<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 22, 1997
REGISTRATION NO. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
GLOBALTEL RESOURCES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
WASHINGTON 4813 91-1663099
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
1520 EASTLAKE AVENUE EAST
SEATTLE, WASHINGTON 98102
(206) 720-7250, FAX (206) 720-7251
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES)
RONALD P. ERICKSON, CHIEF EXECUTIVE OFFICER
1520 EASTLAKE AVENUE EAST
SEATTLE, WASHINGTON 98102
(206) 720-7250, FAX (206) 720-7251
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
--------------
COPIES TO:
THOMAS S. HODGE RONALD J. LONE
AUDREY HWANG CHRISTOPHER J. VOSS
HELLER EHRMAN WHITE & MCAULIFFE LEE J. BRUNZ
6100 COLUMBIA CENTER STOEL RIVES LLP
701 FIFTH AVENUE ONE UNION SQUARE
SEATTLE, WASHINGTON 98104 600 UNIVERSITY STREET, 36TH FLOOR
TELEPHONE: (206) 447-0900 SEATTLE, WASHINGTON 98101
FACSIMILE: (206) 447-0849 TELEPHONE: (206) 624-0900
FACSIMILE: (206) 386-7500
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable following the effectiveness of this Registration Statement.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, 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 of 1933, 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 of 1933, 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
<TABLE>
<CAPTION>
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- -------------------------------------------------------------------------------------
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED PER SHARE OFFERING PRICE FEE(1)
------------------- ------------ ---------------- ---------------- -------------
<S> <C> <C> <C> <C>
Common Stock, $0.01 par
value.................. $20,700,000 $6,107
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</TABLE>
(1) Calculated pursuant to Rule 457(o) under the Securities Act of 1933, as
amended. Includes shares of Common Stock subject to the underwriters'
over-allotment option.
--------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED DECEMBER 22, 1997
PROSPECTUS
SHARES
[LOGO OF GLOBALTEL]
COMMON STOCK
All of the shares of Common Stock offered hereby are being sold by
GlobalTel Resources, Inc. ("GlobalTel" or the "Company"). Prior to this
offering (the "Offering"), there has been no public market for the Common Stock
of the Company. It is currently estimated that the initial public offering
price will be between $ and $ per share. See "Underwriting" for a
discussion of the factors considered in determining the initial public offering
price. The Company has applied to have the Common Stock approved for listing on
the American Stock Exchange under the symbol " ."
-----------
SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON
STOCK OFFERED HEREBY.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
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UNDERWRITING
DISCOUNTS
PRICE TO AND PROCEEDS TO
PUBLIC COMMISSIONS (1) COMPANY (2)
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<S> <C> <C> <C>
Per Share....................... $ $ $
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Total (3)....................... $ $ $
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</TABLE>
(1) Excludes the value of warrants (the "Representative's Warrant") to purchase
up to shares of Common Stock to be granted to Cruttenden Roth
Incorporated, the representative (the "Representative") of the several
underwriters (the "Underwriters"). The Company has agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses of the Offering, payable by the Company,
estimated at $ , including the Representative's non-
accountable expense allowance. See "Underwriting."
(3) The Company has granted to the Underwriters a 45-day option to purchase up
to additional shares of Common Stock on the same terms and
conditions set forth above, solely to cover over-allotments, if any. If all
such shares are purchased the total Price to Public, Underwriting Discounts
and Commissions and Proceeds to Company will be $ , $
and $ , respectively. See "Underwriting."
-----------
The shares of Common Stock are offered severally by the Underwriters named
herein, subject to prior sale, when, as and if delivered to and accepted by
them, and subject to the right of the Underwriters to reject any order in whole
or in part and to certain other conditions. It is expected that the delivery of
certificates for the Common Stock will be made against payment therefor at the
offices of the Representative, Irvine, California, on or about ,
1997.
-----------
Cruttenden Roth
I N C O R P O R A T E D
THE DATE OF THIS PROSPECTUS IS , 1997.
<PAGE>
[ARTWORK]
Primecall(R) is a service mark of the Company. Trade names, trademarks and
service marks of other companies appearing in this Prospectus are the property
of their respective holders.
----------------
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK, INCLUDING BY
ENTERING STABILIZING BIDS, EFFECTING SYNDICATE COVERING TRANSACTIONS OR
IMPOSING PENALTY BIDS, AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN
THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE AMERICAN STOCK
EXCHANGE OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT
ANY TIME. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
2
<PAGE>
SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the Consolidated Financial Statements, including the Notes
thereto, appearing elsewhere in this Prospectus. Unless otherwise indicated,
all information contained in this Prospectus (i) assumes no exercise of the
Underwriters' over-allotment option and the Representative's Warrant and (ii)
gives effect to a -for- reverse split of the capital stock of the Company
to be effected prior to the effective date of the Registration Statement of
which this Prospectus is a part (the "Reverse Stock Split") and the conversion
of all outstanding shares of the Company's Series A Convertible Preferred
Stock, $0.01 par value (the "Preferred Stock") and all accrued dividends
thereon, into an aggregate of shares of Common Stock upon the closing of
this Offering (the "Preferred Stock Conversion"). See "Description of
Securities--Preferred Stock" and "Underwriting." References in this Prospectus
to the "Company" and "GlobalTel" refer to GlobalTel Resources, Inc. and its two
wholly owned subsidiaries, PrimeCall, Inc. and GFP Group, Inc., except where
the context otherwise requires. See "Glossary of Terms" for definitions of
certain technical and other terms used in this Prospectus. Investors should
carefully consider the information set forth under the heading "Risk Factors."
THE COMPANY
GlobalTel provides international telecommunications services principally to
small- and medium-sized business customers in developing ("second-tier")
telecommunication markets. Currently, the Company offers international long-
distance services, calling cards and enhanced voice services consisting of
voice-mail and conference calling to more than 8,500 business customers in over
120 countries. The Company began operations in 1995 with its entry into the
international call-reorigination business to capitalize on the arbitrage
opportunity created by differences between U.S. and foreign originated
international long-distance rates. The Company is leveraging the expertise
derived from, and the established customer base generated by, its call-
reorigination business to provide higher margin enhanced telecommunications
services.
According to the International Telecommunications Union ("ITU"), the
international telecommunications industry accounted for $52.8 billion in
revenues for 1995 and is projected to approach $76.0 billion by the year 2000.
Deregulation, together with decreases in the cost of providing services and the
introduction of sophisticated value-added features, has made it possible for
new entrants to compete with the large global telecommunications providers and
national incumbent telephone operators ("ITOs") in providing international
voice telecommunications services. In addition, the convergence of conventional
telephony and computing technologies with the advent of the Internet has
created the opportunity for data networks, and computers in general, to become
primary telecommunications tools. Industry analysts expect the market size for
both value-added Internet Protocol ("IP") data networking services and Internet
access to continue to grow rapidly as businesses and consumers increase their
use of the Internet, intranets and privately managed IP networks for both
electronic commerce as well as conventional telephony. According to industry
analysts, the total market for these services is projected to grow from $1.2
billion in 1996 to approximately $22.7 billion in the year 2000.
GlobalTel's objective is to become a leading provider of value-added
telecommunications services in markets that historically have been underserved
by large global telecommunications providers and ITOs. The Company has entered
second-tier markets by providing non-regulated or less regulated
telecommunications services, such as international call-reorigination. The
Company plans to continue to service existing customers and to enter additional
markets by providing less regulated enhanced telecommunications services. The
Company has designed and plans to implement a range of business-grade Internet
services with business partners such as Novell, Inc. ("Novell"). The Company
expects these services to include business quality messaging, global enhanced
Virtual Private Networks and other value-added services. Most of the planned
services can be provided under existing regulatory frameworks.
3
<PAGE>
GlobalTel primarily markets its telecommunications services through a network
of over 75 independent sales agents, supplemented by direct marketing efforts.
The Company also has an exclusive agreement with the International Business
Network for World Commerce and Industry, Ltd. ("IBNet"), the managing member of
the Consortium of Global Commerce, whereby IBNet will market the Company's
services through several thousand individual chambers of commerce located in
over 200 countries. In addition, the Company's relationship with Novell
provides a distribution channel for the Company's services through Novell's
network of over 25,000 value-added resellers.
GlobalTel's current network architecture consists of: (i) voice switching and
global fax messaging infrastructure in Los Angeles, California; (ii) access to
third party infrastructure through Equant Network Services International
Corporation ("Equant"), a global data network services provider, and other
suppliers; (iii) enhanced fax nodes in Hong Kong and Mexico City; and (iv) a
Network Control and Operations Center in Seattle, Washington. The Company's
agreement with Equant allows the Company to utilize the global reach of the
Equant network and to co-locate its servers and switches in many large cities
around the world. In addition, GlobalTel's agreement with Novell provides the
Company with access to key network technologies.
Key elements of the Company's strategy include: (i) capitalizing on its
existing customer base by offering additional and enhanced telecommunications
services; (ii) leveraging its global sales channels and relationships with
Novell and IBNet; (iii) minimizing capital requirements by utilizing existing
third party networks such as the Equant network; and (iv) employing flexible,
open architecture technology for the easy integration of technologies.
The Company was incorporated in Washington in November 1994 and commenced
operations in March 1995. GlobalTel's executive offices are located at 1520
Eastlake Avenue East, 2nd Floor, Seattle, Washington 98102, and its telephone
number is (206) 720-7250. The Company's home page is located at
http://www.globaltel.com. Information contained in the Company's Web site shall
not be deemed a part of this Prospectus.
THE OFFERING
<TABLE>
<C> <S>
Common Stock Offered.......... shares
Common Stock Outstanding after
the Offering................. shares(1)
Use of Proceeds............... To repay certain indebtedness and for capital
expenditures, working capital and general
corporate purposes. In addition, a portion of
the proceeds may be used to fund the repurchase
of securities tendered in connection with a
rescission offer, if any. See "Use of Proceeds"
and "Rescission Offer."
Proposed American Stock
Exchange Symbol..............
</TABLE>
- --------
(1) Includes shares of Common Stock (assuming an initial public offering
price of $ ) to be issued on closing of this Offering to certain holders
of notes issued by the Company (the "Full Coverage Bridge Loan Shares").
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources" and "Description of
Securities." Excludes (i) shares of Common Stock reserved for
issuance under the Company's 1996 Stock Option Plan (the "1996 Plan"), of
which shares are subject to options granted as of the date of the
Offering at a weighted average exercise price of $ per share,
(ii) shares of Common Stock issuable upon exercise or conversion
of outstanding warrants and convertible notes at a weighted average
exercise or conversion price of $ per share, (iii) 300,000 shares of
Common Stock reserved for issuance under the Company's Employee Stock
Purchase Plan and (iv) shares of Common Stock issuable upon exercise
or conversion of the Representative's Warrant. See "Management--Benefit
Plans," "Description of Securities" and "Underwriting."
4
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
---------------- ------------------
1995 1996 1996 1997
------- ------- -------- --------
<S> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues............................... $ 2,113 $ 9,136 $ 5,830 $ 10,639
Operating expenses:
Cost of sales........................ 1,929 8,230 5,155 9,007
Sales and marketing.................. 238 682 494 664
General and administrative........... 1,536 5,773 4,095 4,658
Depreciation and amortization........ 111 98 86 141
------- ------- -------- --------
Total operating expenses............... 3,814 14,783 9,830 14,470
------- ------- -------- --------
Operating loss......................... (1,701) (5,647) (4,000) (3,831)
Interest expense....................... (34) (225) (103) (588)
------- ------- -------- --------
Net loss............................... $(1,735) $(5,872) $ (4,103) $(4,419)
======= ======= ======== ========
Series A convertible preferred stock
dividends............................. -- -- -- (21)
------- ------- -------- --------
Net loss applicable to common
shareholders.......................... $(1,735) $(5,872) $(4,103) $(4,440)
======= ======= ======== ========
Pro forma(1):
Net loss per share................... $ $
======= ========
Weighted average number of shares
outstanding.........................
======= ========
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
-----------------------
ACTUAL AS ADJUSTED(2)
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<S> <C> <C>
BALANCE SHEET DATA:
Cash.................................................. $ 237 $
Working capital....................................... (5,823)
Total assets.......................................... 4,002
Long-term debt(3)..................................... 2,120
Common stock subject to rescission.................... 1,850
Total shareholders' (deficit) equity.................. (7,413)
</TABLE>
- --------
(1) See Note 2 of Notes to Consolidated Financial Statements for an explanation
of the method used to determine the number of shares used in computing pro
forma net loss per share.
(2) Adjusted to give effect to the issuance of the Full Coverage Bridge Loan
Shares, the sale of shares of Common Stock offered hereby at an
assumed initial public offering price of $ per share and the
application of the estimated net proceeds therefrom, after deducting
underwriting discounts and commissions and the estimated offering expenses
payable by the Company. See "Use of Proceeds," "Capitalization" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
(3) Includes $1,000,000 in long-term debt which will convert into shares of
Common Stock upon closing of this Offering.
5
<PAGE>
RISK FACTORS
An investment in the shares of Common Stock offered hereby involves a high
degree of risk. Prospective investors should consider carefully the following
risk factors, in addition to the other information set forth in this
Prospectus, in connection with an investment in the Common Stock offered
hereby. This Prospectus contains forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended (the "Securities
Act") and Section 21E of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). Those statements appear in a number of places in this
Prospectus and include statements regarding the intent, belief or current
expectation of the Company with respect to, among other things, (i) trends
affecting the Company's financial condition or results of operations and (ii)
the Company's business and growth strategies. Prospective investors are
cautioned that any such forward-looking statements are not guarantees of
future performance and involve risks and uncertainties, and that actual
results may differ materially from those projected, expressed or implied in
the forward-looking statements as a result of various factors. The information
contained in this Prospectus, including without limitation the information set
forth under the headings "Risk Factors," Management's Discussion and Analysis
of Financial Condition and Results of Operations" and "Business" identifies
important factors that could cause such differences. Such forward-looking
statements speak only as of the date of this Prospectus, and the Company
cautions potential investors not to place undue reliance on such statements.
LIMITED OPERATING HISTORY; SUBSTANTIAL OPERATING LOSSES
The Company commenced operations in March 1995 and has only a limited
operating history upon which an evaluation of its performance can be based.
The Company's prospects must be considered in light of the risks, expenses and
difficulties frequently encountered by companies in their early stage of
operations. The Company has incurred substantial net losses of approximately
$1.7 million, $5.9 million and $4.4 million in 1995, 1996 and the nine months
ended September 30, 1997, respectively. As of September 30, 1997, the Company
had a working capital deficit of $5.8 million, an accumulated deficit of
approximately $12.1 million and shareholders' deficit of $7.4 million. The
Company's current focus is on introducing several enhanced telecommunications
services, and the Company plans to hire additional personnel and to increase
its expenses related to sales and marketing, network infrastructure, technical
resources and customer support. As a result, the Company expects that it will
continue to incur net losses at least through 1998. There can be no assurance
that revenue will grow or that the Company will achieve or sustain
profitability on either a quarterly or annual basis. The Company's results of
operations may be below the expectations of public market analysts and
investors in some future quarters, which would likely result in a decline in
the trading price of the Common Stock. The Company believes that period-to-
period comparisons of its results of operations should not be relied upon as
indications of future performance. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
RECENT INTRODUCTION AND ONGOING DEVELOPMENT OF VALUE-ADDED SERVICES
Substantially all of the Company's revenue to date has been derived from
providing international call-reorigination services to small- and medium-sized
businesses and the resale of international long-distance minutes to other
telecommunications service providers. The Company believes that as
deregulation occurs and competition increases in markets around the world, the
pricing advantage of traditional call-reorigination to most destinations
relative to conventional call-through international long-distance service will
diminish. In order to maintain its existing customer base, attract new
customers and increase its revenues the Company must offer a variety of value-
added and enhanced network-based telecommunications services, as well as its
own call-through service, at competitive prices. Accordingly, the Company is
in the process of developing a number of value-added telecommunications
services such as enhanced fax and business-grade Internet services. The first
of these enhanced services were offered to the Company's customers in November
1997, and to date the Company has not generated significant revenue from these
services. Several other new services described in this Prospectus are still
under development and are not scheduled for implementation until various times
in 1998. It is not uncommon that the introduction of new telecommunications
services is delayed
6
<PAGE>
or is occasioned by technical problems. There can be no assurance that the
Company will not encounter delays or technical problems in the introduction of
new services which will inhibit the Company's ability to compete. Also, there
can be no assurance that the Company will have sufficient capital to complete
development and introduction of all of the enhanced services that it currently
plans to offer to its customers or that the introduction of such services will
result in increased sales. The failure to introduce enhanced
telecommunications and Internet-related services, failures in the systems that
would deliver those services or the absence of demand for such services when
introduced would have a material adverse affect on the Company's ability to
achieve or sustain profitability in the future. See "Business--Services."
NEED FOR ADDITIONAL CAPITAL AND CAPITAL REQUIREMENTS
The Company's efforts to develop and introduce an array of value-added and
enhanced telecommunications services have required, and will continue to
require, the Company to invest in network infrastructure and systems
development. Also, the Company has incurred substantial losses since inception
and expects to continue to incur losses through at least 1998. The Company
believes that, based upon its present business plan, the net proceeds of this
Offering, together with revenues from operations, will be sufficient to
finance operating losses and the development and introduction of new services
and to meet its other currently planned working capital and capital
expenditure requirements through the end of 1998. However, due to the need to
continue to expand its network operations and service offerings and other
factors, the Company expects that it will need to raise additional capital in
future periods. The Company also intends to seek lease financing for a portion
of the equipment and systems that it acquires in 1998 and beyond, although
there can be no assurance that this financing will be available to the Company
when needed or on acceptable terms. If the Company experiences greater than
anticipated capital requirements, if the implementation of the Company's
operating strategy fails to produce anticipated revenue growth and cash flows
or if additional working capital is required for any other reason, the Company
will be required to obtain additional sources of capital earlier than
currently anticipated. The timing of the need for additional capital also will
be affected by the extent to which the Company's rescission offer is accepted.
See "--Rescission Offer" and "Rescission Offer." There can be no assurance
that the Company will be able to obtain equity, debt or lease financing when
needed or on terms that the Company finds acceptable. Any additional equity or
debt financing may cause substantial dilution to the Company's shareholders.
If the Company is unable to obtain sufficient funds to satisfy its capital
requirements, it will be forced to reduce the scope of its expansion plans,
curtail operations, dispose of assets or seek extended payment terms from its
vendors, any of which could have a material adverse effect on the Company's
business, financial condition and results of operations. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources."
DEPENDENCE ON NEW NETWORK SYSTEMS
The Company's success is dependent upon its ability to deliver high quality,
uninterrupted telecommunications services. During 1997, the Company installed
new switching software and hardware in its Los Angeles switching center. These
facilities did not commence carrying customer traffic until the fourth quarter
of 1997. Prior to implementing these new systems, virtually all of the
Company's revenue was attributable to international call-reorigination
services. Accordingly, successful implementation and reliable operation of
these new systems is essential to the Company's operations. Implementation of
new switching and software systems often is accompanied by a variety of
problems. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Quarterly Results of Operations." There can be no
assurance that these recently installed systems will be adequate to perform
their intended functions or that the Company will not suffer adverse
consequences in connection with their implementation. For example, there can
be no assurance that the Company will not encounter material delays in the
introduction of new services or the provisioning of new customers or new
services for existing customers. There also can be no assurance that the
Company will not encounter difficulties in enhancing its systems or
integrating new technology into its systems. The inability of the Company to
implement any required system enhancement, to acquire new systems or to
integrate new technology in a timely and cost effective manner could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Business--Services" and "--Network and
Operations."
7
<PAGE>
DEPENDENCE ON SUPPLIERS
The Company has supply contracts with a number of interexchange carriers for
long-distance telecommunications services. Under these arrangements, and
consistent with industry practice, the Company is subject to the risk of price
changes and service restrictions or cancellations upon short notice. Certain
of these suppliers are or may become competitors of the Company, and such
suppliers are not restricted from competing with the Company. To the extent
that any of these suppliers change their pricing structures, the Company may
be adversely affected. To obtain favorable forward pricing from certain of its
suppliers, the Company has committed to purchase minimum volumes of a variety
of long-distance services during stated periods, whether or not such volumes
are used and, in one case, has agreed to pay a surcharge equal to a percentage
of the Company's shortfall from a specified monthly minimum volume. During
November 1997 the Company's aggregate monthly minimum volume commitments and
maximum surcharge totaled approximately $280,000. The failure of the Company
to meet the minimum usage commitments contained in its purchase agreements
could have a material adverse effect on the Company's business, financial
condition and results of operations. The Company's ability to maintain and
expand its business depends, in part, on its ability to continue to obtain
telecommunications services on satisfactory terms from facilities-based long-
distance carriers and the cooperation of interexchange carriers in initiating
and terminating service in a timely manner. See "Business--Network and
Operations" and "--Suppliers."
In the past the Company has from time to time been in arrears of its payment
obligations to its carriers. In October 1997, the Company failed to pay
amounts due to one of its principal long-distance suppliers within the time
period this supplier customarily had required payment. As a result, this
supplier ceased providing services to the Company and, under the terms of its
agreement with the Company, could demand a termination payment of up to $1.2
million. The Company was able to re-route traffic that previously had been
carried by this supplier without any interruption in service to its customers.
In December 1997, after the Company paid this supplier a substantial portion
of the amounts past due, services were restored. The Company has negotiated
the payment terms of the remaining balance owed and does not believe that it
will be required to pay an amount in excess of that owed for carrier services
provided. There can be no assurance that the Company will not be required to
pay a penalty to this or any other supplier or that the Company will not be in
default of its obligations to its suppliers in the future. If suppliers to the
Company were to decline to continue to carry the Company's traffic, due to
non-payment or otherwise, the Company could experience an interruption in
service to its customers which could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
A failure by a supplier to deliver quality services or products on a timely
basis, or the inability of the Company to develop alternative sources if and
as required, could result in delays which could have a material adverse effect
on the Company. The Company's remedies against suppliers that fail to deliver
services or products on a timely basis are limited, in many cases, by
practical considerations relating to the Company's desire to maintain
relationships with the suppliers. In addition, as the Company's suppliers
upgrade the technology of their equipment, the Company may encounter
difficulties in integrating the new technology into the Company's network.
The Company will depend in part on the Equant network to provide certain
enhanced telecommunications and business-grade Internet services. If the
Equant network were to suffer operational problems or failure, or is not
expanded to accommodate increased demand for access to the Equant network,
there could be a material adverse effect on the Company. Also, there can be no
assurance that the Company will continue to have access to the Equant network
or that such access will be available to the Company on terms that afford a
favorable gross margin to the Company. If the Company's agreement with Equant
is terminated, or if such agreement is renegotiated to GlobalTel's
disadvantage, or if Equant is unable to provide the Company with services in
accordance with its agreement with the Company, there could be a material
adverse effect on the Company's business, financial condition and results of
operations. Although certain
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leased data communications services are currently available from several
alternative suppliers, there can be no assurance that the Company could obtain
substitute services from other suppliers when needed or on terms the Company
finds acceptable. See "Business--Suppliers."
RESCISSION OFFER
Concurrent with this Offering, the Company intends to commence a rescission
offer (the "Rescission Offer") in accordance with federal securities laws and
the securities laws of the State of Washington (the "Washington Securities
Act") with respect to promissory notes in the aggregate principal amount of
approximately $805,000 (the "Rescission Notes"), an aggregate of 2,482,342
shares of Common Stock (the "Rescission Stock") and warrants to purchase an
aggregate of approximately 334,720 shares of Common Stock (the "Rescission
Warrants" and, collectively with the Rescission Notes and the Rescission
Stock, the "Rescission Securities") previously issued or sold in the State of
Washington, in each case as of January 31, 1998. The Company believes that the
Rescission Securities may have been issued or sold in violation of the
registration requirements of the Washington Securities Act. As a precaution
against potential claims by holders of Rescission Securities, and without
admitting non-compliance with the Washington Securities Act, the Company plans
to offer to rescind such prior issuances and sales by offering to repurchase
the Rescission Securities at the price paid therefor plus interest thereon at
the statutory rate of eight percent per annum from the date of purchase to the
expiration of the Rescission Offer. The aggregate price paid for the
Rescission Notes is approximately $805,000. The price paid for the Rescission
Stock is $0.53 per share with respect to 483,740 shares and $1.10 per share
with respect to 1,998,601 shares, for an aggregate price of $2,454,844. The
aggregate accrued interest with respect to all of the Rescission Securities as
of January 31, 1998 will be approximately $373,000. If all holders of
Rescission Securities were to accept the Rescission Offer, the Company would
be required to make payments aggregating approximately $3.6 million, plus the
aggregate amount of any additional interest thereon that accrues after January
31, 1998. The Rescission Offer will be implemented by filing a registration
statement (the "Rescission Offer Registration Statement") under the Securites
Act, and will expire approximately days after the effectiveness thereof.
The Company currently expects to use a portion of the proceeds from this
Offering to make payments under the Rescission Offer, if any are required.
Offerees who do not accept the Rescission Offer will thereafter hold
registered Rescission Securities under the Securities Act which, in the case
of the Rescission Stock, will be freely tradeable by non-affiliates in the
public market, subject to the lock-up agreements.
As of the date hereof, management is not aware of any claims for rescission
against the Company. Also, officers and directors of the Company holding an
aggregate of $ million (including statutory interest accrued thereon as of
December , 1997) of the Rescission Securities have indicated their intent
not to accept the Rescission Offer, although no formal Rescission Offer has
been made to them and they have not and may not agree to reject the Rescission
Offer until the Rescission Offer Registration Statement has been declared
effective by the Securities and Exchange Commission and the Rescission Offer
has commenced. There can be no assurance that all or a substantial portion of
the Rescission Securities will not be tendered in response to the Rescission
Offer. Use of a portion of the proceeds of this Offering in connection with
the Rescission Offer will reduce the amount of working capital available to
the Company and require it to seek additional capital sooner than would
otherwise be required. Furthermore, notwithstanding the Rescission Offer,
there can be no assurance that the Company will not be subject to penalties or
fines relating to past securities issuances or that other holders of the
Company's securities will not assert or prevail in claims against the Company
for rescission or damages under state or federal securities laws. See "--Need
for Additional Capital and Capital Requirements," "Use of Proceeds,"
"Rescission Offer," "Shares Eligible for Future Sale" and Note 6 of Notes to
the Consolidated Financial Statements.
RISK OF MANAGING GROWTH; RECENT MANAGEMENT CHANGES AND NEW INFORMATION SYSTEMS
The Company's growth has placed, and is expected to continue to place, a
significant strain on the Company's management, administrative, operational,
financial and technical resources and on its systems and controls. The Company
has made recent changes in executive-level management positions. Due in part
to the
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need to reduce expenses, since August 1997 four executive officers of the
Company discontinued full-time employment and certain of the Company's senior
management personnel have worked together only a short time. The Company
believes that it will need, both in the short term and the long term, to hire
additional qualified administrative and management personnel in all functional
areas. Failure to locate, hire and retain such qualified personnel or failure
to manage the Company's growth properly could have a material adverse effect
on the Company's business, financial condition or results of operations. See
"--Dependence on Key Personnel; Need to Hire Additional Qualified Personnel"
and "Business--Management."
The Company recently has implemented new financial reporting, management
information and billing systems. As a telecommunications service provider, the
Company must record and process millions of call detail records quickly and
accurately to produce customer bills and financial reports in a timely manner.
Demands on the Company's information systems will increase significantly if
the Company realizes anticipated growth and expands its customer base. There
can be no assurance that the Company's information systems will be adequate as
the volume of customer traffic increases or that the Company will not suffer
adverse consequences should such systems fail to operate effectively. In
addition, the Company has not previously reported financial results on a
quarterly basis and there can be no assurance that the Company will not
encounter material delays or errors in billing of customers or in financial
reporting. While the Company believes that its information systems are
sufficient for its current operations, it will be necessary to expand the
capacities and capabilities of its systems as the Company grows. There can be
no assurance that the Company will be able to do so, and the failure to
implement enhancements or to make the necessary investments in the Company's
information systems in a timely fashion could have a material adverse effect
on the Company's business, financial condition and results of operations. See
"Business--Management Information Systems."
COMPETITION
The global telecommunications industry is extremely competitive and is
characterized by rapid regulatory and technological change. The Company's
success depends upon its ability to compete with a variety of
telecommunications providers in each of its markets, including with global
alliances between and among some of the world's largest telecommunications
carriers. Other potential competitors include cable television companies,
wireless telephone companies, Internet access providers, electric and other
utilities with rights of way, large end users that have private networks and
new entrants into the market focused upon niche opportunities. The Company
believes that such competition will intensify. Many of the Company's current
or potential competitors have substantially greater financial, marketing and
other resources than the Company. If the Company's competitors devote
significant additional resources to offering telecommunications services to
the Company's target customer base, such action could have a material adverse
effect on the Company's business, financial condition and results of
operations. There can be no assurance that the Company will be able to compete
successfully against such new or existing competitors.
Currently, the Company competes with providers and other marketers of
international call-reorigination services, ITOs and other marketers of long-
distance telephone service. Because of close ties to national regulatory
authorities enjoyed by many ITOs, regulatory authorities often can be
pressured to refrain from adopting policies and granting regulatory approvals
that would result in increased competition for the local ITO. If the ITO were
to successfully pressure such regulators, the Company could be denied
regulatory approval in certain jurisdictions in which its services would
otherwise be permitted. Any delay in obtaining, or failure to obtain, approval
in such jurisdictions could have a material adverse effect on the Company's
business, financial condition and results of operations.
The Company's competitors for basic and enhanced telecommunications services
include some of the world's largest telecommunications providers, such as AT&T
Corp. ("AT&T"), MCI Communications Corporation, Sprint Corporation ("Sprint"),
Worldcom Inc., Cable & Wireless p.l.c. and British Telecommunications P.L.C.
and other global telecommunications providers including USA Global Link, Inc.,
Telegroup, Inc. and IDT Corporation. In addition, numerous smaller carriers
have emerged, both in the
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United States and in newly deregulated markets around the world, many of which
specialize in offering international telephone services similar to the
Company's call-reorigination services.
