallCap Market, the Nasdaq National Market, The New York Stock
Exchange, Inc. or The American Stock Exchange, Inc. for a period of five (5)
consecutive days; (iv) the Company's notice to any holder of Series A
Preferred Stock, including by way of public announcement, at any time, of its
intention not to comply with proper requests for conversion of Series A
Preferred Stock into shares of Common Stock; (v) if the Closing Bid Price (as
defined in Section G of Exhibit A to the Securities Purchase Agreement) for
the Common Stock shall be less than eight dollars ($8.00) per share at any
time during the Interim Period; (vi) the Company's stockholders shall not have
authorized and approved the transactions contemplated by the Securities
Purchase Agreement and this Warrant in accordance with applicable law; (vii) a
material breach by the Company of any representation, warranty, covenant or
other term or condition of the Securities Purchase Agreement, the Registration
Rights Agreement, this Supplemental Warrant or any other agreement, document,
certificate or other instrument delivered in connection with the transactions
contemplated thereby or hereby; (viii) if the average daily trading volume of
the Common Stock on the OTC Bulletin Board, the Nasdaq SmallCap Market, the
Nasdaq National Market, The New York Stock Exchange, Inc. or The American
Stock Exchange, Inc., as applicable, is less than thirty thousand (30,000)
shares per day during the thirty (30) trading days prior to the Supplemental
Closing Date; or (ix) if Richard D. Mangiarelli is no longer employed by the
Company in the position which he served the Company on the Initial Closing
Date.
1. Registration Rights.
The rights of the holder of this Supplemental Warrant to register the
shares of Common Stock issuable upon conversion of the shares of Series A
Preferred Stock purchasable hereunder and the shares of Common Stock issuable
upon exercise of the Stock Purchase Warrants purchasable hereunder shall be as
stated in the Registration Rights Agreement, which agreement is Exhibit D to
the Securities Purchase Agreement.
2. Restricted Stock.
If, at the time of any transfer or exchange of this Supplemental Warrant
or any shares of Series A Preferred Stock or Stock Purchase Warrants issuable
upon exercise of this Supplemental Warrant (other than a transfer or exchange
not involving a change in the beneficial ownership of this Supplemental
Warrant or any shares of Series A Preferred Stock or Stock Purchase Warrants,
as applicable), such Supplemental Warrant, such shares of Series A Preferred
Stock or such Stock Purchase Warrants shall not be registered under the
Securities Act, and the Company's obligation to transfer such Supplemental
Warrant, such shares of Series A Preferred Stock or such Stock Purchase
Warrants shall be subject to the provisions of Section 4 of the Securities
Purchase Agreement.
3. Exercise of Warrant and Issuance of Shares of Series A Preferred Stock
and Stock Purchase Warrants.
3.1. Exercise in Full. The holder of this Supplemental Warrant shall
on the Supplemental Closing Date, provided the Supplemental Exercise Notice is
given and the Closing Conditions are satisfied as required below, exercise
this Supplemental Warrant in full by surrendering this Supplemental Warrant,
with the form of Election to Purchase at the end hereof duly executed by such
holder, to the Company in the manner set forth in Section 10 of the Securities
Purchase Agreement; provided, that, in no event shall this Supplemental
Warrant be exercised after the Expiration Time. The surrendered Supplemental
Warrant shall be accompanied by payment, in cash or by certified or official
bank check payable to the order of the Company, in the amount equal to two
million dollars ($2,000,000).
3.2. Partial Exercise. The holder of this Supplemental Warrant shall
exercise this Supplemental Warrant in part on any Supplemental Closing Date as
set forth by the Company in the Supplemental Exercise Notice, in each case by
surrender of this Supplemental Warrant in the manner provided in Subsection
3.1, except that the exercise price shall be calculated by multiplying (a) the
number of shares of Series A Preferred Stock as shall be designated by the
holder or the Company, as applicable, in the subscription at the end hereof by
(b) one thousand dollars ($1,000) per share of Series A Preferred Stock and,
provided, that, in no event shall this Supplemental Warrant be exercised after
the Expiration Time. On any such partial exercise, subject to the provisions
of Section 2 hereof, the Company, at its expense, will forthwith issue and
deliver to or upon the order of the Registered Holder hereof a new
Supplemental Warrant or Supplemental Warrants of like tenor, in the name of
the Registered Holder hereof or as such Registered Holder may request, calling
in the aggregate on the face or faces thereof for the number shares of Series
A Preferred Stock and Stock Purchase Warrants equal to the number of shares of
Series A Preferred Stock and Stock Purchase Warrants called for on the face of
this Supplemental Warrant minus the number of such shares designated by the
Registered Holder in the applicable Election to Purchase.
3.3. Company Acknowledgment. The Company will, at the time of the
exercise, exchange or transfer of this Supplemental Warrant, upon the request
of the Registered Holder hereof, acknowledge in writing its continuing
obligation to afford to such Registered Holder or transferee any rights
(including, without limitation, any right to registration of the Company's
shares of Common Stock) to which such Registered Holder or transferee shall
continue to be entitled after such exercise, exchange or transfer in
accordance with the provisions of this Supplemental Warrant, provided that if
the Registered Holder of this Supplemental Warrant shall fail to make any such
request, such failure shall not affect the continuing obligation of the
Company to afford to such Registered Holder or transferee any such rights.
3.4. Supplemental Warrant to Purchase Common Stock. Within three (3)
Business Days of any exercise of this Supplemental Warrant, the Company shall
issue to the Registered Holder a Stock Purchase Warrant substantially in the
form of Exhibit B to the Securities Purchase Agreement to purchase such number
of shares of Common Stock as shall equal the product of (x) .075 and (y) the
Purchase Price paid by the Registered Holder pursuant to any exercise of this
Supplemental Warrant.
4. Delivery of Share Certificates upon Exercise. Following the exercise of
this Supplemental Warrant in full or in part, within the time periods and in
the manner provided by Section 5(b) of the Securities Purchase Agreement, the
Company, at its expense (including the payment by it of any applicable issue
taxes), will cause to be issued in the name of and delivered to the Registered
Holder hereof, or as such Registered Holder (upon payment by such Registered
Holder of any applicable transfer taxes) may direct, a certificate or
certificates for the number of fully paid and nonassessable shares of Series A
Preferred Stock to which such Registered Holder shall be entitled on such
exercise.
5. Closing Conditions. Notwithstanding anything herein to the contrary, the
Company shall not be permitted to deliver a Supplemental Exercise Notice, nor
shall the Registered Holder be required to exercise and purchase on a
Supplemental Closing Date any shares of Series A Preferred Stock and Stock
Purchase Warrants unless in either case each of the following conditions is
satisfied: (i) the Initial Registration Statement shall have been declared
effective and shall remain effective for a period of at least ninety (90) days
and at all times during the applicable Interim Period; (ii) the Closing Bid
Price (as defined in Section G of Exhibit A to the Securities Purchase
Agreement) for the Common Stock shall not be less than eight dollars ($8.00)
per share; (iii) during the period beginning on the original issue date of
this Supplemental Warrant and ending on and including the applicable
Supplemental Closing Date, there shall not have occurred (A) a public
announcement of a Major Corporate Event which has not been abandoned or
terminated, (B) a Triggering Event or (C) a Material Adverse Change; (iv) at
all times during the period beginning on the original issue date of this
Supplemental Warrant and ending on and including the applicable Supplemental
Closing Date, the Common Stock shall have been designated on the NASDAQ OTC
Bulletin Board, the Nasdaq SmallCap Market or National Market System and shall
not have been suspended from trading thereon and the Company shall not have
been notified of any pending or threatened proceeding or other action to
delist or suspend the Common Stock from so trading; (v) the Company's Articles
of Incorporation as amended pursuant to the Articles of Amendment filed
pursuant to the Securities Purchase Agreement shall be in full force and
effect and shall not have been amended since the original issue date of this
Supplemental Warrant; (vi) the representations and warranties of the Company
in the Securities Purchase Agreement shall be true and correct as of the date
when made and as of the applicable Supplemental Closing Date as though made at
that time (except for representations and Supplemental Warranties that speak
as of a specific date) and the Company shall have performed, satisfied and
complied with the covenants, agreements and conditions required by the Primary
Documents to be performed, satisfied or complied with by the Company at or
prior to the applicable Supplemental Closing Date (and the Registered Holder
of this Supplemental Warrant shall have received a certificate, executed by
the Chief Executive Officer of the Company, dated as of the applicable
Supplemental Closing Date, to the foregoing effect and as to such other
matters as may be reasonably requested by such holder); and (vii) as of the
applicable Supplemental Closing Date, the Company shall have reserved out of
its authorized and unissued Common Stock, the sum of (i) two (2) times the sum
of (x) maximum number of shares of Common Stock that could be issuable upon
the conversion of the Initial Shares and (y) the maximum number that could be
issuable upon conversion of the Additional Shares and (ii) the sum of the
number of shares of Common Stock issuable upon exercise in full of the Initial
Warrants and the Additional Warrant, in each case without regard to whether
the Supplemental Warrant shall have been exercised solely for the purpose of
effecting the conversion of Series A Preferred Stock and Exercise of the Stock
Purchase Warrants, as applicable.
6. No Dilution or Impairment. The Company will not, by amendment of its
Articles of Incorporation or By-laws, or through any reorganization, transfer
of assets, consolidation, merger, dissolution, issue or sale of securities or
any other voluntary action, avoid or seek to avoid the observance or
performance of any of the terms of the Supplemental Warrant, but will at all
times in good faith assist in the carrying out of all such terms and in the
taking of all such action as may be necessary or appropriate in order to
protect the rights of the holders of the Supplemental Warrants, as specified
herein and in the Securities Purchase Agreement, against dilution or other
impairment. Without limiting the generality of the foregoing, the Company (a)
will not increase the par value of any Shares receivable on the exercise of
the Supplemental Warrant above the amount payable therefor on such exercise,
and (b) will not effect a subdivision or split up of shares or similar
transaction with respect to any class of the Common Stock without effecting an
equivalent transaction with respect to all other classes of Common Stock.
7. Notice of Record Date. In case of
(a) any taking by the Company of a record of the holders of any
class of its securities for the purpose of determining the holders thereof who
are entitled to receive any dividend or other distribution, or any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class
or any other securities or property, or to receive any other right, or
(b) any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the Company or
any transfer of all or substantially all the assets of the Company to or
consolidation or merger of the Company with or any voluntary or involuntary
dissolution, liquidation or winding up of the Company, or
(c) events shall have occurred resulting in the voluntary or
involuntary dissolution, liquidation or winding up of the Company, then and in
each such event the Company will mail or cause to be mailed to each holder of
a Supplemental Warrant a notice specifying (i) the date on which any record is
to be taken for the purpose of any such dividend, distribution or right, and
stating the amount and character of such dividend, distribution or right, (ii)
the date on which any such reorganization, reclassification, recapitalization,
transfer, consolidation, merger, dissolution, liquidation or winding up is to
take place, and the time, if any is to be fixed, as of which the holders of
record of Common Stock (or Other Securities) shall be entitled to exchange
their Common Stock (or Other Securities) for securities or other property
deliverable on such reorganization, reclassification, recapitalization,
transfer, consolidation, merger, dissolution, liquidation or winding up, and
(iii) the amount and character of any stock or other securities, or rights or
options with respect thereto, proposed to be issued or granted, the date of
such proposed issue or grant and the persons or class of persons to whom such
proposed issue or grant is to be offered or made. Such notice shall be mailed
at least thirty (30) days prior to the date specified in such notice on which
any such action is to be taken.
8. Exchange of Supplemental Warrants. On surrender for exchange of any
Supplemental Warrant, properly endorsed, to the Company, the Company, at its
expense, will issue and deliver to or (subject to Section 2) on the order of
the holder thereof a new Supplemental Warrant or Supplemental Warrants of like
tenor, in the name of such holder or as such holder may direct, calling in the
aggregate on the face or faces thereof for the number of Series A Preferred
Stock and Stock Purchase Warrants called for on the face or faces of the
Supplemental Warrant or Supplemental Warrants so surrendered.
9. Replacement of Supplemental Warrants. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
any Supplemental Warrant and, in the case of any such loss, theft or
destruction of any Supplemental Warrant, on delivery of an indemnity agreement
or security reasonably satisfactory in form and amount to the Company or, in
the case of any such mutilation, on surrender and cancellation of such
Supplemental Warrant, the Company, at its expense, will execute and deliver,
in lieu thereof, a new Supplemental Warrant of like tenor.
10. Supplemental Warrant Agent. The Company may, by written notice to each
holder of a Supplemental Warrant, appoint an agent having an office in New
York, New York, for the purpose of issuing Series A Preferred Stock and Stock
Purchase Warrants on the exercise of the Supplemental Warrants pursuant to
Section 3, exchanging Supplemental Warrants pursuant to Section 8, and
replacing Supplemental Warrants pursuant to Section 9, or any of the
foregoing, and thereafter any such issuance, exchange or replacement, as the
case may be, shall be made at such office by such agent.
11. Remedies. The Company stipulates that the remedies at law of the holder
of this Supplemental Warrant in the event of any default or threatened default
by the Company in the performance of or compliance with any of the terms of
this Supplemental Warrant are not and will not be adequate, and that such
terms may be specifically enforced by a decree for the specific performance of
any agreement contained herein or by an injunction against a violation of any
of the terms hereof or otherwise.
12. Negotiability, Etc. This Supplemental Warrant is issued upon the
following terms, to all of which each Registered Holder or owner hereof by the
taking hereof consents and agrees:
(a) subject to the terms of Section 4 of the Securities Purchase
Agreement, title to this Supplemental Warrant may be transferred by
endorsement (by the Registered Holder hereof executing the form of assignment
at the end hereof) and delivery in the same manner as in the case of a
negotiable instrument transferable by endorsement and delivery;
(b) any person in possession of this Supplemental Warrant
properly endorsed is authorized to represent himself as absolute owner hereof
and is empowered to transfer absolute title hereto by endorsement and delivery
hereof to a bona fide purchaser hereof for value; each prior taker or owner
waives and renounces all of his equities or rights in this Supplemental
Warrant in favor of each such bona fide purchaser, and each such bona fide
purchaser shall acquire absolute title hereto and to all rights represented
hereby; and
(c) until this Supplemental Warrant is transferred on the books
of the Company, the Company may treat the Registered Holder hereof as the
absolute owner hereof for all purposes, notwithstanding any notice to the
contrary.
13. Notices. All notices and other communications from the Company to the
Registered Holder of this Supplemental Warrant shall be given in writing
(unless otherwise specified herein) and shall be effective upon personal
delivery, via facsimile (upon receipt of confirmation of error-free
transmission and mailing a copy of such confirmation postage prepaid by
certified mail return receipt requested) or two business days following
deposit of such notice with an internationally recognized courier service,
with postage prepaid and addressed, to such address as may have been furnished
to the Company in writing by such Registered Holder or, until any such
Registered Holder furnishes to the Company an address, then to, and at the
address of, the last Registered Holder of this Supplemental Warrant who has so
furnished an address to the Company.
14. Miscellaneous. This Supplemental Warrant and any term hereof may be
changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of such change, waiver,
discharge or termination is sought. This Supplemental Warrant is being
delivered in the State of New York and, except for provisions with respect to
internal corporate matters of the Company which shall be governed by the
corporate laws of the State of Nevada, shall be construed and enforced in
accordance with and governed by the laws of the State of New York, without
regard to principles of conflict of laws. Each of the parties consents to the
jurisdiction of the federal courts whose districts encompass any part of the
City of New York or the state courts of the State of New York sitting in the
City of New York in connection with any dispute arising under this Agreement
or any of the transactions contemplated hereby, and hereby waives, to the
maximum extent permitted by law, any objection, including any objections based
on forum non conveniens, to the bringing of any such proceeding in such
jurisdictions. The headings in this Supplemental Warrant are for purposes of
reference only, and shall not limit or otherwise affect any of the terms
hereof. All nouns and pronouns used herein shall be deemed to refer to the
masculine, feminine or neuter, as the identity of the person or persons to
whom reference is made herein may require.
[Remainder of Page Intentionally Blank, Signature Page Follows]
IN WITNESS WHEREOF, the undersigned have executed this Supplemental
Warrant as of February 15, 2000.
CYBERTEL, COMMUNICATIONS CORP.
By: /s/ Richard D. Mangiarelli
---------------------------
Name: Richard D. Mangiarelli
Title: President
ACKNOWLEDGED AND AGREED:
ADARA Investors LLC
By: WEC ASSET MANAGEMENT LLC, Manager
By: /s/ Daniel J. Saks
--------------------------
Name: Daniel J. Saks
Title: Managing Director
<PAGE>
Annex A
FORM OF ELECTION TO PURCHASE
The undersigned hereby irrevocably elects to exercise the right,
represented by this Supplemental Warrant, to purchase [-----] shares of Series
A Preferred Stock and Stock Purchase Warrants to purchase [----] shares of
Common Stock and herewith tenders in payment for such securities a certified
or official bank check payable in immediately available U.S. dollars to the
order of CYBERTEL, COMMUNICATIONS CORP., in the amount of [$--------], all in
accordance with the terms hereof. The undersigned requests that a certificate
for such shares of Series A Preferred Stock and Stock Purchase Warrants be
registered in the name of -------------------------, whose address is
- --------------------------------- and that such stock certificates and
warrants be delivered to ----------------------------,whose address is
- ----------------------
Dated:
Name:
----------------------------------------
Signature:
------------------------------------
(Signature must conform in all respects to the name of the Registered
Holder, as specified on the face of the Supplemental Warrant.)
--------------------------------
(Insert Social Security or Other
Identifying Number of Holder)
<PAGE>
Annex B
FORM OF ASSIGNMENT
(To be executed by the Registered Holder if such Holder desires to transfer
the Supplemental Warrant.)
FOR VALUE RECEIVED, -------------------
hereby sells, assigns and transfers unto
- ------------------------------------
(Please print name and address of transferee)
this Supplemental Warrant, together with all right, title and interest
therein, and does so hereby irrevocably constitute and appoint
- --------------------- Attorney, to transfer the within Supplemental Warrant on
the books of the within-named Company, with full power of substitution.
Dated:
Name:
----------------------------------------
Signature:
-----------------------------------
(Signature must conform in all respects to the name of the Registered
Holder, as specified on the face of the Supplemental Warrant.)
--------------------------------
(Insert Social Security or Other
Identifying Number of Assignee)
<PAGE>
EXHIBIT D
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of February 15, 2000 (this
"Agreement"), is made by and between CYBERTEL, COMMUNICATIONS CORP., a Nevada
corporation (the "Company") and ADARA INVESTORS LLC, a Delaware limited
liability company (the "Purchaser").
W I T N E S S E T H:
WHEREAS, pursuant to a Securities Purchase Agreement, dated as of the
date hereof among the Purchaser and the Company (the "Securities Purchase
Agreement"), the Company has agreed to issue and sell to the Purchaser, (i)
three thousand (3,000) shares (the "Initial Shares") of the Company's 6%
Convertible Series A Preferred Stock, stated value $1,000 per share (the
"Preferred Stock"), (ii) a warrant (the "Initial Warrant") to purchase two
hundred twenty-five thousand (225,000) shares of the common stock par value
$.001 per share of the Company (the "Common Stock") and (iii) a Supplemental
Warrant to purchase up to an additional two thousand (2,000) shares of
Preferred Stock (the "Additional Shares" and together with the Initial Shares,
collectively, the "Preferred Shares") and warrants to purchase up to one
hundred fifty thousand (150,000) shares of Common Stock (the "Additional
Warrant" and together with the Initial Warrant, collectively, the "Warrants");
WHEREAS, pursuant to the terms of the Preferred Shares and the Warrants,
(i) upon the conversion of the Preferred Shares, (ii) in lieu of dividend
payments on the Preferred Shares and (iii) upon exercise of the Warrants, the
Company will issue to the Purchaser shares of Common Stock (such shares are
referred to herein as the "Shares"); and
WHEREAS, to induce the Purchaser to execute and deliver the Securities
Purchase Agreement, the Company has agreed to provide certain registration
rights under the Securities Act of 1933, as amended (the "Securities Act"),
and applicable state securities laws.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and the
Purchaser hereby agree as follows:
1. Definitions.
(a) As used in this Agreement, the following terms shall have
the following meanings:
(i) "Effectiveness Deadline" shall have the meaning set
forth in section 2(a)(i) hereof.
(ii) "Filing Deadline" shall have the meaning set forth in
Section 2(a)(i) hereof.
(iii) "Initial Registration Statement" means a registration
statement or registration statements of the Company filed under the Securities
Act covering Registrable Securities relating to the Initial Shares and the
Additional Shares and, if applicable, the Series A Preferred Stock.
(iv) "Purchase Price" means the aggregate purchase price
paid by the Purchaser for the Initial Shares, the Additional Shares, the
Supplemental Warrant and the Warrants.
(v) "Register," "Registered," and "Registration" refer to
a registration effected by preparing and filing a Registration Statement or
Statements in compliance with the Securities Act and pursuant to Rule 415
under the Securities Act or any successor rule providing for offering
securities on a continuous basis ("Rule 415"), and the declaration or ordering
of effectiveness of such Registration Statement by the United States
Securities and Exchange Commission (the "Commission").
(vi) "Registrable Securities" means the Shares and the
Warrants.
(vii) "Registration Statement" means the Initial
Registration Statement and the Warrant Registration Statement.
(viii) "Warrant Registration Statement" means a
registration statement or registration statements of the Company filed under
the Securities Act covering Registrable Securities relating to the Warrants.
Capitalized terms used herein and not otherwise defined herein shall
have the meanings set-forth in the Securities Purchase Agreement.
2. Registration.
a. Mandatory Registrations.
(i) Initial Registration Statement. The Company shall prepare, and, as soon
as practicable but in no event later than forty-five (45) days after the
Initial Closing Date (as defined in the Securities Purchase Agreement) (the
"Filing Deadline"), file with the Commission an Initial Registration Statement
or Initial Registration Statements (as necessary) on Form SB-2, covering the
resale of all of the Registrable Securities. In the event that Form SB-2 is
unavailable for such a registration, the Company shall use such other form as
is available for such a registration. Any Initial Registration Statement
prepared pursuant hereto shall register for resale at least that number of
shares of Common Stock equal to the product of (x) two and, (y) the sum of (i)
the maximum number of Shares that are issuable upon conversion of the Initial
Shares and the Additional Shares on the date of filing, and (ii) the maximum
number of Shares issuable upon exercise of the Warrants, in each case, without
regard to any limitation on any holder's ability to convert any of the
Warrants or the Preferred Shares and without regard to whether any or all of
such Preferred Shares or Warrants have been issued to Purchaser (on the date
calculated, the "Minimum Conversion Amount"). Such Registration Statement
shall state that, in accordance with Rule 416 under the Securities Act, it
also covers such indeterminate number of additional Shares as may become
issuable upon conversion of such Preferred Shares or exercise of such Warrants
(i) resulting from any adjustment in the applicable Conversion Price of such
Preferred Shares or the Exercise Price of such Warrants or (ii) to prevent
dilution resulting from stock splits or stock dividends. If at any time the
Minimum Conversion Amount exceeds the total number of Shares so registered,
the Company shall, within five (5) business days after receipt of a written
notice from the Purchaser, either (i) amend the Registration Statement or
Registration Statements filed by the Company pursuant to the preceding
sentence, if such Registration Statement has not been declared effective by
the Commission at that time, to register all of the Shares into which the
Initial Shares, the Additional Shares and the Warrants may be converted or
exercised, as applicable, or (ii) if such Registration Statement has been
declared effective by the Commission at that time, file with the Commission an
additional Registration Statement on Form SB-2, or such other appropriate
form, to register the number of shares of Common Stock into which the Initial
Shares, Additional Shares, and Warrants may be converted or exercised, as
applicable, that exceed the number of Shares already registered. The Company
shall use its best efforts to have the Initial Registration Statement declared
effective within the earliest to occur of (i) ninety (90) days following the
Initial Closing Date or (ii) if the Commission elects not to conduct a review
of the Initial Registration Statement, the date which is three (3) business
days after the date upon which either the Company or its counsel is so
notified, whether orally or in writing. The earliest of such dates is referred
to herein as the "Required Effective Date." Notwithstanding the use of the
terms "Required Filing Date" and "Required Effective Date" herein, the Company
shall at all times use its best efforts to file each required Registration
Statement or amendment to a Registration Statement as soon as possible after
the Closing Date or after the date the Company becomes obligated to file such
Registration Statement or amendment, as the case may be, and to cause each
such Registration Statement or amendment to become effective as soon as
possible thereafter. No securities of the Company other than the Registrable
Securities shall be included in any such Registration Statement.