Competition for customers in the telecommunications markets in which the
Company operates is primarily based on price, and to a lesser extent on the
type and quality of services offered. The Company anticipates that
deregulation and increased competition will result in decreased prices for
telecommunications services. The Company believes that the effects of such
decreases will be at least partially offset by increased telecommunications
usage and decreased costs. However, to the extent that this does not occur,
the Company's business, financial condition and results of operations could be
materially and adversely affected.
The market for value-added data services, such as the business-grade
Internet services under development by the Company, is extremely competitive,
and the Company expects that competition will intensify in the future. The
Company's current and prospective competitors in the value-added services
business include many large companies that have substantially greater market
presence and financial, technical, marketing and other resources than the
Company. In addition to the Company's traditional telecommunications
competitors, the Company's value-added services business competes or will
compete with two additional categories of competitors: (i) Internet service
providers, including on-line service providers such as America Online, Inc.,
UUNET Technologies, Inc., Netcom On-line Communication Services, Inc., Bolt
Beranek & Newman, Inc., Microsoft Corporation, and other national and regional
Internet providers, that provide public access to the Internet and some
business-grade access and services; and (ii) enhanced messaging providers,
including a number of newer companies, such as Xpedite System, Inc., FaxSav
Incorporated and Premier Technologies, Inc., that were recently established to
provide narrowly focused niche products and have grown by expanding their
product offerings. There can be no assurance that the Company will have the
financial resources, technical expertise or marketing and support capabilities
to compete successfully in the market for value-added data services.
The Company believes that new competitors, including large computer
hardware, software, media and other technology and telecommunications
companies will enter the value-added services market, resulting in even
greater competition for the Company. In addition, the ability of some of the
Company's competitors to bundle other services and products with Virtual
Private Networks, global roaming services or both could place the Company at a
significant competitive disadvantage. Increased competition in the value-added
services market could result in significant price competition, which in turn
could result in significant reductions in the average selling price of the
Company's value-added services. In addition, competition could result in
increased selling and marketing expenses, which could adversely affect the
Company's profitability. There can be no assurance that the Company will be
able to offset the effects of any such price reductions through an increase in
the number of its customers, higher revenues from enhanced services, cost
reductions or otherwise. Increased competition, price or otherwise, could
result in erosion of the Company's customer base and adversely affect the
Company's business, financial condition and results of operations. See
"Business--Competition."
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
The Company's quarterly operating results have fluctuated in the past,
primarily as a result of the evolution of the Company's business, and may
fluctuate significantly in the future as a result of a variety of factors,
some of which are outside of the Company's control. These factors include:
pricing changes; changes in the mix of services sold or channels through which
those services are distributed; seasonality; changes in user demand; customer
terminations of service; capital expenditures and other costs relating to the
expansion of the Company's network; the timing and costs of any acquisitions
of customer bases, businesses, services or technologies; the timing and costs
of marketing and advertising efforts; the effects of government regulation and
regulatory changes; and specific economic conditions in the telecommunications
industry. These factors also could have a material adverse effect on the
Company's business, results of operations and financial condition. See "--
Limited Operating History; Substantial Operating Losses" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
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RAPID CHANGES IN TECHNOLOGY
The telecommunications industry is characterized by rapidly changing
technology, evolving industry standards, emerging competition and frequent new
service and other product introductions. Examples of some newly developed
technologies include satellite-based systems, such as those proposed by
Iridium World Communications Ltd., GlobalStar Telecommunications Limited and
Teledesic Corp., utilization of the Internet for voice and data transmission
and digital wireless communications systems. There can be no assurance that
the Company can successfully identify new service opportunities and develop
and bring new products and services to market in a timely and cost-effective
manner, or that products, services or technologies developed by others will
not render the Company's products, services or technologies noncompetitive or
obsolete. In addition, there can be no assurance that product or service
developments or enhancements introduced by the Company will achieve or sustain
market acceptance or be able to effectively address the compatibility and
inoperability issues raised by technological changes or new industry
standards. See "Business--Competition."
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS
The Company's strategy is to focus on international markets. In many second-
tier markets in which the Company seeks to market its services, the national
ITO controls access to the local networks, enjoys better brand recognition and
brand and customer loyalty, and possesses significant operational economies,
including operating agreements with other ITOs. Moreover, an ITO may take many
months before allowing competitors, such as the Company, to interconnect to
its switches within the target market. There can be no assurance that the
Company will be able to obtain the permits and operating licenses required to
operate, obtain access to local transmission facilities or market, sell and
deliver competitive services in these markets. In addition, pursuit of
international growth opportunities may require significant investments for
extended periods before returns, if any, on such investments are realized.
The Company's operations also will be subject to the wide range of general
business risks associated with international operations, including unexpected
changes in legal and regulatory requirements; changes in tariffs, exchange
rates and other barriers; political and economic instability; inability to
repatriate net income from foreign markets; long accounts receivable payment
cycles in certain countries; difficulty in protecting the Company's
intellectual property; potentially adverse tax consequences and the regulation
of Internet access providers by foreign regulatory authorities.
Although the Company's sales to date have been denominated in U.S. dollars,
the value of the U.S. dollar in relation to foreign currencies also may
adversely affect the Company's sales to international customers. To the extent
the Company changes its pricing practices to denominate prices in foreign
currencies, the Company will be exposed to increased risks of currency
fluctuation. Any such fluctuation could have a material adverse effect on the
Company's earnings or assets when translated into U.S. dollars. Although the
Company has not entered into foreign exchange contracts to hedge intercompany
exchange transactions, it may do so in the future. Moreover, certain
jurisdictions may impose foreign exchange controls that may delay or prevent
repatriation of funds or profits. Additionally, the Company generally will be
subject to taxes in foreign countries where the Company operates. The
Company's ability to claim a foreign tax credit against its U.S. federal
income taxes is subject to various limitations that could result in a high
effective tax rate on the Company's earnings. There can be no assurance that
laws or administrative practice relating to taxation, foreign exchange or
other matters in countries in which the Company operates or will operate will
not change in a manner adverse to the Company. There can be no assurance that
such factors will not have a material adverse effect on the Company's future
operations and, consequently, on the Company's business, financial condition
and results of operations.
The Company is subject to the Foreign Corrupt Practices Act ("FCPA"), which
generally prohibits U.S. companies and their intermediaries from bribing
foreign officials for the purpose of obtaining or keeping business. The
Company may be exposed to liability under the FCPA as a result of past or
future actions taken
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without the Company's knowledge by agents, strategic partners and other
intermediaries. Such liability could have a material adverse effect on the
Company's business, financial condition and results of operations.
REGULATORY RISKS
The Company's call-reorigination operations are subject to the domestic laws
and regulations in the foreign countries in which the Company provides
services. Countries that have declared call-reorigination services illegal
have, at times, enforced their laws against operators with offices or
representatives in their respective territories. These enforcement actions
have ranged from disconnection of the operators' lines to imprisonment of the
operators' local marketing representatives. The Company is not able to predict
whether countries in which it provides services will consider its call-
reorigination services illegal under their respective laws or will change
their laws to outlaw these services, nor can the Company predict what actions
foreign governments might take in the enforcement of these laws. There can be
no assurance that the Company's call-reorigination services will not be found
illegal by a foreign jurisdiction, and any determination of illegality could
have a material adverse effect on the Company's business, financial condition
and results of operations.
There is also a risk that adverse legal developments overseas relating to
traditional call back services could have consequences for the Company in the
United States. The Company provides its call-reorigination services to
customers in foreign countries using a number of methods. Some methods involve
completed calls and other communications to the United States from foreign
countries, and other methods, such as traditional call back service, involve
incomplete calls that avoid the high international rates offered by a national
ITO by providing a dial tone from a deregulated country, typically the United
States. A substantial number of countries consider call-reorigination adverse
to the interests of their national telecommunications sectors and in some
cases, these countries have passed laws to make traditional call back services
illegal.
In 1995, the Federal Communications Commission ("FCC") issued an order
stating that it would consider enforcement action against operators based in
the United States engaged in call-reorigination by means of the traditional
call back method in countries where this activity is expressly prohibited.
Under the FCC order, a party requesting enforcement assistance from the FCC
must provide sufficient documentation of the illegality of traditional call
back service and detailed evidence of the operator's violation of the law by
virtue of its provision of traditional call back services in the country. The
FCC also requires the party to provide documentation of the declaratory or
enforcement action taken by its national authorities against the operator
before requesting the FCC's assistance in enforcing the country's laws against
the operator. At November 30, 1997, 31 countries had filed documents with the
FCC alleging that certain forms of call- reorigination services violate their
respective domestic laws. Of those 31 countries, only the Philippines and
Saudi Arabia had fully complied with the FCC's documentation requirements. To
date, the FCC has not specified the types of actions it might take against an
operator, but possible enforcement remedies include the issuance of a cease-
and-desist order, imposition of a monetary sanction or, in an extreme case,
revocation of the operator's Section 214 license. The FCC recently took
enforcement action by revoking an operator's Section 214 license in a case
involving the Philippines. The Company provides call-reorigination services in
certain of these countries. Any potential enforcement action taken by the FCC,
in addition to any actions taken by the foreign country's authorities, could
have a material adverse effect on the Company's business, financial condition
and results of operations.
Within the United States, the interstate and international
telecommunications services currently provided by GlobalTel are subject to the
exclusive jurisdiction of the FCC. In the event that the Company decides to
offer intrastate telecommunications services, such activity will be subject to
the jurisdiction of the individual states in which the Company provides such
service. In the majority of states it is necessary to obtain a certificate of
public convenience and necessity from the appropriate state agency prior to
offering intrastate telecommunications services. Should the Company decide to
provide such services, it would apply for and obtain the required certificates
and any other approvals prior to the time it offers any intrastate
telecommunications services. There can be no assurance that the Company will
be successful in obtaining such certificates and approvals. See "Business--
Regulation--Telecommunications."
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Adverse regulatory developments associated with the value-added services the
Company expects to provide to its customers could also pose a risk to the
Company's operations. In the United States and abroad, enhanced and value-
added services are essentially unregulated. The FCC's Computer II decision in
1980 and the Telecommunications Act of 1996 (the "1996 Telecommunications
Act") establish that enhanced services of the type provided by the Company are
outside the definition of regulated telecommunications or common carrier
services. The Company's enhanced services also are exempt from local access
charges pursuant to FCC rules. This exemption, however, has been threatened
from time to time both by Congress and the FCC. In addition, as part of the
1996 Telecommunications Act, all telecommunications operators providing
certain domestic telecommunications services are required to make
contributions to the Universal Service Fund established thereunder, which
provides a subsidy to facilitate the provision of telecommunications services
to high-cost areas. While the Company's current operations do not subject it
to such requirement, it is possible that legislation could be introduced that
could similarly require providers of Internet, intranet or other value-added
services that are not considered telecommunications operators under the 1996
Telecommunications Act to contribute to the Universal Service Fund. Although
to date no such legislation has been introduced, a law requiring the Company
to contribute to the Universal Service Fund would result in higher costs for
the Company, and there could be a material adverse effect on the Company's
business, financial condition and results of operations. Moreover, if the FCC
were to eliminate the local access charge exemption, the Company's business,
financial condition and results of operations could be materially adversely
affected. While the Company believes that the possibility appears at the
present to be remote, Congress or the FCC may in the future change the
regulatory status of enhanced data and value-added services. The Company
cannot predict the impact, if any, if any that future regulation or regulatory
changes may have on the Company's enhanced services business. See "Business--
Regulation--Value-Added Services."
Local laws and regulations differ significantly among the jurisdictions in
which the Company operates, and the interpretation and enforcement of such
laws and regulations vary or are often based on the informal views of the
local ministries which in some cases are subject to influence by the national
ITO. There can be no assurance that the Company has accurately predicted the
enforcement of applicable laws and regulations or regulatory and enforcement
trends in a given jurisdiction or will be found in compliance with all such
laws and regulations. Failure to predict the enforcement of applicable laws
accurately, or incorrect interpretations of applicable laws and regulations,
could cause the Company to lose or to be unable to obtain regulatory approvals
necessary for it to be able to provide certain of the services the Company
markets. Such failure could result in material adverse effects on the
Company's business, financial condition and results of operations.
DEPENDENCE ON INDEPENDENT SALES AGENTS
The Company's success depends in significant part on its ability to recruit,
retain and motivate a network of independent sales agent. For the nine months
ended September 30, 1997, 75 independent agents were responsible for
generating approximately 59% of the Company's call-reorigination revenues.
Most of the Company's agents are not subject to minimum sales quotas, are free
to promote services offered by competitors of the Company and can terminate
their relationship with the Company at any time. Identifying new prospects as
potential GlobalTel agents is often difficult, as the Company competes with
other organizations in recruiting independent agents, including other
telecommunications services providers. Moreover, the Company's ability to
retain and motivate its current agents, which can be affected by commission
rates payable by the Company, telecommunications services and technical and
marketing support available from the Company, general economic conditions and
other intangible factors, is uncertain. If an independent agent decided to
discontinue its relationship with the Company, it is likely that such agent
would attempt to move its clients to an alternate telecommunications services
supplier. There can be no assurance that the Company's current independent
sales agents will continue to distribute the Company's services in its target
markets, or do so successfully. Failure of the Company to effectively develop
and manage its agent network and any loss of the Company's more productive
agents could have a material adverse effect on the Company's business,
financial conditions and results of operations. See "Business--Sales,
Marketing and Customer Service."
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RISK OF NETWORK FAILURE
The success of the Company is largely dependent upon the efficient and
uninterrupted operation of its network infrastructure. While the Company has
established a disaster recovery plan and has a fully redundant network
switching center, the Company's systems and operations remain vulnerable to
damage or interruption from fire, earthquake or other natural disaster and
from power loss, telecommunications failure, break-ins and similar events. The
Company's switching center is located in Los Angeles, California, and the
Company has additional equipment located in Hong Kong, Mexico City and
Seattle, Washington. Although the Company carries business interruption
insurance, there can be no assurance that such insurance will be sufficient to
cover any losses suffered by the Company. In addition, despite the
implementation of network security measures by the Company, its servers are
vulnerable to computer viruses, electronic break-ins and similar disruptions,
any of which could lead to interruptions, delays or loss of customer data. See
"--Security Risks." The occurrence of any of the foregoing risks could have a
material adverse effect on the Company's business, financial condition and
results of operations.
In the first two quarters of 1997 the Company experienced temporary
technical and operational difficulties associated with the relocation of its
primary switching platform from Las Vegas to Los Angeles. As the Company
attempts to expand its network and data traffic grows, there will be increased
stress on its network equipment and traffic management systems. There can be
no assurance that the Company will not experience failure of all or part of
its network. The Company's operations also are dependent on its ability to
successfully expand its network and integrate new and emerging technologies
and equipment into its network, which are likely to increase the risk of
system failure and cause unforeseen strains upon the network. Significant or
prolonged system failures could damage the reputation of the Company and
result in the loss of customers. Such damage or losses could have a material
adverse effect on the Company's ability to obtain new customers and on the
Company's business, financial condition and results of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business--Network Infrastructure."
DEPENDENCE ON KEY PERSONNEL; NEED TO HIRE ADDITIONAL QUALIFIED PERSONNEL
The Company is highly dependent on the technical and management skills of
its key employees, including technical, sales, marketing, financial and
executive personnel, and on its ability to identify, hire and retain
additional personnel. Competition for such personnel is intense and there can
be no assurance that the Company will be able to retain existing personnel or
identify or hire additional personnel. The failure to retain and attract the
necessary technical, managerial, financial, marketing and customer service
personnel could have a material adverse effect on the Company's business,
financial condition and results of operations. The Company's performance also
depends on the Company's ability to retain and motivate its executive officers
and key employees, several of whom have worked together for only a short time.
The Company has entered into employment agreements with five of its senior
officers. The loss of key personnel could have a material adverse effect on
the Company's business, financial condition and results of operations. See "--
Risk of Managing Growth; Recent Management Changes and New Information
Systems" and "Management--Officers and Directors" and "--Employment
Agreements."
RISKS ASSOCIATED WITH ACQUISITIONS, INVESTMENTS AND STRATEGIC ALLIANCES
The Company may, in the future, acquire or engage in efforts to acquire
customer bases and businesses from, make investments in, or enter into
strategic alliances with, companies that have customer bases, switching
capabilities or existing networks in the Company's current or target markets.
In June 1997, the Company entered into a letter of intent with two Chinese
companies to explore the potential of jointly providing telecommunications
services in the People's Republic of China through an entity in which the
Company would potentially have an equity interest. See "Certain Transactions."
However, there can be no assurance that such venture will occur or be
successful. Any future acquisitions, investments, strategic alliances or
related efforts will be accompanied by the risks commonly encountered in such
transactions or efforts. Such
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risks include, among others, the difficulty of identifying appropriate
acquisition candidates; the difficulty of assimilating the operations and
personnel of the respective entities; the potential disruption of the
Company's ongoing business; the inability of management to capitalize on the
opportunities presented by acquisitions, investments, strategic alliances or
related efforts; the failure to successfully incorporate licensed or acquired
technology and rights into the Company's services; the inability to maintain
uniform standards, controls, procedures and policies; and the impairment of
relationships with employees and customers as a result of changes in
management. Acquired operations typically operate independent marketing,
customer support, billing systems and other functions. Any acquisition by the
Company could result in difficulties in the integration and consolidation of
customer bases or operations. Pending such integration and consolidation, it
would be necessary for the Company to maintain separate billing systems and
other functions of the acquired operation, which could cause inefficiencies
and significant operational complexity and expense, increase the risk of
billing delays and financial reporting difficulties, and impair the Company's
efforts to cross-sell the products and services of the acquired operation.
Additionally, in connection with an acquisition, the Company could experience
rates of customer attrition that would be significantly higher than the rate
of customer attrition that it ordinarily experiences. Further, to the extent
that any such transaction involves customer bases or businesses located
outside the United States, the transaction would involve the risks associated
with international operations. There can be no assurance that the Company
would be successful in overcoming these risks or any other problems
encountered with such acquisitions, investments, strategic alliances or
related efforts. See "--Risks Associated with International Operations."
VALUE-ADDED AND SALES TAX COLLECTION
The Company does not currently collect value-added tax ("VAT"), sales tax or
other similar taxes (other than federal excise tax) in respect of any of its
services. In addition, the rules for imposition of VAT vary from country to
country. For example, some EU member states deem telecommunications services
provided by U.S.-based companies to be performed outside the EU and,
therefore, exempt from VAT. Other EU member states, however, impose VAT on
telecommunications services provided by non-EU based companies. To the extent
that the Company's services are, and in the future become, subject to VAT, the
Company's competitive price advantage with respect to those businesses and
other customers required to pay VAT on services provided by the Company will
be reduced. Such reduction could have a material adverse effect on the
Company's business, financial condition and results of operations. Moreover,
one or more states may seek to impose sales tax collection obligations on out-
of-state companies such as the Company which engage in telecommunications
services. A successful assertion by one or more states or any foreign country
that the Company should collect VAT, sales or other similar taxes on the sale
of its services could have a material adverse effect on the Company's
business, financial condition and results of operations.
SECURITY RISKS
Despite the implementation of network security measures, such as limiting
physical and network access to its routers, the Company's network
infrastructure will be vulnerable to computer viruses, break-ins and similar
disruptions. Such security breaches could lead to interruption, delays or
cessation in service to the Company's value-added services customers.
Furthermore, such events could jeopardize the security of confidential
information stored in the computer systems of the Company's customers and
other parties connected to the Internet, which may deter potential subscribers
and subject the Company to possible liability. Alleviating problems caused by
computer viruses, break-ins or other security breaches may require significant
expenditures of capital and resources by the Company, which could have a
material adverse effect on the Company. Moreover, until more comprehensive
security technologies are developed, the security and privacy concerns of
existing and potential customers may inhibit the growth of the Internet
service industry in general and the Company's customer base and revenues in
particular.
16
<PAGE>
CONTROL BY OFFICERS AND DIRECTORS
Immediately upon completion of this Offering, an aggregate of approximately
% of the outstanding Common Stock will be beneficially owned (approximately
% if the Underwriters' over-allotment option is exercised in full) by the
Company's officers and directors. As a result, the Company's officers and
directors will be able to control matters requiring approval by the
shareholders of the Company, including the election of all of the directors
and the approval of significant corporate matters, including any merger,
consolidation or sale of all or substantially all of the Company's assets. See
"Management," "Principal Shareholders" and "Description of Securities."
NO PRIOR PUBLIC MARKET; POTENTIAL VOLATILITY OF STOCK PRICE; POSSIBLE
ILLIQUIDITY OF TRADING MARKET
There has been no public market for the Company's Common Stock prior to the
Offering. The Company has applied for listing of the Common Stock on the
American Stock Exchange ("Amex"). The initial public offering price has been
determined through negotiations between the Company and the Underwriters and
may not be indicative of the market price for the Common Stock following the
Offering. See "Underwriting" for a discussion of the factors considered in
determining the initial public offering price. There can be no assurance that
an active trading market will develop or be sustained or that the market price
of the Common Stock will not decline below the initial public offering price.
Even if an active trading market does develop, the market price of the Common
Stock following the Offering may be highly volatile. Factors such as
variations in the Company's revenue, earnings and cash flow and announcements
of new service offerings, technological innovations or price reductions by the
Company, its competitors or providers of alternative services could cause the
market price of the Common Stock to fluctuate substantially. In addition, the
stock market in general, and the Amex and the market for telecommunications
companies in particular, has experienced extreme price and volume fluctuations
that often have been unrelated or disproportionate to the operating
performance of such companies. These broad market and industry factors may
materially and adversely affect the market price of the Common Stock,
regardless of the Company's operating performance. In the past, following
periods of volatility in the market price of a company's securities,
securities class-action litigation often has been instituted against such
company. Such litigation, if commenced, could result in substantial costs and
a diversion of management's attention and resources, which would have a
material adverse effect on the Company's business, financial condition and
results of operations.
The number of shares of Common Stock available for resale in the trading
market is limited because of trading restrictions on shares of Common Stock
owned by affiliates and certain "lock-up" agreements between the Company's
current security holders and the Representative. Moreover, if the Company
should continue to experience losses from operations, it may be unable to
maintain the standards for continued quotation on the Amex, and the Common
Stock could be subject to removal therefrom. If such removal were to occur,
trading, if any, in the Common Stock henceforth would be conducted in the
over-the-counter market on an electronic bulletin board established for
securities that do not meet the listing requirements for the Amex, or in what
are commonly referred to as the "pink sheets." As a result, an investor would
find it more difficult to dispose of, or to obtain accurate quotations for the
price of, the Company's securities. In addition, such removal would subject
the Company's securities to so-called "penny stock" rules that impose
additional sales practice and market making requirements on broker-dealers who
sell and/or make a market in such securities. Consequently, removal from the
Amex could affect the ability or willingness of broker-dealers to sell and/or
make a market in the Company's securities and the ability of purchasers of the
Company's securities to sell their securities in the secondary market. In
addition, if the market price of the Company's Common Stock falls to below
$5.00 per share, the Company may become subject to certain penny stock rules
even if still quoted on the Amex. While such penny stock rules should not
affect the quotation of the Company's Common Stock on the Amex, such rules may
further limit the market liquidity of the Common Stock and the ability of
investors to sell securities in the secondary market.
17
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Sales of a substantial number of shares of Common Stock in the public market
by existing shareholders following the Offering could adversely affect the
market price for the Company's Common Stock. The number of shares of Common
Stock available for sale in the public market is limited by restrictions under
the Securities Act and lock-up agreements under which the Company's officers,
directors and certain security holders have agreed not to sell or otherwise
dispose of any of their shares for a period of 270 days after the date of this
Prospectus without the prior written consent of the Representative. The
shares offered hereby and, upon the effectiveness of the Rescission
Offer Registration Statement, any shares of Common Stock subject to the
Rescission Offer will be freely tradable, except to the extent acquired by
affiliates of the Company or subject to lock-up agreements with the
Representative. The remaining shares of Common Stock outstanding upon
completion of this Offering (or any securities exercisable for or convertible
into the Company's Common Stock) are "restricted securities" ("Restricted
Shares") within the meaning of Rule 144 under the Securities Act. Restricted
Shares may be sold in the public market only if registered or if they qualify
for an exemption from registration under Rules 144 or 701 under the Securities
Act. Sales of Restricted Shares in the public market, or the availability of
such shares for sale, could adversely affect the market price of the Common
Stock. The number of shares that will be available for sale in the public
market will be as follows: (i) Restricted Shares upon completion of this
Offering; (ii) beginning 270 days after the date of this Prospectus,
approximately Restricted Shares will become eligible for sale in the
public market, subject in certain cases, to volume limitations and other
resale restrictions pursuant to Rule 701 and Rule 144 and (iii) by ,
199 , the remaining approximately Restricted Shares will be
eligible for sale in the public market. See "Shares Eligible for Future Sale"
and "Underwriting."
ANTITAKEOVER PROVISIONS
Following the Offering, the Company's Board of Directors will have the
authority, without shareholder approval, to issue up to 5,000,000 shares of
preferred stock and to fix the rights, preferences, privileges and
restrictions of such shares without any further vote or action by the
Company's shareholders. This authority, together with certain other provisions
of the Company's amended and restated articles of incorporation may have the
effect of making it more difficult for a third party to acquire, or
discouraging a third party from attempting to acquire, control of the Company,
even if shareholders purchasing shares in the Offering may consider such
change in control to be in their best interests. See "Description of
Securities."
IMMEDIATE AND SUBSTANTIAL DILUTION
Purchasers of the Common Stock offered hereby will suffer an immediate and
substantial dilution of $ per share in the net tangible book value per
share of the Common Stock from the initial public offering price. See
"Dilution."
18
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of shares of Common
Stock offered by the Company hereby are estimated to be approximately $15.4
million ($17.8 million if the Underwriters' over-allotment option is exercised
in full), assuming an initial public offering price of $ per share
and after deducting the estimated underwriting discounts and commissions and
other estimated offering expenses payable by the Company. The Company plans to
use (i) approximately $5.6 million to repay outstanding notes which bear
interest at either ten or 12 percent, of which $4.5 million is due upon
closing of this Offering, (ii) approximately $6.5 million for capital
expenditures and (iii) the remaining net proceeds for working capital and
general corporate purposes. Additionally, a portion of the proceeds will be
used to fund the repurchase of securities of the Company tendered in
connection with the Rescission Offer, if any, in an approximate amount of up
to $3.3 million, plus approximately $373,000 of statutory interest. See
"Rescission Offer." The Company also may, when the opportunity arises, use an
unspecified portion of the net proceeds to acquire or invest in complementary
companies, technologies or products. Except for the Company's letter of intent
with two Chinese companies to explore the potential of jointly providing
telecommunications services in the Peoples Republic of China through an entity
in which the Company would potentially have an equity interest, the Company
has no other present understandings, commitments or agreements with respect to
any potential acquisitions or investments. Pending use of the net proceeds,
the Company intends to invest such funds in short-term, interest bearing,
investment grade securities. See "Risk Factors--Need for Additional Capital
and Capital Requirements," "--Risks Associated with Acquisitions, Investments
and Strategic Alliances," "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources,"
"Certain Transactions" and "Rescission Offer."
DIVIDEND POLICY
The Company has never declared or paid any dividends on its Common Stock and
does not expect to pay dividends in the foreseeable future. The Company
currently anticipates that it will retain all available earnings for the
operation and expansion of its business. Any future declaration of dividends
will be subject to the discretion of the Board of Directors of the Company and
will depend upon the Company's operating results, financial condition, capital
requirements, general business conditions, and such other factors as the Board
of Directors deems relevant.
19
<PAGE>
DILUTION
The net tangible book value of the Company as of September 30, 1997 was
approximately $(7.9 million), or $ per share of Common Stock. The net
tangible book value per share represents the amount of the Company's total
tangible assets less the amount of its total liabilities, divided by the
number of shares of Common Stock issued and outstanding (including the Full
Coverage Bridge Loan Shares and the Common Stock issued in connection with the
Preferred Stock Conversion). Without taking into account any changes in net
tangible book value after September 30, 1997, other than to give effect to the
sale of the shares of Common Stock offered hereby and the receipt and
application of the proceeds therefrom at the assumed initial public offering
price of $ per share, and after deducting the underwriting discounts
and commissions and other estimated Offering expenses payable by the Company,
the net tangible book value of the Company as adjusted to give effect to the
Offering as of September 30, 1997 would have been $ , or approximately
$ per share of Common Stock. This represents an immediate increase in net
tangible book value of $ per share to existing shareholders and an
immediate dilution in net tangible book value of $ per share to new
investors purchasing Common Stock in the Offering. The following table
illustrates this per share dilution to new investors:
<TABLE>
<S> <C> <C>
Public offering price per share................................. $
Net tangible book value per share before the Offering........... $
Increase per share attributable to new investors................
-----
As adjusted net tangible book value per share after the
Offering.......................................................
-----
Dilution per share to new investors............................. $
=====
</TABLE>
The following table summarizes, on a pro forma basis as of September 30,
1997, the number of shares of Common Stock purchased from the Company, the
total consideration paid therefor and the average price per share paid by
existing shareholders and by new investors (assuming the sale of the shares of
Common Stock offered hereby at an initial public offering price of $
before deducting underwriting discounts and commissions and estimated Offering
expenses payable by the Company):
<TABLE>
<CAPTION>
SHARES TOTAL AVERAGE
PURCHASED CONSIDERATION PRICE
-------------- --------------- PER
NUMBER PERCENT AMOUNT PERCENT SHARE
------ ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Existing shareholders................. % $ % $
New investors.........................
------ ------ ------- ------
Total............................... % $ %
====== ====== ======= ======
</TABLE>
The above computations exclude (i) shares of Common Stock reserved for
issuance under the 1996 Plan, of which shares are subject to options
granted as of the date of the Offering at a weighted average exercise price of
$ per share, (ii) shares of Common Stock issuable upon exercise or
conversion of outstanding warrants and convertible notes at a weighted average
exercise or conversion price of $ per share, (iii) 300,000 shares of Common
Stock reserved for issuance under the Company's Employee Stock Purchase Plan
and (iv) shares of Common Stock issuable upon exercise of the
Representative's Warrant. See "Management--Benefit Plans," "Description of
Securities" and "Underwriting." To the extent that any options or, warrants or
convertible notes are exercised or converted, there will be further dilution
to new investors. See "Management--Benefit Plans" and "Underwriting."
20
<PAGE>
CAPITALIZATION
The following table sets forth the (i) actual capitalization of the Company
as of September 30, 1997; (ii) pro forma capitalization of the Company after
giving effect to the (A) Reverse Stock Split, (B) the Preferred Stock
Conversion, (C) conversion of outstanding notes and warrants into shares
of Common Stock and issuance of additional notes in the net principal amount
of $ , each after September 30, 1997, and (D) the issuance of the Full
Coverage Bridge Loan Shares; and (iii) pro forma capitalization of the Company
as adjusted to give effect to the sale of shares of Common Stock
offered by the Company hereby at an assumed initial public offering price of
$ per share, and the receipt and application of the estimated net
proceeds therefrom. This table should be read in conjunction with the
Consolidated Financial Statements and the Notes thereto appearing elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
--------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash........................................... $ 237 $ $
======== ======== ========
Working capital................................ $ (5,823) $ $
======== ======== ========
Long-term debt, net of current maturities...... $ 2,120 $ $
-------- -------- --------
Common stock subject to recission; par value
$0.01, 1,932,487 issued and outstanding....... 1,850
-------- -------- --------
Shareholders' (deficit) equity:
Series A convertible preferred stock; par
value $0.01, 5,000,000 shares authorized;
275,000 shares issued and outstanding; pro
forma and pro forma as adjusted, 5,000,000
shares authorized, no shares issued and
outstanding................................. 987
Common stock; par value $0.01, 20,000,000
shares authorized; 5,665,552 shares issued
and outstanding; pro forma and pro forma as
adjusted, 20,000,000 shares authorized,
shares issued and outstanding
(1)......................................... 2,389
Common stock warrants........................ 1,334
Accumulated deficit.......................... (12,123) (12,123) (12,123)
-------- -------- --------
Total shareholders' (deficit) equity......... (7,413)
-------- -------- --------
Total capitalization....................... $ (3,443) $ $
======== ======== ========
</TABLE>
- --------
(1) Excludes (i) shares of Common Stock reserved for issuance under
the 1996 Plan, of which shares are subject to options outstanding
at the date of the Offering, at a weighted average exercise price of $
per share, (ii) shares of Common Stock issuable upon exercise or
conversion of outstanding warrants and convertible notes at a weighted
average exercise or conversion price of $ per share, (iii) 300,000
shares of Common Stock reserved for issuance under the Company's Employee
Stock Purchase Plan and (iv) shares of Common Stock issuable upon
exercise of the Representative's Warrant. See "Management--Benefit Plans,"
"Description of Securities" and "Underwriting."
21
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following Selected Consolidated Financial Data set forth below with
respect to the Company's statements of operations data for each of the two
fiscal years ended December 31, 1996 are derived from the Company's
Consolidated Financial Statements included elsewhere in this Prospectus, which
have been audited by Arthur Andersen LLP, independent public accountants. The
Selected Consolidated Financial Data for the nine months ended September 30,
1996 and 1997, and the balance sheet data as of September 30, 1997, are
derived from the unaudited Consolidated Financial Statements for the Company
included elsewhere in this Prospectus which, in the opinion of management,
contain all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of the financial condition and results of
operations of the Company for such periods. The results of operations for the
nine months ended September 30, 1997 are not necessarily indicative of the
results that may be expected for the full 1997 fiscal year. The information
set forth below is qualified in its entirety by, and should be read in
conjunction with, the Consolidated Financial Statements and the Notes thereto
and "Management's Discussion and Analysis of Financial Condition and Results
of Operations" included elsewhere in this Prospectus. Historical operating
results are not necessarily indicative of the results that may be expected in
any future period.
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
---------------- ----------------
1995 1996 1996 1997
------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues................................... $ 2,113 $ 9,136 $ 5,830 $10,639
Operating expenses:
Cost of sales............................ 1,929 8,230 5,155 9,007
Sales and marketing...................... 238 682 494 664
General and administrative............... 1,536 5,773 4,095 4,658
Depreciation and amortization............ 111 98 86 141
------- ------- ------- -------
Total operating expenses................... 3,814 14,783 9,830 14,470
Operating loss............................. (1,701) (5,647) (4,000) (3,831)
Interest expense, net...................... (34) (225) (103) (588)
------- ------- ------- -------
Net loss................................... $(1,735) $(5,872) $(4,103) $(4,419)
======= ======= ======= =======
Series A convertible preferred stock
dividends................................. -- -- -- (21)
------- ------- ------- -------
Net loss applicable to common shareholders. $(1,735) $(5,872) $(4,103) $(4,440)
======= ======= ======= =======
Pro forma(1):
Net loss per share........................ $ $
======= =======
Weighted average number of shares
outstanding..............................
======= =======
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
-----------------------
ACTUAL AS ADJUSTED(2)
------- --------------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash.................................................... $ 237 $
Working capital......................................... (5,823)
Total assets............................................ 4,002
Long-term debt(3)....................................... 2,120
Common stock subject to rescission...................... 1,850
Total shareholders' (deficit) equity.................... (7,413)
</TABLE>
- -------
(1) See Note 2 of Notes to Consolidated Financial Statements for an
explanation of the method used to determine the number of shares used in
computing pro forma net loss per share.
(2) Adjusted to give effect to the issuance of the Full Coverage Bridge Loan
Shares, the sale of shares of Common Stock offered hereby at an
assumed initial public offering price of $ per share and the
application of the estimated net proceeds therefrom, after deducting
underwriting discounts and commissions and the estimated offering expenses
payable by the Company. See "Use of Proceeds," "Capitalization" and
"Management's Discussion and Analysis of Financial Condition and Results
of Operations--Liquidity and Capital Resources."
(3) Includes $1,000,000 in long-term debt which will convert into shares
of Common Stock upon closing of this Offering.
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the financial condition and performance of the
Company should be read in conjunction with the Consolidated Financial
Statements and related Notes and other information regarding the Company
included elsewhere in this Prospectus. Certain information contained below and
elsewhere in this Prospectus, including information with respect to the
Company's plans and strategy for its business, are forward-looking statements.
See "Risk Factors" for a discussion of important factors that could cause
actual results to differ from the forward-looking statements contained herein.
OVERVIEW
GlobalTel provides international telecommunications services principally to
small- and medium-sized business customers in developing ("second-tier")
telecommunication markets. Currently, the Company offers international long-
distance services, calling cards and enhanced voice services consisting of
voice-mail and conference calling to more than 8,500 business customers in
over 120 countries. The Company also resells switched minutes on a wholesale
basis to other telecommunications providers and carriers. GlobalTel's current
network architecture consists of: (i) voice switching and global fax messaging
infrastructure in Los Angeles; California; (ii) access to third party
infrastructure through Equant and other suppliers; (iii) enhanced fax nodes in
Hong Kong and Mexico City; and (iv) a Network Control and Operations Center in
Seattle, Washington.
The Company was established in November 1994 to enter second-tier markets by
providing what is commonly called call-reorigination, or "call back" services,
with value-added network-based services to be developed and introduced as
markets matured and as changes in technology and regulatory climates
permitted. The Company commenced operations in March 1995. Substantially all
of the Company's revenues have been generated by providing international call-
reorigination services primarily to small- and medium-sized businesses through
a network of agents and resellers, supplemented by direct marketing efforts,
and by selling switched minutes on a wholesale basis to other
telecommunications providers and carriers. The Company believes that as
deregulation occurs and competition increases in markets around the world, the
pricing advantage of traditional call-reorigination to most destinations
relative to conventional call-through international long distance service will
diminish in those markets. In order to maintain its existing customer base,
attract new customers and increase its revenues the Company intends to offer a
variety of value-added and enhanced network-based telecommunications services,
as well as its own call-through service. See "Risk Factors--Recent
Introduction and Ongoing Development of Value-Added Services" and "Business--
Services."
To implement this strategy, during 1996 the Company commenced a three-phase
network upgrade to (i) relocate its voice switching platform from Las Vegas to
Los Angeles for the primary purpose of facilitating access to least-cost call
routing alternatives for its call-reorigination business; (ii) improve the
Company's network facilities by implementing a more flexible switching
platform with enhanced features, installing an improved and scaleable customer
interface and transitioning to a more flexible customer billing system; and
(iii) implement an enhanced fax messaging infrastructure. The first phase of
this plan was completed in late 1996. In 1997, the Company completed phases
two and three, with installation and testing of a more capable switching
platform as well as the enhanced customer interface and billing systems.
Cutover of all customers to these new systems was completed in November 1997.
See "Business--Network and Operations."
Throughout 1996 and 1997, the Company invested significant resources to
refine and develop new business partner relationships and systems necessary
for introduction of value-added network-based services, with the intention of
introducing these services commercially in 1998. The costs associated with the
development and testing of new service offerings, including those which have
yet to be commercially introduced, have been charged against the Company's
current operations. See "Business--Services."
23
<PAGE>
The Company has experienced significant net losses in connection with the
initiation and growth of its call-reorigination business and the development
of value-added network-based services, and expects to experience net losses at
least through the end of 1998. The Company expects to achieve positive
operating income over time by increasing its customer base, introducing new
value-added services, and achieving enhanced efficiency through greater
economies of scale. The Company expects its operating revenues to increase in
1998; however, the Company also expects its net loss to increase in 1998 as
the Company implements its growth strategy. See "Risk Factors--Limited
Operating History; Substantial Operating Losses," "--Need for Additional
Capital and Capital Requirements," and "--Recent Introduction and Ongoing
Development of Value-Added Services."
The Company's call-reorigination revenue represents the majority of the
Company's revenues and has increased as the Company has added sales agents and
introduced its services into new countries. Following the relocation of the
Company's primary switching platform to Los Angeles in late 1996, the Company
also commenced selling international long distance minutes on a wholesale
basis to a limited number of interexchange carriers. Sales to carriers,
although profitable, typically generate lower margins than sales to small- and
medium-sized business customers. In addition, the Company benefits from
wholesale sales by reducing its costs per minute of use as a result of
improved bargaining power with vendors resulting from higher levels of
traffic. The Company's carrier wholesale revenues vary significantly from
period to period.
The Company's call-reorigination customer base is diversified both
geographically and by customer type. As of the September 1997 billing cycle,
the Company served over 8,500 customers and four wholesale carriers, and
provided services in more than 120 countries.
Based on transactions in the third quarter of 1997 the Company estimates
that approximately 60% of its call-reorigination revenues are charged directly
to its customers' credit cards and cleared electronically twice a month. Most
of the funds charged are credited to the Company's own account the following
day, shortening the Company's collection cycle in comparison with traditional
postal-based billing and collection systems. The remainder of the Company's
retail and wholesale customers typically are billed by the Company on a
monthly basis. The proportion of the Company's revenues collected on this
basis may vary in the future.
Cost of sales consists of costs associated with the origination,
transmission and termination of voice and data telecommunications services
provided to the Company by other carriers, the majority of which is
represented by fees paid to long-distance telecommunications carriers.
Substantially all of the Company's cost of sales is variable, based on the
number of minutes of use transmitted and terminated over other carrier
facilities. The Company seeks to lower its cost of sales as a percentage of
revenues by: (i) attempting to negotiate lower rates from suppliers as the
volume of the Company's network traffic increases; (ii) optimizing network
design and operation; (iii) utilizing a greater number of suppliers, thereby
allowing for more effective "least cost routing" and (iv) introducing new,
higher margin network services.
The Company generally realizes lower costs of sales as a percentage of
revenues from its call-reorigination services than for its wholesale services.
The Company's overall cost of sales margin will fluctuate based on its mix of
wholesale and retail services. The Company anticipates that its planned value-
added network-based services will be marketed and priced to result in lower
costs of sales as a percentage of revenues and thus improved margins over time
because, in the Company's estimation, these services offer greater perceived
value to the customer. However, there can be no assurance that improved
margins will be achieved.
Selling expenses primarily consist of advertising expenses and sales
commissions paid to independent sales agents. The Company's decision to use
independent agents as its primary sales force has been driven by the low
initial fixed costs associated with this distribution channel and the
perceived benefits of using individuals and companies with local market
connections and knowledge. See "Risk Factors--Dependence on Independent Sales
Agents" and "Business--Sales, Marketing and Customer Service."
24
<PAGE>
General and administrative expenses include salaries and benefits for all of
the Company's employees, including sales and marketing, costs associated with
the operation and maintenance of the Company's telecommunications network,
professional fees and other operating and overhead costs. Included in general
and administrative expenses are salaries, consulting fees and other costs
relating to the technical development of and market planning for the Company's
planned value-added network-based services.
Depreciation expense includes depreciation of switching and network
equipment as well as of furniture and fixtures. The Company provides for
depreciation using the straight line method of depreciation over the estimated
useful lives of the assets, which range from five to ten years. The Company's
amortization expense relates to organizational costs capitalized and amortized
over a five year period and license acquisition costs that are amortized over
the life of the license. Interest expense consists primarily of accrued
interest on convertible notes and the amortization of debt issuance costs.
RESULTS OF OPERATIONS
The following table sets forth certain financial data for the periods
indicated, as a percentage of revenues:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
--------------- ---------------
1995 1996 1996 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
STATEMENTS OF INCOME DATA:
Revenues................................ 100.0 % 100.0 % 100.0 % 100.0 %
Operating expenses:
Cost of sales......................... 91.3 90.1 88.4 84.7
Sales and marketing................... 11.3 7.5 8.5 6.2
General and administrative............ 72.7 63.2 70.2 43.8
Depreciation and amortization......... 5.3 1.1 1.5 1.3
------ ------ ------ ------
Total operating expenses................ 180.6 161.9 168.6 136.0
------ ------ ------ ------
Operating loss.......................... (80.6) (61.9) (68.6) (36.0)
Interest expense........................ (1.6) (2.5) (1.8) (5.5)
------ ------ ------ ------
Net loss................................ (82.2)% (64.4)% (70.4)% (41.5)%
====== ====== ====== ======
</TABLE>
COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
Total revenues increased $4.8 million or 83% to $10.6 million in the nine
months ended September 30, 1997 from $5.8 million in the nine months ended
September 30, 1996. Revenues from call-reorigination increased $1.0 million or
17% to $6.8 million in the nine months ended September 30, 1997 from $5.8
million in the nine months ended September 30, 1996. This increase resulted
from increased usage by existing customers and the addition of new customers
as the Company expanded its agent network and commenced providing services in
new countries. Following the relocation of the Company's primary switching
platform to Los Angeles in late 1996, the Company also commenced selling
international long-distance minutes on a wholesale basis to several
interexchange carriers. Wholesale carrier revenues, which commenced in October
1996, increased to $3.8 million in the nine months ending September 30, 1997.
Call-reorigination and wholesale carrier revenues represented 64% and 36% of
the Company's sales, respectively, for the nine months ended September 30,
1997.
Cost of sales increased $3.8 million or 75% to $9.0 million in the nine
months ended September 30, 1997 from $5.2 million in the nine months ended
September 30, 1996. This increase is primarily attributable to increased
transmission and termination costs associated with greater calling volume. As
a percentage of revenues, cost of sales decreased from 88.4% to 84.7% in the
nine months ended September 30, 1996 and 1997, respectively. This decrease in
cost of sales as a percentage of revenues is primarily attributable to a
25
<PAGE>
decrease in the costs associated with call-reorigination resulting from
implementation of least cost routing in late 1996 following the relocation of
the Company's switch to Los Angeles, and to greater calling volume resulting
in reduced costs per minute of use. This decrease was offset, in part, by
higher costs of sales as a percentage of revenues attributable to the
Company's wholesale carrier sales, which commenced in October 1996.
Sales and marketing expense increased $170,000 or 35% to $664,000 in the
nine months ended September 30, 1997 from $494,000 in the nine months ended
September 30, 1996. This increase is primarily attributable to increased sales
commissions. Substantially all of the Company's sales commissions are related
to call-reorigination sales generated by agents. The increase in sales
commissions is attributable to increased levels of sales generated by agents
as well as an increase in the effective commission rate. As a percentage of
revenues, sales and marketing expense declined from 8.5% to 6.2% in the nine
months ended September 30, 1996 and 1997, respectively, resulting in part from
higher levels of wholesale carrier sales not requiring comparable advertising
and sales commissions costs.
General and administrative expense increased $600,000 or 14% to $4.7 million
in the nine months ended September 30, 1997 from $4.1 million in the nine
months ended September 30, 1996. This increase is primarily attributable to
increased compensation costs resulting from increased staffing levels. As a
percentage of revenues, general and administrative expense declined from 70.2%
to 43.8% in the nine months ended September 30, 1996 and 1997, respectively.
This decrease is primarily attributable to economies of scale associated with
the Company's ability to spread costs of operations across a broader revenue
base.
Depreciation and amortization increased $56,000 or 65% to $142,000 in the
nine months ended September 30, 1997 from $86,000 in the nine months ended
September 30, 1996. This increase is primarily attributable to the
depreciation of capital assets acquired in late 1996 and in 1997, including a
new voice switching platform, facility improvements, fax gateway and an
electronic billing and customer interface system.
Interest expense increased $484,000 or 470% to $587,000 in the nine months
ended September 30, 1997 from $103,000 in the nine months ended September 30,
1996. This increase is primarily attributable to an increase in the Company's
outstanding indebtedness, together with amortization of costs associated with
the incurrence of additional debt. Also included in interest expense in the
nine months ended September 30, 1997 is $36,000 of additional debt issuance
amortization costs charged to interest expense as a result of the conversion
of a portion of the Company's indebtedness to common stock.
COMPARISON OF YEARS ENDED DECEMBER 31, 1996 AND 1995
Revenues increased $7.0 million or 332% to $9.1 million in 1996 from $2.1
million in 1995. Revenues from call-reorigination increased $6.2 million or
292% to $8.3 million in 1996 from $2.1 million in 1995. The increase in call
re-origination revenue was primarily due to increased usage by existing
customers and the addition of new customers as the Company developed its agent
network and commenced providing services in new countries. 1996 revenues also
include $793,000 of sales to carriers, which commenced in October 1996. The
Company's revenues from call-reorigination and wholesale carrier revenues
represented approximately 91% and 9%, respectively, of the Company's revenues
in 1996.
Cost of sales increased $6.3 million or 327% to $8.2 million in 1996 from
$1.9 million in 1995. This increase is primarily attributable to increased
transmission and termination costs associated with greater calling volume. As
a percentage of revenues, these costs decreased from 91.3% to 90.1% in 1995
and 1996, respectively, primarily as a result of better network utilization
offset in part by wholesale carrier revenues, which commenced in October 1996.
Sales and marketing expense increased $444,000 or 187% to $682,000 in 1996
from $238,000 in 1995. These costs are primarily sales commissions paid to the
Company's agents together with advertising costs. The increase in sales
commissions is attributable to increased levels of sales generated by agents
as well as an
26
<PAGE>
increase in the effective commission rate. As a percentage of revenues, sales
and marketing expense declined from 11.3% in 1996 to 7.5% in 1997, resulting
in part from the initiation of wholesale carrier sales in late 1996, which
sales do not require comparable advertising and sales commissions costs.
General and administrative expense increased $4.3 million or 276% to $5.8
million in 1996 from $1.5 million in 1995. This increase is primarily
attributable to the costs, including wages, salaries, travel and facilities,
associated with the addition of administrative, technical and customer support
personnel as the Company developed its management team and network. During
this period the Company also incurred professional fees, consulting costs and
facilities costs associated with the establishment of its relationship with
Equant and the development of the Company's value-added network-based
services. General and administrative expense declined, as a percentage of
revenues, from 72.7% in 1995 to 63.2% in 1996. This decrease is primarily
attributable to economies of scale associated with the Company's ability to
spread costs of operations across a broader revenue base.
Depreciation and amortization decreased $13,000 or 12% from $111,000 in 1995
to $98,000 in 1996. Depreciation expense increased from 1995 to 1996 when the
Company placed in service approximately $329,000 of capital equipment. This
was offset by a decrease in amortization expense from 1995 to 1996 as a result
of the write-off in 1995 of certain organizational costs.
Interest expense increased $191,000 or 568% to $225,000 in 1996 from $34,000
in 1995. This increase is primarily attributable to an increase in the
Company's outstanding indebtedness, together with the amortization of debt
issuance costs.
QUARTERLY RESULTS OF OPERATIONS
The following tables set forth certain quarterly financial data for the
seven quarters ended September 30, 1997. This quarterly information has been
derived from unaudited Consolidated Financial Statements which, in the opinion
of the Company's management, reflect all adjustments (consisting only of
normal recurring adjustments) necessary for a fair presentation of the
information for the periods presented. Operating results for any quarter are
not necessarily indicative of results for any future period.
The Company's quarterly operating results have fluctuated in the past and
may fluctuate significantly in the future as a result of a variety of factors,
some of which are outside the Company's control. These factors include general
economic conditions, demand for international telecommunications services,
capital expenditures and other costs relating to the expansion of operations,
the timing of new product introductions by the Company or its competitors,
market availability and acceptance of new and enhanced versions of the
Company's or its competitors' products and services, changes in mix of sales
and the rates of customer acquisition and retention.
<TABLE>
<CAPTION>
1996 QUARTER ENDED 1997 QUARTER ENDED
------------------------------------ ---------------------------
MARCH 31 JUNE 30 SEPT. 30 DEC. 31 MARCH 31 JUNE 30 SEPT. 30
-------- ------- -------- ------- -------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF INCOME
DATA:
Revenues................ $ 1,507 $ 2,048 $ 2,275 $ 3,306 $ 4,385 $ 3,589 $ 2,665
Operating expenses:
Cost of sales......... 1,520 1,753 1,882 3,075 3,811 2,992 2,204
Sales and marketing... 122 199 173 188 226 229 209
General and
administrative....... 1,087 1,538 1,470 1,678 1,411 1,497 1,750
Depreciation and
amortization......... 22 24 40 12 18 59 65
------- ------- ------- ------- ------- ------- -------
Total operating
expenses............... 2,751 3,514 3,565 4,953 5,466 4,777 4,228
------- ------- ------- ------- ------- ------- -------
Operating loss.......... (1,244) (1,466) (1,290) (1,647) (1,081) (1,188) (1,563)
Interest expense........ (20) (21) (62) (122) (169) (240) (178)
------- ------- ------- ------- ------- ------- -------
Net loss................ $(1,264) $(1,487) $(1,352) $(1,769) $(1,250) $(1,428) $(1,741)
======= ======= ======= ======= ======= ======= =======
</TABLE>
27
<PAGE>
Following the relocation of the Company's switch to Los Angeles in the
fourth quarter of 1996, the Company commenced reselling long-distance minutes
on a wholesale basis to certain interexchange carriers. Wholesale carrier
sales accounted for a major portion of the 45% and 33% increase in total sales
for the fourth quarter of 1996 and the first quarter of 1997, respectively.
Wholesale carrier sales increased $1.2 million or 152% to $2.0 million in the
first quarter of 1997 from $793,000 in the fourth of 1996. The Company's cost
of sales increased as a percentage of revenues in the third and fourth
quarters of 1996 as a result of the higher cost of sales, on a percentage of
revenue basis, for wholesale carrier sales, which are typically priced at
lower levels than call-reorigination activity. In the first quarter of 1997,
cost of sales as a percentage of revenues declined to 86.9% in spite of the
increasing proportion of wholesale carrier sales as the Company raised prices
on sales to wholesale customers.
The Company experienced declining revenues in the quarters ended June 30,
1997 and September 30, 1997 in comparison to the prior quarters. This decline
was primarily a result of the Company's decision in May 1997 to temporarily
de-emphasize its wholesale carrier business. Due to the lengthy payment cycles
the Company had experienced with certain of its wholesale carrier customers
and the Company's relatively low cash reserves, the Company reduced its
wholesale carrier sales in order to limit its credit risk, reduce effective
carrying costs associated with carrier accounts receivable and improve gross
margins. Specifically, the Company ceased doing business with two carriers and
reduced its level of business with several others, resulting in a decline in
carrier sales from $2.0 million in the quarter ended March 31, 1997 to
$534,000 in the quarter ended September 30, 1997. This led to an increase in
the Company's gross margin from 13.1% to 17.3% over the same period. In order
to continue to take advantage of the benefits of greater network utilization
and increased buying power, the Company anticipates increasing the level of
carrier sales in the next twelve months as the Company identifies and develops
its business relationships with additional interexchange carriers.
Additionally, call-reorigination revenues declined moderately during the
second and third quarters of 1997 in comparison to the preceding quarters. Due
to anticipated capacity constraints and limited access to multiple carriers,
the Company relocated its primary switching platform from Las Vegas to Los
Angeles in late 1996. The Company experienced technical and operational
difficulties in connection with this relocation process which resulted in
service disruptions for a number of customers. Although the Company's sales
were adversely affected during this period, the Company believes that it
resolved these difficulties by June 1997. Increased competitive pressures
encountered by some of the Company's agents also contributed to the decline in
revenues during these two quarters. During the second half of 1997 the Company
installed a new and more capable switching platform, which became fully
operational on November 1, 1997, enabling the Company to offer a wider variety
and more competitive package of services to its agents and customers.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal cash requirements have been to fund operating
losses, debt service and capital expenditures associated with development of
its customer base and the establishment and upgrade of its network
infrastructure. Through September 30, 1997, the Company has met these cash
requirements largely through financing activities that have included $3.0
million in net proceeds from the sale of Common Stock, $1.0 million in net
proceeds from the sale of Preferred Stock, $6.2 million in net borrowings from
shareholders and others represented by promissory notes (the "Notes"), as well
as revenues from operations. See "Certain Transactions." At September 30,
1997, Notes aggregating approximately $4.2 million remained outstanding, of
which $1.1 million matures prior to September 30, 1998. Substantially all of
the Notes accrue interest at the rate of ten percent per annum, increasing to
12 percent when the Notes are past due. Notes outstanding at September 30,
1997, with an aggregate principal amount of $3.9 million are convertible at
the option of the holder into an aggregate of shares of Common Stock,
assuming an initial public offering price of $ . Notes aggregating
$521,000 were converted into Common Stock subsequent to September 30, 1997.
Warrants to purchase an aggregate of 1,430,869 shares of Common Stock were
issued in connection with the issuance of the Notes, all of which remained
outstanding at September 30, 1997. Also, in September 1997,
28
<PAGE>
deferred salaries aggregating $1.2 million were converted into warrants to
purchase 1.1 million shares of Common Stock. In October 1997 the Company
obtained an additional $550,000 in connection with the issuance of notes to
four individuals. These notes bear interest at a rate of ten percent per
annum, are due in full by March 1, 1999, and are convertible at the option of
the holder into an aggregate of 500,000 shares of Common Stock. Warrants
exercisable for an aggregate of 55,000 shares at an exercise price of $1.10
per share were granted in this round of financing.
In November 1997 the Company obtained an additional $325,000 in connection
with the issuance of notes to three individuals. These notes bore interest at
ten percent per annum and were repaid in full from the proceeds of certain
notes issued in November and December. In addition, each holder of these notes
will receive, following the closing of this Offering, shares of Common Stock
equal to one-half of the principal amount of its note divided by the initial
public offering price.
In November and December 1997 the Company obtained approximately $3.0
million in connection with the issuance of additional notes. These notes (the
"Full Coverage Bridge Notes") bear interest at the rate of ten percent per
annum and are due in full by the earlier of the closing of this Offering or
January 2, 1999. In addition, each holder of a Full Coverage Bridge Note will
receive following the closing of this Offering shares of Common Stock (the
"Full Coverage Bridge Loan Shares") in an amount equal to the principal amount
of its Bridge Note divided by the initial public offering price. The Company
has agreed to cause the Full Coverage Bridge Loan Shares to be registered
under the Securities Act for resale for a period of up to 180 days commencing
270 days after the closing of this Offering. See "Description of Securities--
Registration Rights."
As a result of the Company's operating losses, available working capital has
not always been sufficient to satisfy the Company's obligations. In the past
the Company has from time to time been in arrears of its payment obligations
to its carriers. In October 1997, the Company failed to pay amounts due to one
of its principal long-distance suppliers within the time period this supplier
customarily had required payment. As a result, this supplier ceased providing
services to the Company and, under the terms of its agreement with the
Company, could demand a termination payment of up to $1.2 million. The Company
was able to re-route traffic that previously had been carried by this supplier
without any interruption in service to its customers. In December 1997, after
the Company paid this supplier a substantial portion of the amounts past due,
services were restored. The Company has negotiated the payment terms of the
remaining balance owed and does not believe that it will be required to pay an
amount in excess of that owed for carrier services provided. There can be no
assurance that the Company will not be required to pay a penalty to this or
any other supplier or that the Company will not be in default of its
obligations to its suppliers in the future. See "Risk Factors--Dependence on
Suppliers."