(ii) The Company shall keep each Registration Statement
effective pursuant to Rule 415 at all times until such date as is the earlier
of (i) the date on which all of the Registrable Securities have been sold,
(ii) the date on which the Registrable Securities (in the opinion of counsel
to the Purchaser) may be immediately sold without restriction (including
without limitation as to volume by each holder thereof) without registration
under the Securities Act and (iii) the date which is twenty four (24) months
following the date on which the Registration Statement was declared effective
(the "Registration Period").
(b) Payments by the Company.
(i) (A) If the Registration Statement covering the
Registrable Securities is not filed in proper form with the Commission on or
prior to the Filing Deadline, (B) if the Registration Statement covering the
Registrable Securities is not effective on or prior to the Effectiveness
Deadline, (C) if the number of Shares listed for trading on the OTC Bulletin
Board or the NASDAQ SmallCap Stock Market, as applicable, or reserved by the
Company for issuance shall be insufficient, for any period of five (5)
consecutive days at any time after the Effectiveness Deadline, for issuance
upon the conversion of the Initial Shares, the Additional Shares and the
exercise of the Warrants, or (D) upon the occurrence of a Blackout Event (as
described in Section 3(f) or Section 3(g) below), for any period of five (5)
consecutive days at any time after the Effectiveness Deadline (each of the
events described in clauses (A) through (D) of this paragraph are referred to
herein as a "Registration Default"), the Company will make payments to the
Purchaser in such amounts and at such times as shall be determined pursuant to
this Section 2(b).
(ii) The amount (the "Periodic Amount") to be paid by the
Company to the Purchaser as of each thirty (30) day period during which a
Registration Default shall be in effect (each such period, a "Default Period")
shall be equal to two percent (2%) of the Purchase Price; provided that, with
respect to any Default Period during which the relevant Registration Defaults
shall have been cured, the Periodic Amount shall be pro rated for the number
of days during such period during which the Registration Defaults were
pending; and provided, however, that the payment of such Periodic Amounts
shall not relieve the Company from its continuing obligations to register the
Warrants and Shares pursuant to Section 2(a).
(iii) Each Periodic Amount shall be payable by the Company
in cash or other immediately available funds to the Purchaser monthly, without
demand therefor by the Purchaser.
(iv) The parties acknowledge that the damages which may be
incurred by the Purchaser if the Registration Statement is not filed by the
Filing Deadline, if the Registration Statement has not been declared effective
by the Effectiveness Deadline, or if the provisions of Section 3(e) or 3(f)
become applicable, may be difficult to ascertain. The parties agree that the
Periodic Amount represents a reasonable estimate on the part of the parties,
as of the date of this Agreement, of the amount of such damages.
(c) Piggyback Registration. (i) If at any time or from time to
time, the Company shall determine to register any of its securities, for its
own account or the account of any of its shareholders, other than a
Registration relating solely to employee share option plans or pursuant to an
acquisition transaction on Form S-4, the Company will:
(A) provide to the Purchaser written notice thereof
as soon as practicable prior to filing the Registration Statement; and
(B) include in such Registration Statement and in
any underwriting involved therein, all of the Registrable Securities specified
in a written request by the Purchaser made within fifteen (15) days after
receipt of such written notice from the Company.
(ii) If the Registration is for a registered public offering involving
an underwriting, the Company shall so advise the Purchaser as a part of the
written notice given pursuant to this Section. In such event, the rights of
the Purchaser hereunder shall include participation in such underwriting and
the inclusion of the Registrable Securities in the underwriting to the extent
provided herein. To the extent that the Purchaser proposes to distribute its
securities through such underwriting, the Purchaser shall (together with the
Company and any other security holders of the Company distributing their
securities through such underwriting) enter into an underwriting agreement in
customary form with the underwriter or underwriters selected for such
underwriting by the Company. Notwithstanding any other provision of this
Section, if the managing underwriter of such underwriting determines that
marketing factors require a limitation of the number of shares to be offered
in connection with such underwriting, the managing underwriter may limit the
number of Registrable Securities to be included in the Registration and
underwriting (provided, however, (a) the Registrable Securities shall not be
excluded from such underwritten offering prior to any securities held by
officers and directors of the Company or their affiliates, (b) the Registrable
Securities shall be entitled to at least the same priority in an underwritten
offering as any of the Company's existing security holders, and (c) the
Company shall not enter into any agreement that would provide any security
holder with priority in connection with an underwritten offering greater than
the priority granted to the Purchaser hereunder). The Company shall so advise
any of its other security holders who are distributing their securities
through such underwriting pursuant to their respective piggyback registration
rights, and the number of shares of Registrable Securities and other
securities that may be included in the registration and underwriting shall be
allocated among the Purchaser and all other security holders of the Company in
proportion, as nearly as practicable, to the respective amounts of Registrable
Securities held by the Purchaser and such other security holders at the time
of the filing of the registration statement. If the Purchaser disapproves of
the terms of any such underwriting, it may elect to withdraw therefrom by
written notice to the Company. Any Registrable Securities so excluded or
withdrawn from such underwriting shall be withdrawn from such Registration.
(d) Eligibility for Form SB-2. The Company represents and
warrants that it meets all of the requirements for the use of Form SB-2 for
the Registration, of the sale by the Purchaser of the Registrable Securities
and any transferee who purchases the Registrable Securities, and the Company
shall file all reports required to be filed by the Company with the Commission
in a timely manner, and shall take such other actions as may be necessary to
maintain such eligibility for the use of Form SB-2.
(e) Priority in filing. From the date hereof until one hundred
eighty (180) days following the effective date of the Initial Registration
Statement pursuant to Section 2(a) of this Agreement, the Company shall not
permit the registration of any of its securities under the Securities Act to
become effective, other than those covered by this Agreement, without the
prior written approval of the Purchaser. The foregoing notwithstanding, the
Company may permit a registration statement to be filed or to become effective
during the foregoing period provided that such registration statement relates
to a firm commitment underwritten offering of the Company's securities that
provides the Company with at least ten million dollars ($10,000,000).
3. Obligations of the Company. In connection with the registration
of the Registrable Securities, the Company shall do each of the following:
(a) Prepare and file with the Commission the Registration
Statements required by Section 2 of this Agreement and such amendments
(including post-effective amendments) and supplements to the Registration
Statement and the prospectuses used in connection with the Registration
Statement, each in such form as to which the Purchaser and its counsel shall
not have objected, as may be necessary to keep the Registration effective at
all times during the Registration Period, and, during the Registration Period,
comply with the provisions of the Securities Act with respect to the
disposition of all of the Registrable Securities and all of the Warrants of
the Company covered by the Registration Statement until such time as all of
such Registrable Securities and all of such Warrants have been disposed of in
accordance with the intended methods of disposition by the seller or sellers
thereof as set forth in the Registration Statement;
(b) Furnish to the Purchaser, if the Registrable Securities of
the Purchaser are included in the Registration Statement, and its legal
counsel identified to the Company, promptly after the same is prepared and
publicly distributed, filed with the Commission, or received by the Company, a
copy of the Registration Statement, each preliminary prospectus, each final
prospectus, and all amendments and supplements thereto and such other
documents, as the Purchaser may reasonably request in order to facilitate the
disposition of its Registrable Securities and Warrants;
(c) Furnish to the Purchaser and its counsel copies of any
correspondence between the Company and the Commission with respect to any
registration statement or amendment or supplement thereto filed pursuant to
this Agreement;
(d) Use all best efforts to (i) register and qualify the
Registrable Securities covered by the Registration Statement under such other
securities or blue sky laws of such jurisdictions as the Purchaser may
reasonably request, (ii) prepare and file in those jurisdictions such
amendments (including post-effective amendments) and supplements to such
registrations and qualifications as may be necessary to maintain the
effectiveness thereof at all times during the Registration Period, (iii) take
such other actions as may be necessary to maintain such registrations and
qualifications in effect at all times during the Registration Period and (iv)
take all other actions necessary or advisable to qualify the Registrable
Securities for sale in such jurisdictions, provided that in connection
therewith, the Company shall not be required to qualify as a foreign
corporation or to file a general consent to the service of process in any
jurisdiction;
(e) List such securities on the OTC Bulletin Board and all the
other national securities exchanges on which any securities of the Company are
then listed, and file any filings required by the OTC Bulletin Board and/or
such other exchanges.
(f) As promptly as practicable after becoming aware of such
event, notify each Purchaser of the occurrence of any event of which the
Company has knowledge, as a result of which the prospectus included in the
Registration Statement, as then in effect, includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein
in order to make the statements therein, in light of the circumstances under
which they were made, not misleading, and to use its best efforts to promptly
prepare a supplement or amendment to the Registration Statement or other
appropriate filing with the Commission to correct such untrue statement of
omission, and to deliver a number of copies of such supplement or amendment to
the Purchaser as the Purchaser may reasonably request;
(g) As promptly as practicable after becoming aware of such
event, notify the Purchaser who holds Warrants or Registrable Securities being
sold (or, in the event of an underwritten offering, the underwriters) of the
issuance by the Commission or any stop order or other suspension of the
effectiveness of the Registration Statement at the earliest possible time, and
to use its best efforts to promptly obtain the withdrawal of such stop order
or other suspension of effectiveness;
(h) As promptly as practicable after becoming aware of such
event, notify the Purchaser who holds Registrable Securities being sold (or,
in the event of an underwritten offering, the managing underwriters) of the
issuance by the Commission or any stop order or other suspension of the
effectiveness of the Registration Statement at the earliest possible time, and
to use its best efforts to promptly obtain the withdrawal of such stop order
or other suspension of effectiveness (the occurrence of any of the events
described in paragraphs (f) and (g) of this Section 3 is referred to herein as
a "Blackout Event");
(i) During the period commencing upon (i) the Purchaser's
receipt of a notification pursuant to Section 3(f) above, or (ii) the entry of
a stop order or other suspension of effectiveness of the Registration
Statement described in Section 3(g) above, and ending at such time as (y) the
Company shall have completed the applicable filings (and if applicable, such
filings shall have been declared effective) and shall have delivered to the
Purchaser the documents required pursuant to Section 3(f) above, or (z), such
stop order or other suspension of the effectiveness of the Registration
Statement shall have been removed, the Company shall be liable to remit the
payments required to be paid pursuant to Section 2(b) above;
(j) If the offering is underwritten, at the request of a
Purchaser, to furnish on the date that Registrable Securities are delivered to
the underwriters for sale pursuant to such registration: (i) an opinion dated
such date of counsel representing the Company for the purposes of such
registration, addressed to the underwriters and to any Purchaser selling
Registrable Securities in connection with such underwriting, stating that such
registration statement has become effective under the Securities Act and that
(A) to the best knowledge of such counsel, no stop order suspending the
effectiveness thereof has been issued and no proceedings for that purpose have
been instituted or are pending or contemplated under the Securities Act and
(B) the registration statement, the related prospectus and each amendment or
supplement thereof comply as to form in all material respects with the
requirements of the Securities Act (except that such counsel need not express
any opinion as to financial statements or other financial data contained
therein) and (ii) a letter dated such date from the Company's independent
public accountants addressed to the underwriters and to the Purchaser, stating
that they are independent public accountants within the meaning of the
Securities Act and that, in the opinion of such accountants, the financial
statements of the Company included in the registration statement or the
prospectus, or any amendment or supplement thereof, comply as to form in all
material respects with the applicable accounting requirements of the
Securities Act, and such letter shall additionally cover such other financial
matters (including information as to the period ending no more than five (5)
business days prior to the date of such letter) with respect to such
registration as such underwriters may reasonably request; and
(k) Cooperate with the Purchaser to facilitate the timely
preparation and delivery of certificates for the Registrable Securities to be
offered pursuant to the Registration Statement and to enable such certificates
for the Registrable Securities to be in such denominations or amounts, as the
case may be, as the Purchaser may reasonably request, and registered in such
names as the Purchaser may request; and, within three (3) business days after
a Registration Statement which includes Registrable Securities is ordered
effective by the Commission, the Company shall deliver, and shall cause legal
counsel selected by the Company to deliver, to the transfer agent for the
Registrable Securities (with copies to the Purchaser) an appropriate
instruction and opinion of such counsel.
4. Obligations of the Purchaser. In connection with the registration
of the Registrable Securities, the Purchaser shall have the following
obligations:
(a) Take all other reasonable actions necessary to expedite and
facilitate the disposition by the Purchaser of the Warrants and the
Registrable Securities pursuant to the Registration Statement.
(b) Furnish to the Company such information regarding itself,
the Warrants and Registrable Securities held by it, and the intended method of
disposition of the Warrants and the Registrable Securities held by it, as
shall be reasonably required to effect the registration of such Warrants and
such Registrable Securities, and the Purchaser shall execute such documents in
connection with such registration as the Company may reasonably request. At
least five (5) days prior to the first anticipated filing date of the
Registration Statement, the Company shall notify the Purchaser of the
information the Company included in the Registration Statement.
(c) The Purchaser, by its acceptance of the Warrants or
Registrable Securities, agrees to cooperate with the Company as reasonably
requested by the Company in connection with the preparation and filing of any
Registration Statement hereunder.
(d) The Purchaser agrees that, upon receipt of any notice from
the Company of the happening of any event of the kind described in Section
3(f) or 3(g) above, it will immediately discontinue disposition of its
Warrants or Registrable Securities pursuant to the Registration Statement
covering such Registrable Securities until such copies of the supplemented or
amended prospectus contemplated by Section 3(f) or 3(g) shall be furnished to
the Purchaser.
5. Expenses of Registration. All expenses, other than underwriting
discounts and commissions and other fees and expenses of investment bankers
and other than brokerage commissions, incurred in connection with
registrations, filings or qualifications pursuant to Section 3, but including,
without limitation, all registration, listing, and qualification fees,
printing and accounting fees, and the fees and disbursements of counsel for
the Company, and the fees of one counsel to the Purchaser, up to a maximum of
$3,000, with respect to each Registration Statement filed pursuant hereto,
shall be borne by the Company.
6. Indemnification. In the event any Registrable Securities are
included in a Registration Statement under this Agreement:
(a) The Company will indemnify and hold harmless the Purchaser,
each of its officers, directors, shareholders and members, and each person, if
any, who controls the Purchaser within the meaning of the Securities Act or
the Exchange Act (each, an "Indemnified Person"), against any losses, claims,
damages, liabilities or expenses (joint or several) incurred (collectively,
"Claims") to which any of them may become subject under the Securities Act,
the Exchange Act or otherwise, insofar as such Claims (or actions or
proceedings, whether commenced or threatened, in respect thereof) arise out of
or are based upon: (i) any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement or any post-effective
amendment thereof or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances in which they were made, not
misleading, (ii) any untrue statement or alleged untrue statement of a
material fact contained in any preliminary prospectus if used prior to the
effective date of such Registration Statement, or contained in the final
prospectus (as amended or supplemented, if the Company files any amendment
thereof or supplement thereto with the Commission) or the omission to state
therein any material fact necessary in order to make the statements made
therein, in light of the circumstances under which they were made, not
misleading, or (iii) any violation or alleged violation by the Company of the
Securities Act, the Exchange Act, any state or foreign securities law or any
rule or regulation under the Securities Act, the Exchange Act or any state or
foreign securities law (the matters in foregoing clauses (i) through (iii)
being, collectively, "Violations"). The Company shall, subject to the
provisions of Section 6(b) below, reimburse the Purchaser, promptly as such
expenses are incurred and are due and payable, for any legal and other costs,
expenses and disbursements in giving testimony or furnishing documents in
response to a subpoena or otherwise, including without limitation, the costs,
expenses and disbursements, as and when incurred, of investigating, preparing
or defending any such action, suit, proceeding or investigation (whether or
not in connection with litigation in which the Purchaser is a party), incurred
by it in connection with the investigation or defense of any such Claim.
Notwithstanding anything to the contrary contained herein, the indemnification
agreement contained in this Section 6(a) shall not (i) apply to any Claim
arising out of or based upon a modification which occurs in reliance upon and
in conformity with information furnished in writing to the Company by or on
behalf of any Indemnified Person expressly for use in connection with the
preparation of the Registration Statement or any such amendment thereof or
supplement thereto; (ii) with respect to any preliminary prospectus, inure to
the benefit of any such person from whom the person asserting any such Claim
purchased the Registrable Securities that are the subject thereof (or to the
benefit of any person controlling such person) if the untrue statement or
omission of material fact contained in the preliminary prospectus was
corrected in the final prospectus, as then amended or supplemented, if such
final prospectus was timely made available by the Company pursuant to Section
3(b) hereof; (iii) be available to the extent that such Claim is based upon a
failure of the Purchaser to deliver or to cause to be delivered the prospectus
made available by the Company, if such prospectus was timely made available by
the Company pursuant to Section 3(b) hereof; or (iv) apply to amounts paid in
settlement of any Claim if such settlement is effected without the prior
written consent of the Company, which consent shall not be unreasonably
withheld. Such indemnity shall remain in full force and effect regardless of
any investigation made by or on behalf of the Indemnified Person and shall
survive the transfer of the Registrable Securities by the Purchaser pursuant
to Section 9. The Purchaser will indemnify the Company and its officers and
directors against any Claims arising out of or based upon a Violation which
occurs in reliance upon and in conformity with information furnished in
writing to the Company, by or on behalf of the Purchaser, expressly for use in
connection with the preparation of the Registration Statement, subject to such
limitations and conditions as are applicable to the Indemnification provided
by the Company in this Section 6.
(b) Promptly after receipt by an Indemnified Person under this
Section 6 of notice of the commencement of any action (including any
governmental action), such Indemnified Person shall, if a Claim in respect
thereof is to be made against any indemnifying party under this Section 6,
deliver to the indemnifying party a written notice of the commencement
thereof, and the indemnifying party shall have the right to participate in,
and to the extent that the indemnifying party so desires, jointly with any
other indemnifying party similarly notified, to assume control of the defense
thereof with counsel mutually satisfactory to the indemnifying party and the
Indemnified Person, provided, however, that an Indemnified Person shall have
the right to retain its own counsel with the reasonable fees and expenses to
be paid by the indemnifying party, if, in the reasonable opinion of counsel
retained by the indemnifying party, the representation by such counsel of the
Indemnified Person and the indemnifying party would be inappropriate due to
actual or potential differing interests between such Indemnified Person and
any other party represented by such counsel in such proceeding. In such
event, the Company shall pay for only one separate legal counsel for the
Purchaser, and such legal counsel shall be selected by the Purchaser. The
failure to deliver written notice to an indemnifying party within a reasonable
time after the commencement of any such action shall not relieve such
indemnifying party of any liability to the Indemnified Person under this
Section 6, except to the extent that the indemnifying party is materially
prejudiced in its ability to such action. The indemnification required by
this Section 6 shall be made by periodic payments of the amount thereof during
the course of the investigation or defense, as such expense, loss, damage or
liability is incurred and is due and payable.
(c) No indemnifying party, in the defense of any such claim or
litigation, shall, except with the consent of each Indemnified Party, consent
to entry of any judgment or enter into any settlement which does not include
as an unconditional term thereof the giving by the claimant or plaintiff to
such Indemnified Person of an unconditional and irrevocable release from all
liability in respect of such claim or litigation.
(d) Notwithstanding the foregoing, to the extent that any
provisions relating to indemnification or contribution contained in the
underwriting agreements entered into among the Company, the underwriters and
the Purchaser in connection with the underwritten public offering are in
conflict with the foregoing provisions, the provisions in such underwriting
agreements shall be controlling as to the Registrable Securities included in
the public offering; provided, however, that if, as a result of this Section
6(d), the Purchaser, its officers, directors, shareholders, members or any
person controlling the Purchaser is or are held liable with respect to any
Claim for which they would be entitled to indemnification hereunder but for
this Section 6(d) in an amount which exceeds the aggregate proceeds received
by the Purchaser from the sale of Registrable Securities included in a
registration pursuant to such underwriting agreement (the "Excess Liability"),
the Company shall reimburse the Purchaser for such Excess Liability.
7. Contribution. To the extent any indemnification by an
indemnifying party is prohibited or limited under applicable law, the
indemnifying party agrees to contribute to the amount paid or payable by such
indemnified party as a result of such loss, claim, damage, liability or
expense in such proportion as is appropriate to reflect the relative fault of
the indemnifying party on the one hand and the Indemnified Person on the other
hand in connection with the statements or omissions which resulted in such
Claim, as well as any other relevant equitable considerations. The relative
fault of the indemnifying party and the Indemnified Person shall be determined
by reference to, among other things, whether the untrue statement of a
material fact or the omission to state a material fact on which such Claim is
based relates to information supplied by the indemnifying party or by the
Indemnified Person, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
Notwithstanding the forgoing, (a) no contribution shall be made under
circumstances where the payor would not have been liable for indemnification
under the fault standards set forth in Section 6, (b) no seller of Registrable
Securities guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution from
any seller of Registrable Securities who was not guilty of such fraudulent
misrepresentation and (c) contribution by any seller of Registrable Securities
shall be limited in amount to the net proceeds received by such seller from
the sale of such Registrable Securities. The Company and the Purchaser agree
that it would not be just and equitable if contribution pursuant to this
Section 7 were determined by pro-rata allocation (even if the Purchaser and
any other party were treated as one entity for such purpose) or by any other
method of allocation that does not take account of the equitable
considerations referred to in this Section.
8. Reports Under Exchange Act.
With a view to making available to the Purchaser the benefits of
Rule 144 promulgated under the Securities Act or any other similar rule or
regulation of the Commission that may at any time permit the Purchaser to sell
securities of the Company to the public without registration ("Rule 144"), the
Company agrees to:
(i) make and keep public information available, as those
terms are understood and defined in Rule 144;
(ii) file with the Commission in a timely manner all
reports and other documents required of the Company under the Securities Act
and the Exchange Act; and
(iii) furnish to the Purchaser so long as the Purchaser owns
Registrable Securities, promptly upon request, (i) a written statement by the
Company that it has complied with the reporting requirements of the Securities
Act and the Exchange Act, (ii) a copy of the most recent annual or periodic
report of the Company and such other reports and documents so filed by the
Company and (iii) such other information as may be reasonably requested to
permit the Purchaser to sell such securities pursuant to Rule 144 without
registration.
9. Assignment of the Registration Rights. The rights to have the
Company register Warrants or Registrable Securities pursuant to this Agreement
shall be automatically assigned by Purchaser to any transferee of all or any
portion of the Initial Shares, Additional Shares, Warrants or the underlying
Common Stock held by Purchaser if: (a) Purchaser agrees in writing with the
transferee or assignee to assign such rights, and a copy of such agreement is
furnished to the Company within a reasonable time after such assignment; (b)
the Company is, within a reasonable time after such transfer or assignment,
furnished with written notice of (i) the name and address of such transferee
or assignee and (ii) the Securities with respect to which such registration
rights are being transferred or assigned; (c) at or before the time the
Company receives the written notice contemplated by clause (b) of this
sentence, the transferee or assignee agrees in writing with the Company to be
bound by all of the provisions contained herein; and (d) the transfer of the
relevant Securities complies with the restrictions set forth in Section 4 of
the Securities Purchase Agreement.
10. Amendment of Registration Rights. Any provision of this Agreement
may be amended and the observance thereof may be waived (either generally or
in a particular instance and either retroactively or prospectively), only with
the written consent of the Company and the Purchaser. Any amendment or waiver
effected in accordance with this Section 10 shall be binding upon Purchaser
and the Company.
11. Miscellaneous.
(a) A person or entity is deemed to be a holder of Warrants or
Registrable Securities whenever such person or entity owns of record such
Warrants or Registrable Securities. If the Company receives conflicting
instructions, notices or elections from two or more persons or entities with
respect to the same Warrants or Registrable Securities, the Company shall act
upon the basis of the instructions, notice or election received from the
registered owner of such Warrants or Registrable Securities.
(b) Any notice required or permitted hereunder shall be given in
writing (unless otherwise specified herein) and shall be effective upon
personal delivery, via facsimile (upon receipt of confirmation of error-free
transmission and mailing a copy of such confirmation postage prepaid by
certified mail, return receipt requested) or two business days following
deposit of such notice with an internationally recognized courier service,
with postage prepaid and addressed to each of the other parties thereunto
entitled at the following addresses, or at such other addresses as a party may
designate by ten (10) days advance written notice to each of the other parties
hereto.
COMPANY: Cybertel, Communications Corp.
4275 Executive Square, Suite #510
La Jolla, California 92037
Attention: Richard D. Mangiarelli
Tel: (800) 645-5557
Fax: (858) 646-7414
With a copy to:
Leonard W. Burningham, Esq.
455 East 500 South, Suite #205
Salt Lake City, Utah 84111
Tel: (801) 363-7411
Fax: (801) 355-7126
PURCHASER: ADARA Investors LLC
WEC Asset Management LLC
110 Colabaugh Pond Road
Croton-on-Hudson, New York 10520
Attention: Daniel J. Saks
Tel: (914) 271-2211
Fax: (914) 271-0889
With a copy to:
Pryor Cashman Sherman & Flynn LLP
410 Park Avenue, 10th Floor
New York, New York 10022
Attention: Mark Saks, Esq.
Tel: (212) 326-0140
Fax: (212) 326-0806
(c) Failure of any party to exercise any right or remedy under
this Agreement or otherwise, or delay by a party in exercising such right or
remedy, shall not operate as a waiver thereof.
(d) This Agreement shall be governed by and interpreted in
accordance with the laws of the State of New York, except for provisions with
respect to internal corporate matters of the Company which shall be governed
by the corporate laws of the State of Nevada. Each of the parties consents to
the jurisdiction of the federal courts whose districts encompass any part of
the City of New York or the state courts of the State of New York sitting in
the City of New York in connection with any dispute arising under this
Agreement and hereby waives, to the maximum extent permitted by law, any
objection, including any objection based on forum non conveniens, to the
bringing of any such proceeding in such jurisdictions. This Agreement may be
signed in one or more counterparts, each of which shall be deemed an original.
The headings of this Agreement are for convenience of reference and shall not
form part of, or affect the interpretation of, this Agreement. If any
provision of this Agreement shall be invalid or unenforceable in any
jurisdiction, such validity or unenforceability shall not affect the validity
or enforceability of the remainder of this Agreement or the validity or
enforceability of this Agreement in any other jurisdiction. Subject to the
provisions of Section 10 hereof, this Agreement may be amended only by an
instrument in writing signed by the party to be charged with enforcement.
This Agreement supersedes all prior agreements and understandings among the
parties hereto with respect to the subject matter hereof.
(e) This Agreement constitutes the entire agreement among the
parties hereto with respect to the subject matter hereof. This Agreement
supersedes all prior agreements and understandings among the parties hereto
with respect to the subject matter hereof.
(f) Subject to the requirements of Section 9 hereof, this
Agreement shall inure for the benefit of and be binding upon the successors
and assigns of each of the parties hereto.
(g) All pronouns and any variations thereof refer to the
masculine, feminine or neuter, singular or plural, as the context may require.
(h) The Company acknowledges that any failure by the Company to
perform its obligations under Section 2(a), or any delay in such performance
could result in direct damages to the Purchaser, and the Company agrees that,
in addition to any other liability the Company may have by reason of any such
failure or delay, the Company shall be liable for all direct damages caused by
any such failure or delay. Nothing herein shall limit the Purchaser's right
to pursue any claim seeking such direct damages.
[Remainder of Page Intentionally Blank, Signature Page Follows]
IN WITNESS WHEREOF, this Agreement has been duly executed by the
undersigned.
"COMPANY"
CYBERTEL, COMMUNICATIONS CORP.
By: /s/ Richard D. Mangiarelli
------------------------------
Name: Richard D. Mangiarelli
Title: President
"PURCHASER"
ADARA Investors LLC
By: WEC ASSET MANAGEMENT LLC, Manager
By: /s/ Daniel J. Saks
-------------------------------
Name: Daniel J. Saks
Title: Managing Director
<PAGE>
EXHIBIT E
[FORM OF OPINION OF COUNSEL]
February 15, 2000
ADARA Investors LLC
c\o WEC Asset Management LLC
One World Trade Center
New York, New York 10048
Re: CYBERTEL, COMMUNICATIONS CORP.
Dear Sirs:
This opinion is delivered to you pursuant to a Securities Purchase
Agreement (the "Purchase Agreement") dated as of February 15, 2000, between
ADARA Investors LLC, Delaware limited liability company (the "Purchaser") and
CYBERTEL, COMMUNICATIONS CORP., a Nevada corporation (the "Company"), in
connection with the sale by the Company and purchase by the Purchaser of the
Company's Initial Shares, Initial Warrants and Supplemental Warrant (as such
terms are defined in the Purchase Agreement). All capitalized terms not
otherwise defined herein shall have the meanings given them in the Purchase
Agreement.
We have examined and are familiar with the Certificate of
Incorporation and By-laws of the Company any and all amendments thereto. We
have also examined and are familiar with the Primary Documents and any and all
other instruments executed and delivered by or on behalf of the Company in
connection with the Purchase Agreement and the transactions contemplated
thereunder. In addition to the foregoing, we have examined such minutes and
other corporate proceedings of the Company and such matters of law, documents
and certificates of public officials as we have deemed necessary in rendering
our opinion. In all such examinations, we have assumed the genuineness of all
the signatures on original documents and the conformity to original and
certified documents of all copies submitted to us as conformed or photostatic
copies.
Based upon the foregoing, we are of the opinion that:
1. The Company and each of its subsidiaries is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Nevada, and has all requisite corporate power and authority to own
its properties and to carry on its business as now being conducted and is duly
qualified and in good standing as a foreign corporation in, and is authorized
to do business under the laws of, each jurisdiction where the character of the
properties owned or leased by it or the transaction of its business makes such
qualification or authorization necessary and in which the failure to so
qualify would have a material adverse effect on the Company and its
subsidiaries taken as a whole.
2. The authorized and issued and outstanding capital stock of
the Company are as stated in Section 3(b) of the Purchase Agreement. All
shares of the outstanding capital stock of the Company have been validly
issued and are fully paid and non-assessable. To our knowledge, Schedule 3 (b)
of the Purchase Agreement accurately sets forth the information to be provided
therein pursuant to Section 3 (b) of the Purchase Agreement.
3. The issuance by the Company of the Initial Shares, Initial
Warrants and Supplemental Warrant (collectively, the "Initial Securities"),
the Additional Shares and Additional Warrants (collectively, the "Additional
Securities") and the shares of Common Stock issuable upon conversion of, or in
lieu of dividend payments on, the Initial Shares and Additional Shares and
exercise of the Initial Warrants and Additional Warrants (collectively, the
"Shares") have been duly authorized and the Initial Securities have been
validly issued and the consideration to be paid therefor under the Purchase
Agreement has been fully paid. The Common Stock issuable upon conversion of,
or in lieu of dividend payments on, the Preferred Stock, and upon exercise of
the Warrants, when issued in accordance with the Primary Documents, shall be
duly and validly issued, fully paid and non-assessable, and will not subject
the holder thereof to personal liability by reason of being such a holder.
There are no preemptive rights of any stockholder of the Company to acquire
any of the Initial Securities, the Additional Securities or the Shares
(collectively, the "Collective Securities").
4. The Common Stock is registered under Section 12 of the
Securities Exchange Act of 1934, as amended. The Company has duly filed all
materials and documents required to be filed pursuant to all reporting
obligations under either Section 13(a) or 15(d) of the Exchange Act, if any,
through the date hereof (prior to the offer and sale of the Securities). The
Common Stock is listed and traded on quoted on the over-the-counter bulletin
board, and to our knowledge there is no pending or contemplated action or
proceeding of any kind to suspend the trading of the Common Stock.
5. The Company has the requisite corporate power and
authority to enter into the Purchase Agreement and to issue and deliver the
Collective Securities.
6. The Primary Documents and the transactions contemplated
thereby, have been duly and validly authorized by the Company and are legal,
valid and binding agreements of the Company, enforceable in accordance with
their respective terms, except to the extent that enforcement thereof may be
limited by bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance or other similar laws now or hereafter in effect relating to
creditors' rights generally and to general principles of equity. The
Certificate of Designation has been duly executed and filed by the Company
with the Secretary of State of the State of Nevada in accordance with the
General Corporation Law of the State of Nevada and has been accepted for
filing with the Secretary of State.
7. The execution and delivery of the Primary Documents and
the consummation by the Company of the other transactions contemplated
thereby, does not and will not conflict with or result in a breach by the
Company of any of the terms or provisions of, or constitute a default under,
the Certificate of Incorporation or By-laws of the Company, or, to our
knowledge, (i) any material indenture, mortgage, deed of trust or other
agreement or instrument to which the Company or any of its subsidiaries is a
party or by which they or any of their properties or assets are bound, or (ii)
any existing applicable law, rule, or regulation or any applicable decree,
judgment or order of any court or United States Federal or state regulatory
body, administrative agency, or any other governmental body having
jurisdiction over the Company, its subsidiaries, or any of their properties or
assets. Except as set forth on Schedule 3(h) to the Purchase Agreement,
neither the filing of the registration statement required to be filed by the
Company pursuant to the Registration Rights Agreement nor the offering or sale
of the Collective Securities gives rise to any rights for or relating to the
registration of any shares of the Common Stock.
8. No authorization, approval or consent of any court,
governmental body, regulatory agency, self-regulatory organization, stock
exchange or market or the stockholders of the Company is required to be
obtained by the Company for the entry into or the performance of the Primary
Documents by the Company.
9. To our knowledge, there is no action, suit, proceeding,
inquiry or investigation before or by any court, public board or body pending
or threatened against or affecting the Company or any of its subsidiaries, in
which an unfavorable decision, ruling or finding would have a material adverse
effect on the properties, business, condition (financial or other) or results
of operations of the Company and its subsidiaries, taken as a whole, or the
transactions contemplated by the Primary Documents, or which would adversely
affect the validity or enforceability of, or the authority or ability of the
Company to perform its obligations under, the Primary Documents.
10. To our knowledge, neither the Company nor any of its
subsidiaries is in default in the performance or observance of any obligation,
covenant or condition contained in any material indenture, mortgage, deed of
trust or other instrument or agreement to which it is a party or by which it
or its property may be bound.
11. Subject to the accuracy of the Purchaser's representations
and warranties set forth in Section 2 of the Purchase Agreement, the offer,
sale and issuance of the Securities and the other securities as contemplated
by the Purchase Agreement are exempt from the registration requirements of the
Securities Act.
I am a member of the Bar of the State of Utah. I call your attention to
the fact that the Purchase Agreement is stated therein to be governed by the
State of New York and that I am not a member of the Bar of the State of New
York. I express no opinion as to the enforceability of the choice of law
provisions of such documents under New York law. The enforceability opinions
contained herein are given on the assumption that the internal laws (as
opposed to conflict of law provisions) of the State of New York are identical
to those of the State of Utah. This opinion is based solely upon the
foregoing state laws and the laws of the United States as currently in effect.
Very truly yours
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is entered into as of October
1, 1999 between CYBERTEL COMMUNICATIONS CORP., a Nevada corporation (the
"Company"), and RICHARD MANGIARELLI (the "Executive").
RECITALS
WHEREAS, The Company is engaged in the business of developing and marketing
long distance voice and data telecommunications services and related products
and services ("the Company's Business"); and
WHEREAS, Executive possesses substantial knowledge and experience with respect
to the Company's Business; and
WHEREAS, the Company desires to employ the Executive to have the benefits of
his expertise and knowledge. The Executive, in turn, desires employment with
the Company. The parties, therefore, enter into this Agreement to establish
the terms and conditions of the Executive's employment with the Company.
In consideration of the mutual covenants and representations contained in this
Agreement, the Company and the Executive agree as follows:
1. Employment of Executive; Duties. The Company agrees to employ the Executive
and the Executive agrees to be employed by the Company as Chief Financial
Officer for the period specified in Section 3 (the "Employment Period"),
subject to the terms and conditions of this Agreement. During the Employment
Period, the Executive shall have such duties and responsibilities generally
consistent with his position and such other duties not inconsistent with his
title and position and as may be assigned to him by the Company, which may
include providing similar services for any of the Company's subsidiaries,
parents or affiliates. In connection therewith, Executive shall devote his
best efforts, experience and judgement to fully discharge his duties and
responsibilities under this Employment Agreement and as reasonably
contemplated hereby, and shall act in conformity with the written and oral
policies of the Company and within the limits, budgets, business plans and
instructions as set by its Board of Directors ("the Board"). Executive shall
be subject to the authority of the Board and the Company's duly appointed
officers.
2. Place of Employment and Travel. Executive acknowledges that the Company's
offices and headquarters are currently located in the City of San Diego,
County of San Diego, State of California that shall be the initial site of
Executive's employment.
3. Employment Period. The Employment Period shall begin on the date first
written above ("the Effective Date") and shall continue for three (3) years.
Upon the expiration of one (1) year from the Effective Date and upon each
anniversary thereafter, the Employment Period shall be extended an additional
year without further action by either party, unless the Company gives written
notice to the Executive within thirty (30) days of the anniversary and as
provided in Paragraph 9 herein, in which case the Employment Period shall
expire two (2) years from the next anniversary of the Effective Date.
<PAGE>
4. Base Salary. Commencing with the Effective Date, the Company shall pay to
the Executive a minimum annual base salary of Two Hundred Thousand U. S.
Dollars (US $200,000.00) ("the base salary"). The base salary shall be payable
in equal periodic installments which are not less frequent than the periodic
installments in effect for salaries of other executives of the Company. The
base salary shall be subject to review annually by the Board (or a committee
appointed by the Board) for upward adjustments based on the policies of the
Company and the Executive's contributions to the business of the Company. The
base salary shall not be adjusted downward without the written consent of the
Executive.
5. Benefits. In addition to and except for the matters governed by this
Agreement, the Executive shall be entitled to: (i) employee benefits and
perquisites, including but not limited to pension plans, deferred compensation
plans, stock options, annual bonus plans, long term incentive plans, group
life insurance, disability, sickness and accident insurance and health
benefits under such plans and programs as provided to other executives of the
Company from time to time; (ii) paid vacation as well as holidays, leave of
absence and leave for illness and temporary disability in accordance with the
policies of the Company; and, (iii) the specific benefits as are set forth in
Exhibit 2 attached hereto and incorporated in full by this reference.
6. Non-Disclosure; Non-Competition. As a condition to the employment
arrangement, Executive agrees to execute and comply with the terms and
conditions of the "Employee Non-Disclosure, Non-Competition and Assignment of
Inventions Agreement" attached hereto as Exhibit 1.
7. Termination.
7.1 Termination by the Company.
(a) The Company may not terminate the Executive's employment under this
Agreement without Cause.
(b) The Company, by action of its Board, may terminate the Executive's
employment under this Agreement for Cause at any time by notifying the
Executive of such termination. For all purposes of this Agreement, the
Employment Period shall end as of the date of such termination of employment.
"Cause" means the Executive's: (i) persistent and repeated refusal, failure or
neglect to perform the material duties of his employment under this Agreement
(other than by reason of the Executive's physical or mental illness or
impairment), provided that such Cause shall be deemed to occur only after the
Company gave written notice thereof to the Executive specifying in reasonable
detail the conduct constituting Cause, the Executive failed to cure and
correct his conduct within thirty (30) days after receipt of such notice, and
the Executive had the opportunity to be heard at a meeting of the Board; (ii)
committing any act of fraud or embezzlement, provided that such Cause shall
be deemed to occur only after the Company gave notice thereof to the Executive
specifying in reasonable detail the instances of such conduct, and the
Executive had the opportunity to be heard at a meeting of the Board; (iii)
breach of the Employee Non-Disclosure, Non-Competition and Assignment of
Inventions Agreement or of such other subsequent agreements entered into
during the Employment Period that results in a detriment to the Company,
<PAGE>
provided the Company gave notice thereof to the Executive specifying in
reasonable detail each such alleged breach, and the Executive had the
opportunity to be heard at a meeting of the Board; (iv) conviction of a felony
(including pleading guilty to a felony); or (v) habitual abuse of alcohol or
drugs.
7.2 Termination by the Executive. The Executive may terminate this Agreement
at any time, for any reason or for no reason at all, by giving notice thereof
to the Company at least sixty (60) days before the effective date of such
termination. The Employment Period shall terminate as of the date of such
termination of employment.
7.3 Severance Benefits.
(a) If the Executive's employment under this Agreement is terminated by
the Executive before the end of the Employment Period and without Good
Reason (as defined in herein below), the Company shall continue to pay to
the Executive his unpaid Base Salary through the time of termination and
for a period extending ninety (90) days thereafter. Additionally, the
Executive shall be entitled to his share of the accrued stock and accrued
stock options through the date of termination which shall be paid to him
at such time as the next payment is made to the other participants of all
applicable stock or stock option plan or long term incentive plan.
(b) If the Executive's employment under this Agreement is terminated by
the Company for Cause, or if the Executive dies or becomes totally
disabled (as defined herein below), the Company shall only pay the
Executive a lump sum cash payment within thirty (30) days of the date of
such termination, equal to the sum of: (i) Executive's unpaid Base Salary
earned to the termination date; (ii) his share of the accrued stock and
accrued stock options through the date of termination which shall be paid
to him or his estate at such time as the next payment is made to the
other participants of all applicable stock or stock option plans or long
term incentive plans.
(c) If the Executive's employment under this Agreement is terminated by
the Executive for Good Reason or by the Company without Cause, the
Company shall continue to pay to the Executive his unpaid base salary for
the entire time remaining in the Employment Period. Additionally, the
Executive shall be entitled to all stock and stock options set forth in
Exhibit 2, including but not limited to his share of all accrued stock,
accrued stock options, and all other stock and stock options through the
date of the termination of the Employment Period which shall be paid to
him at such time as such payments are made to the other participants of
all applicable stock option plans or long term incentive plans.
(d) "Good Reason" means: any material failure by the Company to pay or
provide the compensation and benefits under this Agreement; provided
that, in each such event, the Executive shall give the Company notice
thereof which shall specify in reasonable detail the circumstances
constituting Good Reason, and there shall be no Good Reason with respect
to any such circumstances cured by the Company within thirty (30) days
after such notice.
(e) If the Executive is terminated by the Company for Cause and the
Executive is entitled to receive payments or other benefits under this
Agreement upon
<PAGE>
the termination of his employment with the Company, the Executive hereby
irrevocably waives the right to receive any payments or other benefits
under any other severance or similar plan maintained by the Company
("Other Severance Plan").
7.4 Termination by Death or Disability. This Agreement shall terminate
automatically upon the Executive's death. If the Company determines in good
faith that the Executive has a "total disability" (within the meaning of such
term or of a similar term as defined in the Company's long-term disability
plan as in effect from time to time), the Company may terminate his employment
under this Agreement by notifying the Executive thereof at least thirty (30)
days before the effective date of such termination.
8. Representation by Executive. Executive represents and warrants to the
Company that his employment hereunder will not conflict with or result in a
violation or breach of, or constitute a default under any contract, agreement
or understanding to which he is or was a party.
9. Notices. Any notices, requests, demands and other communications provided
for by this Agreement shall be sufficient if in writing and if sent by
registered or certified mail to the Executive at the last address he has filed
in writing with the Company or, in the case of the Company, to the Company's
principal executive offices.
10. Withholding Taxes. The Company shall have the right, but not the duty, to
the extent permitted by law, to withhold from any payment of any kind due to
the Executive under this Agreement to satisfy the tax withholding obligations
of the Company under applicable law.
11. Validity; Complete Agreement. The validity and enforceability of any
provision hereof shall in no way affect the validity or enforceability of any
other provision hereof. This Agreement sets forth the entire understanding and
embodies the entire Agreement of the parties with respect to the subject
matter covered hereby and supersedes all prior or contemporaneous oral or
written agreements, understandings, arrangements, negotiations or
communications, among the parties hereto.
12. Amendment. This Agreement shall not be modified or amended except by
written agreement of the parties hereto.
13. Choice of Law; Jurisdiction and Venue. This Agreement shall be governed by
and construed in accordance with the law of the State of California. The
Parties consent to the exclusive jurisdiction of the California courts. Venue
for any action brought hereunder shall be exclusively in the State of
California, County of San Diego.
14. Counterpart. This Agreement may be executed in any number of counterparts,
all of which shall be considered one and the same agreement.
15. Delay; Partial Exercise. No failure or delay by any party in exercising
any right, power or privilege under this Agreement shall operate as a waiver
thereof; nor shall any single or partial exercise of any right, power or
privilege hereunder preclude any other or further exercise thereof or the
exercise of any other right, power or privilege.
<PAGE>
16. Successors and Assigns. This Agreement shall inure to the benefit of and
be binding upon the Company and its successors and assigns. The Company shall
have the right to assign this Agreement to any of its respective subsidiaries,
parents or affiliates. The rights and obligations of Executive under this
Agreement are personal to him and no such right or obligation shall be subject
to voluntary or involuntary alienation, assignment, or transfer.
17. Mandatory Arbitration. DISPUTES REGARDING THE EXECUTIVE'S EMPLOYMENT BY
THE COMPANY, INCLUDING, WITHOUT LIMITATION, ANY DISPUTE UNDER THIS AGREEMENT
WHICH CANNOT BE RESOLVED BY NEGOTIATIONS BETWEEN THE COMPANY AND THE EXECUTIVE
SHALL BE SUBMITTED TO, AND SOLELY DETERMINED BY, FINAL AND BINDING ARBITRATION
CONDUCTED UNDER THE RULES OF ARBITRATION OF THE STATE OF CALIFORNIA APPLICABLE
TO EMPLOYMENT DISPUTES, AND THE PARTIES AGREE TO BE BOUND BY THE FINAL AWARD
OF THE ARBITRATOR IN ANY SUCH PROCEEDING. THE ARBITRATOR SHALL APPLY THE LAWS
OF THE STATE OF CALIFORNIA WITH RESPECT TO THE INTERPRETATION OR ENFORCEMENT
OF ANY MATTER RELATING TO THIS AGREEMENT. ARBITRATION MAY BE HELD IN SAN
DIEGO, CALIFORNIA, OR SUCH OTHER PLACE AS THE PARTIES HERETO MAY MUTUALLY
AGREE, AND SHALL BE CONDUCTED BY A QUALIFIED ARITRATOR APPOINTED UNDER THE
LAWS OF THE STATE OF CALIFORNIA. JUDGMENT UPON THE AWARD BY THE ARBITRATOR MAY
BE ENTERED IN ANY COURT HAVING JURISDICTION THEREOF.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first written above.
Witness
/s/ Richard Mangiarelli
- ----------------------------------- ----------------------------------
RICHARD MANGIARELLI
Witness
CYBERTEL COMMUNICATIONS CORP.