Net cash used in operating activities was $2.4 million in the first nine
months of 1997. Adjustments to the $4.4 million net loss for the period to
reconcile to net cash used in operating activities consisted primarily of a
$1.4 million increase in accounts payable, accrued liabilities and other,
primarily resulting from the increase in overall operating expenses and the
Company's relatively low level of cash reserves. Other adjustments included
$311,000 in depreciation and amortization and other changes in operating
assets and liabilities, including a $340,000 decrease in accounts receivable
resulting from a decline in wholesale carrier sales. Net cash used in
operating activities was $2.6 million in 1996. Adjustments to the $5.9 million
net loss for the period to reconcile to net cash used in operating activities
consisted primarily of a $3.8 million increase in accounts payable, accrued
liabilities and other resulting from the Company's increasing level of sales
and operations. Other adjustments included $127,000 in depreciation and
amortization and a $1.2 million increase in accounts receivable and other
receivables due primarily to the increase in wholesale carrier sales late in
1996 and a $531,000 increase in customer deposits and prepayments, resulting
from the establishment of new customer accounts. Net cash used in operating
activities in 1995 was $1.0 million.
Net cash used in investing activities was $956,000 in the first nine months
of 1997. Investing activities for the period consisted of $823,000 in capital
expenditures and $133,000 in deposits on equipment, including a
29
<PAGE>
new voice switching platform together with hardware and software to enable the
Company to offer value-added network-based services. Net cash used in
investing activities was $688,000 in 1996. Investing activities for the period
consisted of capital expenditures for hardware and software together with
equipment deposits to improve the Company's switching network. Net cash used
in investing activities was $522,000 in 1995. In addition to $260,000 in
capital equipment, the Company capitalized $262,000 in costs associated with
establishing and organizing the Company and the acquisition of one of the
Company's subsidiaries.
The Company's growth strategy is to seek to minimize its investment in
capital equipment and systems by utilizing, wherever possible, existing third-
party telecommunications infrastructure. Nevertheless, the delivery of new
value-added network-based services will require substantial additional
investment for staffing and capital equipment. Although as of September 30,
1997 the Company had no material commitments for future capital expenditures,
the Company has identified approximately $6.5 million of capital expenditures
it intends to undertake in 1998. The Company intends to finance a portion of
this capital equipment through capital leases, although there can be no
assurance that lease financing will be available or on terms that the Company
finds acceptable.
Net cash provided by financing activities was $2.0 million, $3.0 million,
$1.4 million and $3.1 million in 1995, 1996 and the first nine months of 1996
and 1997, respectively. Financing activities have included the issuance of
Common Stock, Preferred Stock, notes and warrants, the repayment of notes to
shareholders and others, and costs associated with the foregoing.
The net proceeds to the Company from the Offering are estimated to be
approximately $15.4 million, or $17.8 million assuming the exercise of the
Underwriters' over-allotment option. The Company expects that approximately
$5.6 million of such net proceeds will be used to repay outstanding notes,
approximately $6.5 million will be used for capital expenditures, and the
balance will be used for working capital and general corporate purposes. In
addition, the Company may be obligated to repurchase securities of the
Company, if any, tendered in connection with the Rescission Offer in an
approximate amount up to $3.3 million plus statutory interest of approximately
$373,000. See "Risk Factors--Rescission Offer" and Note 6 of Notes to
Consolidated Financial Statements. The Company believes that, based upon its
present business plan, the net proceeds of the Offering, together with
revenues from operations, will be sufficient to finance operating losses, and
the development and introduction of new services and to meet its other
currently planned working capital and capital expenditure requirements through
the end of 1998. However, due to the need to continue to expand its network
operations and service offerings and other factors, the Company expects that
it will need to raise additional capital in future periods. The Company also
intends to seek lease financing for a portion of the equipment and systems
that it acquires in 1998 and beyond, although there can be no assurance that
this financing will be available or on terms that the Company finds
acceptable. If the Company experiences greater than anticipated capital
requirements, if the implementation of the Company's operating strategy fails
to produce the anticipated revenue growth and cash flows or if additional
working capital is required for any other reason, the Company will be required
to obtain additional sources of capital earlier than currently anticipated.
The timing of the need for additional capital also will be affected by the
extent to which the Rescission Offer is accepted. See "Risk Factors--
Rescission Offer." There can be no assurance that the Company will be able to
obtain equity, debt or lease financing when needed or on terms that the
Company finds acceptable. See "Risk Factors--Need for Additional Capital and
Capital Requirements."
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128 "Earnings Per Share" ("SFAS 128"), which revises the calculation and
presentation provisions of Accounting Principles Board Opinion 15 and related
interpretations. SFAS 128 is effective for the Company's year ending
December 31, 1997, and retroactive application is required. The Company does
not expect the implementation of SFAS 128 to have a material effect on
earnings per share amounts previously reported.
FOREIGN CURRENCY
Although the Company derives the majority of its revenues from international
sales, the Company bills for its services exclusively in U.S. Dollars, and as
such has no material foreign exchange exposure.
30
<PAGE>
EFFECTS OF INFLATION
Inflation has not had a significant effect on the Company's operations to
date. Some of the markets in which the Company operates have experienced
significant inflationary periods in past years and may experience high rates
of inflation in the future. A period of significant inflation in any of the
Company's markets could adversely affect the Company's business by increasing
the local currency prices paid by customers for international
telecommunications services, including those provided by the Company.
SEASONAL FLUCTUATIONS
The Company may experience a decrease in customer usage and revenue around
national holidays and traditional vacation periods in some of its markets.
Given the cultural and geographic diversity of the markets in which the
Company operates, the Company does not believe that such seasonal trends have
resulted in any material seasonality to the Company's business taken as a
whole. There can be no guarantee however that such trends may not affect the
Company's operations in the future.
31
<PAGE>
BUSINESS
OVERVIEW
GlobalTel provides international telecommunications services principally to
small- and medium-sized business customers in second-tier telecommunication
markets. Currently, the Company offers international long-distance services,
calling cards and enhanced voice services consisting of voice-mail and
conference calling to more than 8,500 business customers in over 120
countries. The Company began operations in 1995 with its entry into the
international call-reorigination business to capitalize on the arbitrage
opportunity created by differences between U.S. and foreign originated
international long-distance rates. The Company is leveraging the expertise
derived from, and the established customer base generated by, its call-
reorigination business to provide higher margin enhanced telecommunications
services.
GlobalTel's objective is to become a leading provider of value-added
telecommunications services in markets that historically have been underserved
by large global telecommunications providers and national ITOs. The Company's
strategy is to enter second-tier markets by providing non-regulated or less
regulated telecommunications services, such as international call-
reorigination. The Company plans to continue to service existing customers and
to enter additional markets with less regulated enhanced telecommunications
services, including traditional call-reorigination and value-added data
services and a suite of business-grade Internet services. Most of the
Company's planned services can be provided under existing regulatory
frameworks. As regulatory environments and the availability of capital permit,
GlobalTel intends to migrate its call-reorigination customers and cross-sell
its enhanced service customer base to a more cost effective and competitive
call-through service.
GlobalTel primarily markets its telecommunications services through a
network of over 75 independent sales agents, supplemented by direct marketing
efforts. The Company also has an exclusive agreement with IBNet, the managing
member of the Consortium of Global Commerce, whereby IBNet will market the
Company's services through several thousand individual chambers of commerce
located in over 200 countries. In addition, the Company's relationship with
Novell provides a distribution channel for the Company's services through
Novell's network of over 25,000 value-added resellers.
GlobalTel's current network architecture consists of: (i) voice switching
and global fax messaging infrastructure in Los Angeles, California; (ii)
access to third party infrastructure through Equant, a global data network
services provider, and other suppliers; (iii) enhanced fax nodes in Hong Kong
and Mexico City; and (iv) a Network Control and Operations Center in Seattle,
Washington. The Company's agreement with Equant allows the Company to utilize
the global reach of the Equant network and co-locate its servers and switches
in many large cities around the world. In addition, GlobalTel's agreement with
Novell provides the Company with access to key network technologies.
MARKET OPPORTUNITY
Second-Tier Markets. Larger telecommunications carriers have focused on
"first-tier" markets, which are characterized by high teledensity (ratio of
telephone lines to inhabitants), an advanced stage of deregulation, a large
volume of international telecommunications traffic and a concentration of
large multinational corporations. First-tier markets include the United
States, the United Kingdom, Germany, France and Japan. Alternatively, the
Company focuses on what it characterizes as second-tier markets, which are (i)
smaller developed countries such as Austria, Switzerland, Ireland, Singapore
and South Africa and (ii) developing markets that typically have less
developed telecommunications infrastructures, are in an earlier stage of
deregulation and have more monopolistic distribution profiles. According to
the ITU, there were approximately 135 countries that the Company targets as
second-tier markets that generated approximately 18.4 billion minutes in
annual international telecommunications traffic in 1994.
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<PAGE>
Historic Perspective. Historically, the provisioning of voice telephony
within individual countries has been monopolized by large, typically
government owned or protected entities, often referred to as ITOs. As a
result, international callers have had little choice but to use the services
provided and pay the prices charged by local ITOs. Deregulation, together with
decreases in the cost of providing services and the introduction of
sophisticated value-added features, has made it possible for new entrants to
compete with the ITOs in providing international voice telecommunications
services. Similarly, in the United States, where regulation of the long-
distance telephone industry has been substantially reduced, competition has
increased as many new providers have entered the market. The resulting
decrease in rates and the emergence of different rate structures for similar
services have produced a resale market for long-distance telecommunications
services, as companies can obtain favorable volume-based rates from third
parties and resell access to such rates to other providers and users. These
and other factors have contributed to an increase in telecommunications usage
and a proliferation of enhanced telecommunications services. The combination
of a continually expanding global telecommunications market, consumer demand
for lower prices and improved quality and service and ongoing deregulation has
created competitive opportunities in many other countries. According to the
ITU, the international telecommunications industry accounted for $52.8 billion
in revenues and 60.3 billion minutes of use in 1995. The ITU projects that
international telecommunications revenues will approach $76.0 billion by the
year 2000 with the volume of traffic expanding to 107 billion minutes of use.
Convergence of Technology. Deregulation and evolving price competition have
coincided with technological innovation in the telephone industry. New
technologies such as fiber optic cable and improvements in digital
compression, computer software and processing technology have contributed to
improvements in quality and increased transmission capacities and speed, with
transmission costs decreasing as a result. For example, fiber optic cable has
dramatically increased the capacity, speed and flexibility of telephone lines
and has eliminated capacity constraints as a technical barrier to entry for
new international telecommunications providers. The improved quality of these
new telephone lines has facilitated the development of global voice-mail and
fax mail and has enhanced data communication. Improvements in computer
software and processing technology have laid a foundation for services such as
itemized and multi-currency billing. In addition, international debiting and
charge networks now allow customers to pay for long-distance calls made from
any telephone using a single home account and callers can now access national
telephone systems in order to benefit from lower long-distance tariffs. The
convergence of conventional telephony and computing technologies also has
created the opportunity for data networks, and computers in general, to become
primary telecommunications tools.
Regulatory Environment. In a deregulated telecommunications market such as
the United States, carriers can establish switching facilities, own or lease
fiber optic cable, enter into operating agreements with foreign carriers and,
accordingly, provide direct access service to customers. In markets that have
not deregulated or are slowly deregulating, international long-distance
carriers have used advances in technology to develop innovative alternative
access methods, such as call-reorigination and other less regulated value-
added data services. In other countries, such as Japan and most EU member
states, where the deregulation process is more advanced but not complete,
carriers often are permitted to offer facilities-based data and facsimile
services, as well as limited voice services. As countries deregulate, demand
for alternative access methods typically decreases as carriers are permitted
to offer a wider range of facilities-based services on a transparent basis.
Call-reorigination, which is the most common form of alternative
international access, avoids the high international rates offered by the ITO
in a particular regulated country by providing a dial tone from a deregulated
country, typically the United States. To place a call using traditional call-
reorigination, a user dials a unique phone number to an international
carrier's switching center and then hangs up. The user then receives an
automated call back providing dial tone from the United States, which enables
the user to complete the call. Technical innovations, such as inexpensive
dialers, have enabled telecommunications carriers to offer a transparent form
of call-reorigination that eliminates the need for the "hang-up" and "call
33
<PAGE>
back" of traditional call-reorigination. In addition, sophisticated in-country
switching platforms have enabled carriers to offer "call-through" services,
allowing the customer direct access to a provider's network.
The Company believes that as deregulation occurs and competition increases
in markets around the world, the pricing advantage of traditional call-
reorigination to most destinations relative to call-through international
long-distance service will diminish in those markets. The Company also
believes that deregulation will continue to create opportunities for new
entrants in the telecommunications services industry, particularly companies
capable of meeting the challenges presented by remote or underdeveloped
markets.
Private Networks and Emergence of the Internet. Historically, the data
communications services offered by public carriers had limited security
features, were expensive and did not adequately ensure accurate and reliable
transmission. As a result, many corporations with the resources to do so
established and maintained their own private networks to provide network-based
services, such as transaction processing, to their customers and to coordinate
operations between employees, suppliers and business partners. These private
networks were frequently customized and thus had the capability of providing
organizations and users with tailored performance and features, security,
reliability and private-label branding. The demand for private networks has
grown as a result of today's competitive business environment, leading to
other offerings such as VPNs and intranet services.
Despite the attractive capabilities of private networks, their limitations
have impeded or reduced their effectiveness. These networks, which
traditionally have required the use of leased telephone lines with bandwidth
dedicated solely to this purpose and the purchase of vendor-specific
networking equipment, are inherently expensive to set up, operate and
maintain. The Company believes that the costs of maintaining a private network
infrastructure and the risks of investing in new technologies have precluded
many small- and medium-sized businesses from utilizing private network, VPN
and intranet infrastructures.
The emergence of the Internet and the wide spread adoption of IP as a data
transmission standard in the 1990s, combined with deregulation of the
telecommunications industry and advances in telecommunications technology,
have significantly increased the attractiveness of providing data
communication applications and services over a public network. At the same
time, the growth in client/server computing, multi-media personal computers
and on-line computing services and the proliferation of network technologies
have resulted in a large and growing group of people who are accustomed to
using networked computers for a variety of purposes, including e-mail,
electronic file transfers, on-line computing and electronic financial
transactions. These trends increasingly have led businesses to explore
opportunities to provide IP-based applications and services within their
organizations, and to customers and business partners outside the enterprise.
Industry analysts expect the market size for both value-added IP data
networking services and Internet access to continue to grow rapidly as
businesses and consumers increase their use of the Internet, intranets, and
privately managed IP networks. According to industry analysts, the total
market for these services is projected to grow from $1.2 billion in 1996 to
approximately $22.7 billion in the year 2000, with approximately $10.4 billion
in the enterprise market segment and $12.3 billion in the consumer market
segment.
The ubiquitous nature and relatively low cost of the Internet have resulted
in its wide spread usage for certain applications, most notably Web access and
e-mail. However, use of the Internet for mission-critical business
applications has been impeded by the limited security and unreliable
performance inherent in the structure and management of the Internet. Although
private networks are capable of offering lower and more reliable latency
levels, providers of these emerging applications also desire a network that
will offer their customers full access to the Internet. As a result, these
businesses and applications providers require a network that combines the best
features of the Internet, such as openness and ease of access at low cost made
possible by the IP standard, with the advantages of a private network, such as
high-security, low/fixed latency and customized features.
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GLOBALTEL STRATEGY
GlobalTel's objective is to become a leading provider of value-added
telecommunications services to small- and medium-sized business customers in
markets that historically have been underserved by large telecommunications
providers and national ITOs. The Company's strategy to accomplish this
objective includes the following key elements:
Target Second-Tier Markets. The Company focuses on second-tier markets that
historically have faced less competition from larger telecommunications
providers. The Company believes that, due to the more monopolistic
distribution profile of these markets, small- and medium-sized businesses
traditionally have been underserved and consequently are more receptive to
higher quality, competitively priced services. Initially by offering call-
reorigination services, the Company has gained experience in addressing the
needs of business customers in these markets. The Company believes that this
experience, combined with strategic marketing relationships with IBNet and
Novell, will enable the Company to more effectively penetrate these markets.
Leverage Customer Base Through Enhanced Service Offerings. The Company has
developed and is introducing additional telecommunications services for its
existing customer base of more than 8,500 business customers in over 120
countries. To retain existing and attract new customers, the Company plans to
provide an increasingly broad range of services, such as enhanced
telecommunications services and a suite of business-grade Internet services.
Most of these services can be provided under the existing regulatory
frameworks in the Company's markets. In addition, as the regulatory
environments and availability of capital permits, GlobalTel intends to migrate
its call-reorigination customers and cross-sell its enhanced service customer
base to a more cost effective and competitive call-through service.
Exploit Sales Channels and Strategic Marketing Relationships. In addition to
its over 75 independent sales agents, the Company has access to global
channels of distribution through its strategic marketing relationships. The
Company has an exclusive agreement with the Consortium through which the
individual chambers of commerce may act as sales and marketing agents for the
Company's services. In addition, the Company's agreement with Novell provides
it with access to a distribution channel through Novell's network of over
25,000 VARs. This will enhance the Company's ability to expand its customer
base as well as establish new relationships with independent Internet service
providers ("ISPs") and other network providers (collectively, "regional ISPs")
in its target markets. These relationships also allow the Company to
capitalize on the brand recognition of its partners. A critical element of the
Company's distribution strategy includes pursuing additional strategic
partnerships and expanding its channels of distribution.
Capitalize on Third Party Networks. GlobalTel intends to minimize its
investment in capital equipment and systems by utilizing, wherever possible,
existing third party telecommunications infrastructure. Through its strategic
relationship with Equant, the Company has access to an infrastructure with
access points in most countries worldwide. This relationship allows the
Company to co-locate its servers and switches in existing Equant switch sites
in many cities around the world. Also, the Company is continuing to seek
additional strategic relationships in order to further its ability to
interconnect with other third party infrastructures.
Employ Flexible, Open Architecture Technology. By using off-the-shelf
technology that is modular and scaleable and allows for the integration of a
variety of technologies, the Company expects to provide its customers with
enhanced services in a timely and cost-efficient manner. The Company is
committed to continue to invest in improvements, through the integration of
technologies, its electronic billing, customer interface and network
management systems, which the Company believes are critical to its cost-
effective delivery of services. The Company expects these systems to provide
it with the ability to quickly upgrade its customers from a single product to
multiple services.
SERVICES
The Company seeks to address the evolving telecommunications needs of the
small- and medium-sized business customer located in second-tier markets.
Currently, the Company offers international long-distance
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services, calling cards, and enhanced telecommunications services such as
voice-mail and conference calling. The Company believes that the growing
globalization of business has increased the mobility of business people and
led to the proliferation of multi-office enterprises, creating greater demand
for the ability to conveniently access electronic information from remote
locations worldwide. As a result, the Company is designing and implementing a
range of next generation business-grade Internet services with business
partners such as Novell. The Company expects these services to include
business quality messaging, global enhanced VPNs and other value-added
services. In addition, to address the needs of independent ISPs and other
network providers in the Company's target markets for increased global reach
and value-added services, GlobalTel is designing a comprehensive "Turnkey
Business ISP" solution incorporating all of the Company's business-grade
Internet services. These service offerings are being designed to emphasize
such features as authentication, security and notification allowing for
business-grade reliability. As the regulatory environments and availability of
capital permits, GlobalTel intends to migrate its call-reorigination customers
and cross-sell its enhanced service customer base to a more cost effective and
competitive call-through service.
<TABLE>
<CAPTION>
CURRENT SERVICES SERVICES UNDER DEVELOPMENT
---------------- --------------------------
<S> <C>
International Call-Reorigination Call-Through
Calling Cards Enhanced Fax
Enhanced Voice Services Business-Grade Internet Services
Global Enhanced VPN
Business Quality Messaging
Global Desktop
"Turnkey Business ISP"
</TABLE>
Current Services
.International Call-Reorigination
The Company presently provides voice call-reorigination service to customers
in over 120 countries. The Company's call-reorigination service enables
customers in countries with high international calling rates to call outside
the country at rates competitive with U.S. international service providers.
The customer's call is routed through the Company's switching platform in Los
Angeles, where the call is directed over the least expensive route on the
Company's network depending on distance, country of termination and time of
day. The Company accesses the long-distance networks of a variety of long-
distance providers.
.Prepaid and Postpaid Calling Cards
The Company's prepaid (debit) and postpaid domestic and international
calling cards may be used by customers for international telephone calls from
more than 70 countries to substantially all other countries in the world.
Calling card customers also have access to 24-hour multi-lingual customer
service and certain customization options.
.Enhanced Voice Services
The Company offers enhanced voice services, consisting of voice-mail and
conference calling. Conference calling enables customers to set up "meet me"
dial-in conference calls as well as add-on conference calls, with or without
operator intervention. Conference calling is a higher margin value-added
service to the Company's basic voice services. The Company's services also
enable a customer to originate international voice and fax calls over the
Internet by allowing call back service to be activated from their PCs.
Services Under Development
The Company is developing the following new services which it intends to
offer during 1998:
.Call-Through
The Company will offer call-through or "direct access" service to customers
in selected markets. This service will permit customers to make long-distance
calls at a lower price than that charged on a call-
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reorigination basis while lowering the Company's termination cost. Call-
through service involves the installation of an access point in the local
market that is connected to the Company's switch by a dedicated leased long-
distance line. The international customer accesses this connection to the
Company's switch either by dialing a local telephone number or, in markets
where the regulatory environment permits, through an interconnection with the
local service provider.
.Enhanced Fax
The Company's enhanced fax service, currently offered only in Hong Kong and
Mexico City, uses advanced technology to provide its customers with a higher
quality and less expensive method to send facsimile messages than is typically
obtained using conventional analog fax. Unlike conventional analog fax
service, enhanced fax service: (i) results in significantly fewer transmission
errors, particularly with international transmissions because it is
transmitted over a digital data network; (ii) is easier to use than
conventional fax, with a feature that will retransmit the fax until it is
successfully received at its destination; and (iii) is much less expensive
because it can be sent as a digital packet in a shorter period of time. A
recent study conducted by Pitney Bowes/Gallup found that international faxes
transmitted over analog phone lines are transmitted twice on average due to
interruptions and quality problems, creating a hidden cost for users. Other
features of the GlobalTel enhanced fax offering include commercial-grade
broadcast fax, fax on demand (or "fax catalog") and timed delivery.
The Company has designed and plans to install during the first half of 1998
an Internet-based fax service interconnecting to its fax gateway in Los
Angeles, California. This service will allow customers with Internet access to
send faxes to any fax machine worldwide and to any Internet based e-mail
address.
.Business-Grade Internet Services
The Company is developing and preparing to offer a suite of value-added
services which will permit business-grade communications utilizing Internet
technologies. The Company expects these business-grade Internet services to
include (i) Global Enhanced VPN, (ii) Business Quality Messaging and (iii)
Global Desktop. These services will combine the best features of the Internet,
such as openness and ease of access at low cost made possible by the IP
standard, with the advantages of a private network, such as high security,
low/fixed latency and customized features. The Company believes that its
service design will overcome many of the perceived inefficiencies of today's
Internet and will allow its customers to conduct business quality transactions
via the Company's network infrastructure.
The Company's business-grade Internet services are being designed in
conjunction with business partners including Novell and other technology
providers. The Company's technology licensing agreement with Novell, for
example, provides the Company with access to certain key networking
technologies. In addition, the Company has become a Novell Business Internet
Services ("BIS") partner, an affiliation which the Company believes will
further enhance its service delivery strategy. BIS partners, which presently
include major telecommunications carriers such as AT&T, Bell Atlantic
Corporation, Nippon Telegraph and Telephone Corporation, Deutsche Telecom AG,
Singapore Telecommunications Limited Corporation and Korea Telecom, have
agreed on standards for interconnecting their respective Internet networks.
Those carriers currently principally focus on first-tier markets. See "--
Network and Operations" and "Sales, Marketing and Customer Service--Strategic
Marketing Relationships."
Global Enhanced VPN
The Company's Global Enhanced VPN service has been designed to enable
customers to establish a wide area network among their offices by using the
Company's network infrastructure, thereby eliminating the cost associated
with establishing and maintaining a dedicated private network. The
Company's VPN service will be enhanced through the use of a commercial
grade directory infrastructure and certain certification and security
mechanisms. This will allow customers a single sign-on to their VPN from
any of their offices worldwide. Customers also will have the capability of
accessing their VPN from
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<PAGE>
outside their offices with a local telephone call through access points in
many cities. For example, a U.S.-based user traveling to Hong Kong would be
able to access from the user's Hong Kong office his or her local access
network in the United States by entering the user's name, password and
additional security authentication. The user could then work on the local
access network in the United States in accordance with the user's normal
desktop privileges. In addition, the user could access his or her U.S. e-
mail system even if the Hong Kong office did not have an e-mail system or
if it operated on a different messaging system. The Company's single sign-
on capabilities, combined with advanced security, authentication and
notification features, will enable a business customer to open its VPN in a
controlled manner to its customers, vendors and other business partners
(also known as an "extranet"), thus facilitating secure and reliable
electronic commerce.
Business Quality Messaging
The Company's Business Quality Messaging ("BQM") service will provide
customers with the ability to exchange messages, fax, e-mail or voice-mail
in a secure and reliable manner via the Company's network infrastructure.
BQM will allow companies to connect dissimilar mail systems, avoiding
costly replacement of existing messaging infrastructure. Additionally,
customers will have firewall access to the Internet as well as access to
most other proprietary public mail services. BQM will be highlighted by
increased levels of security and reliability through utilization of
authentication, encryption and notification features. The Company expects
that these features will enable it to provide different levels of service
based on customer requirements and to price such service levels
accordingly.
Global Desktop
The Company's Global Desktop product is being designed to combine the
Company's Global Enhanced VPN and BQM services packaged with additional
features targeting the global business traveler. This mobile office desktop
product will allow the user to exchange electronic information from public
switched or wireless service worldwide. The Global Enhanced VPN and BQM
services will be integrated and accessed through a user-friendly software
package that will be available to the Global Desktop user.
."Turnkey Business ISP"
The Company is designing a comprehensive turnkey service solution that will
include all of the Company's business-grade Internet services for regional
ISPs. This "Turnkey Business ISP" solution is being designed to also enable
regional ISPs, which often have limited resources, to seamlessly outsource
certain of their internal business support services, such as billing
functions, settlement capabilities, network management and operations support,
while accessing the Company's suite of enhanced services, including discounted
fax messaging, Global Enhanced VPN, Global Desktop and eventually voice over
IP.
The Company believes that the great majority of regional ISPs need to offer
additional value-added services to remain competitive, but have insufficient
resources to develop these services internally to provide their customers with
the necessary global reach in offering such services. According to an August
1997 report by Business Research Group, 77% of all United States ISPs are
regional ISPs, 83% of which lack out-of-region access and have developed their
own billing and tracking systems. GlobalTel's Turnkey Business ISP solution is
being designed to provide the means for regional ISPs to offer their customers
increased global reach and business-grade Internet services, such as Global
Enhanced VPN and BQM. The Company's ability to provide a comprehensive turnkey
product to regional ISPs will in turn expand the reach of its network
infrastructure.
Completion of Services Under Development
The enhanced services offered by the Company at the date of this Prospectus
were first offered by the Company in November 1997 and to date the Company has
not generated significant revenue from these services. Several other new
services described above are still under development and are not scheduled for
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<PAGE>
implementation until various times in 1998. Also, the completion of
development and introduction of new services will require the investment of
significant operating capital. It is not uncommon that the introduction of new
telecommunications services is delayed or is occasioned by technical problems.
There can be no assurance that the Company will not encounter delays or
technical problems in the introduction of new services which will prolong the
Company's dependence on traditional call-reorigination service revenues. Also,
there can be no assurance that the Company will have sufficient capital to
complete development and introduction of all of the enhanced services which it
currently plans to offer to its customers. The failure to introduce enhanced
telecommunication and Internet-related services, failures in the systems which
make those services possible or the absence of demand for such services when
introduced would likely have a material adverse affect on the Company's
ability to achieve or sustain profitability in the future.
CUSTOMERS
As of September 30, 1997, GlobalTel's customer base consisted of an
aggregate of more than 8,500 business customers in over 120 countries, three
resellers in three countries and four interexchange carriers in the United
States.
Business Customers
The Company's sales and marketing efforts target small- and medium-sized
businesses. The Company's business customers also include some high-volume
residential customers, most of whom are executives or employees of existing
business customers. The Company's business customer base is geographically
diversified.
Reseller Customers
The Company's reseller customer base consists of three resellers of the
Company's call-reorigination service offerings located in Hong Kong, Australia
and Singapore. These customers purchase service in bulk from GlobalTel at a
discounted rate for resale to their customers. Resellers are responsible for
billing their users and for providing customer service. The Company believes
that with the recently implemented switching, billing and customer services
platform improvements, it will be well-positioned to address the needs of the
conventional reseller market and to take advantage of the growth opportunity
this market presents. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Overview."
Interexchange Carriers
The Company's interexchange carrier customers are switch-based long-distance
companies that purchase international voice termination service for resale to
their own customers. GlobalTel's carrier sales target non-dominant U.S.-based
telecommunications service providers. The Company currently provides services
to a total of four interexchange carrier customers in the United States. The
Company believes that long-distance services, when sold to telecommunications
carriers and other resellers, are generally a commodity product with the
purchase decision based primarily on price. Although the margins on sales to
other carriers and resellers are lower than sales to business customers, these
sales involve lower operating expenses and help the Company optimize the use
of its network and reduce its costs per minute of use. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Overview."
The Company's revenues from call-reorigination customers and wholesale
carrier customers represented 91% and 9%, respectively, for 1996 and 64% and
36%, respectively, of the Company's total revenues for the nine months ended
September 30, 1997.
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<PAGE>
SALES, MARKETING AND CUSTOMER SERVICE
The Company has employed a network of independent sales agents and a small
number of resellers, supplemented by direct marketing efforts, in selling its
services. GlobalTel intends to leverage its strategic marketing relationships
to expand its customer base. In particular, the Company expects that its
access to Novell's distribution network of over 25,000 VARs and its
relationship with IBNet will facilitate additional contact with many small-
and medium-sized businesses and in-country ISPs in the Company's target
markets.