By /s/ Paul J. Mills
- ----------------------------------- ----------------------------------
PAUL J. MILLS
Chairman, Director
<PAGE>
Exhibit 1
EMPLOYEE NON-DISCLOSURE, NON-COMPETITION
AND ASSIGNMENT OF INVENTIONS AGREEMENT
The Undersigned, RICHARD MANGIARELLI ("the Employee" or "Employee") in
consideration of his employment with CYBERTEL COMMUNICATIONS CORP.
("CYBERTEL"), plus other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, intending to be legally bound by
the terms and conditions of this Employee Non-Disclosure, Non-Competition and
Assignment of Inventions Agreement ("this Agreement"), hereby agrees as
follows:
1. Respective Persons or Entities Covered.Employee acknowledges that, as
an employee of CYBERTEL, he will possibly also be working with subsidiaries,
parents and affiliated entities of CYBERTEL that shall hereinafter be referred
to herein as the "Companies."
2. Inventions. Employee agrees as follows:
A. Disclosure. He will promptly disclose to the Companies and each of
them, any invention, discovery, know-how, improvement, design, device,
apparatus, composition, process, plans, programs, or use made, conceived
or discovered by Employee, either solely or in collaboration with others,
during the term of this Agreement which (i) relates in any way to the
products, services processes or systems relating to any of the Companies'
respective businesses (ii) results from or is suggested by any work
performed by Employee for any of the Companies (all the foregoing
hereinafter referred collectively as "Inventions");
B. Ownership of Inventions. Each Invention shall be and remain the sole
and exclusive property of the Companies, whether patented or not, and any
Invention conceived within six months after termination of this Agreement
shall be presumed to be the property of the Companies subject to proof of
the Companies' satisfaction that such Invention was first conceived after
the termination of this Agreement. In furtherance of the foregoing,
Employee agrees to execute, acknowledge and deliver any and all documents
and instruments as may be requested by the Companies (but without any
additional compensation from the Companies) for the purpose of vesting
title to any Invention in the Companies.
C. Prior Inventions. Employee attaches as Schedule A hereto, concurrently
with the execution hereof, a list and brief description of all unpatented
Inventions or proprietary information, if any, made or conceived by him
prior to the date of this Agreement and which are to be excluded from the
provisions of this Agreement. If no such list is attached at the time of
the execution of this Agreement, it shall be conclusively presumed that
Employee has waived any right he may have to any such Invention that
relates to any of the Companies businesses.
<PAGE>
D. Representation. Employee represents and warrants to the Companies that
except as set forth on Schedule B, attached hereto, neither he nor his
Associates or Affiliates have any agreements with or obligations to any
person or entity in conflict with any of the provisions of this
Agreement.
3. Confidentiality. Employee covenants and agrees that he will not, at
any time either during the term of this Agreement of thereafter, for a period
of one year after the receipt by Employee of the last disclosure of
proprietary information, reveal (or permit to be revealed where such is
within its control) to a third party or use for his own benefit, without prior
written consent of the Companies, any information pertaining to the
Inventions, or any of the Companies' respective businesses including but not
limited to information relating to research results, formulations, computer
code, suppliers, employees, customers financial condition, procedures, tests,
know-how, production, distribution, work and organizational methods,
experimental results or trade secrets.
4. Non-competition. During the term of this Agreement and for a period of
one year thereafter, Employee agrees that, except as contemplated by this
Agreement, he shall not, without the prior written consent of the Companies,
either individually or with others, directly or indirectly, as an employee,
representative, partner, principal, agent, independent contractor, consultant,
stockholder, or in any other capacity, participate in, engage in or have a
financial interest in any activity, business or entity relating to or involved
in the development, testing or marketing of products, services, systems or
processes related to the Companies' respective businesses, except as provided
in Schedule B. Employee acknowledges that the claim for or the payment of any
damages for breach of the provisions contained in this paragraph 4 shall not
preclude the Companies from seeking injunctive or such other forms of relief
as may be obtained in a court of law or equity. Employee acknowledges that he
will be fully able to earn an adequate livelihood for himself and his
dependents if the provisions of this paragraph 4 shall be specifically
enforced against him. In the event that any court of competent jurisdiction
shall determine that any term, covenant, or condition of this paragraph 4 is
void or unenforceable, such court shall have the powers and authority to
modify this paragraph 4 in accordance with the original intent of the parties
so as to make such term, covenant or condition and the remainder of this
Agreement valid and binding upon the parties hereto.
5. Non-solicitation. During the term of this Agreement and for a period
of one year thereafter, Employee agrees that he shall not, without the prior
written consent of the Companies, either individually or with others, directly
or indirectly solicit or hire any of the Companies' employees or key employees
of the Companies' customers for employment with a person or entity involved in
marketing products or services competitive with any of the Companies'
respective businesses. Key employees include supervisory personnel,
executives, personnel in charge of any department, section or subdivision, and
project managers (or directors) and senior personnel on any individual
project or projects. Employee further agrees that all customers of the
Companies, and all prospective customers from whom Employee may have solicited
business while engaged as an employee by the Companies hereunder, shall be
solely the customers of the Companies. Employee therefore agrees that he will
not, for a period of one year immediately following the termination of this
<PAGE>
Agreement, either directly or indirectly, solicit business, as to products or
services competitive with those of the Companies respective businesses, from
any of the Companies'' customers with whom Employee has had contact within one
year prior the termination of this Agreement.
6. Definition of Terms. The term "Employee" shall, for purposes of
paragraphs 1 through 5 includes Employee along with any of Employee's
Affiliates, Associates, or entities of which he is a Beneficial Owner. The
term "Affiliate" shall means a person controlling, controlled by or under
common control with Employee and the term "control" (including the terms
"controlling," "controlled by," and "under common control with") means the
power to direct or cause the direction of the management and policies of a
person or entity, whether through the ownership of voting securities, by
contract or otherwise. The term "Associate," shall mean a relationship with:
i) any corporation, or organization (other than the Companies) of which
Employee or any of his Affiliates or Associates is a director, officer or
partner, ii) any corporation, or organization (other than the Companies) of
which Employee or any of Employee's Affiliates or Associates, directly or
indirectly, are the beneficial owner of five percent (5%) or more of any class
of equity securities; iii) any trust or other estate in which Employee or any
of his Affiliates or Associates have a substantial beneficial interest or with
respect to which Employee or any of his Affiliates or Associates serve as a
trustee or in any other fiduciary capacity; or iv) Employee's spouse, or any
blood relative of Employee, or any blood relative of Employee's spouse, who
resides in the same home as Employee, or who is an officer or director, or
partner of any Affiliate or Associate of Employee. The term "beneficial
ownership" shall mean interests which Employee or his or Affiliates or
Associates may possess which are substantially equivalent to those of
ownership and are enjoyed by reason of any contract, understanding,
relationship, agreement or other arrangement, whether or not such are set
forth in a legally binding contract or document. The term "term of this
Agreement" shall mean the period of time during which the Employment Agreement
executed by Employee and CYBERTEL concurrently with this Agreement remains in
force.
7. Restriction on Enforceability of Agreement. Full compliance by
CYBERTEL and the Companies with the terms of the Employment Agreement executed
by CYBERTEL and Employee concurrently with this Agreement is a material
condition in Employee's decision to execute this Agreement. Therefore, the
provisions of Paragraphs 3 through 5 of this Agreement restricting Employee
for a period of one (1) year following the termination of this Agreement shall
not apply to Employee if his employment is terminated by the Companies without
Cause or by Employee with Good Reason as defined in the Employment Agreement.
IN WITNESS WHEREOF, the Undersigned, intending to be legally bound, hereby
executes and delivers this Agreement this 1st day of October, 1999.
/s/Richard Mangiarelli
- ----------------------------------
RICHARD MANGIARELLI
Witness
- ----------------------------------
<PAGE>
Schedule A
EXEMPT INVENTIONS AND PROPRIETARY INFORMATION
<PAGE>
Schedule B
EXEMPT AGREEMENTS AND OBLIGATIONS
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is entered into as of October
1, 1999 between CYBERTEL COMMUNICATIONS CORP., a Nevada corporation (the
"Company"), and JAMES BORING (the "Executive").
RECITALS
WHEREAS, The Company is engaged in the business of developing and marketing
long distance voice and data telecommunications services and related products
and services ("the Company's Business"); and
WHEREAS, Executive possesses substantial knowledge and experience with respect
to the Company's Business; and
WHEREAS, the Company desires to employ the Executive to have the benefits of
his expertise and knowledge. The Executive, in turn, desires employment with
the Company. The parties, therefore, enter into this Agreement to establish
the terms and conditions of the Executive's employment with the Company.
In consideration of the mutual covenants and representations contained in this
Agreement, the Company and the Executive agree as follows:
1. Employment of Executive; Duties. The Company agrees to employ the Executive
and the Executive agrees to be employed by the Company as Chief Financial
Officer for the period specified in Section 3 (the "Employment Period"),
subject to the terms and conditions of this Agreement. During the Employment
Period, the Executive shall have such duties and responsibilities generally
consistent with his position and such other duties not inconsistent with his
title and position and as may be assigned to him by the Company, which may
include providing similar services for any of the Company's subsidiaries,
parents or affiliates. In connection therewith, Executive shall devote his
best efforts, experience and judgement to fully discharge his duties and
responsibilities under this Employment Agreement and as reasonably
contemplated hereby, and shall act in conformity with the written and oral
policies of the Company and within the limits, budgets, business plans and
instructions as set by its Board of Directors ("the Board"). Executive shall
be subject to the authority of the Board and the Company's duly appointed
officers.
2. Place of Employment and Travel. Executive acknowledges that the Company's
offices and headquarters are currently located in the City of San Diego,
County of San Diego, State of California that shall be the initial site of
Executive's employment.
3. Employment Period. The Employment Period shall begin on the date first
written above ("the Effective Date") and shall continue for three (3) years.
Upon the expiration of one (1) year from the Effective Date and upon each
anniversary thereafter, the Employment Period shall be extended an additional
year without further action by either party, unless the Company gives written
notice to the Executive within thirty (30) days of the anniversary and as
provided in Paragraph 9 herein, in which case the Employment Period shall
expire two (2) years from the next anniversary of the Effective Date.
<PAGE>
4. Base Salary. Commencing with the Effective Date, the Company shall pay to
the Executive a minimum annual base salary of Seventy Two Thousand U. S.
Dollars (US$72,000.00),("the base salary"). The base salary shall be payable
in equal periodic installments which are not less frequent than the periodic
installments in effect for salaries of other executives of the Company. The
base salary shall be subject to review annually by the Board (or a committee
appointed by the Board) for upward adjustments based on the policies of the
Company and the Executive's contributions to the business of the Company. The
base salary shall not be adjusted downward without the written consent of the
Executive.
5. Benefits. In addition to and except for the matters governed by this
Agreement, the Executive shall be entitled to: (i) employee benefits and
perquisites, including but not limited to pension plans, deferred compensation
plans, stock options, annual bonus plans, long term incentive plans, group
life insurance, disability, sickness and accident insurance and health
benefits under such plans and programs as provided to other executives of the
Company from time to time; (ii) paid vacation as well as holidays, leave of
absence and leave for illness and temporary disability in accordance with the
policies of the Company; and, (iii) the specific benefits as are set forth in
Exhibit 2 attached hereto and incorporated in full by this reference.
6. Non-Disclosure; Non-Competition. As a condition to the employment
arrangement, Executive agrees to execute and comply with the terms and
conditions of the "Employee Non-Disclosure, Non-Competition and Assignment of
Inventions Agreement" attached hereto as Exhibit 1.
7. Termination.
7.1 Termination by the Company.
(a) The Company may not terminate the Executive's employment under this
Agreement without Cause.
(b) The Company, by action of its Board, may terminate the Executive's
employment under this Agreement for Cause at any time by notifying the
Executive of such termination. For all purposes of this Agreement, the
Employment Period shall end as of the date of such termination of employment.
"Cause" means the Executive's: (i) persistent and repeated refusal, failure or
neglect to perform the material duties of his employment under this Agreement
(other than by reason of the Executive's physical or mental illness or
impairment), provided that such Cause shall be deemed to occur only after the
Company gave written notice thereof to the Executive specifying in reasonable
detail the conduct constituting Cause, the Executive failed to cure and
correct his conduct within thirty (30) days after receipt of such notice, and
the Executive had the opportunity to be heard at a meeting of the Board; (ii)
committing any act of fraud or embezzlement, provided that such Cause shall
be deemed to occur only after the Company gave notice thereof to the Executive
specifying in reasonable detail the instances of such conduct, and the
Executive had the opportunity to be heard at a meeting of the Board; (iii)
breach of the Employee Non-Disclosure, Non-Competition and Assignment of
Inventions Agreement or of such other subsequent agreements entered into
during the Employment Period that results in a detriment to the Company,
<PAGE>
provided the Company gave notice thereof to the Executive specifying in
reasonable detail each such alleged breach, and the Executive had the
opportunity to be heard at a meeting of the Board; (iv) conviction of a felony
(including pleading guilty to a felony); or (v) habitual abuse of alcohol or
drugs.
7.2 Termination by the Executive. The Executive may terminate this Agreement
at any time, for any reason or for no reason at all, by giving notice thereof
to the Company at least sixty (60) days before the effective date of such
termination. The Employment Period shall terminate as of the date of such
termination of employment.
7.3 Severance Benefits.
(a) If the Executive's employment under this Agreement is terminated by
the Executive before the end of the Employment Period and without Good
Reason (as defined in herein below), the Company shall continue to pay to
the Executive his unpaid Base Salary through the time of termination and
for a period extending ninety (90) days thereafter. Additionally, the
Executive shall be entitled to his share of the accrued stock and accrued
stock options through the date of termination which shall be paid to him
at such time as the next payment is made to the other participants of all
applicable stock or stock option plan or long term incentive plan.
(b) If the Executive's employment under this Agreement is terminated by
the Company for Cause, or if the Executive dies or becomes totally
disabled (as defined herein below), the Company shall only pay the
Executive a lump sum cash payment within thirty (30) days of the date of
such termination, equal to the sum of: (i) Executive's unpaid Base Salary
earned to the termination date; (ii) his share of the accrued stock and
accrued stock options through the date of termination which shall be paid
to him or his estate at such time as the next payment is made to the
other participants of all applicable stock or stock option plans or long
term incentive plans.
(c) If the Executive's employment under this Agreement is terminated by
the Executive for Good Reason or by the Company without Cause, the
Company shall continue to pay to the Executive his unpaid base salary for
the entire time remaining in the Employment Period. Additionally, the
Executive shall be entitled to all stock and stock options set forth in
Exhibit 2, including but not limited to his share of all accrued stock,
accrued stock options, and all other stock and stock options through the
date of the termination of the Employment Period which shall be paid to
him at such time as such payments are made to the other participants of
all applicable stock option plans or long term incentive plans.
(d) "Good Reason" means: any material failure by the Company to pay or
provide the compensation and benefits under this Agreement; provided
that, in each such event, the Executive shall give the Company notice
thereof which shall specify in reasonable detail the circumstances
constituting Good Reason, and there shall be no Good Reason with respect
to any such circumstances cured by the Company within thirty (30) days
after such notice.
(e) If the Executive is terminated by the Company for Cause and the
Executive is entitled to receive payments or other benefits under this
Agreement upon
<PAGE>
the termination of his employment with the Company, the Executive hereby
irrevocably waives the right to receive any payments or other benefits
under any other severance or similar plan maintained by the Company
("Other Severance Plan").
7.4 Termination by Death or Disability. This Agreement shall terminate
automatically upon the Executive's death. If the Company determines in good
faith that the Executive has a "total disability" (within the meaning of such
term or of a similar term as defined in the Company's long-term disability
plan as in effect from time to time), the Company may terminate his employment
under this Agreement by notifying the Executive thereof at least thirty (30)
days before the effective date of such termination.
8. Representation by Executive. Executive represents and warrants to the
Company that his employment hereunder will not conflict with or result in a
violation or breach of, or constitute a default under any contract, agreement
or understanding to which he is or was a party.
9. Notices. Any notices, requests, demands and other communications provided
for by this Agreement shall be sufficient if in writing and if sent by
registered or certified mail to the Executive at the last address he has filed
in writing with the Company or, in the case of the Company, to the Company's
principal executive offices.
10. Withholding Taxes. The Company shall have the right, but not the duty, to
the extent permitted by law, to withhold from any payment of any kind due to
the Executive under this Agreement to satisfy the tax withholding obligations
of the Company under applicable law.
11. Validity; Complete Agreement. The validity and enforceability of any
provision hereof shall in no way affect the validity or enforceability of any
other provision hereof. This Agreement sets forth the entire understanding and
embodies the entire Agreement of the parties with respect to the subject
matter covered hereby and supersedes all prior or contemporaneous oral or
written agreements, understandings, arrangements, negotiations or
communications, among the parties hereto.
12. Amendment. This Agreement shall not be modified or amended except by
written agreement of the parties hereto.
13. Choice of Law; Jurisdiction and Venue. This Agreement shall be governed by
and construed in accordance with the law of the State of California. The
Parties consent to the exclusive jurisdiction of the California courts. Venue
for any action brought hereunder shall be exclusively in the State of
California, County of San Diego.
14. Counterpart. This Agreement may be executed in any number of counterparts,
all of which shall be considered one and the same agreement.
15. Delay; Partial Exercise. No failure or delay by any party in exercising
any right, power or privilege under this Agreement shall operate as a waiver
thereof; nor shall any single or partial exercise of any right, power or
privilege hereunder preclude any other or further exercise thereof or the
exercise of any other right, power or privilege.
<PAGE>
16. Successors and Assigns. This Agreement shall inure to the benefit of and
be binding upon the Company and its successors and assigns. The Company shall
have the right to assign this Agreement to any of its respective subsidiaries,
parents or affiliates. The rights and obligations of Executive under this
Agreement are personal to him and no such right or obligation shall be subject
to voluntary or involuntary alienation, assignment, or transfer.
17. Mandatory Arbitration. DISPUTES REGARDING THE EXECUTIVE'S EMPLOYMENT BY
THE COMPANY, INCLUDING, WITHOUT LIMITATION, ANY DISPUTE UNDER THIS AGREEMENT
WHICH CANNOT BE RESOLVED BY NEGOTIATIONS BETWEEN THE COMPANY AND THE EXECUTIVE
SHALL BE SUBMITTED TO, AND SOLELY DETERMINED BY, FINAL AND BINDING ARBITRATION
CONDUCTED UNDER THE RULES OF ARBITRATION OF THE STATE OF CALIFORNIA APPLICABLE
TO EMPLOYMENT DISPUTES, AND THE PARTIES AGREE TO BE BOUND BY THE FINAL AWARD
OF THE ARBITRATOR IN ANY SUCH PROCEEDING. THE ARBITRATOR SHALL APPLY THE LAWS
OF THE STATE OF CALIFORNIA WITH RESPECT TO THE INTERPRETATION OR ENFORCEMENT
OF ANY MATTER RELATING TO THIS AGREEMENT. ARBITRATION MAY BE HELD IN SAN
DIEGO, CALIFORNIA, OR SUCH OTHER PLACE AS THE PARTIES HERETO MAY MUTUALLY
AGREE, AND SHALL BE CONDUCTED BY A QUALIFIED ARITRATOR APPOINTED UNDER THE
LAWS OF THE STATE OF CALIFORNIA. JUDGMENT UPON THE AWARD BY THE ARBITRATOR MAY
BE ENTERED IN ANY COURT HAVING JURISDICTION THEREOF.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the day and year first written above.
Witness
/s/ James Boring
- ----------------------------------- ----------------------------------
JAMES BORING
Witness
CYBERTEL COMMUNICATIONS CORP.
By /s/ Richard Mangiarelli
- ----------------------------------- ----------------------------------
RICHARD MANGIARELLI
President, Director
<PAGE>
Exhibit 1
EMPLOYEE NON-DISCLOSURE, NON-COMPETITION
AND ASSIGNMENT OF INVENTIONS AGREEMENT
The Undersigned, JAMES BORING ("the Employee" or "Employee") in
consideration of his employment with CYBERTEL COMMUNICATIONS CORP.
("CYBERTEL"), plus other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, intending to be legally bound by
the terms and conditions of this Employee Non-Disclosure, Non-Competition and
Assignment of Inventions Agreement ("this Agreement"), hereby agrees as
follows:
1. Respective Persons or Entities Covered.Employee acknowledges that, as
an employee of CYBERTEL, he will possibly also be working with subsidiaries,
parents and affiliated entities of CYBERTEL that shall hereinafter be referred
to herein as the "Companies."
2. Inventions. Employee agrees as follows:
A. Disclosure. He will promptly disclose to the Companies and each of
them, any invention, discovery, know-how, improvement, design, device,
apparatus, composition, process, plans, programs, or use made, conceived
or discovered by Employee, either solely or in collaboration with others,
during the term of this Agreement which (i) relates in any way to the
products, services processes or systems relating to any of the Companies'
respective businesses (ii) results from or is suggested by any work
performed by Employee for any of the Companies (all the foregoing
hereinafter referred collectively as "Inventions");
B. Ownership of Inventions. Each Invention shall be and remain the sole
and exclusive property of the Companies, whether patented or not, and any
Invention conceived within six months after termination of this Agreement
shall be presumed to be the property of the Companies subject to proof of
the Companies' satisfaction that such Invention was first conceived after
the termination of this Agreement. In furtherance of the foregoing,
Employee agrees to execute, acknowledge and deliver any and all documents
and instruments as may be requested by the Companies (but without any
additional compensation from the Companies) for the purpose of vesting
title to any Invention in the Companies.
C. Prior Inventions. Employee attaches as Schedule A hereto, concurrently
with the execution hereof, a list and brief description of all unpatented
Inventions or proprietary information, if any, made or conceived by him
prior to the date of this Agreement and which are to be excluded from the
provisions of this Agreement. If no such list is attached at the time of
the execution of this Agreement, it shall be conclusively presumed that
Employee has waived any right he may have to any such Invention that
relates to any of the Companies businesses.
<PAGE>
D. Representation. Employee represents and warrants to the Companies that
except as set forth on Schedule B, attached hereto, neither he nor his
Associates or Affiliates have any agreements with or obligations to any
person or entity in conflict with any of the provisions of this
Agreement.
3. Confidentiality. Employee covenants and agrees that he will not, at
any time either during the term of this Agreement of thereafter, for a period
of one year after the receipt by Employee of the last disclosure of
proprietary information, reveal (or permit to be revealed where such is
within its control) to a third party or use for his own benefit, without prior
written consent of the Companies, any information pertaining to the
Inventions, or any of the Companies' respective businesses including but not
limited to information relating to research results, formulations, computer
code, suppliers, employees, customers financial condition, procedures, tests,
know-how, production, distribution, work and organizational methods,
experimental results or trade secrets.
4. Non-competition. During the term of this Agreement and for a period of
one year thereafter, Employee agrees that, except as contemplated by this
Agreement, he shall not, without the prior written consent of the Companies,
either individually or with others, directly or indirectly, as an employee,
representative, partner, principal, agent, independent contractor, consultant,
stockholder, or in any other capacity, participate in, engage in or have a
financial interest in any activity, business or entity relating to or involved
in the development, testing or marketing of products, services, systems or
processes related to the Companies' respective businesses, except as provided
in Schedule B.
Employee acknowledges that the claim for or the payment of any damages for
breach of the provisions contained in this paragraph 4 shall not preclude the
Companies from seeking injunctive or such other forms of relief as may be
obtained in a court of law or equity. Employee acknowledges that he will be
fully able to earn an adequate livelihood for himself and his dependents if
the provisions of this paragraph 4 shall be specifically enforced against him.
In the event that any court of competent jurisdiction shall determine that any
term, covenant, or condition of this paragraph 4 is void or unenforceable,
such court shall have the powers and authority to modify this paragraph 4 in
accordance with the original intent of the parties so as to make such term,
covenant or condition and the remainder of this Agreement valid and binding
upon the parties hereto.
5. Non-solicitation. During the term of this Agreement and for a period
of one year thereafter, Employee agrees that he shall not, without the prior
written consent of the Companies, either individually or with others, directly
or indirectly solicit or hire any of the Companies' employees or key employees
of the Companies' customers for employment with a person or entity involved in
marketing products or services competitive with any of the Companies'
respective businesses. Key employees include supervisory personnel,
executives, personnel in charge of any department, section or subdivision, and
project managers (or directors) and senior personnel on any individual
project or projects. Employee further agrees that all customers of the
Companies, and all prospective customers from whom Employee may have solicited
business while engaged as an employee by the Companies hereunder, shall be
solely the customers of the Companies. Employee therefore agrees that he will
not, for a period of one year immediately following the termination of this
<PAGE>
Agreement, either directly or indirectly, solicit business, as to products or
services competitive with those of the Companies respective businesses, from
any of the Companies'' customers with whom Employee has had contact within one
year prior the termination of this Agreement.
6. Definition of Terms. The term "Employee" shall, for purposes of
paragraphs 1 through 5 includes Employee along with any of Employee's
Affiliates, Associates, or entities of which he is a Beneficial Owner. The
term "Affiliate" shall means a person controlling, controlled by or under
common control with Employee and the term "control" (including the terms
"controlling," "controlled by," and "under common control with") means the
power to direct or cause the direction of the management and policies of a
person or entity, whether through the ownership of voting securities, by
contract or otherwise. The term "Associate," shall mean a relationship with:
i) any corporation, or organization (other than the Companies) of which
Employee or any of his Affiliates or Associates is a director, officer or
partner, ii) any corporation, or organization (other than the Companies) of
which Employee or any of Employee's Affiliates or Associates, directly or
indirectly, are the beneficial owner of five percent (5%) or more of any class
of equity securities; iii) any trust or other estate in which Employee or any
of his Affiliates or Associates have a substantial beneficial interest or with
respect to which Employee or any of his Affiliates or Associates serve as a
trustee or in any other fiduciary capacity; or iv) Employee's spouse, or any
blood relative of Employee, or any blood relative of Employee's spouse, who
resides in the same home as Employee, or who is an officer or director, or
partner of any Affiliate or Associate of Employee. The term "beneficial
ownership" shall mean interests which Employee or his or Affiliates or
Associates may possess which are substantially equivalent to those of
ownership and are enjoyed by reason of any contract, understanding,
relationship, agreement or other arrangement, whether or not such are set
forth in a legally binding contract or document. The term "term of this
Agreement" shall mean the period of time during which the Employment Agreement
executed by Employee and CYBERTEL concurrently with this Agreement remains in
force.
7. Restriction on Enforceability of Agreement. Full compliance by
CYBERTEL and the Companies with the terms of the Employment Agreement executed
by CYBERTEL and Employee concurrently with this Agreement is a material
condition in Employee's decision to execute this Agreement. Therefore, the
provisions of Paragraphs 3 through 5 of this Agreement restricting Employee
for a period of one (1) year following the termination of this Agreement shall
not apply to Employee if his employment is terminated by the Companies without
Cause or by Employee with Good Reason as defined in the Employment Agreement.
IN WITNESS WHEREOF, the Undersigned, intending to be legally bound, hereby
executes and delivers this Agreement this 1st day of October, 1999.
/s/ James Boring
- ----------------------------------
JAMES BORING
Witness
- ----------------------------------
<PAGE>
Schedule A
EXEMPT INVENTIONS AND PROPRIETARY INFORMATION
<PAGE>
Schedule B
EXEMPT AGREEMENTS AND OBLIGATIONS
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is entered into as of October
1, 1999 between CYBERTEL COMMUNICATIONS CORP., a Nevada corporation (the
"Company"), and RICHARD SCHMIDT (the "Executive").
RECITALS
WHEREAS, The Company is engaged in the business of developing and marketing
long distance voice and data telecommunications services and related products
and services ("the Company's Business"); and
WHEREAS, Executive possesses substantial knowledge and experience with respect
to the Company's Business; and
WHEREAS, the Company desires to employ the Executive to have the benefits of
his expertise and knowledge. The Executive, in turn, desires employment with
the Company. The parties, therefore, enter into this Agreement to establish
the terms and conditions of the Executive's employment with the Company.
In consideration of the mutual covenants and representations contained in this
Agreement, the Company and the Executive agree as follows:
1. Employment of Executive; Duties. The Company agrees to employ the Executive
and the Executive agrees to be employed by the Company as Chief Financial
Officer for the period specified in Section 3 (the "Employment Period"),
subject to the terms and conditions of this Agreement. During the Employment
Period, the Executive shall have such duties and responsibilities generally
consistent with his position and such other duties not inconsistent with his
title and position and as may be assigned to him by the Company, which may
include providing similar services for any of the Company's subsidiaries,
parents or affiliates. In connection therewith, Executive shall devote his
best efforts, experience and judgement to fully discharge his duties and
responsibilities under this Employment Agreement and as reasonably
contemplated hereby, and shall act in conformity with the written and oral
policies of the Company and within the limits, budgets, business plans and
instructions as set by its Board of Directors ("the Board"). Executive shall
be subject to the authority of the Board and the Company's duly appointed
officers.
2. Place of Employment and Travel. Executive acknowledges that the Company's
offices and headquarters are currently located in the City of San Diego,
County of San Diego, State of California that shall be the initial site of
Executive's employment.
3. Employment Period. The Employment Period shall begin on the date first
written above ("the Effective Date") and shall continue for three (3) years.
Upon the expiration of one (1) year from the Effective Date and upon each
anniversary thereafter, the Employment Period shall be extended an additional
year without further action by either party, unless the Company gives written
notice to the Executive within thirty (30) days of the anniversary and as
provided in Paragraph 9 herein, in which case the Employment Period shall
expire two (2) years from the next anniversary of the Effective Date.
<PAGE>
4. Base Salary. Commencing October 1, 1999 and continuing to January 31, 2000,
the Company shall pay to the Executive a monthly salary of Five Thousand U. S.
Dollars (US$5,000.00), and commencing February 1, 2000 the Company shall pay
to the Executive a minimum annual base salary of One Hundred Thousand U.S.
Dollars (US$100,000.00) ("the base salary"). The base salary shall be payable
in equal periodic installments which are not less frequent than the periodic
installments in effect for salaries of other executives of the Company. The
base salary shall be subject to review annually by the Board (or a committee
appointed by the Board) for upward adjustments based on the policies of the
Company and the Executive's contributions to the business of the Company. The
base salary shall not be adjusted downward without the written consent of the
Executive.
5. Benefits. In addition to and except for the matters governed by this
Agreement, the Executive shall be entitled to: (i) employee benefits and
perquisites, including but not limited to pension plans, deferred compensation
plans, stock options, annual bonus plans, long term incentive plans, group
life insurance, disability, sickness and accident insurance and health
benefits under such plans and programs as provided to other executives of the
Company from time to time; (ii) paid vacation as well as holidays, leave of
absence and leave for illness and temporary disability in accordance with the
policies of the Company; and, (iii) the specific benefits as are set forth in
Exhibit 2 attached hereto and incorporated in full by this reference.
6. Non-Disclosure; Non-Competition. As a condition to the employment
arrangement, Executive agrees to execute and comply with the terms and
conditions of the "Employee Non-Disclosure, Non-Competition and Assignment of
Inventions Agreement" attached hereto as Exhibit 1.
7. Termination.
7.1 Termination by the Company.
(a) The Company may not terminate the Executive's employment under this
Agreement without Cause.
(b) The Company, by action of its Board, may terminate the Executive's
employment under this Agreement for Cause at any time by notifying the
Executive of such termination. For all purposes of this Agreement, the
Employment Period shall end as of the date of such termination of employment.
"Cause" means the Executive's: (i) persistent and repeated refusal, failure or
neglect to perform the material duties of his employment under this Agreement
(other than by reason of the Executive's physical or mental illness or
impairment), provided that such Cause shall be deemed to occur only after the
Company gave written notice thereof to the Executive specifying in reasonable
detail the conduct constituting Cause, the Executive failed to cure and
correct his conduct within thirty (30) days after receipt of such notice, and
the Executive had the opportunity to be heard at a meeting of the Board; (ii)
committing any act of fraud or embezzlement, provided that such Cause shall
be deemed to occur only after the Company gave notice thereof to the Executive
specifying in reasonable detail the instances of such conduct, and the
Executive had the opportunity to be heard at a meeting of the Board; (iii)
breach of the Employee Non-Disclosure, Non-Competition and Assignment of
Inventions Agreement or of such other subsequent agreements entered into
during the Employment Period that results in a detriment to the Company,
<PAGE>
provided the Company gave notice thereof to the Executive specifying in
reasonable detail each such alleged breach, and the Executive had the
opportunity to be heard at a meeting of the Board; (iv) conviction of a felony
(including pleading guilty to a felony); or (v) habitual abuse of alcohol or
drugs.
7.2 Termination by the Executive. The Executive may terminate this Agreement
at any time, for any reason or for no reason at all, by giving notice thereof
to the Company at least sixty (60) days before the effective date of such
termination. The Employment Period shall terminate as of the date of such
termination of employment.
7.3 Severance Benefits.
(a) If the Executive's employment under this Agreement is terminated by the
Executive before the end of the Employment Period and without Good Reason (as
defined in herein below), the Company shall continue to pay to the Executive
his unpaid Base Salary through the time of termination and for a period
extending ninety (90) days thereafter. Additionally, the Executive shall be
entitled to his share of the accrued stock and accrued stock options through
the date of termination which shall be paid to him at such time as the next
payment is made to the other participants of all applicable stock or stock
option plan or long term incentive plan.
(b) If the Executive's employment under this Agreement is terminated by the
Company for Cause, or if the Executive dies or becomes totally disabled (as
defined herein below), the Company shall only pay the Executive a lump sum
cash payment within thirty (30) days of the date of such termination, equal to
the sum of: (i) Executive's unpaid Base Salary earned to the termination date;
(ii) his share of the accrued stock and accrued stock options through the date
of termination which shall be paid to him or his estate at such time as the
next payment is made to the other participants of all applicable stock or
stock option plans or long term incentive plans.
(c) If the Executive's employment under this Agreement is terminated by the
Executive for Good Reason or by the Company without Cause, the Company shall
continue to pay to the Executive his unpaid base salary for the entire time
remaining in the Employment Period. Additionally, the Executive shall be
entitled to all stock and stock options set forth in Exhibit 2, including but
not limited to his share of all accrued stock, accrued stock options, and all
other stock and stock options through the date of the termination of the
Employment Period which shall be paid to him at such time as such payments are
made to the other participants of all applicable stock option plans or long
term incentive plans.
(d) "Good Reason" means: any material failure by the Company to pay or provide
the compensation and benefits under this Agreement; provided that, in each
such event, the Executive shall give the Company notice thereof which shall
specify in reasonable detail the circumstances constituting Good Reason, and
there shall be no Good Reason with respect to any such circumstances cured by
the Company within thirty (30) days after such notice.
(e) If the Executive is terminated by the Company for Cause and the Executive
is entitled to receive payments or other benefits under this Agreement upon
<PAGE>
the termination of his employment with the Company, the Executive hereby
irrevocably waives the right to receive any payments or other benefits under
any other severance or similar plan maintained by the Company ("Other
Severance Plan").
7.4 Termination by Death or Disability. This Agreement shall terminate
automatically upon the Executive's death. If the Company determines in good
faith that the Executive has a "total disability" (within the meaning of such
term or of a similar term as defined in the Company's long-term disability
plan as in effect from time to time), the Company may terminate his employment
under this Agreement by notifying the Executive thereof at least thirty (30)
days before the effective date of such termination.
8. Representation by Executive. Executive represents and warrants to the
Company that his employment hereunder will not conflict with or result in a
violation or breach of, or constitute a default under any contract, agreement
or understanding to which he is or was a party.
9. Notices. Any notices, requests, demands and other communications provided
for by this Agreement shall be sufficient if in writing and if sent by
registered or certified mail to the Executive at the last address he has filed
in writing with the Company or, in the case of the Company, to the Company's
principal executive offices.
10. Withholding Taxes. The Company shall have the right, but not the duty, to
the extent permitted by law, to withhold from any payment of any kind due to
the Executive under this Agreement to satisfy the tax withholding obligations
of the Company under applicable law.
11. Validity; Complete Agreement. The validity and enforceability of any
provision hereof shall in no way affect the validity or enforceability of any
other provision hereof. This Agreement sets forth the entire understanding and
embodies the entire Agreement of the parties with respect to the subject
matter covered hereby and supersedes all prior or contemporaneous oral or
written agreements, understandings, arrangements, negotiations or
communications, among the parties hereto.
12. Amendment. This Agreement shall not be modified or amended except by
written agreement of the parties hereto.
13. Choice of Law; Jurisdiction and Venue. This Agreement shall be governed by
and construed in accordance with the law of the State of California. The
Parties consent to the exclusive jurisdiction of the California courts. Venue
for any action brought hereunder shall be exclusively in the State of
California, County of San Diego.
14. Counterpart. This Agreement may be executed in any number of counterparts,
all of which shall be considered one and the same agreement.
15. Delay; Partial Exercise. No failure or delay by any party in exercising
any right, power or privilege under this Agreement shall operate as a waiver
thereof; nor shall any single or partial exercise of any right, power or
privilege hereunder preclude any other or further exercise thereof or the
exercise of any other right, power or privilege.
<PAGE>
16. Successors and Assigns. This Agreement shall inure to the benefit of and
be binding upon the Company and its successors and assigns. The Company shall
have the right to assign this Agreement to any of its respective subsidiaries,
parents or affiliates. The rights and obligations of Executive under this
Agreement are personal to him and no such right or obligation shall be subject
to voluntary or involuntary alienation, assignment, or transfer.
17. Mandatory Arbitration. DISPUTES REGARDING THE EXECUTIVE'S EMPLOYMENT BY
THE COMPANY, INCLUDING, WITHOUT LIMITATION, ANY DISPUTE UNDER THIS AGREEMENT
WHICH CANNOT BE RESOLVED BY NEGOTIATIONS BETWEEN THE COMPANY AND THE EXECUTIVE
SHALL BE SUBMITTED TO, AND SOLELY DETERMINED BY, FINAL AND BINDING ARBITRATION
CONDUCTED UNDER THE RULES OF ARBITRATION OF THE STATE OF CALIFORNIA APPLICABLE
TO EMPLOYMENT DISPUTES, AND THE PARTIES AGREE TO BE BOUND BY THE FINAL AWARD
OF THE ARBITRATOR IN ANY SUCH PROCEEDING. THE ARBITRATOR SHALL APPLY THE LAWS
OF THE STATE OF CALIFORNIA WITH RESPECT TO THE INTERPRETATION OR ENFORCEMENT
OF ANY MATTER RELATING TO THIS AGREEMENT. ARBITRATION MAY BE HELD IN SAN
DIEGO, CALIFORNIA, OR SUCH OTHER PLACE AS THE PARTIES HERETO MAY MUTUALLY
AGREE, AND SHALL BE CONDUCTED BY A QUALIFIED ARITRATOR APPOINTED UNDER THE
LAWS OF THE STATE OF CALIFORNIA. JUDGMENT UPON THE AWARD BY THE ARBITRATOR MAY
BE ENTERED IN ANY COURT HAVING JURISDICTION THEREOF.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the day and year first written above.
Witness
/s/ Richard Schmidt
- ----------------------------------- ----------------------------------
RICHARD SCHMIDT
Witness
CYBERTEL COMMUNICATIONS CORP.
By /s/ Richard Mangiarelli
- ----------------------------------- ----------------------------------
RICHARD MANGIARELLI
President, Director
<PAGE>
Exhibit 1
EMPLOYEE NON-DISCLOSURE, NON-COMPETITION
AND ASSIGNMENT OF INVENTIONS AGREEMENT
The Undersigned, RICHARD SCHMIDT ("the Employee" or "Employee") in
consideration of his employment with CYBERTEL COMMUNICATIONS CORP.
("CYBERTEL"), plus other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, intending to be legally bound by
the terms and conditions of this Employee Non-Disclosure, Non-Competition and
Assignment of Inventions Agreement ("this Agreement"), hereby agrees as
follows:
1. Respective Persons or Entities Covered.Employee acknowledges that, as
an employee of CYBERTEL, he will possibly also be working with subsidiaries,
parents and affiliated entities of CYBERTEL that shall hereinafter be referred
to herein as the "Companies."
2. Inventions. Employee agrees as follows:
A. Disclosure. He will promptly disclose to the Companies and each of
them, any invention, discovery, know-how, improvement, design, device,
apparatus, composition, process, plans, programs, or use made, conceived
or discovered by Employee, either solely or in collaboration with others,
during the term of this Agreement which (i) relates in any way to the
products, services processes or systems relating to any of the Companies'
respective businesses (ii) results from or is suggested by any work
performed by Employee for any of the Companies (all the foregoing
hereinafter referred collectively as "Inventions");
B. Ownership of Inventions. Each Invention shall be and remain the sole
and exclusive property of the Companies, whether patented or not, and any
Invention conceived within six months after termination of this Agreement
shall be presumed to be the property of the Companies subject to proof of
the Companies' satisfaction that such Invention was first conceived after
the termination of this Agreement. In furtherance of the foregoing,
Employee agrees to execute, acknowledge and deliver any and all documents
and instruments as may be requested by the Companies (but without any
additional compensation from the Companies) for the purpose of vesting
title to any Invention in the Companies.
C. Prior Inventions. Employee attaches as Schedule A hereto, concurrently
with the execution hereof, a list and brief description of all unpatented
Inventions or proprietary information, if any, made or conceived by him
prior to the date of this Agreement and which are to be excluded from the
provisions of this Agreement. If no such list is attached at the time of
the execution of this Agreement, it shall be conclusively presumed that
Employee has waived any right he may have to any such Invention that
relates to any of the Companies businesses.
<PAGE>
D. Representation. Employee represents and warrants to the Companies that
except as set forth on Schedule B, attached hereto, neither he nor his
Associates or Affiliates have any agreements with or obligations to any
person or entity in conflict with any of the provisions of this
Agreement.
3. Confidentiality. Employee covenants and agrees that he will not, at
any time either during the term of this Agreement of thereafter, for a period
of one year after the receipt by Employee of the last disclosure of
proprietary information, reveal (or permit to be revealed where such is
within its control) to a third party or use for his own benefit, without prior
written consent of the Companies, any information pertaining to the
Inventions, or any of the Companies' respective businesses including but not
limited to information relating to research results, formulations, computer
code, suppliers, employees, customers financial condition, procedures, tests,
know-how, production, distribution, work and organizational methods,
experimental results or trade secrets.
4. Non-competition. During the term of this Agreement and for a period of
one year thereafter, Employee agrees that, except as contemplated by this
Agreement, he shall not, without the prior written consent of the Companies,
either individually or with others, directly or indirectly, as an employee,
representative, partner, principal, agent, independent contractor, consultant,
stockholder, or in any other capacity, participate in, engage in or have a
financial interest in any activity, business or entity relating to or involved
in the development, testing or marketing of products, services, systems or
processes related to the Companies' respective businesses, except as provided
in Schedule B.
Employee acknowledges that the claim for or the payment of any damages for
breach of the provisions contained in this paragraph 4 shall not preclude the
Companies from seeking injunctive or such other forms of relief as may be
obtained in a court of law or equity. Employee acknowledges that he will be
fully able to earn an adequate livelihood for himself and his dependents if
the provisions of this paragraph 4 shall be specifically enforced against him.
In the event that any court of competent jurisdiction shall determine that any
term, covenant, or condition of this paragraph 4 is void or unenforceable,
such court shall have the powers and authority to modify this paragraph 4 in
accordance with the original intent of the parties so as to make such term,
covenant or condition and the remainder of this Agreement valid and binding
upon the parties hereto.
5. Non-solicitation. During the term of this Agreement and for a period
of one year thereafter, Employee agrees that he shall not, without the prior
written consent of the Companies, either individually or with others, directly
or indirectly solicit or hire any of the Companies' employees or key employees
of the Companies' customers for employment with a person or entity involved in
marketing products or services competitive with any of the Companies'
respective businesses. Key employees include supervisory personnel,
executives, personnel in charge of any department, section or subdivision, and
project managers (or directors) and senior personnel on any individual
project or projects. Employee further agrees that all customers of the
Companies, and all prospective customers from whom Employee may have solicited
business while engaged as an employee by the Companies hereunder, shall be
solely the customers of the Companies. Employee therefore agrees that he will
not, for a period of one year immediately following the termination of this
<PAGE>
Agreement, either directly or indirectly, solicit business, as to products or
services competitive with those of the Companies respective businesses, from
any of the Companies'' customers with whom Employee has had contact within one
year prior the termination of this Agreement.
6. Definition of Terms. The term "Employee" shall, for purposes of
paragraphs 1 through 5 includes Employee along with any of Employee's
Affiliates, Associates, or entities of which he is a Beneficial Owner. The
term "Affiliate" shall means a person controlling, controlled by or under
common control with Employee and the term "control" (including the terms
"controlling," "controlled by," and "under common control with") means the
power to direct or cause the direction of the management and policies of a
person or entity, whether through the ownership of voting securities, by
contract or otherwise. The term "Associate," shall mean a relationship with:
i) any corporation, or organization (other than the Companies) of which
Employee or any of his Affiliates or Associates is a director, officer or
partner, ii) any corporation, or organization (other than the Companies) of
which Employee or any of Employee's Affiliates or Associates, directly or
indirectly, are the beneficial owner of five percent (5%) or more of any class
of equity securities; iii) any trust or other estate in which Employee or any
of his Affiliates or Associates have a substantial beneficial interest or with
respect to which Employee or any of his Affiliates or Associates serve as a
trustee or in any other fiduciary capacity; or iv) Employee's spouse, or any
blood relative of Employee, or any blood relative of Employee's spouse, who
resides in the same home as Employee, or who is an officer or director, or
partner of any Affiliate or Associate of Employee. The term "beneficial
ownership" shall mean interests which Employee or his or Affiliates or
Associates may possess which are substantially equivalent to those of
ownership and are enjoyed by reason of any contract, understanding,
relationship, agreement or other arrangement, whether or not such are set
forth in a legally binding contract or document. The term "term of this
Agreement" shall mean the period of time during which the Employment Agreement
executed by Employee and CYBERTEL concurrently with this Agreement remains in
force.
7. Restriction on Enforceability of Agreement. Full compliance by
CYBERTEL and the Companies with the terms of the Employment Agreement executed
by CYBERTEL and Employee concurrently with this Agreement is a material
condition in Employee's decision to execute this Agreement. Therefore, the
provisions of Paragraphs 3 through 5 of this Agreement restricting Employee
for a period of one (1) year following the termination of this Agreement shall
not apply to Employee if his employment is terminated by the Companies without
Cause or by Employee with Good Reason as defined in the Employment Agreement.
IN WITNESS WHEREOF, the Undersigned, intending to be legally bound, hereby
executes and delivers this Agreement this 1st day of October, 1999.
/s/Richard Schmidt
- ----------------------------------
RICHARD SCHMIDT
Witness
- ----------------------------------
<PAGE>
Schedule A
EXEMPT INVENTIONS AND PROPRIETARY INFORMATION
<PAGE>
Schedule B
EXEMPT AGREEMENTS AND OBLIGATIONS
<PAGE>
Exhibit 2
In addition to the benefits set forth in the Employment Agreement, the
Employee shall be entitled to receive the following:
One Hundred Thousand (100,000) shares of Common Stock in the Company,
which shares shall accrue to the benefit of the Employee and shall be issued
in thirty-six (36) equal monthly installments commencing November 1, 1999.