Independent Sales Agents and Resellers
The Company distributes its international voice services primarily through a
network of over 75 independent sales agents that currently covers more than 80
countries, who are paid solely on a commission basis, and through a small
number of resellers. The Company's agents are typically independent business
persons who concurrently offer other business-to-business services. Agents and
resellers are recruited through advertising in the Company's target markets
and are also identified by referrals from customers and industry contacts. The
Company's agreements with its agents and resellers typically are non-exclusive
and require the agents to offer the Company's services at rates prescribed by
the Company in accordance with the Company's sales and marketing policies.
Agents and resellers pay an initial start-up fee to the Company. Commissions
are paid by the Company monthly based upon paid usage by customers solicited
by the agent. The applicable commission rate varies depending on the agent's
exclusivity, the type of service sold and the sales levels achieved. See "Risk
Factors--Dependence on Independent Sales Agents."
Carrier Sales
The Company's call-reorganization business has resulted in industry contacts
through which the Company resells excess international network capacity to
other U.S.-based resellers and telecommunication carriers. This strategy
allows the Company to generate higher volumes of international telephone
traffic, thereby lowering the cost per minute for traffic purchased from other
interexchange carriers.
Strategic Marketing Relationships
.IBNet
IBNet is the managing member of the Consortium for Global Commerce, which
represents thousands of individual chambers of commerce (the "Chambers") in
over 200 countries. The Consortium for Global Commerce was established to (i)
create a global intranet that enables the Chambers and their members to
exchange information and conduct business transactions electronically and (ii)
obtain more favorable pricing and terms for certain products and services for
such members.
In April 1997, the Company entered into a ten year marketing agreement with
IBNet to provide the Chambers and their members, on a non-exclusive basis,
with telecommunications services including international voice, international
fax, calling card services, Internet services, intranet, VPN and messaging.
The individual Chambers may act as sales and marketing agents for the
Company's services. IBNet has agreed to market GlobalTel's services to the
Chambers by promoting GlobalTel services in Consortium literature, at
Consortium trade shows and speaking engagements, and by listing the Company's
services in the Consortium's databases. In November 1997, the Consortium
launched its marketing campaign which included the hosting of regional
conferences to provide the Chambers with information about available products
and services, including GlobalTel's services. Under its agreement with IBNet,
the Company also has the right to co-brand its services with the chamber of
commerce trademarks, a feature that the Company believes will enhance its
marketing and sales efforts because the chamber brand is typically well
recognized and held in high regard by the local business communities in
second-tier markets.
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The Consortium's four member organizations are the International Chambers of
Commerce, the Paris Chamber of Commerce and Industry, the G77 (a non-
governmental organization comprised of 137 developing countries and China) and
IBNet, the managing partner of the Consortium for Global Commerce. The Company
believes that its relationship with the Consortium for Global Commerce,
through IBNet, and in particular with the G77, will enhance its ability to
establish relationships with regional ISPs and expand its customer base in its
target markets.
.Novell
In October 1997, the Company entered into a three-year technology licensing
agreement with Novell that provides the Company with access and support in
marketing to Novell's distribution channel of over 25,000 VARs. Novell VARs
range from small computer networking companies to large system integration
firms. The Company, in conjunction with Novell, intends to create a
certification program for channel partners with respect to the Company's
product offerings. In addition, the Company has become a Novell BIS partner.
Other BIS partners include telecommunications carriers such as Deutsche
Telecom AG, Bell Atlantic Corporation, Nippon Telegraph and Telephone
Corporation and Singapore Telecommunications Limited, which primarily cover
first-tier markets. BIS partners have agreed upon standards for
interconnecting their respective Internet networks. The Company believes that
its status as a BIS partner will allow it to benefit from any future network
connections among the BIS partners.
Direct Sales
The Company plans to deploy a direct sales team consisting of account
executives and corporate sales representatives to further implement its sales
and marketing strategy. The Company expects the account executives to focus on
regional ISPs and other small network providers. The initial targets are
certain niche-oriented Novell VARs, regional ISPs in Europe and in the United
States. The corporate sales representatives will emphasize sales of the
Company's telecommunications services to selected corporate customers. The
Company expects the direct sales team to respond to inquiries about its
services generated through the Consortium and the Novell channel marketing
efforts worldwide.
Customer Service
GlobalTel is committed to providing its customers, sales agents and
resellers with high-quality customer service. As of October 31, 1997, the
Company employed 11 customer service representatives at the Company's
Operations Center to field customer service calls, respond to inquiries for
new service and conduct telephone sales functions. Customer service
representatives are compensated in part based on sales and customer retention.
The customer service call center is open 24 hours a day, seven days a week.
Customer service is currently provided in five languages.
Customer service representatives are able to make changes to customer
accounts immediately while the customer is on the line and have the authority
to contact GlobalTel's underlying carriers to obtain assistance for the
Company's customers with respect to carrier difficulties. In addition,
GlobalTel encourages its independent agents to respond to service calls from
their customers because the Company believes that such service strengthens the
agents' relationships with their customers, thus promoting customer retention
and potentially leading to customer referrals.
NETWORK AND OPERATIONS
Current Network
GlobalTel's current network architecture consists of (i) voice switching and
global fax messaging infrastructure in Los Angeles, California, (ii) access to
third party infrastructure through Equant and other suppliers, (iii) enhanced
fax nodes in Hong Kong and Mexico City and (iv) the Operations Center in
Seattle, Washington. By using off-the-shelf technology which is modular and
scaleable and allows for the integration of a variety of technologies, the
Company expects to be able to provide its customers with enhanced services
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in a timely and cost-efficient manner. The Company is committed to continue to
invest in improvements, through the integration of technologies, to its
electronic billing, customer interface and network management systems, which
the Company believes are critical to its cost-effective delivery of services
to its customers. The Company expects these systems to provide it with the
ability to quickly upgrade its customers from a single product to multiple
services.
During 1996 the Company commenced a three phase network upgrade by: (i)
relocating its voice switching platform from Las Vegas to Los Angeles for the
primary purpose of facilitating access to least-cost call routing alternatives
for its call-reorigination business; (ii) upgrading the Company's network
facilities by implementing a more flexible switching platform with enhanced
features, installing an improved and scaleable customer interface and
transitioning to a more flexible and improved customer billing system; and
(iii) implementing an enhanced fax messaging infrastructure. The first phase
of this plan was completed in late 1996. In 1997 the Company completed phases
two and three, with installation and testing of a more capable switching
platform as well as the enhanced customer interface and billing systems.
Cutover of all customers to these new systems was completed in November 1997.
.International Network Switching Center--Los Angeles, California
The Company's switching center is located in the West Coast's principal
telecommunications facility in Los Angeles, California, where most major U.S.
carriers have a switching facility. The 1997 upgrade of the switching center
provided fiber optic access for GlobalTel's network to all major carriers in
the facility. As a protective measure, GlobalTel has diversified its access to
its long-distance providers through contracts with various local access
providers supplying redundancy in the event of single point failures.
The Company employs a fully redundant, non-blocking, ISO 9001 compliant
Summa Four voice switch which is controlled by a real-time rating, billing and
switching platform. This switching platform has been designed to provide
enhanced voice telecommunications services and additional capacity to
accommodate growth in GlobalTel's customer base. The Company has further
augmented its voice switching platform by leasing a portion of a Northern
Telecom DMS 250 tandem switch (which is connected to the Summa Four switching
platform) to support the Company's carrier traffic.
GlobalTel's International Switching Center also houses the Company's fax
gateway switching platform with e-mail to fax conversion capability and
software for enhanced service features, including fax broadcasting, fax on
demand and fax mail.
.Fax Nodes--Hong Kong and Mexico City
The Company operates two fax nodes in Hong Kong and Mexico City that are co-
located in Equant's facilities. The nodes are serviced and maintained by
Equant on a 24-hour basis and are interconnected to local access providers.
The Company intends to deploy fax nodes in additional locations during 1998.
.Carriers and Network Access
The Company has resale agreements with a number of long-distance carriers in
order to obtain the best available pricing and service on each route. The
Company's enhanced fax and business-grade Internet services will be carried
through Equant's global data network. The Company's International Switching
Center is connected to the Equant network center through high-speed fiber
optic circuits. The Company's switching nodes have the ability to select
quality and least cost routes, depending on the service selected by the user.
See "--Suppliers."
.Network Control and Operations Center--Seattle, Washington
The Operations Center is located at the Company's headquarters in Seattle,
Washington, and has real-time access to all GlobalTel switching platforms and
enhanced fax nodes. Performance of the Company's conventional circuit switched
network and its data network is monitored by the Operations Center on a 24-
hour basis.
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Strategic Network Plan
In order to quickly expand network services to its customer base, the
Company intends to leverage its existing resale, interconnect and other
partnering agreements with other providers to create a virtual network
infrastructure. This strategy is designed to expand coverage in a cost
effective manner. The Company plans to invest in and deploy additional
physical infrastructure in strategic global network hubs to access regional
low-cost access routes and, over time, in places where traffic volumes warrant
such investment. The Company believes that there is an abundance of network
and switching capacity available worldwide to support this strategy.
A key element to GlobalTel's virtual network strategy is its long-term
agreement with Equant, a global managed data network service provider (the
"Equant Agreement"). The Equant Agreement provides the Company with access to
the Equant network, one of the world's most extensive managed data networks,
with access points in over 200 countries. See "--Suppliers."
Another element of GlobalTel's network strategy is its business partnership
with Novell. As a BIS partner, the Company plans to use its Turnkey Business
ISP offering to aggregate multiple smaller ISPs and other network providers,
creating the opportunity for larger BIS partners to interconnect with smaller
networks through the Company's infrastructure on a multilateral basis. This is
expected to further increase the network reach of the Company.
MANAGEMENT INFORMATION SYSTEMS
Telecommunications service providers generally must record and process large
amounts of data quickly and accurately in order to bill customers in a timely
manner, verify billings from third party carriers, service customer accounts,
respond to customer inquiries and otherwise support operations. The Company
has made a significant investment, particularly during the first nine months
of 1997, in developing an integrated, flexible, electronic billing and
customer interface.
The Company's electronic billing and customer interface system runs on a
relational database system to perform real-time billing and monitor customer
activity. This system provides GlobalTel with real-time reporting capability,
online access to system status, billing information and customer databases
through user-friendly computer screens. This system also allows the Company's
sales agents and resellers to remotely and securely access the Company's data
base for provisioning, customer maintenance and access to financial and usage
data.
The Company employs an accounting system which is linked to its billing
system for on-line posting and account information transfer. The system
operates on a multi-user data base, providing the Company with the flexibility
of creating custom accounting modules to support various accounting needs.
While the Company believes that its information systems are currently
sufficient for its operations, such systems will require enhancements and
ongoing investments as the Company grows. See "Risk Factors--Risk of Managing
Growth; Recent Management Changes" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
SUPPLIERS
International long-distance providers can generally be categorized by the
extent, if any, of their ownership and use of their own switches and
transmission facilities. The largest U.S. carriers, AT&T, MCI Communications
Corporation, Sprint and Worldcom Inc., primarily utilize owned U.S.
transmission facilities and generally use other long-distance providers to
carry their overflow traffic. Only the largest U.S. carriers have operating
agreements with, and own transmission facilities that carry traffic to, the
over 200 countries to which major long-distance providers generally offer
service. A significantly larger group of long-distance providers own and
operate their own switches but either rely solely on resale agreements with
other long-distance carriers to terminate their traffic or use a combination
of resale agreements and leased or owned facilities in order to terminate
their traffic as discussed below.
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A switched resale arrangement typically involves the wholesale purchase of
termination services by one long-distance provider from another on a variable,
per-minute basis. Such resale, which was first permitted with the deregulation
of the U.S. market, enables the emergence of alternative international
providers that rely at least in part on transmission services acquired on a
wholesale basis from other long-distance providers. A single international
call may pass through the facilities of multiple long-distance resellers
before it reaches the foreign facilities-based carrier that ultimately
terminates the call. Resale arrangements set per-minute prices for different
routes, which may be guaranteed for a set time period or subject to
fluctuation following notice. The resale market for international transmission
is constantly changing, as new long-distance resellers emerge and existing
providers respond to fluctuating costs and competitive pressures. In order to
effectively manage costs when utilizing resale arrangements, long-distance
providers need timely access to changing market data and must quickly react to
changes in costs through pricing adjustments or routing decisions.
The Company has supply contracts with Sprint, Cable & Wireless p.l.c.,
Pacific Gateway Exchange, Inc., Star, Vending, Inc. and a number of other
interexchange carriers for long-distance telecommunications services.
Typically, these agreements are terminable with minimal notice. To obtain
favorable forward pricing from certain of its suppliers, the Company has
committed to purchase minimum volumes of a variety of long-distance services
during stated periods, whether or not such volumes are used or, in one case,
has agreed to pay a surcharge equal to a percentage of the Company's shortfall
from a specified monthly minimum volume. During October 1997 the Company's
aggregate monthly minimum volume commitments and maximum surcharge totaled
approximately $280,000.
The Company utilizes Equant's extensive data network with access points in
most countries worldwide. This network was originally created by a consortium
of airlines to handle their data transport needs. The Equant Agreement allows
the Company to lease network access and co-locate its switches and servers at
Equant sites around the world. The Company believes that co-location will help
reduce the Company's capital and operating costs and accelerate the Company's
ability to implement network access points. The Company receives engineering
and technical support services for the implementation and management of its
value-added network services. Equant also facilitates interfacing with local
ITOs, which provide the switched and dedicated last links to the Company's
customers. The Company's network is monitored 24 hours a day, seven days a
week, from Equant's primary control centers located in Singapore, Paris and
Atlanta.
Many of Equant's access points are located in second-tier markets. The
Company intends to use Equant's local "dial up" data service, allowing the
Company's customers to access the Company's network via a local telephone call
in many cities around the world.
The Equant Agreement has a maximum initial term expiring in 2010, provides
for extension beyond such initial term upon mutual agreement between the
parties and is terminable upon default or breach by either party. If the
Equant Agreement is terminated or if such agreement is renegotiated to
GlobalTel's disadvantage, or if Equant is unable to provide the Company with
services in accordance with its agreement with the Company, there could be a
material adverse effect on the Company's business, financial condition or
results of operations. See "Risk Factors--Dependence on Suppliers."
COMPETITION
The global telecommunications industry is extremely competitive and is
characterized by rapid regulatory and technological change. The Company's
success depends upon its ability to compete with a variety of other
telecommunications providers in each of its markets, including with global
alliances between and among some of the world's largest telecommunications
carriers. Other potential competitors include cable television companies,
wireless telephone companies, Internet access providers, electric and other
utilities with rights of way, large end users that have private networks and
new entrants into the market focused upon niche opportunities. The Company
believes that such competition will intensify. Many of the Company's current
or potential competitors have substantially greater financial, marketing and
other resources than the Company. If the Company's competitors devote
significant additional resources to the provisioning of
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telecommunications services to the Company's target customer base, such action
could have a material adverse effect on the Company's business, financial
condition and results of operations. There can be no assurance that the
Company will be able to compete successfully against such new or existing
competitors. See "Risk Factors--Competition."
Currently, the Company competes with providers and other marketers of
international call-reorigination services, ITOs and other marketers of long-
distance telephone service. Because of close ties to national regulatory
authorities enjoyed by many ITOs, regulatory authorities often can be
pressured to refrain from adopting policies and granting regulatory approvals
that would result in increased competition for the local ITO. If the ITO were
to successfully pressure such regulators, the Company could be denied
regulatory approval in certain jurisdictions in which its services would
otherwise be permitted. Any delay in obtaining approval, or failure to obtain
approval could have a material adverse effect on the Company's business,
financial condition and results of operations.
The Company's larger telecommunications competitors include some of the
world's largest telecommunications companies, such as AT&T, MCI, Sprint,
Worldcom, Cable & Wireless p.l.c. and British Telecommunications P.L.C. and
other global telecommunications providers including USA Global Link, Inc.,
Telegroup, Inc. and IDT Corporation. In addition, numerous smaller carriers
have emerged, both in the United States and in newly deregulated markets
around the world, many of which specialize in offering international telephone
services similar to the Company's call-reorigination services.
Competition for customers in the telecommunications markets in which the
Company operates is primarily based on price, and to a lesser extent on the
type and quality of services offered. The Company anticipates that
deregulation and increased competition will result in decreased prices for
telecommunications services. The Company believes that the effects of such
decreases will be at least partially offset by increased telecommunications
usage and decreased costs. However, to the extent that this does not occur,
there could be an adverse effect on the Company's margins and financial
profits, and the Company's business, financial condition and results of
operations could be materially and adversely affected.
The market for value-added data services, such as the business-grade
Internet service under development by the Company, is extremely competitive
and the Company expects that competition will intensify in the future. The
Company believes that its ability to compete successfully in the value-added
services market depends upon a number of factors, including: market presence;
the capacity, reliability, low latency and security of network infrastructure;
technical expertise and functionality, performance and quality of services;
customization; ease of access to and navigation of the network; the pricing
policies of competitors; customer support; the ability to support existing and
emerging industry standards; and industry and general economic trends.
The Company's current and prospective competitors in the value-added
services business include many large companies that have substantially greater
market presence and financial, technical, marketing and other resources than
the Company. As a result, they may be able to develop and expand their
communications and network infrastructures more quickly, adapt more swiftly to
new or emerging technologies and changes in customer requirements, take
advantage of acquisition and other opportunities more readily, and devote
greater resources to the marketing and sale of their products than the
Company. In addition to the Company's traditional telecommunications
competitors, the Company's value-added services business competes or will
compete with two additional categories of competitors: (i) Internet service
providers including on-line service providers such as American Online, Inc.,
UUNET Technologies Inc., Netcom On-line Communication Services, Inc., Bolt
Beranek & Newman, Inc., Microsoft Corporation and other national and regional
Internet providers, who provide public access to the Internet and some
business grade access and services; and (ii) enhanced messaging providers,
including a number of newer companies such as Xpedite System, Inc., FaxSav
Incorporated and Premier Technologies, Inc., that were recently established to
provide narrowly focused niche products and have grown by expanding their
product offerings . There can be no assurance that the Company will have the
financial resources, technical expertise or marketing and support capabilities
to compete successfully.
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The Company believes that new competitors, including large computer
hardware, software, media and other technology and telecommunications
companies will enter the value-added services market, resulting in even
greater competition for the Company. In addition, the ability of some of the
Company's competitors to bundle other services and products with VPN, global
roaming services or both could place the Company at a significant competitive
disadvantage. Increased competition in the value-added services market could
result in significant price competition, which in turn could result in
significant reductions in the average selling price of the Company's value-
added services. In addition, competition could result in increased selling and
marketing expenses, which could adversely affect the Company's profitability.
There can be no assurance that the Company will be able to offset the effects
of any such price reductions through an increase in the number of its
customers, higher revenues from enhanced services, cost reductions or
otherwise. Increased competition, price or otherwise, could result in erosion
of the Company's customer base and adversely affect the Company's operating
results.
The telecommunications industry is in a period of rapid technological
evolution, marked by the introduction of new product and service offerings and
increasing capacity for services similar to those provided and under
development by the Company. Examples of some new technologies include
satellite-based systems, such as the proposed Iridium World Communications
Ltd., GlobalStar Telecommunications Limited and Teledesic Corp. systems,
utilization of the Internet for voice and data transmission and digital
wireless communications systems. The Company is unable to predict which of
many possible future product and service offerings will be important to
maintain its competitive position or what expenditures will be required to
develop and provide such products and services. See "Risk Factors--
Competition."
REGULATION
The Company provides both value-added enhanced services as well as call-
reorigination services to customers in the United States and abroad. These
services are regulated to some degree both in the United States and in many
foreign countries. In the United States, the FCC regulates telecommunications
services. Many countries also have a regulatory body, or otherwise integrate
regulatory functions in the state-owned monopoly in the telecommunications
sector. In addition, international telecommunications services are subject to
rules and policies promulgated by multilateral organizations. The ITU and the
World Trade Organization ("WTO") both potentially influence governmental
policies regulating international telecommunications as well.
In the past few years, the regulation of international telecommunications
has undergone dramatic changes. Many countries have begun to liberalize their
markets, allowing competition in telecommunications services for the first
time. Because of the uncertainty involved in dealing with regulatory
authorities in many countries and the volatility of the market, some degree of
risk exists. Government authorities, both in the United States and abroad,
could potentially issue regulations or decisions that could have substantial
adverse effects on the Company's profitability. If the Company is unable to
provide the services it is presently providing, or intends to provide, or to
use existing or contemplated transmission methods due to its inability to
receive or retain formal or informal approvals for such services or
transmission methods, or for any other reason related to regulatory compliance
or lack thereof, such events could have a material adverse effect on the
Company's business, financial condition and results of operations
Telecommunications
In 1995, the FCC granted the Company authorization to resell international
switched services pursuant to Section 214 of the Communication Act of 1934.
The Company uses this Section 214 license to provide call-reorigination
services to customers in foreign countries using a number of methods. Some
methods involve completed calls and other communications to the United States
from foreign countries, and other methods, such as traditional call back
service, involve incomplete calls which avoid the high international rates
offered by the ITO in a particular regulated country by providing a dial tone
from a deregulated country, typically the United States. To place a call using
traditional call back service, a user dials a unique phone number to an
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international carrier's switching center and then hangs up after it rings. The
user then receives an automated call back providing a dial tone from the
United States, which enables the user to complete the call. In its effort to
drive down international telecommunications accounting rates, the FCC has
endorsed the provisioning of call-reorigination services by U.S. operators.
However, there is a substantial risk involved in providing traditional call
back services. A substantial number of countries consider call-reorigination
adverse to the interests of their national telecommunications sectors and in
some cases, these countries have passed laws to make traditional call back
services illegal.
In 1995, the FCC issued an order stating that it would consider enforcement
action against operators based in the United States engaged in call-
reorigination by means of the traditional call back method in countries where
this activity is expressly prohibited. Under the FCC order, a party requesting
enforcement assistance from the FCC must provide sufficient documentation of
the illegality of traditional call back service and detailed evidence of the
operator's violation of the law by virtue of its provision of traditional call
back services in the country. The FCC also requires the party to provide
documentation of the declaratory or enforcement action taken by the applicable
country's national authorities against the operator before requesting the
FCC's assistance in enforcing the country's laws against the operator. At
November 30, 1997, 31 countries had filed documents with the FCC alleging that
certain forms of call-reorigination services violate their respective domestic
laws. Of those 31 countries, only the Philippines and Saudi Arabia had fully
complied with the FCC's documentation requirements. To date, the FCC has not
specified the types of actions it might take against an operator, but possible
enforcement remedies include the issuance of a cease-and-desist order,
imposition of a monetary sanction, or, in an extreme case, revocation of the
operator's Section 214 license. The FCC recently took enforcement action by
revoking the operator's Section 214 license in a case involving the
Philippines. The Company provides call-reorigination services in certain of
these countries. Any potential enforcement action taken by the FCC, in
addition to any actions taken by the foreign country's authorities, could have
a material adverse effect on the Company's business, financial condition and
results of operations.
Within the United States, the interstate and international
telecommunications services currently provided by GlobalTel are subject to the
exclusive jurisdiction of the FCC. In the event that the Company decides to
offer intrastate telecommunications services, such activity will be subject to
the jurisdiction of the individual states in which the Company provides such
service. In the majority of states it is necessary to obtain a certificate of
public convenience and necessity from the appropriate state agency prior to
offering intrastate telecommunications services. The Company will apply for
and obtain the required certificates and any other approvals prior to the time
it offers any intrastate telecommunications services, although there can be no
assurance that the Company will be successful in obtaining such certificates
and approvals. See "Risk Factors--Regulatory Risks."
Value-Added Services
The Company provides enhanced data services to customers in the United
States and abroad, including enhanced fax, enhanced e-mail, Internet access
and intranet services. These services are potentially subject to some
regulation in the United States and in several of the foreign countries in
which the Company operates. Countries that are signatories to the General
Agreement on Trade in Services must grant WTO member states most favored
nation status with respect to provisioning of enhanced services pursuant to
the Telecommunications Annex to that Agreement. This requires WTO member
states to accord non- discriminatory treatment to companies seeking to provide
enhanced services. In addition, the WTO provides a forum for dispute
settlement in the event that a signatory country violates the most favored
nation treatment principle.
In the United States and abroad, enhanced and value-added services are
essentially unregulated. The FCC's Computer II decision in 1980 and the 1996
Telecommunications Act establish that enhanced services of the type provided
by the Company are outside the definition of regulated telecommunications or
common carrier services. The Company's enhanced services also are exempt from
local access charges pursuant to FCC rules. This exemption, however, has been
threatened from time to time both by Congress and the FCC. In
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addition, as part of the 1996 Telecommunications Act, all telecommunications
operators providing certain domestic telecommunications services are required
to make contributions to the Universal Service Fund established thereunder,
which provides a subsidy to facilitate the provision of telecommunications
services to high-cost areas. While the Company's current operations do not
subject it to such requirement, it is possibile that enhanced services
providers may be required in the future to contribute some portion of their
revenues to the Universal Service Fund. This issue arose during the FCC's
implementation of the 1996 Telecommunications Act and to date remains largely
unsettled. If the FCC were to respond to congressional pressure from some
members of Congress to eliminate the local access charge exemption, or if it
were to begin regulating enhanced services in some other way, the Company's
business, financial condition and results of operations could be materially
adversely affected. Although to date no such legislation has been introduced,
a law requiring the Company to contribute to the Universal Service Fund would
result in higher costs for the Company, and there could be a material adverse
effect on the Company's business, financial condition and results of
operations. The Company cannot predict the impact, if any, that future
regulation or regulatory changes may have on the Company's enhanced services
business.
The Company is also subject to local laws in each country in which it
provides enhanced services. In most countries, the Company must secure a
license to provide these services. The Company places license requirements for
data transmission into three basic categories according to the regulatory
environment and requirements for conducting business as follows: (i) open
class and required registration; (ii) formal application process; and (iii)
local partner requirement. In most developed and deregulated countries, such
as Australia and the United Kingdom, the provisioning of data services
requires an "open class" filing with the local jurisdictional authority in
conjunction with the establishment of an in-country legal entity. The open
class filing is essentially a statement of the class of services being offered
by the provider. However, in some countries, such as in Japan and Germany, a
more detailed registration may be required with local authorities which may
entail a full description of the service provider and detailed descriptions of
the services being provided, together with rates and other information. In
other countries, the provisioning of data transmission and value-added
services requires approval by local jurisdictional authorities. This process
may differ significantly from country to country, but generally entails the
review of a formal application in order to obtain the necessary license. This
process may take three to six months. Examples of markets in which the formal
application process are required include Hong Kong and Singapore. Because the
Company plans to initiate business in countries which have adopted
deregulatory policies, the Company believes that the risk of not being able to
obtain required licenses in target markets is not material; however, the time
and legal expense required to complete the licensing process could affect the
timing of the introduction of the Company's services and the start-up costs
involved in launching service. In certain countries with extremely restrictive
regulatory environments, obtaining licenses may be difficult or impossible. In
such cases, the Company may elect to work with a local partner, such as an
independent commercial and/or government-related entity, such as an ITO.
Local laws and regulations differ significantly among the jurisdictions in
which the Company operates, and the interpretation and enforcement of such
laws and regulations vary or are often based on the informal views of the
local ministries which in some cases are subject to influence by the domestic
operator. There can be no assurance that the Company has accurately predicted
the enforcement of applicable laws and regulations or regulatory and
enforcement trends in a given jurisdiction or will be found in compliance with
all such laws and regulations. Failure to predict the enforcement of
applicable laws accurately, or incorrect interpretations of applicable laws
and regulations, could cause the Company to lose or to be unable to obtain
regulatory approvals necessary for it to be able to provide certain of the
services the Company markets. Such failure could result in material adverse
effects on the Company's ability to provide services. See "Risk Factors--
Regulatory Risks."
INTELLECTUAL PROPERTY
The Company owns U.S. Registration No. 1,944,078 for the mark PRIMECALL for
reselling long-distance telecommunications services. The Company has filed
applications in the national trademark offices of Australia, Hong Kong and
Japan, and in the regional European Community trademark office seeking to
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register the service mark PRIMECALL. There can be no assurance that the
Company's applications to register the mark PRIMECALL will result in any
registration being issued, or that such registration will be held valid and
enforceable if challenged. The Company does not currently have any registered
patents or copyrights.
The Company relies primarily on common law rights to establish and protect
its trade secrets and other intellectual property. There can be no assurance
that the Company's measures to protect its intellectual property will deter or
prevent the unauthorized use of the Company's intellectual property. If the
Company is unable to adequately protect its intellectual property, including
existing service marks and trademarks, there could be an adverse material
effect on the Company's business, financial condition and results of
operations. In addition, there can be no assurance that licenses for any
intellectual property that might be required for the Company's services would
be available on reasonable terms if at all.
While the Company does not believe that it infringes the proprietary rights
of any third parties, there can be no assurance that third parties will not
assert such claims against the Company in the future or that such claims will
not be successful. The Company could incur substantial costs and diversion of
management resources with respect to the defense of any claims relating to
proprietary rights. Furthermore, parties making such claims could secure a
judgment awarding substantial damages as well as injunctive or other equitable
relief which could effectively block the Company's ability to use the
proprietary rights of those third parties. Such a judgment would have a
material adverse effect on the Company's business, financial condition and
results of operation. In the event a claim relating to proprietary rights is
asserted against the Company, the Company may seek licenses to such
proprietary rights. There can be no assurance however, that licenses could be
obtained on commercially reasonable terms, if at all, or that the terms of any
offered licenses will be acceptable to the Company. The failure to obtain any
necessary licenses or other rights could have a material adverse effect on the
Company's business, financial condition and results of operations. See "Risk
Factors-- Rapid Changes in Technology."
EMPLOYEES
As of October 31, 1997, the Company had 29 full-time employees. The Company
expects to hire additional personnel as needed to meet future growth. None of
the Company's employees is represented by a labor union and the Company
considers its relationship with its employees to be good.