The following additional terms and conditions shall apply to all shares
of Common Stock subject to this Exhibit 2:
1. All shares transferred and paid to Employee shall be restricted
within the meaning of Rule144 of the Securities Act of 1933, as
amended, and shall bear the appropriate legend on each certificate
as well as a legend describing the limitation on transferability
contained herein;
2. In the event the Company approves and implements a stock split or
other revaluation of the shares of Common Stock subject to this
Exhibit 2, the number of remaining shares of Common Stock to be
issued to the Employee shall be recalculated so that the Employee
shall receive the number of shares exactly equivalent to the value
of the shares set forth above; and,
3. In the event the Company is merged into or acquired by another
entity, or a majority interest in the Common Stock is sold or
otherwise transferred to another entity, or the Company authorizes
any other reorganization that in any way affects the marketability
of the shares of Common Stock subject to this Exhibit 2, all shares
of Common Stock remaining to be issued to the Employee shall
immediately vest in the Employee, and the Employee shall have the
right to sell or otherwise dispose of all or any portion of such
shares at his sole discretion and free of any restrictions.
WORLDCOM NETWORK SERVICES, INC.
TELECOMMUNICATIONS SERVICES AGREEMENT
(Switched Services)
This Telecommunications Service Agreement (the "TSA") is entered into as
of the 1st day of October, 1999 by and between WORLDCOM NETWORK SERVICES,
INC., a Delaware corporation, with its principal office at 6929 North Lakewood
Avenue, Tulsa, Oklahoma 74117 ("MCI WorldCom") and Cybertel Communications
Corp, a Nevada corporation, with its principal office at 4275 Executive
Square, Suite 510, San Diego, CA 92037 ("Customer").
In consideration of good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. Switched Services; Other Documents; Start of Service.
(A) Services. MCI WorldCom agrees to provide and Customer agrees to
accept and pay for switched telecommunications services and other
associated services (collectively the "Switched Services") as further
described in the "Attachments" attached hereto and incorporated herein by
reference, which describe the particular services, rates, specific terms
and other information necessary or appropriate for MCI WorldCom to
provide the Switched Services to Customer. The Switched Services
provided by MCI WorldCom are subject to (i) the terms and conditions
contained in this TSA and the Program Enrollment Terms (the "PET") which
is attached hereto and incorporated herein by reference, (ii) the rates
and discounts and other applicable terms set forth in Attachment(s)
attached hereto from time to time and incorporated herein by reference,
and (iii) each Service Request (described below) which is accepted
hereunder. The PET, as subscribed to by the parties, shall set forth the
Effective Date, the Service Term, Customer's minimum monthly commitment,
if any, and other information necessary to provide the Switched Services
under this TSA. In the event of a conflict between the terms of this
TSA, the PET, the Attachments and the Service Request(s), the following
order of precedence will prevail: (1) the PET, (2) the Attachments, (3)
this TSA, and (4) Service Request(s). This TSA, the PET, and the
applicable Attachments are sometimes collectively referred to as the
"Agreement".
(B) Service Requests. Customer's requests to initiate or cancel Switched
Services shall be described in an appropriate MCI WorldCom
Request("Service Request"). A Service Request may consist of machine
readable tapes, facsimiles or other means approved by MCI WorldCom.
Further, Service Requests shall specify all reasonable information, as
determined by MCI WorldCom, necessary or appropriate for MCI WorldCom to
provide the Switched Service(s) in question, which shall include without
limitation, the type, quantity and end point(s) (when necessary) of
circuits comprising a Service Interconnection as described in the
applicable Service Schedules, or automatic number identification ("NI")
information relevant to the Switched Service(s), the "Requested Service
Date", and charges, if any, relevant to the Switched Services described
in the Service Request.
(C) Start of Service. MCI WorldCom's obligation to provide and
Customer's obligation to accept and pay for non-usage sensitive charges
<PAGE>
for Switched Services shall be binding to the extent provided for in this
Agreement upon the submission of an acceptable Service Request to MCI
WorldCom by Customer. Customer's obligation to pay for usage sensitive
charges for Switched Services shall commence with respect to any Switched
Service as of the date the Switched Service in question is made available
to and used by Customer ("Start of Service"), but in no event later than
"Requested Service Date" if such Switched Service is available for
Customer's use as of such Requested Service Date. Start of Service for
particular Services shall be further described in the Attachment(s)
relevant to the Switched Services in question.
2. Cancellation.
(A) Cancellation Charge. At any time after the Effective Date, Customer
may cancel this Agreement if Customer provides written notification
thereof to MCI WorldCom not less than thirty (30 days prior to the
effective date of cancellation. In such case (or in the event MCI
WorldCom terminates this Agreement as provided in Section 7), Customer
shall pay to MCI WorldCom all charges for Services provided through the
effective date of such cancellation plus a cancellation charge (the
"Cancellation Charge") equal to one hundred percent (100%) of the
Customer's commitment(s), if any, (as described in the PET) that would
have become due for the unexpired portion of the Service Term.
(B) Liquidated Damages. It is agreed that MCI WorldCom's damages in the
event Customer cancels this Agreement shall be difficult or impossible to
ascertain. The provision for a Cancellation Charge in Subsection 2(A)
above is intended, therefore, to establish liquidated damages in the
event of a cancellation and is not intended as a penalty.
(C) Cancellation Without Charge. Notwithstanding anything to the
contrary contained in Subsection 2(A) above, Customer may cancel this
Agreement, as provided below, without incurring any cancellation charge
(other than payment for Services provided by MCI WorldCom up through the
effective date of cancellation) if (i) MCI WorldCom fails to provide a
network as warranted in Section 8 below; (ii) MCI WorldCom fails to
deliver call detail records promptly based on the frequency selected by
Customer (i.e., monthly, weekly or daily); or (iii) MCI WorldCom fails to
submit ANI(s) relevant to Customer's Service Requests to the applicable
local exchange companies ("LECs"0 within the time period described in
applicable Attachment(s). Provided, however, Customer must give MCI
WorldCom written notice of any such default and an opportunity to cure
such default within five (5) days of the notice. In the event MCI
WorldCom fails to cure any such default within five-day period on more
than three (3) occasions within any six (6) month period, customer may
cancel this Agreement without incurring any cancellation charge.
3. Customer's End Users.
(A) End Users. Customer will obtain, and upon MCI WorldCom's request
provide MCI WorldCom (within two (2) business days of the date of the
request), a written Letter of Agency ("LOA") acceptable to MCI WorldCom
(or with any other means if approved by the Federal Communications
Commission ("FCC"), the applicable public utility commission ("PUC") and
the applicable LEC), for each ANI indicating the consent of such end user
of Customer ("End User") to be served by Customer and transferred (by way
of change of such End User's designated presubscribed interexchange
carrier (PIC)) to the MCI WorldCom network prior to submitting a Service
Request to MCI WorldCom. Each LOA will provide, among other things, that
the End User has consented to the transfer being performed by Customer or
Customer's designee. When applicable, Customer will be responsible for
notifying its End Users, in writing (or by
<PAGE>
any other means if approved by the FCC, the applicable PUC and the
applicable LEC) that (i) a transfer charge will be reflected on their LEC
bill for effecting a change in their PIC, (ii) the entity name under
which their interstate, intrastate, local and/or operator services will
be billed (if different from Customer), and (iii) the "primary" telephone
number(s) to be used for maintenance and questions concerning their
telecommunications services and/or billing. Customer agrees to send MCI
WorldCom a copy of the documentation Customer uses to satisfy the above
requirements for Customer's confirming orders and/or for notifying End
Users regarding the transfer charge at any time in order to conform with
applicable FCC and state regulations, including without limitation, the
regulations established by the FCC with respect to verification of orders
for long distance service generated by telemarketing as promulgated in 47
C.F.R., Part 64, Subpart K, Section 64.1100 or any successor regulation(s).
(B) Transfer Charges/Disputed Transfers. Customer agrees that it is
responsible for (i) all charges incurred by MCI WorldCom to change the
PIC of End Users to the MCI WorldCom network, (ii) all charges incurred
by MCI WorldCom to change End Users back to their previous PIC arising
from disputed transfers to the MCI WorldCom network plus, at MCI
WorldCom's option, an administrative charge equal to twenty percent(20%)
of such charges, and (iii) any other damages or costs suffered by or
awards against MCI WorlCom resulting from disputed transfers.
(C) Excluded ANIs. Customer agrees to provide all ANIs to be carried on
the MCI WorldCom network prior to the provisioning of such ANIs with the
LECs. MCI WorldCom has the right to reject any ANI supplied by Customer
for any of the following reasons: (i) MCI WorldCom is not authorized to
provide or does not proved long distance services in the particular
jurisdiction in which the ANI is located, (ii) a particular ANI submitted
by Customer is not in proper form, (iii) Customer is not certified to
provide ling distance services in the jurisdiction in which the ANI is
located, (iv) Customer is in material default of this Agreement, (v)
Customer fails to cooperate with MCI WorldCom in implementing reasonable
verification processes determined by MCI WorldCom to be necessary or
appropriate in the conduct of business, (vi) such ANI is rejected by a
LEC (e.g., "PIC freezes"),j or (vii) any other circumstance reasonably
determined by MCI WorldCom which could adversely affect MCI WorldCom's
performance under this Agreement or MCI WorldCom's general ability to
transfer its other customers or other end users to the MCI Worldcom
network, including without limitation, MCI WorldCom's ability to
electronically effect PIC changes with the LECs. In the event MCI
WorldCom rejects an ANI, MCI WorldCom will notify Customer of its
decision specifically describing the rejected ANI and the reason(s) for
rejecting that ANI, and will not incur any further liability under this
Agreement with regard to that ANI. Further, any ANI previously requested
by Customer for Switched Services may be deactivated by MCI WorldCom if
no Switched Services billings relevant thereto are generated in any three
(3) consecutive calendar month/billing periods. MCI WorldCom will be
under no obligation to accept ANIs submitted by Customer within the last
full calendar month period preceding the scheduled expiration of the
Service Term.
(D) Records. Customer will maintain documents and records ("Records")
supporting Customer's re-sale of Switched Services, including, but not
limited to, appropriate and valid documentation of each subscribing End
User's authorization to Customer to act as the End User's PIC for a
period of not less than twelve (12) months or such longer period as may
be required by applicable law, rule or regulation. Customer shall
<PAGE>
indemnify MCI WorldCom for any and all costs, charges or expenses
incurred by MCI WorldCom arising from disputed PIC selections involving
Switched Services to be provided to Customer.
(E) Customer Service. Customer will be solely responsible for billing
its End Users and providing such End Users with customer service.
Customer agrees to notify MCI WorldCom as soon as reasonably possible in
the event an End User notifies Customer of problems associated with the
Switched Services, including without limitation, excess noise, echo, or
loss of service.
4. Customer's Responsibilities.
(A) Expedite Charges. In the event Customer requests expedited services
and/or changes to Service Requests and MCI WorlCom agrees to such
request, MCI WorldCom will pass through the charges assessed by any
supplying parteies( e.g., local access providers) for such expedited
charges and/or changes to Service Requests involved at the same rate to
Customer. MCI WorldCom may further condition its performance of such
request upon Customer's payment of such additional charges to MCI
worldCom.
(B) Fraudulent Calls. Customer shall indemnify and hold MCI WorldCom
harmless from any and all costs, expenses, damages, claims or actions
arising from fraudulent calls of any nature which may comprise a portion
of the Switched Services to the extent that the party claiming the
call(s) in question to be fraudulent is (or had been at the time of the
call) an End User of such Switched Services through Customer or an end
user of the Switched Services through Customer's distribution channels.
Customer shall not be excused from paying MCI WorldCom for Switched
Services provided to Customer or any portion thereof on the basis that
fraudulent calls comprised a corresponding portion of the Switched
Services. In the event MCI WorldCom discovers fraudulent calls being
made (or reasonable believes fraudulent calls from taking place,
including without limitation, denying Switched Services to particular
ANIs or terminating Switched Services to or from specific locations.
Provided, however, noting contained herein will impose any obligation on
MCI WorldCom to take any action with respect to fraudulent calls.
5. Charges and Payment Terms.
(A) Payment. MCI WorldCom billings for Switched Services hereunder are
made on a monthly basis (or such other basis as may be mutually agreed to
by the parties) following Start of Service. Subject to Subsection 5(C)
below, Switched Services shall be billed at the rates set forth in the
applicable Attachment(s). Customer will pay all undisputed charges
relative to each MCI WorldCom invoice for Switched Services within thirty
(30) days of the invoice date set forth on each MCI WorldCom invoice to
Customer ("Due Date"). If payment is not received by MCI WorldCom on or
before the Due Date, Customer shall also pay a late fee in the amount of
the lesser of one and one-half percent (1 1/2 %) of the unpaid balance of
the charges for Switched Services rendered per month or partial month
that such payment is late, or the maximum lawful rate under applicable
state law.
(B) Taxes. Customer acknowledges and understands that MCI WorldCom
computes all charges herein exclusive of any applicable federal, state or
<PAGE>
local use, excise, gross receipts, sales and privilege taxes, duties,
fees or similar liabilities (other than general income or property
taxes), whether charged to or against MCI WorldCom or Customer because of
the Switched Services furnished to Customer ("Additional Charges").
Customer shall pay such Additional Charges in addition to all other
charges provided for herein. Customer will not be liable for certain
Additional Charges if Customer provides MCI WorldCom with an appropriate
exemption certificate.
(C) Modification of Charges. MCI WorldCom reserves the right to
eliminate particular Switched Services and/or modify charges for
particular Switched Services (which charge modifications shall not exceed
then0current generally available MCI WorldCom charges for comparable
services), upon not less than sixty (60) days prior notice to customer,
which notice will state the effective date for the charge modification.
In the event MCI WorldCom notifies Customer of the elimination of a
particular Switched Service and/or an increase in the charges, Customer
may terminate this Agreement without incurring a cancellation charge
(other than payment for Services provided by MCI WorldCom up through the
effective date of cancellation) only with respect to the Switched
Service(s), Customer must notify MCI WorldCom, in writing, at least
thirty (30 days prior to the effective date of the increase in charges.
In the event Customer cancels its subscription to a particular Switched
Service as described in this Subsection 5(C), MCI WorldCom and Customer
agree to negotiate in good faith concerning Customer's minimum monthly
commitment, if any, described in the PET.
(D) Billing Disputes. Notwithstanding the foregoing, amounts reasonably
disputed by Customer (along with late fees attributed to such amounts)
shall apply but shall not be due and payable for a period of sixty (60
days following the Due Date therefor, provided Customer: (i) pays all
undisputed charges on or before the Due Date, (ii) presents a written
statement and supporting documentation of any billing discrepancies to
MCI WorldCom in reasonable detail on or before the Due Date of the
invoice in question, and (iii) negotiates in good faith with MCI WorldCom
for the purpose of resolving such dispute within said sixty (60 day
period. In the event such dispute is mutually agreed upon and resolved
in favor of MCI WorldCom, Customer agrees to pay MCI WorldCom the
disputed amounts together with any applicable late fees within ten (10)
days of the resolution (the "Alternate Due Date"). In the event such
dispute is mutually agreed upon and resolved in favor of Customer,
Customer will receive a credit for the dispute within such sixty (60) day
period (unless MCI WorldCom has agreed in writing to extend such period)
all disputed amounts together with late fees shall become due and
payable, and this provision shall not be construed to prevent Customer
from pursuing any available legal remedies. MCI WorldCom shall not be
obligated to consider any Customer notice of billing discrepancies which
are received by MCI WorldCom more than sixty (60) days following the Due
Date of the Invoice in question.
6. Credit; Creditworhiness:
(A) Credit. Customer's execution of this Agreement signifies customer's
acceptance of MCI WorldCom's initial and continuing credit approval
procedures and policies. MCI WorldCom reserves the right to withhold
initiation or full implementation of any or all Switched Services under
this Agreement pending MCI WorldCom's initial satisfactory credit review
and approval thereof which may be conditioned upon terms specified by MCI
WorldCom, including, but not limited to, security for payments due
hereunder in the form of a cash deposit or other means. MCI WorldCom
reserves the right to modify its requirements,
<PAGE>
if any, with respect to any security interest MCI WorldCom may have, to
(i) disconnect all or any portion the Switched Services being provided
hereunder and/or terminate this Agreement; (ii) withhold billing
information from Customer; and/or (iii) contact the End Users (for Whom
calls are originated and terminated solely over facilities comprising the
MCI WorldCom network) directly and bill such End Users directly until
such time as MCI WorldCom has been paid in full for the amount owed by
Customer. If Customer fails to make payment by the date stated in the
Suspension Notice and MCI WorldCom, after giving Customer five (5) days
prior written notice, terminates this Agreement as provided in this
Section 7, such termination shall not relieve Customer for payment of the
Cancellation Charge as described in Section 2 above.
8. Warranty. MCI WorldCom will use reasonable efforts under the
circumstances to maintain it overall network quality. The quality of Switched
Services provided hereunder shall be consistent with telecommunications common
carrier industry standards, government regulations and sound business
practices. MCI WORLDCOM MAKES NO OTHER WARRANTIES ABOUT THE SWITCHED SERVICES
PROVIDED HEREUNDER, EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO, ANY
WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE.
9. Liability; General Indemnity; Reimbursement.
(A) Limited Liability. IN NO EVENT WILL EITHER PARTY HERETO BE LIABLE TO
THE OTHER PARTY FOR ANY INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL
LOSSES OR DAMAGES, INCLUDING WITHOUT LIMITATION, LOSS OF REVENUE, LOSS OF
CUSTOMERS OR CLIENTS, LOSS OF GOODWILL OR LOSS OF PROFITS ARISING IN ANY
MANNER FROM THIS AGREEMENT AND THE PERFORMANCE OR NONPERFORMANCE OF
OBLIGATIONS HEREUNDER.
(B) General Indemnity. In the event parties other than Customer (e.g.,
Customer's End Users) shall have use of the Switched Service through
Customer agrees to forever indemnify and hold MCI WorldCom, its
affiliated companies and any third-party provider or operator of
facilities employed in provision of the Switched Services harmless from
and against any and all claims, demands, suits, actions, losses, damages,
assessments or payments which those parties may assert arising out of or
relating to any defect in the Switched Services or MCI WorldCom's
provision or nonprovision of Switched Services under this Agreement.
(C) Reimbursement. Customer agrees to reimburse MCI WorldCom for all
reasonable costs and expenses incurred by MCI WorldCom due to MCI
WorldCom's direct participation (either as a party or witness) in any
administrative, regulatory or criminal proceeding concerning Customer if
MCI WorldCom's involvement in said proceeding is based solely on MCI
WorldCom's provision of Switched Services to Customer.
10. Force Majeure. If MCI WorldCom's performance of this Agreement or any
obligation hereunder is prevented, restricted or interfered with causes beyond
its reasonable control including, but not limited to, acts of God, fire,
explosion, vandalism, cable cut, storm or other similar occurrence, any law,
order, regulation, direction, action or request of the United States
government, or state or local governments, or of any department, agency,
commission, court, bureau, corporation or other instrumentality of any one or
more such governments, or of any civil or military authority, or by other
instrumentality of any on one more such governments, or of any civil or
military authority, or by national emergency, insurrection, riot, war, strike,
lockout or work stoppage or other labor difficulties, or supplier failure,
shortage, breach or delay, then MCI WorldCom shall be excused from such
performance on day-to-day basis to the extent of such restriction or
<PAGE>
interference. MCI WorldCom shall use reasonable efforts under the
circumstances to avoid or remove such causes of nonperformance and shall
proceed to perform with reasonable dispatch whenever such causes are removed
or cease.
11. State Certification. Customer warrants that in all jurisdictions in which
it provides long distance services that require certification, it has obtained
the necessary certification from the appropriate governmental authority and,
if requested by MCI WorldCom, agrees to provide proof of such certification
acceptable to MCI WorldCom. In the event Customer is prohibited, either on a
temporary or permanent basis, from continuing to conduct its
telecommunications operations in a given jurisdiction, Customer shall (i)
immediately notify MCI WorldCom by facsimile, (ii) send written notice to MCI
WorldCom within twenty-four (24) hours of such prohibition, and (iii) take
immediate steps to suspend or discontinue its use of Switched Services in such
jurisdiction.
12. Interstate/lntrastate Service. Except with respect to Switched Services
specifically designated as intrastate Services or international Services, the
rates provided to Customer in the applicable Attachments are applicable only
to Switched Services if such Switched Services are used for carrying
interstate telecommunications (i.e., Switched Services subject to FCC
jurisdiction). MCI WorldCom shall not be obligated to provide Switched
Services with end points within a single state or Switched Services which
originate/terminate at points both of which are situated within a single
state. In those states where MCI WorldCom is authorized to provide intrastate
service (i.e., telecommunications transmission services subject to the
jurisdiction of state regulatory authorities), MCI WorldCom will, at its
option, provide intrastate Switched Services pursuant to applicable state
laws, regulations and applicable tariff, if any, filed by MCI WorldCom with
state regulatory authorities as required by applicable law.
13. Authorized Use of MCI WorldCom Name. Press Releases. Without MCI
WorldCom's prior written consent, Customer shall not (i) refer to itself as an
authorized representative of MCI WorldCom whenever it refers to the Switched
Services in promotional, advertising or other materials, or (ii) use MCI
WorldCom's logos, trade marks, service marks, or any variations thereof in any
of its promotional, advertising or other materials. Additionally, Customer
shall provide to MCI WorldCom for its prior review and written approval, all
promotions, advertising or other materials or activity using or displaying MCI
WorldCom's name or the Services to be provided by MCI WorldCom. In the event
MCI WorldCom fails to provide its approval such promotion, advertising or
other materials shall be deemed not approved. Customer agrees to change or
correct, at Customer's expense, any such material or activity which MCI
WorldCom, in its sole judgment, determines to be inaccurate, misleading or
otherwise objectionable for any reason. Customer is explicitly authorized to
only use the following statements in its sales literature or if in response to
an inquiry by Customer's End User. (i) "Customer utilizes the MCI WorldCom
network", (ii) "Customer utilizes MCI WorldCom's facilities", (iii) "MCI
WorldCom provides only the network facilities", and (iv) "MCI WorldCom is our
network services provider". Except as specifically provided in this Section
13, the parties further agree that any press release, advertisement or
publication generated by a party regarding this Agreement, the Services
provided hereunder or in which a party desires to mention the name of the
other party or the other party's parent or affiliated company(ies), will be
submitted to the non-publishing party for its written approval prior to
publication.
14. Notices. Notices under this Agreement shall be in writing and delivered to
the person identified below at the offices of the parties as they appear below
or as otherwise provided for by proper notice hereunder. Customer shall notify
MCI WorldCom in writing if Customer's billing addresses different than the
address shown below. The effective date for any notice under this Agreement
shall be the date of actual receipt of such notice by the appropriate party,
notwithstanding the date of mailing or transmittal via hand delivery or
facsimile.
<PAGE>
If to MCI WorldCom: WorldCom Network Services, Inc.
6929 North Lakewood A venue
Tulsa, Oklahoma 74117
Attn: Wholesale Services
If to Customer: Cybertel Communications Corp.
4275 Executive Square, Suite 510
San Diego, CA 92037
Attn: Jim Boring
Telephone No: 858-646-7415
Fax No: 858-646-7414
15. No-Waiver. No term or provision of this Agreement shall be deemed waived
and no breach or default shall be deemed excused unless such waiver or consent
shall be in writing and signed by the party claimed to have waived or
consented. A consent to waiver of or excuse for a breach or default by either
party, whether express or implied, shall not constitute a consent to, waiver
of, or excuse for any different or subsequent breach or default.