PROPERTIES
The Company leases approximately 4,800 square feet of office space for its
headquarters and Operations Center in Seattle, Washington under a lease that
expires on December 31, 1998 and requires monthly payments of $5,850. In
addition, the Company leases approximately 1,500 square feet of space in
Los Angeles, California, for switch equipment under a lease that expires on
June 30, 2006 and requires monthly payments of $5,040.
LEGAL PROCEEDINGS
As of the date of this Prospectus, the Company is not a party to any
litigation which, if adversely determined, is expected to have a material
adverse impact on the business, financial condition or results of operations
of the Company.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<C> <C> <S>
Ronald P. Erickson............... 54 Chairman of the Board, Chief Executive
Officer and President
Senior Vice President, Marketing and
German F.H. Burtscher............ 38 Sales and Secretary
Eric D. Orse..................... 33 Director of Finance and Treasurer
Director, Senior Vice President and
Ronald B. Fox.................... 52 President of Primecall
John E. Cox...................... 70 Vice President, Network Services
Bruce L. Crockett (1)............ 53 Director
Randall J. Ottinger (2).......... 39 Director
Lyman C. Hamilton, Jr. .......... 71 Director
Michael S. Brownfield (1)(2)..... 57 Director
Steven S.V. Wong (1)(2).......... 56 Director
Paul H.F.M. van de Plas.......... 37 Director
Frank Krentzman.................. 40 Director
</TABLE>
- --------
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
Ronald P. Erickson has served as Chairman of the Board, President, Chief
Executive Officer and a Director of the Company since January 1996. Prior to
that, he was Managing Director of Globalvision L.L.C., an international
strategic consulting firm, from August 1994 to January 1996. From September
1992 to August 1994, he served variously as Chairman and Vice Chairman of the
Board, President and Chief Executive Officer of Egghead Software, Inc., a
retailer of software and computer peripheral products. He was also the co-
founder and a director of Microrim, Inc., a database software developer from
November 1981 to May 1992 and has served as a director and officer of various
other companies, including ITEX, a trading and financial services company. Mr.
Erickson holds a B.A. from Central Washington University, an M.A. from the
University of Wyoming and a J.D. from the University of California, Davis,
School of Law.
German F.H. Burtscher has served as the Company's Senior Vice President,
Marketing and Sales since February 1997 and served as its Vice President,
Strategic Marketing and Product Development from October 1995 to February
1997. In January 1995, he co-founded Ratsten International Telecommunications,
Inc., a telecommunications services provider, and served as its President
until October 1995. He also served as Regional Sales Manager and Senior
Account Executive of World Call Telecommunications, a long distance telephone
carrier, from June 1992 to January 1995. Mr. Burtscher holds a B.A. in
Business and Sociology from the University of Austria, Innsbruck and an M.B.A.
in Finance and International Marketing from the University of Austria, Graz.
Eric D. Orse has served as the Company's Director of Finance and Treasurer
since October 1997, and served as an outside financial consultant to the
Company from June 1997 to September 1997. He is also the owner and principal
of Orse & Co., Inc., a financial consulting firm. From May 1995 to October
1996, he served as Chief Financial Officer of First Nationwide Automotive
Acceptance, Inc., an automotive leasing finance company. He also served as
Senior Accountant and Senior Consultant at Price Waterhouse LLP from January
1994 to April 1995 and from July 1989 to January 1992. From February 1992 to
December 1993, Mr. Orse studied to receive his Masters in Business
Administration. Mr. Orse is a C.P.A. and holds a B.A. in Accounting and an
M.B.A. in Finance and Business Management, both from Seattle University.
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Ronald B. Fox has served as a Director of the Company since December 1997,
as the Company's Senior Vice President since October 1997 and as President of
the Company's subsidiary, Primecall, Inc., since September 1997. From January
1994 to February 1997, he served as Vice President of Hi Rim Communications,
Inc., an international facilities-based telecommunications carrier. In April
1997, subsequent to Mr. Fox's resignation as an officer, Hi Rim
Communications, Inc. filed a petition under the federal bankruptcy laws. Prior
to that, from June 1988 to March 1994, he served as President of Ronald B. Fox
& Associates, a telecommunications consulting firm. Mr. Fox holds an A.S. in
Business Marketing from Lansing Community College.
John E. Cox has served as a consultant to the Company since August 1997 and
will enter into an employment agreement concurrent with the closing of this
Offering to become the Company's Vice President, Network Services. From
January 1996 to August 1997, he was the Company's Vice President-Network
Services Development. Prior to joining the Company, he was a self-employed
consultant from September 1995 to December 1995 and served as Vice President
of Ascent Logic Corporation, a computer software company, from March 1989 to
August 1995. From 1986 to July 1987, Mr. Cox served as Vice President of
Telephone Network Products at MA-Com and later took the position of Senior
Vice President Transmission Products at DSC Communications. In the mid-1970s,
Mr. Cox was Technical Director of ITT Corporation's System 12 Distributed
Digital Switching program. Prior to his tenure at ITT, Cox served as VP of
Engineering for Western Union. Mr. Cox holds an M.S. in Computer Science from
Stevens Institute of Technology.
Bruce L. Crockett has served as a Director of the Company since September
1997 and is a member of the Company's Compensation Committee. From February
1992 to July 1996 he served as President, Chief Executive Officer and a
Director of COMSAT Corporation, a global telecommunications company. He is
also a director, chairman of the compensation committee and member of the
audit committee of ACE Limited, a multi-link insurance company, and a director
and trustee of mutual finds of AIM Management Group Inc., a mutual fund
company. Mr. Crockett holds an A.B. in Geography from the University of
Rochester, an M.B.A. in Finance from the Columbia University Graduate School
of Business and a B.S. in Accounting from the University of Maryland.
Randall J. Ottinger has served as a Director of the Company since September
1997 and is a member of the Company's Audit Committee. Mr. Ottinger was the
Company's President from March 1997 to August 1997 and its Vice President,
Marketing from January 1996 to February 1997. Since September 1997, he has
served as Senior Vice President, Marketing and Business Development of Richter
Systems, a software company. From June 1993 to January 1996 he served as
Senior Vice President of Marketing of the Air-to-Ground Division of Claircom,
Inc., a division of McCaw Cellular, Inc., and from February 1992 to May 1993
he was Head of Strategic Planning at Egghead Software, Inc. Mr. Ottinger holds
a B.A. in Psychology from Cornell University and an M.B.A. from Harvard
Business School.
Lyman C. Hamilton has served as a Director of the Company since November
1997. He also served as President and Chief Executive Officer of Interdigital
Communications Corporation from 1994 to 1995. Prior to that, Mr. Hamilton
served as Chairman of the Board from 1993 to 1994, and as President and Chief
Executive Officer from 1991 to 1993, of Alpine Polyvision, Inc., a developer
of flat panel displays. Mr. Hamilton was employed by ITT Corporation from 1962
to 1979 where he served as President from 1977 to 1979 and as Chief Executive
Officer in 1978 and 1979. He has also served on the boards of numerous public
and private companies and non-profit organizations. Currently, he is a
director of Marine Management Systems, Inc., a provider of shipboard hardware
and software management systems, Scan-Optics, Inc., a provider of optical
character recognition equipment, and Polyvision Inc., a provider of visual
display equipment and developer of flat panel displays. Mr. Hamilton holds a
B.A. from Principia College and an M.P.A. from Harvard University.
Michael S. Brownfield has served as a Director of the Company since January
1996 and is a member of the Company's Compensation and Audit Committees. Mr.
Brownfield, a private investor, is also a director of NW Cascade, a heavy
equipment and road construction company, Cutter & Buck, Inc. a men's apparel
company, and Accurate Molded Plastics, a plastics manufacturer. Mr. Brownfield
holds a B.S. from the University of Oregon and is a graduate of the New York
Institute of Finance.
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Steven S.V. Wong has served as a Director of the Company since March 1996
and is a member of the Company's Audit and Compensation Committees. Mr. Wong
retired in 1991 and has been a private investor since that time. Currently, he
is also the non-executive Chairman of the Board of Directors of John Hancock
Life Assurance Company, Gereg Capital Corporation, Beijing AusAsean Investment
Advisors, Sinoelectric Technology, Northeastern Holdings and Dupont Ltd.
Mr. Wong holds a B.S. in Mathematics from the University of Singapore and an
M.S. in Actuarial Science from Northeastern University.
Paul H.F.M. van de Plas has served as a Director of the Company since
September 1997. He has also served as Director of N.I.B. Securities N.V., a
Dutch investment bank, since May 1996, as Director of Carparkers Nederland
B.V., since May 1995 and as head of Equity Investment since May 1996. Prior to
that, he served as Director of Institutional Sales at Credit Lyonnais
Nederland Bank from August 1993 to April 1996. In addition, he served as an
Institutional Sales Advisor at BZW, an investment bank, from August 1990 to
September 1996 and at ABN AMRO, a Dutch commercial bank, from July 1987 to
September 1990. Mr. van de Plas holds an M.B.A. from the University of
Tilburg.
Frank Krentzman has served as a Director since January 1997 and was the
Company's Senior Vice President from January 1996 to August 1997. Currently,
he is serving as President of Succint Communications, a telecommunications
consulting company. In January 1994, he co-founded Ratsten International
Telecommunications and served as its Vice President until October 1995.
BOARD OF DIRECTORS COMPOSITION
The Company's Board of Directors will be divided into three classes at the
1998 Annual Meeting of Shareholders. The Class I directors will serve an
initial term until the 1999 Annual Meeting of Shareholders, the Class II
directors will serve an initial term until the 2000 Annual Meeting of
Shareholders and the Class III directors will serve an initial term until the
2001 Annual Meeting of Shareholders. Each class will be elected for three-year
terms following its respective initial term. Officers of the Company are
elected at the first meeting of the Board of Directors following the meeting
of the shareholders at which directors are elected and serve at the discretion
of the Board of Directors. There are no family relationships among the
Company's directors and executive officers. Under the terms of a warrant
issued to Dupont Ltd., an affiliate of Steven S.V. Wong, Dupont has the right
to require the Company to appoint a person selected by Dupont to the Board of
Directors and to nominate and recommend that designee for election to the
Board by the shareholders of the Company. See "Certain Transactions."
BOARD COMMITTEES
The Board of Directors currently has an Audit Committee and a Compensation
Committee. The Audit Committee oversees the actions taken by the Company's
independent auditors and reviews the Company's internal financial and
accounting controls and policies. The Compensation Committee is responsible
for determining salaries, incentives and other forms of compensation for
officers and other employees of the Company and administers the Company's
incentive compensation and benefit plans.
DIRECTOR COMPENSATION
Directors who are not officers of the Company are reimbursed by the Company
for reasonable costs and expenses incurred in attending Board meetings. On
October 30, 1997, the Company granted options to purchase 10,000, 5,000,
10,000, 5,000 and 10,000 shares of the Company's Common Stock at an exercise
price of $1.10 per share to each of Messrs. Brownfield, Crockett, Wong, van de
Plas and Krentzman, respectively, in consideration of their service on the
Board. These options were exercisable in full upon grant. On October 30, 1997,
the Company issued 10,000 shares of Common Stock to each non-employee
director. Upon his appointment to the Board on November 11, 1997, the Company
granted Mr. Hamilton 10,000 shares of Common Stock.
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COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1996, the Company established a Compensation Committee currently
consisting of Messrs. Wong, Brownfield and Crockett. From time to time, the
Company has entered into transactions with members of the Compensation
Committee. See "Certain Transactions."
DIRECTOR AND OFFICER INDEMNIFICATION AND LIABILITY
The Company's amended and restated articles of incorporation (the "Restated
Articles") include a provision permitted by Washington law that limits the
liability of the Company's directors. Under the provision, no director shall
be personally liable to the Company or its shareholders for monetary damages
for conduct as a director, excluding, however, liability for acts or omissions
involving intentional misconduct or knowing violations of law, illegal
distributions or transactions from which the director receives benefits for
which the director is not legally entitled. In addition, Washington law
provides for broad indemnification by the Company of its officers and
directors. The Company's Bylaws and indemnification agreements entered into
between the Company and its directors implement this indemnification to the
fullest extent permitted by law. Insofar as the indemnity for liabilities
arising under the Securities Act may be permitted to directors or officers
pursuant to the foregoing provisions, the Company has been informed 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.
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EXECUTIVE COMPENSATION
Summary Compensation Table. The following table sets forth certain
compensation awarded to, earned by or paid to the Company's Chief Executive
Officer and to the other executive officers whose total annual salary and
bonus exceeded $100,000 (collectively, the "Named Executive Officers") in the
fiscal year ended December 31, 1996.
Several of the Named Executive Officers resigned from the Company in August
1997. Michael S. Sims resigned as Chief Operating Officer and was replaced by
Ronald B. Fox. Randall J. Ottinger resigned as President and was appointed to
the Board of Directors of the Company at that time. John E. Cox resigned as
the Company's Vice President--Network Services Development. Since then he has
served as a consultant to the Company and will enter into an employment
agreement concurrent with the closing of the Offering. Curtis E. Lew resigned
as a Senior Vice President in August 1997 and as a Director in December 1997.
Currently, he is working as an agent for the Company pursuing business
opportunities in Asia. See "Certain Transactions."
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION
COMPENSATION AWARDS
----------------- ------------
SECURITIES
UNDERLYING ALL OTHER
NAME AND POSITION SALARY BONUS OPTIONS COMPENSATION
----------------- -------- ----- ------------ ------------
<S> <C> <C> <C> <C>
Ronald P. Erickson
Chairman of the Board, President
and Chief Executive Officer...... $129,434(1) -- 2,500 --
German F.H. Burtscher
Senior Vice President, Marketing
and Sales........................ 118,233(2) -- 1,648 $10,705(3)
Michael S. Sims.................... 183,400(4) -- 139,667 --
Randall J. Ottinger................ 178,476(5) -- 63,687 --
John E. Cox........................ 145,113(6) -- 82,500 --
Curtis E. Lew...................... 132,774(7) -- 5,500 --
</TABLE>
- --------
(1) Includes $34,434 of deferred salary, plus accrued interest thereon at an
annual rate of ten percent. On September 22, 1997, this sum, together with
$70,786 of compensation earned during 1997, was converted into a warrant
to purchase 95,655 shares of Common Stock at an exercise price of $0.01
per share. See "Certain Transactions."
(2) Includes $18,045 of deferred salary, plus accrued interest thereon at an
annual rate of ten percent. On September 22, 1997, this sum, together with
$60,026 of compensation earned during 1997, was converted into a warrant
to purchase 70,974 shares of Common Stock at an exercise price of $0.01
per share. See "Certain Transactions."
(3) During 1996, the Company reimbursed Mr. Burtscher for $10,705 in moving
expenses.
(4) Includes $163,400 of deferred salary, plus accrued interest thereon at an
annual rate of ten percent. On September 22, 1997, this sum, together with
$107,806 of compensation earned during 1997, was converted into a warrant
to purchase 246,552 shares of Common Stock at an exercise price of $0.01
per share. See "Certain Transactions."
(5) Includes $105,976 of deferred salary, plus accrued interest thereon at an
annual rate of ten percent. On September 22, 1997, this sum, together with
$77,253 of compensation earned during 1997, was converted into a warrant
to purchase 166,572 shares of Common Stock at an exercise price of $0.01
per share. See "Certain Transactions."
(6) Includes $76,363 of deferred salary, plus accrued interest thereon at an
annual rate of ten percent. On September 22, 1997, this sum, together with
$67,267 of compensation earned during 1997, was converted into a warrant
to purchase 130,573 shares of Common Stock at an exercise price of $0.01
per share. See "Certain Transactions."
(7) Includes $60,429 of deferred salary, plus accrued interest thereon at an
annual rate of ten percent. On September 22, 1997, this sum, together with
$64,439 of compensation earned during 1997, was converted into a warrant
to purchase 113,517 shares of Common Stock at an exercise price of $0.01
per share. See "Certain Transactions."
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<PAGE>
Option Grants Table
The following table contains information concerning stock option grants made
to each of the Named Executive Officers during the fiscal year ended December
31, 1996.
OPTION GRANTS IN YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------
POTENTIAL
REALIZABLE
VALUE AT
ASSUMED ANNUAL
RATES OF STOCK
PRICE
NUMBER OF % OF TOTAL APPRECIATION
SECURITIES OPTIONS EXERCISE FOR OPTION
UNDERLYING GRANTED TO PRICE TERMS (2)
OPTIONS EMPLOYEES PER EXPIRATION ---------------
NAME GRANTED (1) IN 1996 SHARE DATE 5% 10%
---- ----------- ---------- -------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Ronald P. Erickson...... 2,500 * $1.10 12/31/06 $ 1,729 $ 4,383
German F.H. Burtscher... 1,648 * 1.10 12/01/06 1,140 2,889
Michael S. Sims......... 100,000 15.5 1.10 3/12/06 69,178 175,312
25,000 3.9 1.10 11/1/06 17,295 43,828
14,667 2.3 1.10 12/31/06 10,146 25,713
Randall J. Ottinger..... 37,500 5.8 1.10 1/15/06 25,942 65,742
16,666 2.6 1.10 9/11/06 11,529 29,217
9,521 1.5 1.10 12/31/06 6,586 16,691
John E. Cox............. 50,000 7.8 1.10 1/15/06 34,589 87,656
25,000 3.9 1.10 11/1/06 17,295 43,828
7,500 1.2 1.10 12/31/06 5,188 13,148
Curtis E. Lew........... 5,500 * 1.10 12/31/06 3,805 9,642
</TABLE>
- --------
*Less than one percent of the options granted by the Company to its employees
during 1996
(1) Grants generally vest 25% on the date of grant and 25% on each yearly
anniversary date during the three years following the date of grant, as
long as the optionee remains an employee with, consultant to or director
of the Company. Vesting of options may be accelerated at the discretion of
the administrator of the Company's 1996 Plan. The maximum term of each
option granted is ten years from the date of grant. The exercise price is
equal to the fair market value of the stock on the grant date as
determined by the Board of Directors. See "--Benefit Plans--Stock Option
Plan."
(2) Potential gains are net of the exercise price but before taxes associated
with the exercise. The 5% and 10% assumed annual rates of compounded stock
appreciation are mandated by the rules of the Securities and Exchange
Commission and do not represent the Company's estimate or projection of
the future Common Stock price. Actual gains, if any, on stock option
exercises are dependent on the future financial performance of the
Company, overall market conditions and the option holders' continued
employment through the vesting period.
55
<PAGE>
Option Values. The following table contains information concerning options
to purchase Common Stock held by each of the Named Executive Officers as of
December 31, 1996. None of the Named Executive Officers exercised any stock
options during 1996.
FISCAL 1996 YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
NAME DECEMBER 31, 1996 (#) DECEMBER 31, 1996 ($) (1)
---- ------------------------------- -------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---------------- ---------------- ----------- -------------
<S> <C> <C> <C> <C>
Ronald P. Erickson...... 2,500 2,500 -- --
German F.H. Burtscher... 1,648 1,648 -- --
Michael S. Sims......... 139,667 98,000 -- --
Randall J. Ottinger..... 63,687 63,687 -- --
John E. Cox............. 82,500 53,333 -- --
Curtis E. Lew........... 25,500 25,500 -- --
</TABLE>
- --------
(1) Options are "in the money" if the fair market value of the underlying
securities exceeds the exercise price of the options. The exercise prices
for all options granted to the Named Executive Officers during 1996 were
equivalent to the fair market value of the Common Stock of the Company, as
determined by the Board of Directors, as of December 31, 1996.
EMPLOYMENT AGREEMENTS
Effective upon the closing of this Offering, the Company will enter into
employment agreements with each of Messrs. Erickson, Burtscher, Fox, Orse and
Cox (collectively, the "Executives") for a term of one year. The employment
agreements will provide for an annual salary of $200,000, $150,000, $150,000,
$120,000 and $150,000 for Messrs. Erickson, Burtscher, Fox, Orse and Cox,
respectively. The employment agreements also include the grant of an option to
each of Messrs. Erickson, Burtscher, Fox, Orse and Cox to purchase ,
, , and shares of Common Stock, respectively, under
the 1996 Plan at an exercise price equal to the initial public offering price.
Each option will expire ten years from the date of grant and will vest over a
period of three years or upon a schedule based on the Company's performance
against goals to be established by the Compensation Committee of the Board of
Directors. Each Executive may terminate the agreement upon three months
notice. If an Executive's employment is terminated by the Company without
cause as defined in the agreement, the Company will be required to pay that
Executive severance pay in the amount equivalent to six months' salary and
benefits. Pursuant to the employment agreements, each Executive will agree not
to compete with the Company for a period of one year following termination of
his employment.
BENEFIT PLANS
Stock Option Plan. In 1996, the Company adopted the GlobalTel Resources,
Inc. 1996 Stock Option Plan (the "1996 Plan"), which contains an incentive
option component, pursuant to which options for the purchase of Common Stock
are intended to qualify under Internal Revenue Code Section 422 ("Incentive
Options"), and a nonqualified stock option component, under which options for
the purchase of Common Stock will not qualify under Section 422 ("Nonqualified
Options"). The Company's Compensation Committee is currently the Plan
Administrator for the 1996 Plan. Incentive Options may be granted to any
employee, including employees who are Directors, and Nonqualified Options may
be granted to such persons as the Plan Administrator shall select. The Plan
Administrator determines the terms and conditions of options granted under the
1996 Plan, including the exercise price, provided that the exercise price for
Incentive Options must be equal to or greater than the fair market price of
the Common Stock on the date of grant. Unless otherwise provided by the Plan
Administrator, options granted under the 1996 Plan vest 25 percent on the date
of grant and thereafter at 25 percent per year over a three-year period so
that all options are fully vested after three years. Options granted under the
1996 Plan generally are exercisable for a period of ten years from the date
56
<PAGE>
of grant, except that Incentive Options granted to persons who own more than
ten percent of the Common Stock terminate after five years.
Options granted under the Plan are not transferable other than by will or
the laws of descent and distribution.
There are shares of Common Stock authorized for issuance pursuant
to the 1996 Plan. As of October 31, 1997, there were an aggregate of
shares of Common Stock subject to outstanding options under the 1996 Plan. The
outstanding options were held by 45 individuals and were exercisable at $1.10
per share. Options to purchase an additional shares of Common Stock
at an exercise price equal to the initial public offering price will be
granted to five officers of the Company upon completion of this Offering. See
"--Employment Agreements."
Employee Stock Purchase Plan. The Company has adopted an employee stock
purchase plan (the "Purchase Plan"), which is intended to qualify under
Internal Revenue Code Section 423. The Purchase Plan provides that 300,000
shares of the Company's Common Stock be reserved for issuance upon exercise of
purchase rights granted thereunder, subject to adjustment for stock dividends,
stock splits, reverse stock splits and similar changes in the Company's
capitalization. The Purchase Plan is designed to encourage stock ownership by
employees of the Company.
Under the Purchase Plan, an eligible employee will be entitled to purchase
shares of Common Stock from the Company through payroll deductions ranging
from one percent to ten percent of cash compensation, at a price equal to the
lesser of 85 percent of the fair market value of the Company's Common Stock on
the first or the last day of each six month offering period under the Purchase
Plan. The offering periods will commence approximately on January 1 and July 1
of each year, with the first offering period commencing on a date to be
determined by the Board of Directors.
CERTAIN TRANSACTIONS
The Company was incorporated in November 1994. In December 1994, the Company
issued an aggregate of 2,108,801 shares of a class of its common stock to ten
persons and entities. Alan H. Chin and Curtis E. Lew, both co-founders of the
Company, and Kenji Sato were each issued 400,000 shares of stock in exchange
for past and future services. Katsuhiko Okunuki purchased 375,023 shares for
cash at a purchase price of $0.53 per share. Osamu Ishii was issued 40,000
shares of stock in exchange for past and future services and purchased 187,512
shares at a purchase price of $0.53 per share. In December 1995, the Company
issued 3,925,209 shares of Common Stock in exchange for all outstanding shares
of the various classes of its common stock on a one-to-one basis. The Company
repurchased all of Messrs. Sato's, Ishii's and Okunuki's shares in a series of
transactions during 1995 and 1996 at a purchase price of $1.10 per share.
In December 1995, the Company acquired GFP Group. Inc. ("GFP") through the
issuance of 1,083,956 shares of Common Stock in a one-for-one exchange for all
of the outstanding capital stock of GFP. Pursuant to this transaction, North
Willow Family L.P., a limited partnership in which Ronald P. Erickson, the
Company's Chairman, President and Chief Executive Officer, and his two
daughters are limited partners, was issued 270,000 shares of Common Stock;
Sirius International Communications, a general partnership in which German
F.H. Burtscher, the Company's Senior Vice President, Marketing and Sales, and
Frank Krentzman, a director and former Senior Vice President of the Company,
were the sole partners, was issued 478,956 shares of Common Stock; and Laura
Street Family L.P. ("Laura Street"), a limited partnership in which Craig
Palmer, a former director and officer of the Company, and certain members of
his immediate family are partners, was issued 270,000 shares of Common Stock.
In connection with the acquisition, the Company also agreed to issue to each
of Messrs. Burtscher and Krentzman 150,000 shares of Common Stock, and to
grant Mr. Erickson an option to purchase 150,000 shares of Common Stock, all
conditioned upon the Company obtaining certain financing as determined by the
Company's Board of Directors. Additionally, the Company assumed GFP's
obligations under employment agreements with Messrs. Erickson, Burtscher,
Krentzman and Palmer. By mutual consent of the parties, the terms of these
employment agreements were never performed.
57
<PAGE>
During late 1995 and early 1996, the Company paid Craig Palmer approximately
$150,000 in commissions in connection with financial consulting services. In
August 1996, in connection with Mr. Palmer's termination as an officer of the
Company, the Company entered into a one-year consulting agreement with Laura
Street. Pursuant to the terms of this agreement, the Company paid Laura Street
consulting fees of approximately $125,000 and granted Laura Street a warrant
to purchase 150,000 shares of Common Stock at an exercise price of $1.10 per
share. This warrant expires upon the earlier of August 15, 1999 or the date
the Company closes a public offering of Common Stock with aggregate net
proceeds to the Company of at least $25 million.
In December 1995, as part of the Company's acquisition of GFP, the Company
assumed GFP's obligations under two demand promissory notes payable to Michael
S. Brownfield, a director of the Company, both bearing interest at a rate of
ten percent per annum, increasing to 12 percent per annum when the notes are
past due. Both of these notes are secured by a pledge of certain shares of GFP
stock held by the Company. The first note was issued in October 1995 in the
amount of $50,000 and the second note was issued in November 1995 in the
amount of $20,000. In connection with the assumption of these notes, the
Company also issued to Mr. Brownfield a warrant to purchase for nominal
consideration 28,398 shares of Common Stock. Concurrently therewith, the
Company sold to Mr. Brownfield 454,546 shares of Common Stock for a purchase
price of $1.10 per share and granted Mr. Brownfield a warrant to purchase
45,455 shares of Common Stock at an exercise price of $1.10 per share. In
February 1996, Mr. Brownfield loaned the Company $100,000 at an interest rate
of ten percent per annum, increasing to 12 percent per annum when the debt is
past due, and maturing on February 22, 1997. In consideration of this loan,
the Company granted to Mr. Brownfield a warrant to purchase 6,000 shares of
Common Stock at an exercise price of $1.10 per share. This warrant expires on
the earlier of: (a) the date the Company closes a public offering of Common
Stock with aggregate net proceeds to the Company of at least $25 million; or
(b) February 22, 1999. In April 1996, Mr. Brownfield loaned the Company
$300,000 pursuant to a promissory note bearing interest at a rate of ten
percent per annum, increasing to 12 percent per annum when the note is past
due, and maturing on April 15, 1997. In consideration of this loan, the
Company granted to Mr. Brownfield a warrant to purchase 18,000 shares of
Common Stock at an exercise price of $1.10 per share. This warrant expires on
the earlier of: (a) the date the Company closes a public offering of Common
Stock with aggregate net proceeds to the Company of at least $25 million; or
(b) April 15, 1999. In June 1996, the Company granted Mr. Brownfield a warrant
to purchase 4,200 shares of Common Stock at an exercise price of $1.10 per
share in exchange for forbearance on the October and November 1995 notes. This
warrant expires on the earlier of: (a) the date the Company closes a public
offering of Common Stock with aggregate net proceeds to the Company of at
least $25 million; or (b) June 24, 1999. In October 1997, Mr. Brownfield
loaned the Company $150,000 pursuant to a promissory note bearing interest at
a rate of ten percent per annum and maturing on February 15, 1999. In
consideration of this loan, the Company granted Mr. Brownfield a warrant to
purchase 15,000 shares of Common Stock at an exercise price of $1.10 per
share. This warrant expires on the earlier of: (a) the date the Company closes
a public offering of Common Stock with aggregate net proceeds to the Company
of at least $25 million; or (b) October 2, 2000. In November 1997, Mr.
Brownfield agreed to convert $235,000 in principal plus interest accrued
thereon owed under past due promissory notes into 252,421 shares of Common
Stock. Mr. Brownfield also agreed to reschedule an additional $235,000 in
principal plus accrued interest owed under past due promissory notes into a
new note bearing interest at a rate of ten percent per annum prior to default
and 15 percent per annum thereafter. This note will mature upon the earlier
of: (a) an initial public offering of the Company's Common Stock; or (b)
January 1, 1999. In November 1997, Mr. Brownfield loaned the Company $25,000
pursuant to a Full Coverage Bridge Note bearing interest at a rate of ten
percent per annum, increasing to 15 percent per annum when the note is past
due. This Full Coverage Bridge Note matures upon the earlier of: (a) the
closing of the Offering; or (b) January 2, 1999. In consideration of this
loan, the Company has agreed to issue Mr. Brownfield shares of Common Stock
worth $25,000 at the initial public offering price concurrent with and
conditioned upon the closing of the Offering. If the Offering is not completed
by July 1, 1998, the Company has agreed to grant Mr. Brownfield a warrant to
purchase 22,727 shares of Common Stock at an exercise price of $1.10 per
share. This warrant will expire three years from the date of grant. As of
December 15, 1997, the Company owed Mr. Brownfield $410,000 in principal plus
accrued interest under outstanding notes.