16. Partial invalidity: Government Action.
(A) Partial Invalidity If any part of any provision of this Agreement or
any other agreement, document or writing given pursuant to or in
connection with this Agreement shall be invalid or unenforceable under
applicable law, rule or regulation, that part shall be ineffective to
the extent of such invalidity only, without in any way affecting the
remaining parts of that provision or the remaining provisions of this
Agreement. In such event, Customer and MCI WorldCom will negotiate in
good faith with respect to any such invalid or unenforceable part to the
extent necessary to render such part valid and enforceable.
(B) Government Action Upon thirty (30) days prior notice, either party
shall have the right, without liability to the other, to cancel an
affected portion of the Switched Service if any material rate or term
contained in this Agreement and relevant to the affected Switched Service
is substantially changed (to the detriment of the terminating party) or
found to be unlawful or the relationship between the parties hereunder is
found to be unlawful by order of the highest court of competent
jurisdiction to which the matter is appealed, the FCC, or other local,
state or federal government authority of c
competent jurisdiction. Provided, the 30-day notice required hereunder
may be shortened as necessary if such order goes into effect prior to
thirty (30) days.
17. Exclusive Remedies. Except as otherwise specifically provided for herein,
the remedies set forth in this Agreement comprise the exclusive remedies
available to either party at law or in equity.
18. Use of Service. Upon MCI WorldCom's acceptance of a Service Request
hereunder, MCIWorldCom will provide the Switched Services specified therein to
Customer upon condition that such Switched Services shall not be used for any
unlawful purpose. The provision of Switched Services is not intended to and
will not create a partnership or joint venture between the parties or result
in a joint communications service offering to any third parties, and MCI
WorldCom and Customer agree that this Agreement, to the extent it is subject
to FCC regulation, is an inter-carrier agreement which is not
<PAGE>
subject to the filing requirements of Section 211(a) of the Communications Act
of 1934 (47 U.S.C. Section 211(a)) as implemented in 47 C.F.R. Section 43.51.
19. Choice of Law: Forum.
(A) Law This Agreement shall be construed under the laws of the State of
Oklahoma with out regard to choice of law principles.
(B) Forum Any legal action or proceeding with respect to this Agreement
may be brought in the Courts of the State of Oklahoma in and for the
County of Tulsa or the United States of America for the Northern District
of Oklahoma. By execution of this Customer and MCI WorldCom hereby submit
to such jurisdiction, hereby expressly waiving whatever rights may
correspond to either of them by reason of their present or future
domicile. In furtherance of the foregoing, Customer and MCI WorldCom
hereby agree to service by U.S. Mail at the notice addresses referenced
in Section 14. Such service shall be deemed effective upon the earlier of
actual receipt or seven (7) days following the date of posting.
20. Proprietarv Information.
(A) Confidential Information. The parties understand and agree that the
terms and conditions of this Agreement (but not the existence thereof),
all documents referenced herein (including invoices to Customer for
Switched Services provided hereunder), communications between the parties
regarding this Agreement or the Switched Services to be provided
hereunder (including price quotes to Customer for any services proposed
to be provided or actually provided hereunder), as well as such
information relevant to any other agreement between the parties
(collectively "Confidential Information"), are confidential as between
Customer and MCI WorldCom.
(B) Limited Disclosure. A party shall not disclose Confidential
Information (unless subject to discovery or disclosure pursuant to legal
process), to any other party other than the directors, officers, and
employees of a party or a party's agents including their respective
attorneys, consultants, brokers, lenders, insurance carriers or bona fide
prospective purchasers who have specificallv agreed in writing to
nondisclosure of the terms and conditions hereof. Any disclosure hereof
required by legal process shall only be made after providing the
non-disclosing party with notice thereof in order to permit the
non-disclosing party to seek an appropriate protective order or
exemption. Violation by a party or its agents of the foregoing provisions
shall entitle the non-disclosing party, at its option, to obtain
injunctive relief without a showing of irreparable harm or injury and
without bond.
(C) Survival of Confidentiality. The provisions of this Section 20 will
be effective as of the date of this Agreement and remain in full force
and effect for a period which will be the longer of (i) one (1) year
following the date of this Agreement, or (ii) one (1) year from the
termination or expiration of all Services hereunder.
21. Successors and Assignment. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective successors or
assigns, provided, however, that Customer of the parties shall not assign or
transfer its rights or obligations under this Agreement without the prior
written consent of MCI WorldCom, which consent shall not be unreasonably
withheld or delayed, and further provided that any assignment or transfer
without such consent shall be void.
<PAGE>
22. General.
(A) Survival of Terms The terms and provisions contained in this
Agreement that by their sense and context are intended to survive the
performance thereof by the parties hereto shall so survive the completion
of performance and termination of this Agreement, including, without
limitation, provisions for indemnification and the making of any and all
payments due hereunder.
(B) Headings. Descriptive headings in this Agreement are for convenience
only and shall not affect the construction of this Agreement.
(C) Industry Terms. Words having well-known technical or trade meanings
shall be so construed, and all listings of items shall not be taken to be
exclusive, but shall include other items, whether similar or dissimilar
to those listed, as the context reasonably requires.
(D) Rule of Construction. No rule of construction requiring
interpretation against the drafting party hereof shall apply. In the
interpretation of this Agreement.
23. Entire Agreement. This Agreement consists of (i) all the terms and
conditions contained herein, and (ii) all documents incorporated herein
specifically by reference. This Agreement constitutes the complete and
exclusive statement of the understandings between the parties and supersedes
all prior and contemporaneous proposals and agreements (oral or written)
between the parties relating to the Switched Services provided hereunder. No
subsequent agreement between the parties concerning the Switched Services
(including further Attachments) shall be effective or binding unless it is
made in writing and signed by Customer and MCI WorldCom.
IN WITNESS WHEREOF, the parties have executed this Telecommunications
Services Agreement (Switched Services) as of the dates set forth below which
Agreement will be effective as described in the PET attached hereto.
WORLDCOM NETWORK SERVICES, INC. Cybertel
By: By: /s/ James D. Boring
--------------------------- --------------------------
(Signature) (Signature)
James D. Boring
- ------------------------------ --------------------------
(Print Name) (Print Name)
Senior V.P.
- ------------------------------ --------------------------
(Title) (Title)
10/1/99
- ------------------------------ --------------------------
(Date) (Date)
<PAGE>
MCI WORLDCOM NETWORK SERVICES, INC.
AMENDMENT NO. 1
This Amendment No. 1 is made this 10th day of November , 1999, by and
between Cybertel Communications, Inc. ("Customer") and MCI WORLDCOM Network
Services, Inc. (successor-in-interest to WorldCom Network Services, Inc.)
("MCI WorldCom"), to those certain Program Enrollment Terms (the "PET"), to
the applicable Attachment(s) (the "Attachment(s)"), and to that certain
Switched Services Telecommunications Services Agreement and more particularly
described as TSA#CCC-991006 (the "TSA"), made by and between Customer and MCI
WorldCom dated October 10 1999. In the event of any conflict between the
terms of the TSA, the Attachment(s), or the PET and the terms of this
Amendment No. 1, the terms of this Amendment No. 1 shall control. The TSA
along with the PET, the Attachment(s) attached to the TSA, and this Amendment
No. 1 shall collectively be referred to as the "Agreement".
The parties agree for good and valuable consideration, intending legally
to be bound, as follows:
A. SERVICE TERM. The parties agree to substitute Section 1 of the PET to
read in its entirety as follows:
1. SERVICE TERM: This Agreement shall commence as of October 6, 1999
(the "Effective Date"), and shall continue through and include
August 1, 2003 (the "Service Term"). Upon expiration of the Service
Term, the Switched Services in question will continue to be provided
pursuant to the same terms and conditions as are then in effect
(including without limitation, the applicable rates, discounts and
commitments, if any), subject to termination by either party upon
thirty (30)days prior written notice to the other party.
B. CUSTOMER'S MINIMUM REVENUE COMMITMENT. Commencing with the August, 2000
billing period (i.e., September, 2000 invoice) and continuing through the
end of the Service Term (including any extensions thereto) (the
"Commitment Period"), Customer agrees to maintain, on a take-or-pay
basis, Monthly Revenue (as defined in Section 2 of the PET) of at least
$1 ,000,000 ("Customer's Minimum Revenue Commitment").
C. DEFICIENCY CHARGE: In the event Customer does not maintain Customer's
Minimum Revenue Commitment in any month during the Commitment Period
(regardless of whether Customer has commenced using any or all of the
Switched Services described herein), then for those month(s) only,
Customer will pay MCI WorldCom, in addition to charges due for Switched
Services provided to Customer, the difference between Customer's Minimum
Revenue Commitment and Customer's actual Monthly Revenue (as described in
Section 2 of the PET) (the "Deficiency Charge"). The Deficiency Charge
will be due at the same time payment is due for Switched
<PAGE>
Services provided to Customer for the billing period in which the
Deficiency Charge arises, or immediately in an amount equal to Customer's
Minimum Revenue Commitment for the unexpired portion of the Service Term,
if MCI WorldCom terminates this Agreement based on Customer's default or
if Customer terminates this Agreement pursuant to Section 2(A) of the
TSA. It is agreed that MCI WorldCom's damages in the event Customer fails
to maintain Customer's Minimum Revenue Commitment shall be difficult or
impossible to ascertain. The provision for a Deficiency Charge in this
Paragraph C is intended, therefore, to establish liquidated damages in
the event Customer fails to maintain Customer's Minimum Revenue
Commitment and is not intended as a penalty.
D. SPECIAL RATES:
(A) Notwithstanding anything to the contrary contained in the applicable
Attachments attached to the TSA, commencing as of November 1, 1999 and
continuing through the end of the Service Term, with respect to CLASSIC
2000 SWITCHLESS TOLL FREE Service and CLASSIC 2000 SWITCHLESS 1+ Service,
Customer will receive the special rates (the "Special Rates") shown in
Subparts (i) and (ii) below. The Special Rates contained in Subpart (ii)
below will not be subject to the applicable discount percentage set
forth in the applicable Attachment(s) and Paragraph E below. All other
rates will be as set forth in the applicable Attachments.
(i) CLASSIC 2000 SWITCHLESS TOLL FREE Service and CLASSIC 2000 SWITCHLESS
1+ Service - Customer's Interstate rate per minute for calls within the
48 contiguous United States will be $0006250
(ii) CLASSIC 2000 SWITCHLESS TOLL FREE Service and CLASSIC 2000
SWITCHLESS 1+ Service - Customer's Intrastate rate per minute for calls
within the following states will be the respective rates set forth below.
STATE RATE
Texas $0.1085
California $0.0390
(B) Notwithstanding anything to the contrary contained in the TSA, MCI
WorldCom reserves the right to modify the Special Rates described in
Subsection (A) above (which charge modifications shall not exceed
then-current generally available MCI WorldCom charges for comparable
services), upon not less than fifteen (15) calendar days' prior notice to
Customer (facsimile being acceptable), which notice will state the
effective date for the charge modification.
E. SPECIAL DISCOUNT" Notwithstanding anything to the contrary contained in
the Attachment for CLASSIC 2000 CARRIER TERMINATION Service, the
Attachment for CLASSIC 2000 SWITCHLESS/END USER DEDICATED Services, and
the Attachment for CLASSIC 2000 CARRIER ORIGINATION Service attached to
the TSA, commencing as of November 1, 1999 and continuing through the end
of the Service Term (including)
<PAGE>
any applicable extensions hereto), Customers discount percentage for
CLASSIC 2000 CARRIER TERMINATION Service, CLASSIC 2000 SWITCHLESS/END
USER DEDICATED Services, and CLASSIC 2000 CARRIER ORIGINATION Service
(the "Special Discount") will be ten percent (10%).
F. OTHER TERMS AND CONDITIONS. Except as specifically amended or modified
herein, the terms and conditions of the Agreement will remain in full
force and effect throughout the Service Term and any extensions thereof.
IN WITNESS WHEREOF, the parties have entered into this Amendement No. 1
on the date first written above.
MCI WORLDCOM NETWORK CYBERTEL COMMUNICATIONS, INC.
By:/s/ Karen Walters for Dennis Delaney By:/s/ James D. Boring
------------------------- --------------------------
(Signature) (Signature)
Karen Walters James D. Boring
- ---------------------------- -----------------------------
(Print Name) (Print Name)
Wholesale Account Manager Senior Vice President
- ---------------------------- -----------------------------
(Title) (Title)
11-29-99 11/10/99
- ---------------------------- -----------------------------
(Date) (Date)
CARRIER SERVICE AGREEMENT
CARRIER SERVICE AGREEMENT ("Agreement"), dated May 29, 1998, by and between
Flat Rate Communications, Inc., a Colorado corporation, with its headquarters
located at 800 Third Avenue, New York, New York 10022 ("FRC"), and Cybertel
Communications Corporation, a Nevada Corporation, with its principal offices
located at 4275 Executive Square, Suite 510 La Jolla, CA 92037 ("Customer").
RECITALS
FRC is engaged in the business of providing certain telecommunications and
other enhanced telecommunications services as more fully described on the
schedules attached hereto (the "Services"). Customer desires to purchase from
FRC, and FRC desires to sell to Customer, such Services, in accordance with
the terms and conditions set forth in this Agreement.
ACCORDINGLY, in consideration of the mutual covenant in this Agreement and
intending to be legally bound, the parties agree as follows:
ARTICLE 1
PROVISION OF SERVICES
FRC agrees to sell and Customer agrees to purchase the Service(s) set forth on
the Schedule(s) attached hereto, which schedules may be amended or
supplemented from time to time in accordance with the terms hereof.
ARTICLE 2
TERM AND TERMINATION
2.1 Term and Termination. (a) Subject to Section 2.1(b) hereof, this
Agreement shall commence on the date hereof (the "Effective Date") and shall
terminate on the anniversary date hereof, provided, however, that if neither
party provides written notice terminating the Agreement to the other party at
least thirty (30) days before each anniversary of the Effective Date, this
Agreement shall be renewed on a month-to-month basis.
(b) This Agreement may also be terminated upon the occurrence of any of
the following events:
(1) By either party, upon at least ten (10) days' prior written
notice (a) if the other party commits a material breach of this Agreement
(other than non-payment) and such breach has not been remedied by the date
specified in such notice, such specified date to be no earlier than ten (10)
days after the date of the notice or (b) of a determination by any
governmental authority with jurisdiction over the parties, that the provision
of the Services under this Agreement is contrary to existing laws, rules or
regulations.
(2) By FRC upon at least three (3) business days' written notice, if
Customer fails to pay any amount due to FRC under this Agreement after three
(3) calendar days from the Due Date (as hereinafter defined) and Customer
fails to pay the amount due within two (2) business days of each notice.
(3) By either party, upon ten (10) business days' written notice, if
the other party (A) ceases doing business as a going concern, makes an
assignment for the benefit of creditors, admits in writing its inability to
pay its debts as they become due, files a voluntary petition in bankruptcy, is
adjudicated a bankrupt or an insolvent, files a petition seeking for itself
any reorganization, arrangement, composition, readjustment, liquidation,
<PAGE>
dissolution or similar arrangement under any present or future statute, law or
regulation or files an answer admitting the material allegations of a petition
filed against it in any such proceeding, consents to or acquiesces in the
appointment of a trustee, receiver, or liquidator of it or of all or any
substantial part of its assets and properties, or it or its shareholders shall
take any action looking to its dissolution or liquidation, (B) has filed
against it a petition in bankruptcy which is not dismissed within sixty (60)
days of being filed or, without the party's consent or acquiescence, a
trustee, receiver or liquidator of it or of all or any substantial part of its
assets and properties is appointed and such appointment is not vacated within
thirty (30) days thereafter.
(4) By either party, upon fifteen (15) days' prior written notice,
upon enactment of any law, rule or regulation that in the reasonable judgment
of either party will make it materially more expensive or difficult to comply
with its obligations under this Agreement.
2.2 Consequences of any Termination. (a) Subject to the provisions hereof,
upon termination of this Agreement, FRC shall be entitled to cease providing
Service to Customer, and all amounts due to FRC from Customer shall become
immediately due and payable.
(b) Notwithstanding anything to the contrary herein, Section 3.4
(regarding late charges) hereof shall continue to apply upon termination of
the Agreement.
(c) In addition to any rights hereunder, upon a termination of this
Agreement upon the happening of the events described in Sections 2.1(b)(3) the
non-breaching party shall have such rights and remedies as are available under
applicable law.
(d) Notwithstanding anything to the contrary contained herein, upon the
occurrence of any event set forth in Sections 2.1(b)(4), the parties shall
negotiate, in good faith, a modification of this Agreement to address the
consequences of such event and reach a mutually agreeable compromise and to
minimize the inconvenience and disruption to the Customer.
(e) Notwithstanding the termination of this Agreement for any reason, the
provisions of Articles 4, 5 and 6 shall continue to apply.
ARTICLE 3
PAYMENT TERMS
3.1 Payment and Invoices. Customer shall pay for Carrier Service weekly in
arrears. Carrier Service shall be invoiced no later than two (2) calendar
days after the beginning of the week following the week for which Services
were provided, which invoice shall be paid via bank wire no later than two (2)
calendar days of the date of such invoice (the "Due Date"). All payment under
this Agreement shall be made in U.S. dollars. Each calendar months Customer
shall be invoiced for the entire month indicating weekly payments and the
balance due for the final partial week (if applicable). The month-end invoice
shall be paid in the same manner as each weekly interim invoice.
3.2 Taxes. All Service under this Agreement are provided exclusive of any
applicable federal, local or foreign sales, use, excise, privilege, gross
receipts and other similar taxes, duties and charges imposed by any
governmental authority. Such taxes, duties and charges shall be separately
stated on the monthly invoice and shall be paid directly by Customer unless
required to be collected by FRC, in which case such taxes, duties and charges
shall be paid to FRC to the appropriate authority upon receipt of payment from
Customer. Any amounts not paid when the invoice is due shall be treated as a
late payment for purposes of Sections 2.2(b) and 3.4. If Customer claims any
exemption from otherwise applicable taxes, duties or charges it shall provide
FRC with a valid tax exemption certification or other evidence reasonably
satisfactory to FRC that Customer is not subject to such taxes, duties or
charges.
<PAGE>
3.3 Disputed Charges. If Customer, in good faith, disputes in writing the
amount or appropriateness of a charge included in an invoice from FRC,
Customer shall notify FRC of the disputed charge and provide documentation
reasonable requested by FRC to resolve the disputed charge. Such notification
shall not relieve Customer of the obligation to make all payments by the due
date, including the amounts disputed by the Due Date. Customer and FRC shall
exercise reasonable, good faith efforts to resolve the disputed charges.
Failure to contest a charge within forty-five (45) days of the date of the
invoice shall create an irrebuttable presumption of the correctness of the
charge. If FRC and the Customer fail to resolve the disputed charge with
ninety (90) days from the date of the invoice, the parties are then free to
exercise their rights hereunder to seek remedy in a court of law and such
charges shall be considered due from the original Due Date and shall be
subject to all late payment penalties contained in this Agreement, in the
event FRC is the prevailing party. If the dispute is resolved within this
ninety (90) day period, no late fees will be assessed.
3.4 Late Fees. Any payments (which are not disputed in accordance with
Paragraph 3.3 above) not received by the Due Date shall bear interest at an
annual rate of eighteen (18) percent, or the maximum rate permitted by law,
whichever is less, from the Due Date until paid in full. Any payments
received which are less than the total amount due shall be applied first to
interest and collection fees, and then to the oldest invoice(s) outstanding,
regardless of any contrary instructions received from the Customer.
ARTICLE 4
LIABILITY
4.1 Service Interruptions. FRC shall not be liable for interruptions in the
provisions of Service to Customer caused by or resulting from any act of God,
flood, earthquake, storm, lightning, fire, epidemic, war, outbreak of
hostilities (whether or not war is declared), riot, strikes or other labor
unrest, civil disturbance, sabotage, failures of third parties, including
mechanical failures, fiber or cable cuts, accidents, defects in transmission,
expropriation by governmental authorities, interruptions by regulatory or
judicial authorities or other acts or events that are outside the reasonable
control of FRC.
4.2 LIMITATION OF LIABILITY. IN NO EVENT SHALL FRC BE LIABLE TO CUSTOMER OR
ANY OTHER THIRD PARTY IN ANY RESPECT, INCLUDING, WITHOUT LIMITATION, FOR ANY
DIRECT, CONSEQUENTIAL, SPECIAL, INCIDENTAL, ACTUAL OR PUNITIVE DAMAGES, OR FOR
ANY LOST PROFITS OF ANY KIND OR NATURE WHATSOEVER, ARISING OUT OF OR RELATING
TO THIS AGREEMENT (OR THE OBLIGATIONS, HEREUNDER).
4.3 NO WARRANTY. FRC MAKES NO WARRANTY TO CUSTOMER OR ANY OTHER PERSON OR
ENTITY, WHETHER EXPRESS OR IMPLIED OR STATUTORY, AS TO THE QUALITY,
MERCHANTABILITY, COMPLETENESS OR FITNESS FOR A PARTICULAR USE OR PURPOSE OF
THE SERVICES PROVIDED UNDER THIS AGREEMENT, ALL SUCH WARRANTIES HEREBY BEING
EXPRESSLY EXCLUDED AND DISCLAIMED.
ARTICLE 5
CONFIDENTIALITY
5.1 Confidentiality. During the term of this Agreement, the parties may
disclose to each other certain "proprietary" and/or "confidential"
information. The parties desire to assure the confidential and proprietary
status of the information which may be disclosed to each other and therefore
for themselves and their affiliates agree as follows:
(a) All information disclosed shall be deemed to be confidential and
proprietary (hereinafter "Proprietary Information") provided that written
information is clearly marked in a conspicuous place as proprietary, and
verbal information is immediately confirmed in writing as proprietary. All
information contained in this Agreement, including the Schedules hereto, as
<PAGE>
well as all records of Customer's customers, traffic volume and distribution
information and rate information of either party given to or learned by the
other in connection with this Agreement shall be considered Proprietary
Information without further act of either party.
(b) Each party agrees to use the Proprietary Information received from the
other party only for the purpose of this Agreement. No other rights, and
particularly licenses, to trademarks, service marks, inventions, copyrights,
or patents are implied or granted under this Agreement.
(c) Proprietary Information supplied shall not be reproduced in any form or
orally communicated except as required to accomplish the intent of this
Agreement.
(d) The receiving party shall provide at a minimum the same care to avoid
disclosure or unauthorized use of the Proprietary Information as it provides
to protect its own proprietary information. It is agreed that all Proprietary
Information shall be retained by the receiving party in a secure place with
access limited to only such of the receiving party's employees or agents who
need to know such information for purposes of this Agreement.
(e) All Proprietary Information, unless otherwise specified in writing, shall
remain in the property of the disclosing party, shall be used by the receiving
party only for the purpose intended, and such Proprietary Information,
including all copies thereof, shall be returned to the disclosing party or
destroyed after the receiving party's need for it has expired or upon written
request of the disclosing party, and, in any event, upon termination of this
Agreement. The non-disclosing party shall promptly provide the disclosing
party written certification that all Proprietary Information has been returned
or destroyed.
(f) It is understood that the term "Proprietary Information" does not include
information which:
(1) has been lawfully published or is otherwise in the public domain
through no fault of the parties;
(2) prior to disclosure is properly within the legitimate possession of
the receiving party without restriction of the receiving party's right to
disseminate the information and without notice of any restriction against its
further disclosure;
(3) subsequent to disclosure is lawfully received from a third party
having rights therein without restriction of the third party's right to
disseminate the information and without notice of any restriction against its
further disclosure;
(4) is independently developed without breach of any obligation of
confidentiality through parties who have not had, either directly or
indirectly, access to or knowledge of such Proprietary Information;
(5) is disclosed with the prior written approval of the other party; or
(6) is obligated to be produced under order of a court of competent
jurisdiction or other legal or regulatory process or procedure, provided that
the party who is requested to produce the Proprietary Information shall
promptly notify the other party in writing of the request.
5.2 Use of Name. Each party agrees that, without the other party's written
consent, it will not use the name, service marks or trademarks of the other
party or of any of its affiliated companies in any advertising publicity
releases or sales presentations. Neither party shall take any actions which
will in any manner compromise other party's registered trademarks and/or
service marks.
5.3 Remedies for Breach. The parties agree that a breach of the terms of this
Article 5 would result in irreparable injury to the non-breaching party for
which a remedy in damages would be inadequate. The parties agree that in the
event of such breach or threatened breach, the non-breaching party shall be
entitled to seek an injunction to prevent the breach or threatened breach, in
addition to remedies otherwise available at law or in equity.
<PAGE>
ARTICLE 6
MISCELLANEOUS
6.1 Waiver. The failure of either party to give notice of default or to
enforce compliance with any of the terms or conditions of this Agreement, the
waiver of any term or condition of this Agreement, or the granting of an
extension of time for performance, shall not constitute a permanent waiver of
any term or condition of this Agreement, and this Agreement and each of its
provisions shall remain at all times in full force and effect until modified
by both parties in writing.
6.2 Litigation Costs. In the event that a party institutes litigation to
enforce the terms of this Agreement or to collect any moneys due hereunder,
the prevailing party shall be entitled to recover, in addition to any other
remedy, reimbursement for reasonable attorney's fees, court costs and other
reasonable related expenses incurred in connection therewith.
6.3 Assignment. Neither party shall assign this Agreement or any rights under
this Agreement without the prior written consent of the other party.
Notwithstanding anything to the contrary herein, FRC shall be entitled to
create a security interest in this Agreement in favor of its lenders without
Customer's consent. Any attempted assignment that does not comply with the
terms of this section shall be null and void.
6.4 Notices. Any notice, approval, request, authorization, direction or other
communication under this Agreement shall be given in writing and shall be
deemed to have been delivered and given for all purposes (a) on the delivery
date if delivered personally to the party to whom the same is directed, or (b)
on the date received if sent by express courier, registered or certified mail,
return receipt requested, postage and charges prepaid, or by facsimile with
receipt confirmed addressed as follows:
If to FRC:
Flat Rate Communications, Inc.
541 Sycamore Valley Road West
Danville, CA 94526
Attn: John M. Scanlon, General Manager
With a copy to:
Viatel, Inc.
800 Third Avenue, 18th Floor
New York, New York 10022
Attn: Sheldon M. Goldman, Vice President, Business and Legal Affairs
If to Customer:
Cybertel Telecommunications, Inc.
4275 Executive Square, Suite 510
La Jolla, CA 92037
Attn: Richard Mangiarelli
Either party may change its address specified above by giving the other party
notice of such change in accordance with this paragraph.
6.5 Entire Agreement and Amendments. This Agreement sets forth the entire
understanding of the parties and supersedes any and all prior agreements,
arrangements or understandings relating to the subject matter thereof. This
Agreement shall not be amended in any way without a signed and otherwise
properly executed written agreement between the parties hereto.
<PAGE>
6.6 Jurisdiction. Pursuant to Title 14 of the General Obligations Law of the
State of New York, the parties hereto agree that (1) the rights and
obligations of the parties hereunder shall be governed by and interpreted,
construed, and enforced in accordance with internal laws of the State of New
York and (2) the forum for any dispute hereunder shall be in any federal
and/or state court located in New York County, and there shall be no defense
to the selection of such forum based on jurisdiction, venue or convenience.
6.7 Severability. In the event that any provision of this Agreement, neutral
pronouns and any variations thereof shall be deemed to included the feminine
and masculine and all terms used in the singular shall be deemed to include
the plural, and vice versa, as the context may require. The words "herein,"
"hereof" and "hereunder" and other words of similar import refer to this
Agreement as a whole, including the Schedules and Exhibits hereto, as the same
may from time to time be amended or supplemented and not to any subdivision
contained in this Agreement. The word "including" when used herein is not
intended to be exclusive and means "including, without limitation".
References to "dollars," "U.S.$" and "$" are to United States dollars.
References herein to an Article, Section, subsection, clause, Schedule or
Exhibit shall refer to the appropriate Article, Section, subsection, clause,
Schedule or Exhibit in or to this Agreement, the Article and Section headings
used herein are for reference purposes only, and shall not in any way affect
the meaning or interpretation of this Agreement.
6.9 Counterparts. This Agreement may be executed in counterparts, all of
which taken together shall constitute one instrument.
6.10 Incorporation of Exhibits and Schedules. Each of the Exhibits and
Schedules identified in this Agreement or attached hereto are incorporated
herein by reference and made a part thereof. To the extent of any
inconsistency or conflict between the terms of Schedule or Exhibit and the
terms of this Agreement, the terms of such Schedule or Exhibit shall control,
capitalized terms used but not otherwise defined in the Schedules or Exhibits
shall have the meanings ascribed to them in the Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
Flat Rate Communications, Inc.
By: /s/ John M. Scanlon
---------------------
Name: John M. Scanlon
Title: General Manager
Cybertel Communications Corporation
By: /s/ Richard Mangiarelli
-------------------------
Name: Richard Mangiarelli
Title: President
<PAGE>
SCHEDULE A - CARRIER SERVICES AGREEMENT
A.1 Purchase and Sale of Services. Cybertel Communications Corporation
("Customer") agrees to purchase from FRC, Inc. ("FRC"), and FRC agrees to sell
to Customer, the long distance telephone services "the "Carrier Service") set
forth in Exhibit 1 at the stated rates, with the understanding that such
Customer is responsible for delivering its calls or other services to FRC's
switching site at 60 Hudson Street, New York, New York, 10022, or such other
points and locations as may be mutually agreed upon.
A.2 Rate Changes. FRC reserves the right t adjust its rates at any time upon
five(5) days' prior written notice to Customer, and Customer's continued use
of the Carrier Service constitutes acceptance of the rates and Customer's
agreement to pay all applicable charges.
A.3 Payment Security. Upon the request of FRC, Customer shall provide
financial statements, credit reports and other publicly available financial
information reasonably requested by FRC to determine Customer's
creditworthiness. If requested by FRC, Customer shall provide a cash deposit,
a letter of credit drawn on a financial institution acceptable to FRC or such
other security as FRC and Customer may agree upon prior to FRC rendering any
Service to secure Customer's payments during the term that Services are
provided hereunder. Subject to Section 3.3 of the Agreement, FRC may offset
against the security any amounts due under the Agreement by Customer that are
not paid when due. Upon the expiration or termination of the Agreement for
any reason, FRC shall have the right to offset against the security any
amounts owed to it by Customer and shall remit the balance promptly to
Customer without interest.
A.4 Applicability of Tariffs and Laws. Service provided hereunder and the
rights and obligations of the parties hereunder may be subject to and be
governed by tariffs filed by FRC from time to time with the Federal
Communications Commission or any applicable regulatory authority
(collectively, the "Tariffs"), the terms of which are incorporated herein by
reference. If there is any conflict or inconsistency between the terms of the
Agreement and any of the Tariffs applicable to this Agreement, the terms of
the Agreement shall control. The Tariffs are subject to modification in
accordance with applicable law and the rules and regulations of applicable
regulatory authorities. The provision of Service under this hereunder also is
subject to applicable law and the rules and regulations of applicable
regulation authorities. Each party shall perform its obligations hereunder in
compliance with applicable laws.
A.5 Resale of Services.
(a) In reselling FRC's Services under this Agreement, Customer will observe
the highest standard of integrity and fair dealing with members of the public.
Customer agrees to sell and bill FRC's Service under its own name, identity or
mark, and Customer further agrees not to reference FRC's name or marks in any
context involving its furnishings of service(s) to the public. If any
violation of this provision occurs during the term of this Agreement, FRC may
terminate this Agreement on five(5) business days written notice.
Furthermore, Customer agrees to indemnify FRC for any actions, claims, suits
or damages arising out of any allegation that if proved would cause Customer
to be in breach of this provision and Customer shall also pay all attorney's
fees and costs incurred by FRC due to any actions, claims, suits or damages
arising out of such allegation.
(b) Customer agrees that it will obtain and maintain any and all approvals to
resell FRC's Service hereunder from the FCC, including requirements imposed by
Section 214 of the Communications Act of 1934, as amended, and state
regulatory bodies. In the event Customer fails to botain or maintain the
appropriate approvals, FRC shall not be liable for any delay or failure to
provide FRC's Services.
(c) Customer shall have sole responsibility for interacting with its customers
in all matters pertaining to service, including the placing and handling of
service orders, service installation, operation and termination, dispute
handling and resolution, and billing and collection matters. FRC shall incur
<PAGE>
no obligation, nor shall it be deemed to have any obligation, to interact with
Customer's customers for any reason or purpose. Customer shall cooperate with
FRC as necessary to address and resolve service-related issues and problems
and shall impose upon its customers an obligation to cooperate, with Customer
in addressing and resolving service-related issues and problems.
(d) Customer understands and accepts that, as part of FRC's normal business
policy and practices and its obligations under law, FRC will engage in
extensive marketing efforts in attempt to sell its services to the public and
that such efforts will result in active competition with Customer for the
business of users who are Customer's customers or prospects. Accordingly,
Customer further understands and accepts that such competition by FRC is in
all respects fair and proper and that Customer shall not complain, or be heard
to complain, of business lost to FRC. Under no circumstance shall any
inference be derived that FRC's entry into this Agreement with Customer means
that FRC will restrict its efforts to compete against Customer in any way.
(e) Customer understands and accepts that no fiduciary relationship arises by
virtue of this Agreement and that, accordingly, FRC incurs non of the
obligations that arise in such relationship as an incident of its fulfilling
its obligations under this Agreement. Further, Customer understands and
accepts that FRC is not an insurer of profits for Customer, nor does FRC
guarantee the success of Customer's business as a result of Customer's receipt
of service(s) under this Agreement.
A.6 Fraudulent Calls. FRC shall not be liable for any fraudulent calls
delivered to FRC and billed to Customer's account. FRC shall notify Customer
promptly of any fraudulent calling of which FRC has knowledge, it being
understood that FRC is under no obligation to investigate the authenticity of
calls charged to Customer's account.
IN WITNESS WHEREOF, the parties accept this Schedule A to the Carrier Services
Agreement dated May 29, 1998 between FRC and Customer as of this 29th day of
May, 1998.
Flat Rate Communications, Inc.
By: /s/ John M. Scanlon
---------------------
Name: John M. Scanlon
Title: General Manager
Cybertel Communications Corporation
By: /s/ Richard Mangiarelli
------------------------
Name: Richard Mangiarelli
Title: President
CARRIER SERVICE AGREEMENT
THIS CARRIER SERVICE AGREEMENT ("AGREEMENT") is made and entered into by
and between Cybertel Communications Corp., a Nevada corporation, with its
principal office located at 4275 Executive Square Suite 510, La Jolla,
California 92037 ("Cybertel"), and LD Exchange, Com, Inc. ("Purchaser"), a
Delaware corporation, with its principal office located at 12625 High Bluff
Dr. #112, SD, CA 92130.
Background:
Cybertel provides telephone communications services between its
location(s) and the outbound termination points identified on Exhibit A
("Services") attached hereto and incorporated herein by this reference; and
Purchaser desires to purchase and Cybertel desires to provide, upon the
terms and conditions set forth in this Agreement, telephone communications
services to Purchaser.
Agreement:
NOW, THEREFORE, intending to be legally bound, the parties agree as
follows:
1. Service Commencement Date. Cybertel shall commence providing Services to
Purchaser hereunder on or about ________.
2. Rates Terms and Conditions. Cybertel shall provide Services to Purchaser
at the rates, terms and conditions described in Exhibit A, and to the
termination points set forth in Exhibit A. The services to be provided to
Purchaser are limited to those set forth in Exhibit A. Cybertel may change
the Rates, Terms, conditions described herein, in Exhibit A, any attachment
thereto or any subsequent rate sheet or exhibit on a (5) five-day prior
written notice. Upon receipt of such notification, Purchaser may terminate
the affected portion of this Agreement or this Agreement in entirety without
penalty or further obligation.
3. Period of Service. This Agreement shall be effective and the Parties'
obligations shall commence upon the above date and this Agreement shall
continue for a period of ___ ( ) months from such date. This Agreement will
renew automatically on a month-to-month basis after the expiration of the
initial term. If a party desires to cancel this Agreement upon the expiration
of the initial term, it shall give the other party written notice, as provided
for herein, of its intent to cancel at least thirty (30) days prior to the
expiration of the current term.
4. Billing Increments. All traffic shall be billed with an initial 30 second
minimum increment, followed by 6 second additional increments (i.e., a minimum
call length 30 seconds, with all additional usage rounded up to the nearest 6
second increment). The sole exception to this billing arrangement shall be
traffic terminating in Mexico which shall be billed in full minute increments
(i.e., a minimum call length 60 seconds, with additional usage rounded up to
the nearest full minute).
5. Billing. Cybertel shall bill Purchaser for Services on a monthly basis.
Bills will be sent by facsimile or overnight delivery. The bill shall be
deemed received by Purchaser on the date of a facsimile confirmation if sent
by facsimile or, if sent by Cybertel overnight delivery, on the date after it
is so sent. All bills are payable within seventy-two (72) hours by wire
transfer.
6. Billing Disputes. Any billing discrepancies shall be presented to
Cybertel in reasonable detail, in writing, within forty-five (45) days of the
date of the invoice in question. Such notification shall not relieve
Purchaser of the obligation to make all payments including the amounts
disputed by the due date set forth in this Agreement. Cybesrtel shall not be
obligated to consider any Purchaser notice of billing discrepancies which are
received by Cybertel more than forty-five (45) days following the date of the
invoice in question.
<PAGE>
7. Dispute Resolution. In the event of any controversy or claim arising from
or related to this Agreement, its performance or interpretation, the parties,
in good faith, initially will attempt to resolve the dispute among themselves.
Failing such resolution, the parties may mutually agree, in writing, to submit
the matter to arbitration before the American Arbitration Association ("AAA")
at the closest to San Diego, California.
8. Termination. If payment has not been received for all charges (including
transmission charges and monthly fixed charges, if any) billed to Purchaser by
the due date described above, or any extension thereof permitted in writing at
Cybertel's option, then Cybertel shall provide purchaser with written notice
indicating its intent to terminate transmission service in part or in whole
unless Cybertel receives payment of such undisputed amounts within seven (7)
days after Purchaser receipt of written notice. Either party may terminate
this Agreement upon thirty (30) days prior written notice for failure to cure
a breach thereof.
9. No Warranties. OTHER THAN AS SPECIFICALLY SET FORTH HEREIN, CYBERTEL
MAKES NO WARRANTY, EXPRESS OR IMPLIED, WITH RESPECT TO THE QUALITY OR
SUFFICIENCY OF THE SERVICES PROVIDED HEREUNDER AND EXPRESSLY DISCLAIMS ANY
WARRANTY OF MERCHANTABILITY, DESCRIPTION OR FITNESS FOR ANY PARTICULAR PURPOSE
OR FUNCTION.
10. Waiver of Liability. Purchaser agrees that in no event the other shall
be liable for any loss, expense or damage for (i) loss of revenue, profits
savings, business or goodwill, and (ii) exemplary, proximate, consequential,
or incidental damages and expenses of any type or nature on account of any
breach or default hereunder by the other or on account of the use or nonuse or
the services.
11. Indemnity. Purchaser agrees to indemnify and hold Cybertel and
Cybertel's directors, officers, employees, agents and advisors harmless from
and against any and all claims, demands, or actions and costs, liabilities or
losses arising out of the provision of Services by Purchaser to its
Purchasers, however such damages are occasioned, as well as any damages
arising as a result of a breach by Purchaser of this Agreement.
12. Regulations. This Agreement is made expressly subject to all present and
future valid orders and regulations of any regulatory body having jurisdiction
over the subject matter hereof and to the laws of the United States of
America, any of its states, or any foreign governmental agency having
jurisdiction. In the event this Agreement, or any of its provisions, shall be
found contrary to or in conflict with any such order, rule, regulation or law,
this Agreement shall be deemed modified to the extent necessary to comply with
any such order, rule, regulation or law and shall be modified in such a way as
is consistent with the form, intent and purpose of this Agreement.
13. No Agency. Neither party is authorized to act as an agent for, or legal
representative of, the other party and neither party shall have the authority
to assume or create any obligation on behalf of, in the name of, or binding
upon the other party.
14. Force Majeure. The parties' obligations under this Agreement are subject
to, and neither party shall be liable for, delays, failures to perform (except
the payment of money by Purchaser for services utilized hereunder), damages,
losses or destruction, or malfunction of any equipment or any consequence
thereof caused or occasioned by, or due to fire, flood, water, the elements,
labor disputes or shortages, utility curtailments, power failures, explosions,
civil disturbances, governmental actions, shortages of equipment or supplies,
unavailability of transportation, acts or omissions of third parties, or any
other cause beyond the party's reasonable control. Purchaser shall not
represent that Cybertel is responsible for the type or quality of Purchaser's
services to its customer.
15, Waiver. The failure of either party to enforce or insist upon compliance
with any of the provisions of this Agreement or the waiver thereof, in any
instance, shall not be construed as a general waiver or relinquishment of any
other provision of this Agreement.
<PAGE>
16. Binding Effects. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective heirs, successors and
assigns.
17. No assignment. Neither party shall voluntarily or by operation of law
assign, transfer, license, or otherwise transfer all or any part of its right,
duties or other interests in this Agreement or the proceeds thereof
(collectively, "Assignment"), without the other party's prior written consent,
which consent shall not be unreasonably withheld or delayed. Either party may
assign this Agreement to any affiliate or wholly owned subsidiary without the
consent of the other party. Either party's failure to comply with the
assignment provisions, as contained in this paragraph, shall give the other,
at its sole discretion, the option to either accept the others assignee or
terminate this Agreement. No assignment shall release the other of its
obligations hereunder.
18. Amendment. This Agreement may not be amended except by an instrument in
writing, executed by the parties. No modification or amended hereto shall be
effected by the acknowledgment or acceptance by either party of any purchaser
order, sales acknowledgment or other similar form from the other party.
19. Merger. This Agreement (including its exhibits) supersedes and merges
all prior agreements, promises, understandings, statements, representations,
warranties, indemnities and covenants and all inducements to the making of
this Agreement relied upon by either party herein, whether written or oral,
and embodies the parties' complete and entire agreement with respect to the
subject matter hereof. No statement or agreement, oral or written, made
before the execution of this Agreement shall vary or modify the written terms
hereof in any way whatsoever.
20. Interpretation. The words and phrases used herein shall have the meaning
generally understood in the telecommunications industry. This Agreement shall
be construed in accordance with its fair meaning and not for or against either
party on account of which party drafted this Agreement.
21. Third Party Beneficiaries/ Parties in Interest. This Agreement has been
made solely for the benefit of the Cybertel and Purchaser, and their
respective successors and permitted assigns. Nothing in this Agreement is
intended to confer any rights/remedies under or by reason of this Agreement on
any third party.
22. Severability. If any term or provision of this Agreement is determined
to be illegal, unenforceable, or invalid in whole or in part for any reason,
such illegal, unenforceable, or invalid provisions or part(s) thereof shall be
stricken from this Agreement and such provision shall not affect the legality,
enforceability, or validity of the remainder of this section, then the
stricken provision shall be replaced, to the extent possible, with a legal,
enforceable, and valid provision that is similar in tenor to the stricken
provisions as is legally possible.
23. Representation of Authority. Each party represents and warrants that:
(a) the signatory shown below has the authority to bind the party on whose
behalf he/she is signing to the terms of this Agreement; (ii) the execution
and delivery of this Agreement and the performance of such party's obligations
hereunder have been duly authorized; and (iii) the Agreement is a valid and
legal agreement binding on such parties and enforceable in accordance with its
terms.
24. Further Assurances. The parties shall at their own cost and expense
execute and deliver such further documents and instruments and shall take such
other actions as may be reasonably required or appropriate to carry out the
intent and purposes of this Agreement.
25. Governing Law. This Agreement shall be in all respects, governed by and
construed and enforced in accordance with the laws of the State of
California, including all matters of construction, validity and
performance. Any action to enforce or interpret the terms of this
Agreement shall be instituted and maintained in the Superior Court of the
County of San Diego, California. Purchaser hereby consents to the
jurisdiction of such court and waives any objections to such
jurisdiction.
26. Counterparts. This Agreement may be executed in several counterparts,
each of which shall constitute an original, but all of which shall constitute
one and the same instrument.
<PAGE>
27. Non-Disclosure. Disclosure of this Agreement and the terms hereof shall
be strictly limited as follows:
a. Neither party may disclose either the existence or the terms of this
Agreement (including those set forth in any Exhibits or Attachments hereto) to
anyone other than employees who have a need to know for the purposes of
implementing this Agreement. Disclosure to these employee(s) may occur only
after each employee has agreed to be bound by the terms of this paragraph.
The unauthorized disclosure of this Agreement or the terms hereof shall
constitute a material breach hereof.
b. Purchaser and Cybertel acknowledge and agree that unauthorized
disclosure would cause irreparable harm wich would not be adequately
compensated for by monetary damages. Thus, in addition to its remedies in
law, upon unauthorized disclosure the harmed path shall be entitled to
equitable relief, including without limitation a Temporary Restraining Order
(obtained ex parte) as well as permanent injunctive.
28. Notices. All notices, demands, requests and other communications
required or permitted hereunder shall be in writing and shall be deemed to be
delivered when actually received, when sent by certified mail, return receipt
requested, reputable overnight carrier, facsimile, to the address set forth
below:
To Cybertel: To Purchaser:
Cybertel Communications Corp. ----------------------
4275 Executive Square ----------------------
Suite 510 ----------------------
La Jolla, CA 92037 ----------------------
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and
year first written above.
CYBERTEL PURCHASER
Cybertel Communications Corp. ----------------------
By: /s/ Richard Mangiarelli By: /s/ [illegible]
----------------------------- ----------------------
Date: 3 March 99 Date: 3/3/99
--------------------------- ---------------------
Printed Name: Richard Mangiarelli Printed Name: [illegible]
Title: President Title: President
Address: 4275 Executive Square Address: 12625 High Bluff Dr.
Suite 510 # 112
La Jolla, CA 92037 San Diego, CA 92130
Telephone: (619) 259-2200 Telephone: (619) 259-2200
Fax: (619) 259-2868 Fax: (619) 259-2868
LIST OF SUBSIDIARIES
1. Telenomics, Inc., a California corporation
2. Like Dat Music, Inc., a California corporation
3. LDVL, Inc., a New Jersey corporation
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Cybertel Communications Corporation
We consent to the incorporation by reference in this Registration Statement on
Form SB-2 of our report dated February 25, 2000 for the years ended December
31, 1999 and 1998 (restated).
MALONE & BAILEY, PLLC
Houston, Texas
April 25, 2000
[Letterhead of Branden T. Burningham]
April 10, 2000
Richard D. Mangiarelli, President
Cybertel Communications Corp.
4320 La Jolla Village Drive, Suite 205
San Diego, California 92122
Re: Opinion letter, dated April 10, 2000, regarding shares of common stock of
Cybertel Communications Corp., a Nevada corporation (the "Company")
Dear Mr. Mangiarelli:
I hereby consent to being named in the Prospectus included in the
Company's Registration Statement on Form SB-2 as having rendered the above-
referenced opinion and as having represented the Company in connection with
such Registration Statement.
Sincerely yours,
/s/ Branden T. Burningham
Branden T. Burningham
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<PERIOD-END> DEC-31-1999
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<RECEIVABLES> 41542
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<CURRENT-ASSETS> 710494
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0
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<TOTAL-LIABILITY-AND-EQUITY> 853032
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<CGS> 2391843
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<INTEREST-EXPENSE> 161416
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