58
<PAGE>
In November 1995, Gereg Capital Corporation ("Gereg") purchased 600,000
shares of Common Stock from the Company for a purchase price of $1.10 per
share. In consideration of this purchase of Common Stock, the Company granted
Gereg a warrant to purchase 60,000 shares of Common Stock. The warrant has an
exercise price of $1.10 per share and expires on the earlier of: (a) the date
the Company closes a public offering of Common Stock with aggregate net
proceeds to the Company of at least $25 million; or (b) December 29, 1998. In
October 1996, Gereg loaned the Company $150,000 pursuant to a promissory note
bearing interest at a rate of ten percent per annum and maturing on October
14, 1997. In consideration of this loan, the Company granted Gereg a warrant
to purchase 15,000 shares of Common Stock at an exercise price of $1.10 per
share. This warrant expires on the earlier of: (a) the date the Company closes
a public offering of Common Stock with aggregate net proceeds to the Company
of at least $25 million; or (b) October 14, 1998. In May 1997, the Company
repaid Gereg the full amount of principal and interest totaling $158,075
required to retire the note. Gereg has agreed to convert warrants to purchase
75,000 shares of Common Stock into shares of Common Stock at an exercise price
of $0.70 per share in a cashless exercise transaction concurrent with and
conditioned upon the closing of the Offering. Stephen S.V. Wong, a director of
the Company, is Chairman and a controlling shareholder of Gereg.
In November 1996, Dupont Ltd. ("Dupont") loaned the Company $500,000
pursuant to a convertible promissory note bearing interest at a rate of ten
percent per annum and maturing on May 22, 1998. In consideration of this loan,
the Company granted Dupont a warrant to purchase 100,000 shares of Common
Stock at an exercise price of $1.10 per share. This warrant expires on the
earlier of: (a) the date the Company closes a public offering of Common Stock
with aggregate net proceeds to the Company of at least $25 million; or (b)
November 22, 1999. In April 1997, Dupont loaned the Company an additional
$2,000,000 pursuant to a convertible promissory note bearing interest at a
rate of ten percent per annum and maturing on December 31, 1999. In
consideration of this loan, the Company granted Dupont a warrant to purchase
400,000 shares of Common Stock at an exercise price of $1.10 per share. The
warrant expires on the earlier of: (a) the date the Company closes a public
offering of Common Stock with aggregate net proceeds to the Company of at
least $25 million; or (b) April 29, 2000. Under the terms of this warrant,
Dupont has the right to require the Company to appoint a person selected by
Dupont to the Board of Directors and to nominate and recommend that designee
for election to the Board by the shareholders of the Company. In
September 1997, Dupont converted the full amount of principal and accrued
interest owed under the November 1996 note into 493,467 shares of Common
Stock. Dupont has agreed to convert its warrants to purchase an aggregate of
500,000 shares of Common Stock into shares of Common Stock at an exercise
price of $0.70 per share in a cashless exercise transaction concurrent with
and conditioned upon the closing of the Offering. In December 1997, the
Company agreed to amend the April 1997 note to repay a minimum of $1,000,000
owed to Dupont out of the proceeds of the Offering and to convert the
remaining $1,000,000 plus accrued interest into shares of Common Stock at the
price of $0.77 per share concurrent with and conditioned upon the closing of
the Offering. Trans-Pacific Consultants Pte. Ltd. ("Trans-Pacific"), an
affiliate of Dupont, also received a warrant to purchase 75,000 shares of
Common Stock as payment of a finder's fee in connection with the Dupont loan
transactions. Trans-Pacific's warrant has an exercise price of $1.10 per share
and expires on the earlier of: (a) the date the Company closes a public
offering of Common Stock with aggregate net proceeds to the Company of at
least $25 million; or (b) April 24, 2000. Trans-Pacific has agreed to convert
this warrant into shares of Common Stock at an exercise price of $0.70 per
share in a cashless exercise transaction concurrent with and conditioned upon
the closing of the Offering. Stephen S.V. Wong, a Director of the Company, is
Chairman and 50 percent owner of Dupont and is Chairman and a controlling
shareholder of Trans-Pacific.
In December 1996, PBIG-GTR Partners, L.P. ("PBIG") loaned the Company
$900,000 maturing June 1998 pursuant to a promissory note bearing interest at
a rate of ten percent per annum, increasing to 12 percent per annum after
default. In consideration of this loan, the Company granted PBIG a warrant to
purchase 180,000 shares of Common Stock at an exercise price of $1.10 per
share. This warrant expires upon the earlier of : (a) the date the Company
closes a public offering of Common Stock with aggregate net proceeds to the
Company of at least $25 million; or (b) December 5, 1999. In March 1997, PBIG
loaned the Company $400,000 maturing June 1998 pursuant to a promissory note
bearing interest at a rate of ten percent
59
<PAGE>
per annum, increasing to 12 percent per annum after default. In consideration
of this loan, the Company granted PBIG a warrant to purchase 80,000 shares of
Common Stock at an exercise price of $1.10 per share. This warrant expires
upon the earlier of: (a) the date the Company closes a public offering of
Common Stock with aggregate net proceeds to the Company of at least $25
million; or (b) March 12, 2000. In September 1997, PBIG elected to convert
$30,000 of principal owed under the December 1996 note and $200,000 of
principal owed under the March 1997 note into 220,973 shares of Common Stock.
As of December 15, 1997, the Company owed PBIG $1,070,000 in principal plus
accrued interest under outstanding notes.
In May 1997, Hare & Co. purchased 250,000 shares of Series A Convertible
Preferred Stock for a purchase price of $4 per share. Hare & Co. has agreed to
convert all 250,000 shares plus accrued dividends into shares of Common Stock
at $1.10 per share concurrent with and conditioned upon closing of the
Offering.
In June 1996, Mr. Erickson loaned the Company $150,000 pursuant to a
promissory note bearing interest at a rate of ten percent per annum,
increasing to 12 percent per annum when the note is past due, and maturing on
June 21, 1997. In consideration of this loan, the Company granted to Mr.
Erickson a warrant to purchase 9,000 shares of Common Stock at an exercise
price of $1.10 per share. The warrant expires on the earlier of: (a) the date
the Company closes a public offering of Common Stock with aggregate net
proceeds to the Company of at least $25 million; or (b) June 21, 1999. In
November 1997, Mr. Erickson elected to convert $171,805 in principal and
accrued interest owed under this note into 156,186 shares of Common Stock. In
November 1997, Mr. Erickson agreed to convert his warrant to purchase 9,000
shares of Common Stock into shares of Common Stock at an exercise price of
$0.70 per share in a cashless exercise transaction concurrent with and
conditioned upon the closing of the Offering.
In July 1996, Paul van de Plas, a director of the Company, loaned the
Company $100,000 pursuant to a promissory note bearing interest at a rate of
ten percent per annum and maturing on January 31, 1998. In consideration of
this loan, the Company granted to Mr. van de Plas a warrant to purchase 30,000
shares of Common Stock. The warrant has an exercise price of $1.10 per share
and expires on the earlier of: (a) the date the Company closes a public
offering of Common Stock with aggregate net proceeds to the Company of at
least $25 million; or (b) July 31, 1999. In September 1997, Mr. van de Plas
converted $112,040 in principal and accrued interest owed under the note into
101,855 shares of Common Stock. In November 1997, Mr. van de Plas agreed to
convert his warrant to purchase 30,000 shares of Common Stock into shares of
Common Stock at an exercise price of $0.70 per share in a cashless exercise
transaction concurrent with and conditioned upon closing of the Offering. In
November 1997, N.I.B. Securities, of which Mr. van de Plas is a director,
loaned the Company $20,000 pursuant to a Full Coverage Bridge Note bearing
interest at a rate of ten percent per annum, increasing to 15 percent per
annum after default. This Full Coverage Bridge Note matures upon the earlier
of: (a) the closing of the Offering; or (b) January 2, 1999. In consideration
of this loan, the Company has agreed to issue N.I.B. Securities shares of
Common Stock worth $20,000 at the initial public offering price concurrent
with and conditioned upon closing of the Offering. If the Offering is not
completed by July 1, 1998, the Company has agreed to grant N.I.B. Securities a
warrant to purchase 18,182 shares of Common Stock at an exercise price of
$1.10 per share. This warrant will expire three years from the date of grant.
In April 1997, the Company entered into an Exclusive Services and Marketing
Agreement with IBNet. See "Business--Sales, Marketing and Customer Service--
Strategic Marketing Relationships." Pursuant to this agreement, the Company
granted to IBNet a warrant to purchase 10,000 shares of Common Stock, and will
grant additional warrants if the Company reaches certain revenue targets. The
warrants all have an exercise price of $1.10 per share and expire three years
from the date of grant. The Company also agreed to pay IBNet certain fees
based upon a percentage of the Company's gross margin for services purchased
by customers referred to the Company by IBNet. In return, IBNet agreed to
issue to the Company 100,000 shares of common stock of IBNet. Ronald P.
Erickson, Lyman C. Hamilton and Bruce L. Crockett, all Directors of the
Company, are also directors of IBNet and each holds options to purchase 50,000
shares of IBNet's common stock. In addition, Mr. Hamilton owns 100,000 shares
of IBNet's common stock.
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In July 1996, Michael S. Sims, the Company's former Chief Operating Officer,
loaned the Company $100,000 pursuant to a promissory note bearing interest at
a rate of ten percent per annum and maturing on July 1, 1997. In consideration
of this loan, the Company granted to Mr. Sims a warrant to purchase 30,000
shares of Common Stock at an exercise price of $1.10 per share. This warrant
expires on the earlier of: (a) the date the Company closes a public offering
of Common Stock with aggregate net proceeds to the Company of at least $25
million; or (b) July 1, 1999. In October 1996, Mr. Sims' wife, Marianne Sims,
loaned the Company $20,000 pursuant to a promissory note bearing interest at a
rate of ten percent per annum. In consideration of this loan, the Company
granted to Mrs. Sims a warrant to purchase 14,000 shares of Common Stock at an
exercise price of $1.10 per share. This warrant expires on the earlier of: (a)
the date the Company closes a public offering of Common Stock with aggregate
net proceeds to the Company of at least $25 million; or (b) October 9, 1999.
In September 1997, Mr. Sims converted $113,177 of principal and accrued
interest owed under his note into 102,888 shares of Common Stock and Mrs. Sims
converted $21,978 of principal and accrued interest owed under her note into
19,980 shares of Common Stock.
In August 1995 Alan H. Chin, a co-founder, former director and former Senior
Vice President of the Company, purchased 93,756 shares of a class of the
Company's common stock at a purchase price of $0.53 per share. In November
1995, Speedway V Partnership, a limited partnership in which Mr. Chin is
managing partner, purchased 95,300 shares of a class of the Company's Common
Stock at a purchase price of $1.10 per share. During 1996 and 1997, Mr. Chin
accrued $126,446 in deferred salary and interest thereon. In September 1997,
he elected to receive this compensation in the form of a warrant to purchase
114,951 shares of Common Stock at an exercise price of $0.01 per share. Mr.
Chin also has guaranteed several of the Company's leases for furniture and
equipment. In June 1996, the Company agreed to indemnify Mr. Chin for the full
amount of these guarantees.
In August 1995, Curtis E. Lew, a co-founder, former director and former
Senior Vice President of the Company, purchased 91,628 shares of a class of
the Company's common stock at a purchase price of $0.53 per share. In November
1995, Mr. Lew purchased 59,000 shares of a class of the Company's common stock
at a purchase price of $1.10 per share. Mr. Lew has also guaranteed several of
the Company's leases for furniture and equipment. In June 1996, the Company
agreed to indemnify Mr. Lew for the full amount of these guarantees.
In August 1997, Frank Krentzman's employment as the Company's Senior Vice
President was terminated, although Mr. Krentzman continues to serve as a
Director of the Company. Pursuant to the terms of his severance agreement with
the Company, Mr. Krentzman elected to receive $133,333 of severance
compensation in the form of 121,212 shares of Common Stock, and was issued
150,000 shares of Common Stock pursuant to the Company's agreement to acquire
GFP described above.
In June 1997, the Company entered into a letter of intent with Netlink
International Inc. and Kunming Dayu Biological Engineering Co. Ltd. to explore
the potential of jointly providing telecommunications services in the People's
Republic of China through an entity in which the Company would potentially
have an equity interest. In September 1997, Alan H. Chin and Curtis E. Lew
entered into an agreement with the Company to implement the letter of intent
in exchange for five percent of any equity the Company obtains in the Chinese
venture.
In December 1995, Ulrich Kallausch, a former director of the Company, was
issued 25,000 shares of Common Stock as part of the GFP acquisition in
exchange for his shares of stock in GFP. In December 1995, Mr. Kallausch
purchased 180,000 shares of Common Stock from the Company at a purchase price
of $1.10 per share. In October 1997, the Company granted Mr. Kallausch an
option to purchase 10,000 shares of Common Stock at an exercise price of $1.10
per share in consideration of his service on the Board of Directors. This
option was exercisable in full upon grant.
In November 1997, ITEX, a company of which Ronald P. Erickson is a director,
loaned the Company $200,000 in cash and agreed to provide certain future
services to the Company in exchange for a Full
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Coverage Bridge Note in the principal amount of $200,000, which provides for
interest at a rate of ten percent per annum, increasing to 15 percent per
annum after default. The full amount of principal and interest owed under the
note will be repaid out of the proceeds of the Offering. In addition, ITEX
will receive shares of Common Stock equal to $400,000 divided by the initial
public offering price concurrent with the closing of the Offering.
In November 1997, Stephen S.V. Wong loaned the Company $25,000 pursuant to a
promissory note bearing interest at a rate of ten percent per annum,
increasing to 15 percent after default. This note was repaid in full in
December 1997. In addition, Mr. Wong will receive shares of Common Stock equal
to $12,500 divided by the initial public offering price concurrent with and
conditioned upon the closing of the Offering.
The Company believes that all of the transactions set forth above were made
on terms no less favorable to the Company than could have been obtained from
unaffiliated third parties. All future transactions between the Company and
its officers, directors and principal shareholders and their affiliates will
be approved by a majority of the Board of Directors, including a majority of
the independent and disinterested directors of the Board of Directors, and
will be on terms no less favorable to the Company than could be obtained from
unaffiliated third parties.
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PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of October 31, 1997 and as adjusted
to reflect the sale of the Common Stock offered hereby, by (i) each person who
is known by the Company to own beneficially more than 5% of the Company's
Common Stock, (ii) each director of the Company, (iii) each of the Named
Executive Officers and (iv) all of the Company's directors and executive
officers as a group. Except as otherwise indicated, the address of each person
listed below is 1520 Eastlake Avenue East, Seattle Washington 98102.
<TABLE>
<CAPTION>
PERCENT
BENEFICIALLY
OWNED(1)(2)
SHARES -----------------
BENEFICIALLY BEFORE AFTER
NAMES AND ADDRESSES OWNED OFFERING OFFERING
------------------- ------------ -------- --------
<S> <C> <C> <C>
Steven S.V. Wong (3)........................... 4,452,687 37.0%
Dupont Ltd. (4)................................ 3,692,687 31.1
20 Queen Astrid Park, Singapore 266824
Michael S. Brownfield (5)...................... 1,238,131 13.1
PBIG-GTR Partners L.P. (6)..................... 1,150,579 12.0
20987 Fairwoods Drive, Cupertino, CA 95041
Hare & Co. (7)................................. 932,727 10.7
Burgring 1G, A 8010 Graz, Austria
Alan H. Chin (8)............................... 753,552 8.5
Curtis E. Lew (9).............................. 713,690 8.1
Ronald P. Erickson (10)........................ 703,341 7.7
Gereg Capital Corporation (11)................. 675,000 7.7
20 Queen Astrid Park, Singapore 266824
Michael S. Sims (12)........................... 640,587 7.0
2226 Elliott Avenue, #503, Seattle, WA 98121
Frank Krentzman (13)........................... 535,184 6.2
German F.H. Burtscher (14)..................... 450,533 5.1
Randall J. Ottinger (15)....................... 280,259 3.1
John E. Cox (16)............................... 263,073 2.9
Paul H.F.M. van de Plas (17)................... 146,855 1.7
Bruce L. Crockett (18)......................... 15,000 * *
Lyman C. Hamilton.............................. * * *
All directors and executive officers as a group
(12 persons)(19) ............................. 8,095,077 58.3
</TABLE>
- --------
* Less than one percent of the outstanding shares of Common Stock.
(1) Assumes no exercise of the Underwriters' over-allotment option.
Beneficial ownership is determined in accordance with Rule 13d-3 under
the Exchange Act. In computing the number of shares beneficially owned by
a person and the percentage of ownership of that person, shares subject
to options held by that person that are exercisable within 60 days of
October 31, 1997 are deemed outstanding only when determining the amount
and percentage of Common Stock owned by such person. Except pursuant to
applicable community property laws or as indicated in the footnotes to
this table, to the Company's knowledge, each person identified in the
table possesses sole voting and investment power with respect to all
shares of Common Stock shown as beneficially owned thereby.
(2) Applicable percentage of ownership for each shareholder is based on
8,683,024 shares of Common Stock outstanding as of October 31, 1997.
(3) Includes 10,000 shares of Common Stock issuable upon exercise of options
under the 1996 Plan, 500,000 shares of Common Stock issuable upon
exercise of outstanding warrants held by Dupont Ltd., 2,699,220 shares of
Common Stock issuable upon conversion of a promissory note in the amount
of $2,078,399 of principal and accrued interest as of September 30, 1997
held by Dupont Ltd., 75,000 shares of Common Stock issuable upon exercise
of warrants held by Trans-Pacific Consultants Pte. Ltd., 75,000 shares of
Common Stock issuable upon exercise of outstanding warrants held by Gereg
Capital
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Corporation and 600,000 shares of Common Stock held by Gereg Capital
Corporation. Mr. Wong, a director of the Company, is Chairman and 50
percent owner of Dupont Ltd. and is Chairman and a controlling shareholder
of Gereg Capital Corporation and Trans-Pacific Consultants Pte, Ltd. See
"Certain Transactions."
(4) Includes 500,000 shares of Common Stock issuable upon exercise of
outstanding warrants and 2,699,220 shares of Common Stock issuable upon
conversion of a promissory note in the amount of $2,078,399 of principal
and accrued interest as of September 30, 1997.
(5) Includes 117,053 shares of Common Stock issuable upon exercise of
outstanding warrants, 10,000 shares of Common Stock issuable upon
exercise of options under the 1996 Plan and 646,532 shares of Common
Stock issuable upon conversion of five promissory notes in the aggregate
amount of $711,186 in principal and accrued interest as of September 30,
1997.
(6) Includes 260,000 shares of Common Stock issuable upon exercise of
outstanding warrants and 669,606 shares of Common Stock issuable upon
conversion of two outstanding promissory notes in the aggregate amount of
$1,151,723 in principal and accrued interest as of September 30, 1997.
(7) Includes 932,727 shares of Common Stock issuable upon conversion of
250,000 shares of Series A Convertible Preferred Stock.
(8) Includes 49,945 shares of Common Stock issuable upon exercise of options
under the 1996 Plan and 114,951 shares of Common Stock issuable upon
exercise of outstanding warrants.
(9) Includes 49,945 shares of Common Stock issuable upon exercise of options
under the 1996 Plan and 113,517 shares of Common Stock issuable upon
exercise of outstanding warrants.
(10) Includes 104,655 shares of Common Stock issuable upon exercise of
outstanding warrants, 22,500 shares of Common Stock issuable upon
exercise of options under the 1996 Plan, 150,000 shares of Common Stock
issuable upon exercise of options to be granted to Mr. Erickson
contingent upon the Company obtaining certain financing as determined by
the Company's Board of Directors (see "Certain Transactions"), 156,186
shares of Common Stock issuable upon conversion of an outstanding
promissory note in the amount of $171,805 in principal and accrued
interest as of September 30, 1997 assuming a conversion price of $1.10
per share, and 270,000 shares of Common Stock held by North Willow Family
L.P., a limited partnership in which Mr. Erickson and his two daughters
are partners.
(11) Includes 75,000 shares of Common Stock issuable upon exercise of
outstanding warrants. Mr. Wong, a director of the Company, is Chairman
and a controlling shareholder of Gereg. See Notes 3 and 4.
(12) Includes 276,552 shares of Common Stock issuable upon exercise of
outstanding warrants and 214,667 shares of Common Stock issuable upon
exercise of options under the 1996 Plan. Also includes 14,000 shares of
Common Stock issuable upon exercise of warrants and 19,980 shares of
Common Stock held by Mr. Sims' wife.
(13) Includes 1,994 shares of Common Stock issuable upon exercise of options
under the 1996 Plan.
(14) Includes 150,000 shares of Common Stock to be issued to Mr. Burtscher
contingent upon the Company obtaining certain financing as determined by
the Company's Board (see "Certain Transactions"), 21,648 shares of Common
Stock issuable upon exercise of options under the 1996 Plan, 70,974
shares of Common Stock issuable upon exercise of outstanding warrants and
933 shares of Common Stock held by Mr. Burtscher's parents.
(15) Includes 63,687 shares of Common Stock issuable upon exercise of options
under the 1996 Plan, 166,572 shares of Common Stock issuable upon the
exercise of outstanding warrants and 15,000 shares of Common Stock held
by the Ottinger Family Trust.
(16) Includes 132,500 shares of Common Stock issuable upon exercise of options
under the 1996 Plan and 130,573 shares of Common Stock issuable upon
exercise of outstanding warrants.
(17) Includes 30,000 shares of Common Stock issuable upon exercise of
outstanding warrants and 5,000 shares of Common Stock issuable upon
exercise of options under the 1996 Plan.
(18) Includes 5,000 shares of Common Stock issuable upon exercise of options
under the 1996 Plan.
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(19) Includes 1,279,841 shares issuable upon exercise of outstanding warrants,
412,329 shares issuable upon exercise of options under the 1996 Plan and
3,501,938 shares issuable upon conversion of nine outstanding promissory
notes in the aggregate amount of $4,111,635 in principal and accrued
interest as of September 30, 1997.
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<PAGE>
DESCRIPTION OF SECURITIES
Upon completion of the Offering, the Company's authorized capital stock
shall consist of 20,000,000 shares of Common Stock, par value $0.01 per share,
and 5,000,000 shares of preferred stock, par value $0.01 per share.
COMMON STOCK
As of October 31, 1997, there were 7,658,039 shares of Common Stock issued
and outstanding and held of record by 72 shareholders. Holders of Common Stock
are entitled to cast one vote for each share held of record on all matters
submitted to a vote of the shareholders. Holders of Common Stock do not have
cumulative voting rights and, except as required under applicable law, a
majority vote is sufficient for any act of the shareholders. Holders of Common
Stock are entitled to receive ratably such dividends if, as and when declared
by the Company's Board of Directors out of funds legally available therefor,
subject to the payment of any preferential dividends with respect to any
preferred stock that from time to time may be outstanding. In the event of any
liquidation, dissolution or winding up of the Company, each holder of Common
Stock will be entitled to participate, subject to prior distribution rights of
the holders of any outstanding preferred stock, ratably in all assets of the
Company remaining after payment of liabilities. Holders of Common Stock have
no preemptive, conversion or other subscription rights. All outstanding shares
of Common Stock are, and all shares of Common Stock offered hereby, when
issued, will be, fully paid and nonassessable.
PREFERRED STOCK
The Board of Directors has the authority without further action by the
shareholders to issue up to 5,000,000 shares of preferred stock in one or more
series and to fix the rights, preferences, privileges and restrictions
thereof, including dividend rights, conversion rights, voting rights,
redemption rights, liquidation preferences and the number of shares
constituting any series. The issuance of preferred stock in certain
circumstances may have the effect of delaying, deferring or preventing a
change in control of the Company, may discourage bids for the Company's Common
Stock at a premium over the market price of the Common Stock and may adversely
affect the market price of, and the voting and other rights of the holders of,
the Common Stock.
Upon the closing of this Offering, each of the 275,000 shares of Series A
Convertible Preferred Stock outstanding as of October 31, 1997, will be
converted automatically into approximately 3.64 shares of Common Stock. Under
the terms of the Series A Convertible Preferred Stock, dividends are accrued
at the rate of six percent per annum. Upon the closing of this Offering,
accrued unpaid dividends will be converted into Common Stock at a price of
$1.10 per share. No preferred stock will remain outstanding immediately after
this Offering. At present, the Company has no plans to issue any additional
shares of preferred stock.
WARRANTS
Since inception, the Company from time to time has issued warrants to
purchase Common Stock. As of October 31, 1997, warrants to purchase 3,255,247
shares of Common Stock were issued and outstanding. All outstanding warrants
issued by the Company are exercisable at a weighted average price of $0.66 per
share. Warrants issued in connection with financing transactions generally
provide for increases in the number of shares issuable if the Company has not
closed a major financing transaction within specified periods. All of the
warrants issued pursuant to financing transactions provide for customary
antidilution protection in the event of stock splits, stock dividends,
reorganizations and other similar events, and all expire on the earlier of (i)
three years from the date of issuance, and (ii) the closing of a public
offering of Common Stock netting proceeds to the Company of at least $25
million.
In addition to warrants granted in connection with financing transactions,
the Company has granted warrants pursuant to contracts with strategic partners
and consultants. These warrants are all exercisable at an exercise price of
$1.10 per share and contain customary antidilution and other protections.
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<PAGE>
Holders of warrants to purchase an aggregate of 1,323,802 shares of Common
Stock have agreed to convert their warrants into shares of Common Stock in a
cashless exercise transaction at an exercise price of $0.70 per share
concurrent with the closing of this Offering.
REPRESENTATIVE'S WARRANTS
The Company has agreed to sell to the Representative warrants to purchase
from the Company up to shares of Common Stock at an exercise price
per share equal to 120% of the initial public offering price (the
"Representative's Warrant"). The Representative's Warrant is exercisable for a
period of four years beginning one year from the date of this Prospectus, and
is non-transferable except in limited circumstances. The Representative's
Warrant includes a net exercise provision permitting the holder(s) to pay the
exercise price by cancellation of a number of shares with a fair market value
equal to the exercise price of the Representative's Warrant. The holders of
the Representative's Warrant will have, in that capacity, no voting, dividend
or other shareholder rights. During the exercise period, the holders of the
Representative's Warrant are entitled to certain demand and "piggy-back"
registration rights that will expire five years after the date of this
Prospectus and that may require the Company to register for public resale the
shares of Common Stock issuable upon exercise of the Representative's Warrant.
The number of shares covered by the Representative's Warrant and the exercise
price thereof are subject to adjustment in certain events to prevent dilution.
See "Underwriting."
CONVERTIBLE NOTES
As of December 18, 1997, promissory notes in the aggregate principal amount
of $4,064,000 convertible into an aggregate of approximately shares
of Common Stock were outstanding. The notes generally bear interest at a rate
of ten percent per annum, are for a term of 12 or 18 months and are
convertible into Common Stock upon the completion of offerings of the
Company's securities with aggregate gross proceeds to the Company of $25
million or more. The conversion price of the notes is the price per share of
Common Stock in such offerings in which the $25 million threshold is met. In
the event of default, the notes will bear interest at an annual rate of 12
percent and, at the option of the note holder, will become immediately due and
payable. See "Certain Transactions."
FULL COVERAGE BRIDGE NOTES
Full Coverage Bridge Notes in the aggregate principal amount of $2,981,500
are outstanding. These notes bear interest at a rate of ten percent per annum,
increasing to 15 percent after default, and are due upon the closing of the
Offering. In addition to repayment of principal and interest, note holders are
entitled to receive shares of Common Stock equal to the principal amount of
the Full Coverage Bridge Notes divided by the initial public offering price
concurrent with and conditioned upon the closing of the Offering. If the
Offering is not completed by July 1, 1998, the Company has agreed to grant to
these noteholders warrants to purchase the number of shares of Common Stock
equal to the principal amount of the note divided by $1.10. These warrants
will have an exercise price of $1.10 per share and will expire three years
from the date of grant.
REGISTRATION RIGHTS
Registration Rights for the Existing Preferred Shareholders
Following the closing of this Offering, the holders of approximately
1,050,000 shares of Common Stock issued upon conversion of the Preferred Stock
(the "Holders") will be entitled to certain rights with respect to the
registration of such shares under the Securities Act. Under the terms of an
agreement between the Company and such Holders, beginning one year after the
effective date of this Offering, the Holders have the right to require the
Company, on not more than two occasions, to file a registration statement
under the Securities Act to register all or any part of their shares of Common
Stock ("Demand Registration"). The
67
<PAGE>
Company may in certain circumstances defer such registrations. Further, the
Holders may require the Company to register all or a portion of their shares
on Form S-3 under the Securities Act, when such form becomes available to the
Company, subject to certain conditions and limitations ("Form S-3
Registration"). In the event that the Company proposes to register any of its
securities under the Securities Act, either for its own account or the account
of other securityholders, the Holders also are entitled to include their
shares of Common Stock in such registration, subject to certain marketing and
other limitations ("Piggyback Registration"). The Company is required to bear
the expense (except for underwriting discounts, selling commissions and stock
transfer taxes) of Demand and Piggyback Registrations, while the Holders are
required to bear the expense, on a pro rata basis, of any Form S-3
Registrations.
Registration Rights for Certain Warrantholders
Holders of an aggregate of 810,342 shares of Common Stock issuable upon
exercise of outstanding warrants are entitled to certain piggyback
registration rights under the Securities Act pursuant to warrant agreements
between the Company and such holders. If the Company proposes to register any
of its securities under the Securities Act at any time on or before December
5, 1999, either for its own account or the account of other securityholders,
such holders are entitled to include in such registration the shares of Common
Stock they received through the exercise of their warrants, subject to certain
marketing and other limitations. The Company is required to bear the expense
of such registrations, except for underwriting discounts, selling expenses and
the cost of the attorneys' fees for the warrantholders' own attorneys.
Registration Rights for Full Coverage Bridge Loan Shares
The Company has agreed to cause the Full Coverage Bridge Loan Shares to be
registered under the Securities Act for resale in the public market for a
period of up to 180 days commencing 270 days after the closing of this
Offering.
WASHINGTON ANTITAKEOVER STATUTE
Washington law contains certain provisions that may have the effect of
delaying or discouraging a hostile takeover of the Company. In addition,
Chapter 23B.19 of the Washington Business Corporation Act ("WBCA") prohibits a
corporation, with certain exceptions, from engaging in certain significant
business transactions with an "Acquiring Person" (defined as a person who
acquired ten percent or more of the corporation's voting securities without
the prior approval of the corporation's board of directors) for a period of
five years after such acquisition. The prohibited transactions include, among
others, a merger with, disposition of assets to, or issuance or redemption of
stock to or from, the Acquiring Person, or allowing the Acquiring Person to
receive any disproportionate benefit as a shareholder. An Acquiring Person is
further prohibited from engaging in certain significant business transactions
with the target corporation unless the per share consideration paid to holders
of outstanding shares of Common Stock and other classes of stock of the target
corporation meet certain minimum criteria. The per share minimum criteria
apply only to significant business transactions involving either (i) a merger,
share exchange, or consolidation of a target corporation with an Acquiring
Person or an affiliate or associate of the Acquiring Person, or (ii) the
liquidation or dissolution of a target corporation proposed by, or pursuant to
an agreement, arrangement or understanding with an Acquiring Person or an
affiliate or associate of an Acquiring Person, which transaction is not
otherwise approved by an affirmative vote of a majority of the disinterested
shareholders of the target corporation. These provisions may have the effect
of delaying, deterring or preventing a change in control of the Company.
CERTAIN PROVISIONS IN RESTATED ARTICLES
The Restated Articles provide for the division of the Company's Board of
Directors into three classes, as nearly equal in number as possible, each for
a three-year term, with one class being elected each year by the Company's
shareholders. Directors may be removed only for cause and only by a vote of
not less than a majority of the shares of the Company's capital stock entitled
to vote on an election of the director whose removal is sought.
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The Restated Articles require that certain business combinations (including
a merger, share exchange or the sale, lease, exchange, mortgage, pledge,
transfer or other disposition of a substantial part of the Company's assets)
be approved by the holders of not less than two-thirds of the outstanding
shares, unless such business combination shall have been approved by a
majority of Continuing Directors (defined as those individuals who were
members of the Board of Directors on the date of this Prospectus or were
elected thereafter on the recommendation of a majority of the Continuing
Directors), in which case the affirmative vote required shall be a majority of
the outstanding shares.
Under the Restated Articles, the shareholders may call a special meeting
only upon the request of holders of at least 25 percent of the outstanding
shares. The Restated Articles also provide that changes to certain provisions
of the Articles of Incorporation, including those regarding amendment of
certain provisions of the Bylaws or Restated Articles, the classified Board of
Directors, special voting provisions for business combinations and special
meetings of shareholders, must be approved by the holders of not less than
two-thirds of the outstanding shares.
It is possible that the provisions discussed above may delay, deter or
prevent a change in control of the Company.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Company's Common Stock is
ChaseMellon Shareholder Services.
RESCISSION OFFER
Concurrent with this Offering, the Company intends to commence a rescission
offer (the "Rescission Offer") in accordance with federal securities laws and
the securities laws of the State of Washington (the "Washington Securities
Act") with respect to promissory notes in the aggregate principal amount of
approximately $805,000 (the "Rescission Notes"), an aggregate of 2,482,342
shares of Common Stock (the "Rescission Stock") and warrants to purchase an
aggregate of approximately 334,720 shares of Common Stock (the "Rescission
Warrants" and, collectively with the Rescission Notes and the Rescission
Stock, the "Rescission Securities") previously issued or sold in the State of
Washington, in each case as of January 31, 1998 (collectively, the "Rescission
Securities" ). The Company believes that the Rescission Securities may have
been issued or sold in violation of the registration requirements of the
Washington Securities Act. As a precaution against potential claims by holders
of Rescission Securities, and without admitting non-compliance with the
Washington Securities Act, the Company plans to offer to rescind such prior
issuances and sales by offering to repurchase the Rescission Securities at the
price paid therefor plus interest thereon at the statutory rate of eight
percent per annum from the date of purchase to the expiration of the
Rescission Offer. The aggregate price paid for the Rescission Notes is
approximately $805,000. The price paid for the Rescission Stock is $0.53 per
share with respect to 483,740 shares and $1.10 per share with respect to
1,998,601 shares, for an aggregate price of $2,454,844. The aggregate accrued
interest with respect to all of the Rescission Securities as of January 31,
1998 will be approximately $373,000. If all holders of Rescission Securities
were to accept the Rescission Offer, the Company would be required to make
payments aggregating approximately $3.6 million, plus the aggregate amount of
any additional interest thereon that accrues after January 31, 1998. The
Rescission Offer will be implemented by filing a registration statement (the
"Rescission Offer Registration Statement") under the Securities Act, and will
expire approximately days after the effectiveness of the Rescission
Offer Registration Statement. The Company currently expects to use a portion
of the proceeds from this Offering to make payments under the Rescission
Offer, if any are required. Offerees who do not accept the Rescission Offer
will thereafter hold registered Rescission Securities under the Securities Act
which, in the case of the Rescission Stock, will be freely tradeable by non-
affiliates in the public market as of the effective date of the Rescission
Offer Registration Statement.
As of the date hereof, management is not aware of any claims for rescission
against the Company. Also, officers and directors of the Company holding an
aggregate of $ million (including statutory interest
69
<PAGE>
accrued thereon as of December , 1997) of the Rescission Securities have
indicated their intent not to accept the Rescission Offer, although no formal
Rescission Offer has been made to them and they have not and may not agree to
reject the Rescission Offer until the Rescission Offer Registration Statement
has been declared effective by the Securities and Exchange Commission and the
Rescission Offer has commenced. There can be no assurance that all or a
substantial portion of the Rescission Securities will not be tendered in
response to the Rescission Offer. Use of a portion of the proceeds of this
Offering in connection with the Rescission Offer will reduce the amount of
working capital available to the Company and require it to seek additional
capital sooner than would otherwise be required. Furthermore, notwithstanding
the Rescission Offer, there can be no assurance that the Company will not be
subject to penalties or fines relating to past securities issuances or that
other holders of the Company's securities will not assert or prevail in claims
against the Company for rescission or damages under state or federal
securities laws. See "Risk Factors--Need for Additional Capital and Capital
Requirements," "--Rescission Offer," "Use of Proceeds," "Shares Eligible for
Future Sale" and Note 6 of Notes to the Consolidated Financial Statements.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, the Company will have outstanding
shares of Common Stock ( shares if the over-
allotment option is exercised in full). Of these shares, the
shares sold in this Offering (plus any shares issued upon exercise of the
Underwriters' over-allotment option and any shares of Common Stock subject to
the Rescission Offer) will be freely tradable without restriction under the
Securities Act, unless purchased or held by "affiliates" of the Company as
that term is defined in Rule 144 under the Securities Act and the regulations
promulgated thereunder or subject to lock-up agreements with the
Representatives. Prior to this Offering, there has been no public market for
the Common Stock of the Company and no predictions can be made as to the
effect, if any, that market sales of shares of Common Stock prevailing from
time to time may have on the market price of the Common Stock. Nevertheless,
sales of significant numbers of shares of the Common Stock in the public
market after the lapse of existing resale restrictions may adversely affect
the market price of the Common Stock offered hereby and could impair the
Company's future ability to raise capital through an offering of its equity
securities.
The remaining shares of Common Stock outstanding upon completion
of this Offering (or any securities exercisable for or convertible into the
Company's Common Stock) are "restricted securities" within the meaning of
Rule 144 under the Securities Act ("Restricted Shares"). Restricted Shares may
be sold in the public market only if registered or if they qualify for an
exemption from registration under Rules 144, 144(k) or 701 promulgated under
the Securities Act, which are summarized below. Sales of the Restricted Shares
in the public market, or the availability of such shares for sale, could
adversely affect the market price of the Common Stock. The numbers of shares
that will be available for sale in the public market will be as follows: (i)
Restricted Shares upon completion of this Offering; (ii) beginning 270 days
after the date of this Prospectus, approximately Restricted Shares
will become eligible for sale in the public market upon expiration of the
lock-up agreements, subject in certain cases, to certain volume limitations
and other resale restrictions pursuant to Rule 701 and Rule 144 and (iii) by
, 199 the remaining approximately Restricted Shares
will all be eligible for sale in the public market.
The Company's executive officers, directors and certain other holders of
Common Stock holding an aggregate of shares of Common Stock and options
to purchase shares of Common Stock have agreed that they will not,
without the prior written consent of the Representative, offer, sell, contract
to sell or grant any option to purchase or otherwise dispose of any shares of
Common Stock for a period of 270 days after the date of this Prospectus.
In general, under Rule 144, as currently in effect, beginning 90 days after
the Effective Date, a person (or persons whose share are aggregated) who has
beneficially owned Restricted Shares for at least one year would be entitled
to sell within any three-month period a number of shares that does not exceed
the greater of: (i) one percent of the number of shares of Common Stock then
outstanding (which will equal approximately shares immediately after
this Offering); or (ii) the average weekly trading volume
70
<PAGE>
of the Common Stock during the four calendar weeks preceding the filing of a
Form 144 with respect to such sale. Sales under Rule 144 are also subject to
certain manner of sale provisions and notice requirements and to the
availability of current public information about the Company. Under Rule
144(k), a person who is not deemed to have been an affiliate of the Company at
any time during the 90 days preceding a sale, and who has beneficially owned
the shares proposed to be sold for at least two years, is entitled to sell
such shares without complying with the manner of sale, public information,
volume limitation or notice provisions of Rule 144.
Beginning 90 days after the Effective Date, certain shares issued upon
exercise of options granted by the Company prior to the date of this
Prospectus will also be available for sale in the public market pursuant to
Rule 701 under the Securities Act. Any employee, officer or director of or
consultant to the Company who purchased his or her shares pursuant to a
written compensatory plan or contract may be entitled to rely on the resale
provision of Rule 701. Rule 701 permits affiliates to sell their Rule 701
shares under Rule 144 without complying with the holding period requirements
of Rule 144. Rule 701 further provides that non-affiliates may sell such
shares in reliance on Rule 144 without having to comply with the public
information, volume limitation or notice provisions of Rule 144. In both
cases, a holder of Rule 701 shares is required to wait until 90 days after the
date of this Prospectus before selling such shares.
As of October 31, 1997, options to purchase 1,080,128 shares of Common Stock
were outstanding of which approximately shares issuable upon the
exercise of stock options will first become eligible for sale in the public
market, upon the expiration of the lock-up agreements described above. After
this offering, the Company intends to file a registration statement under the
Act on Form S-8 covering the shares of Common Stock reserved for issuance
under the Company's stock option plans and stock purchase plan. Shares of
Common Stock issued pursuant to such registration statement will be available
for sale in the public market, subject to Rule 144 volume limitations
applicable to affiliates and subject to lock-up agreements.
As of October 31, 1997, the holders of options, warrants and Series A
Convertible Preferred Stock convertible into approximately 1,810,342 shares of
Common Stock are entitled to certain registration rights with respect to such
shares. If a large number of such shares were registered and sold in the
public market, such sales could have an adverse effect on the market price for
the Company's Common Stock. If the Company were required to include in a
Company-initiated registration the shares held by such holders pursuant to the
exercise of their registration rights, such sales may have an adverse effect
on the Company's ability to raise needed capital. See "Description of
Securities--Registration Rights."
71
<PAGE>
UNDERWRITING
The Underwriters named below, for whom Cruttenden Roth Incorporated is
acting as the Representative, have severally agreed, subject to the terms and
conditions of the Underwriting Agreement, to purchase from the Company the
number of shares of Common Stock set forth opposite their respective names
below at the initial public offering price less the underwriting discounts and
commissions set forth on the cover page of this Prospectus:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
------------ ---------
<S> <C>
Cruttenden Roth Incorporated.....................................
------
Total..........................................................
======
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent and that the Underwriters are
committed to purchase all shares of Common Stock offered hereby if any of such
shares are purchased.
The Company has been advised by the Representative that the Underwriters
propose initially to offer the shares of Common Stock directly to the public
at the public offering price set forth on the cover page of this Prospectus
and to certain dealers at such public offering price less a concession not to
exceed $ per share. The Underwriters may allow, and such dealers may
reallow, a discount not to exceed $ per share in sales to certain other
dealers. After the Offering, the public offering price and concessions and
discounts may be changed by the Representative.
The Company granted to the Underwriters an option, exercisable not later
than 45 days after the date of this Prospectus, to purchase up to an
additional shares of Common Stock at the public offering price less
the underwriting discounts and commissions set forth on the cover page of this
Prospectus. To the extent that the Underwriters exercise such option, each of
the Underwriters will have a firm commitment to purchase approximately the
same percentage thereof that the number of shares of Common Stock to be
purchased by it shown in the table above bears to the number of shares of
Common Stock offered hereby, and the Company will be obligated pursuant to the
option to sell such shares to the Underwriters. The Underwriters may exercise
the option only to cover over-allotments, if any, made in connection with the
distribution of the shares of Common Stock to the public.
The Company has agreed to pay the Representative at closing a non-
accountable expense allowance equal to two and one-half percent (2.5%) of the
aggregate public offering price of the shares of Common Stock sold in the
Offering (less any advances), which will include proceeds from the over-
allotment option, if exercised. The Representative's expenses in excess of the
non-accountable expense allowance, including its legal expenses, will be borne
by the Representative.
The Representative has informed the Company that the Underwriters do not
intend to confirm sales of shares of the Common Stock offered hereby to any
accounts over which they exercise discretionary authority.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, and to contribute
in certain events to any liabilities incurred by the Underwriters in
connection with the sale of shares of Common Stock.
72
<PAGE>
The Company, its directors, executive officers and principal shareholders
have agreed not to sell, offer to sell, contract to sell or otherwise dispose
of any of their shares of Common Stock or any other security convertible into
or exercisable or exchangeable for, or options or warrants to purchase or
acquire, shares of Common Stock without the prior written consent of the
Representative for a period of 270 days after the date of this Prospectus. See
"Shares Eligible for Future Sale."
The Company has agreed to sell to the Representative warrants to purchase
from the Company up to shares of Common Stock at an exercise price
per share equal to 120% of the public offering price (the "Representative's
Warrant"). The Representative's Warrant is exercisable for a period of four
years beginning one year from the date of this Prospectus, and is non-
transferable except (i) to officers of the Representative; (ii) to general
partnerships whose general partners are the Representative and one or more
officers of the Representative; (iii) to a successor to the Representative in
any merger or consolidation; (iv) to a purchaser of all or substantially all
of the Representative's assets; or (v) by will or by the laws of descent or
distribution. The Representative's Warrant includes a net exercise provision
permitting the holder(s) to pay the exercise price by cancellation of a number
of shares with a fair market value equal to the exercise price of the
Representative's Warrant. The holders of the Representative's Warrant will
have, in that capacity, no voting, dividend or other shareholder rights.
During the exercise period, the holders of the Representative's Warrant are
entitled to certain demand and "piggy-back" registration rights that will
expire five years after the date of this Prospectus and that may require the
Company to register for public resale the shares of Common Stock issuable upon
exercise of the Representative's Warrant. The number of shares covered by the
Representative's Warrant and the exercise price thereof are subject to
adjustment in certain events to prevent dilution. Any profit realized by the
Representative on the sale of securities issuable upon exercise of the
Representative's Warrant may be deemed to be additional underwriting
compensation.
Prior to the Offering, there has been no public market for the Common Stock.
The initial public offering price was negotiated between the Company and the
Representative and does not necessarily bear any relationship to the assets,
book value, earnings history of the Company or to other investment criteria.
Among the factors considered in determining the initial public offering price
were prevailing market conditions, the Company's historical performance,
estimates of the business potential and earnings prospects of the Company, the
capital structure of the Company, an assessment of the Company's management
and the consideration of the above factors in relation to market valuations of
companies in related businesses. There can be no assurance that the prices at
which the Common Stock will trade in the public market following the Offering
will not be lower than the initial public offering price.
Certain persons participating in the Offering may overallot or effect
transactions that stabilize, maintain or otherwise affect the market price of
the Common Stock at levels above those which might otherwise prevail in the
open market, including by entering stabilizing bids, effecting syndicate
covering transactions or imposing penalty bids. A stabilizing bid means the
placing of any bid, or the effecting of any purchase, for the purpose of
pegging, fixing or maintaining the price of the Common Stock. A syndicate
covering transaction means the placing of any bid on behalf of the
underwriting syndicate or the effecting of any purchase to reduce a short
position created in connection with the Offering. A penalty bid means an
arrangement that permits the Underwriters to reclaim a selling concession from
a syndicate member in connection with the Offering when shares of Common Stock
sold by the syndicate member in connection with the Offering are purchased in
syndicate covering transactions. Such transactions may be effected on the
Amex, in the over-the-counter market, or otherwise. Such stabilizing, if
commenced, may be discontinued at any time.
The foregoing sets forth the material terms and conditions of the
Underwriting Agreement, but does not purport to be a complete statement of the
terms and conditions thereof. The Underwriting Agreement has been filed as an
exhibit to the Registration Statement of which this Prospectus is a part, and
copies thereof are on file at the offices of the Representative, the Company
and the Securities and Exchange Commission. See "Additional Information."
73
<PAGE>
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Heller Ehrman White & McAuliffe, Seattle, Washington. Certain legal
matters relating to the offering will be passed upon for the Underwriters by
Stoel Rives LLP, Seattle, Washington.
EXPERTS
The audited consolidated financial statements included in this Prospectus
have been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their reports with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in accounting and auditing
in giving said reports.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), Washington, D.C. 20549, a Registration Statement on Form SB-2
under the Securities Act with respect to the Common Stock offered hereby. This
Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits and schedules thereto. Certain items
are omitted in accordance with the rules and regulations of the Commission.
For further information with respect to the Company and the Common Stock
offered hereby, reference is made to the Registration Statement and the
exhibits and schedules filed as a part thereof. Statements contained in this
Prospectus as to the contents of any contract or any other document referred
to are not necessarily complete, and, in each instance, if such contract or
document is filed as an exhibit, reference is made to the copy of such
contract or document filed as an exhibit to the Registration Statement, each
such statement being qualified in all respects by such reference to such
exhibit. The Registration Statement, including exhibits and schedules thereto,
may be inspected without charge at the public reference facilities maintained
by the Commission in Room 1024, 450 Fifth Street, N.W., Washington, D.C.
20549, and at the Commission's regional offices located at the North Western
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661
and Seven World Trade Center, 13th Floor, New York, NY 10048, and copies of
all or any part thereof may be obtained from such office after payment of fees
prescribed by the Commission. The Commission maintains a Web site at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission.
The Company intends to furnish its shareholders with annual reports
containing audited financial statements examined by an independent public
accounting firm and quarterly reports for the first three quarters of each
year containing interim unaudited financial information. Upon completion of
the offering contemplated hereby, the Company will be subject to the
informational requirements of the Exchange Act and, in accordance therewith,
will be filing reports and other information with the Commission.
74
<PAGE>
GLOSSARY OF TERMS
access point--A location where a long-distance carrier has installed
transmission equipment in a service area that serves as, or relays calls to, a
network switching center of that long-distance carrier.
accounting or settlement rate--The per minute rate negotiated between
carriers in different countries for termination of international long distance
traffic in, and return traffic to, the carriers' respective countries.
business-grade Internet--An Internet network offering private network like
security and reliability.
call-reorigination (or "call back")--A form of dial-up access that allows a
user to access a telecommunications company's network by placing a telephone
call, hanging up, and waiting for an automated callback. The callback then
provides the user with dial tone which enables the user to initiate and
complete a call.
call-through--The provision of international long distance service through
conventional long-distance or a "transparent" form of call re-origination
without the usual "hang up" and "call back" whereby the call is automatically
and swiftly processed by a programmed switch.
co-location--The Company's ability to locate the Company's network equipment
at the facility of another telecommunications provider.
dedicated or direct access--A means of accessing a network through the use
of a permanent point-to-point circuit typically leased from a facilities-based
carrier. The advantage of dedicated access is simplified premises-to-anywhere
calling, faster call set-up times and potentially lower access and
transmission costs (provided there is sufficient traffic over the circuit to
generate economies of scale).
dial-up access--A form of service whereby access to a network is obtained by
dialing an international toll-free number or a paid local access number.
Equant--Equant Network Services International Corporation, a global data
network service provider.
facilities-based carrier--A carrier which transmits a significant portion of
its traffic over its own transmission facilities.
fiber optic--A transmission medium consisting of high-grade glass fibers
through which light beams are transmitted carrying a high volume of
telecommunications traffic.
Global Enhanced VPN (Virtual Private Network)--The Company's enhanced VPN
service.
IBNet--International Business Network for World Commerce and Industry, Ltd.,
the managing member of the Consortium of Global Commerce.
intranet--A company's internal wide area network utilizing Internet
technologies.
IP--Internet Protocol.
ISP--Internet services provider.
ITO (Incumbent Telephone Operator)--The dominant carrier or carriers in each
country, often, but not always, government-owned or protected.
ITU--International Telecommunications Union.
75
<PAGE>
LAN--Local area network. A data communications network designed to
interconnect PCs, workstations, minicomputer, file servers and other
communications and computing devices within a localized environment.
latency--The time that elapses between the moment when a command is sent to
the time that a response is recieved. On a network, latency is due to delays
in routers or switches, congestion delays on a crowded backbone and the time
required for electrons to travel a great distance between nodes on a network.
node--A specially configured piece of telecommunications equipment which
provides the interface between the local ITO where the node is located and the
Company's gateway switch. A node collects and concentrates call traffic from
its local area and transfers it to Company's switch via private line for call
processing. Nodes permit the Company to extend its network into a new
geographic location by accessing the local ITO without requiring the
deployment of a switch.
private line--A dedicated telecommunications connection between end user
locations.
resale--Resale by a provider of telecommunications services of services sold
to it by other providers or carriers on a wholesale basis.
switching facility--A device that opens or closes circuits or selects the
paths or circuits to be used for transmission of information. Switching is a
process of interconnecting circuits to form a transmission path between users.
VAR--Value-Added Reseller.
Value-Added Tax (VAT)--A consumption tax levied on end-consumers of goods
and services in applicable jurisdictions.
VPN--Virtual Private Network. A network capable of providing the tailored
services of private network (i.e., low latency, high throughput security and
customization) while maintaining the benefits of a public network (i.e.,
ubiquity and economies of scale).
WTO--World Trade Organization.
76
<PAGE>
GLOBALTEL RESOURCES, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants.................................. F-2
Consolidated Balance Sheets............................................... F-3
Consolidated Statements of Operations..................................... F-4
Consolidated Statements of Common Stock Subject to Rescission and
Shareholders' Deficit ................................................... F-5
Consolidated Statements of Cash Flows..................................... F-6
Notes to Consolidated Financial Statements................................ F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
GlobalTel Resources, Inc.:
We have audited the accompanying consolidated balance sheets of GlobalTel
Resources, Inc. (a Washington corporation) and subsidiaries as of December 31,
1995 and 1996, and the related consolidated statements of operations, common
stock subject to rescission and shareholders' deficit and cash flows for the
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
As discussed in Note 6, the Company plans to commence an offer to rescind a
significant portion of the Company's common stock and bridge loans. In
addition, as discussed in Note 5, a significant portion of the Company's
bridge loans call for principal repayment during 1998. Management's current
projections indicate that there will not be sufficient cash flows from
operations to fund these obligations. Management is currently planning to pay
off these obligations with the proceeds of a public offering of common stock.
However, if management is unsuccessful in that effort, consideration will be
given to the slowdown of its growth strategies and renegotiating the terms of
the bridge loans due in 1998.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of GlobalTel Resources, Inc.
and subsidiaries as of December 31, 1995 and 1996, and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Seattle, Washington,
April 11, 1997 (except with respect
to the matters discussed in Note 9,
as to which the date is December 18, 1997)
F-2
<PAGE>
GLOBALTEL RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(AMOUNTS AS OF SEPTEMBER 30, 1997 ARE UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ SEPTEMBER 30,
1995 1996 1997
----------- ----------- -------------
<S> <C> <C> <C>
ASSETS
------
Current assets:
Cash................................. $ 715,987 $ 446,257 $ 237,428
Accounts receivable, net of allowance
for doubtful accounts of $62,000,
$207,000, and $180,000.............. 376,118 1,288,047 947,985
Other receivables.................... 100,424 333,181 289,487
Other current assets................. 66,890 149,178 146,956
----------- ----------- ------------
Total current assets............... 1,259,419 2,216,663 1,621,856
Furniture and equipment, net........... 310,092 670,712 1,387,117
Other assets:
License agreement, net............... 175,398 163,573 154,705
Organizational costs, net............ 119,693 110,114 84,064
Bridge loan issue costs, net......... 2,846 107,356 211,274
Deposits on equipment................ -- 374,075 507,388
Other................................ 10,906 58,994 35,500
----------- ----------- ------------
Total assets....................... $ 1,878,354 $ 3,701,487 $ 4,001,904
=========== =========== ============
LIABILITIES AND SHAREHOLDERS' DEFICIT
-------------------------------------
Current liabilities:
Accounts payable..................... $ 425,229 $ 2,570,745 $ 3,184,757
Accrued liabilities.................. 260,394 1,937,154 1,326,253
Bridge loans......................... 265,000 1,840,000 2,035,000
Due to shareholders.................. 649,015 -- --
Notes payable........................ -- 92,310 27,372
Customer deposits and prepayments.... 493,908 1,024,743 871,272
----------- ----------- ------------
Total current liabilities.......... 2,093,546 7,464,952 7,444,654
Bridge loans........................... -- 2,282,500 2,120,000
----------- ----------- ------------
Total liabilities.................. 2,093,546 9,747,452 9,564,654
----------- ----------- ------------
Commitments and contingencies (see Note
8)
Common stock subject to rescission; par
value $0.01; 1,554,426, 1,631,926 and
1,932,487 shares issued and
outstanding........................... 1,434,137 1,519,387 1,850,004
----------- ----------- ------------
Shareholders' deficit:
Series A convertible preferred stock;
par value $0.01; 5,000,000 shares
authorized; 0, 0, and 275,000 shares
issued and outstanding.............. -- -- 987,027
Common stock; par value $0.01;
20,000,000 shares authorized;
1995--5,595,825 shares issued,
3,454,739 shares outstanding;....... 150,033 -- --
1996--3,377,239 shares issued and
outstanding;........................ -- 64,783 --
1997--5,665,552 shares issued and
outstanding......................... -- -- 2,388,642
Common stock warrants................ 10,751 52,306 1,334,406
Accumulated deficit.................. (1,810,113) (7,682,441) (12,122,829)
----------- ----------- ------------
Total shareholders' deficit........ (1,649,329) (7,565,352) (7,412,754)
----------- ----------- ------------
Total liabilities and shareholders'
deficit........................... $ 1,878,354 $ 3,701,487 $ 4,001,904
=========== =========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
GLOBALTEL RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1997 ARE
UNAUDITED)
<TABLE>
<CAPTION>
NINE-MONTH PERIOD ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------ ------------------------
1995 1996 1996 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues................... $ 2,113,047 $ 9,135,935 $ 5,830,203 $10,639,495
Operating expenses:
Cost of sales............ 1,928,396 8,229,546 5,155,035 9,006,799
Sales and marketing...... 238,168 682,332 493,920 664,421
General and
administrative.......... 1,536,215 5,773,133 4,095,125 4,657,840
Depreciation and
amortization............ 111,062 98,288 85,904 141,582
----------- ----------- ----------- -----------
Total operating expenses... 3,813,841 14,783,299 9,829,984 14,470,642
----------- ----------- ----------- -----------
Operating loss............. (1,700,794) (5,647,364) (3,999,781) (3,831,147)
Interest expense, including
$1,291, $61,350, $30,272
and $213,797 to related
parties................... (33,681) (224,964) (103,066) (587,442)
----------- ----------- ----------- -----------
Net loss before provision
for income taxes.......... (1,734,475) (5,872,328) (4,102,847) (4,418,589)
Provision for income taxes. -- -- -- --
----------- ----------- ----------- -----------
Net loss................... $(1,734,475) $(5,872,328) $(4,102,847) $(4,418,589)
=========== =========== =========== ===========
Series A convertible
preferred stock dividends. -- -- -- (21,799)
----------- ----------- ----------- -----------
Net loss applicable to
common shareholders....... $(1,734,475) $(5,872,328) $(4,102,847) $(4,440,388)
=========== =========== =========== ===========
Pro forma:
Net loss per share....... $ $
=========== ===========
Weighted average number
of shares outstanding...
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
GLOBALTEL RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMMON STOCK SUBJECT TO RESCISSION AND
SHAREHOLDERS' DEFICIT
(AMOUNTS FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1997 ARE UNAUDITED)
<TABLE>
<CAPTION>
SERIES A
COMMON STOCK SUBJECT CONVERTIBLE
TO RESCISSION PREFERRED STOCK COMMON STOCK
-------------------- -------------------- ----------------------- COMMON
NUMBER DOLLAR NUMBER DOLLAR NUMBER OF DOLLAR STOCK
OF SHARES AMOUNT OF SHARES AMOUNT SHARES AMOUNT WARRANTS
--------- ---------- --------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1994...................... -- $ -- -- $ -- 2,108,801 $ 330,000 $ --
Issuance of common stock to founders........... -- -- -- -- 117,498 -- --
Issuance of common stock ($0.084 per share)
and obligation to issue 300,000 shares
($0.028 per share) to acquire GFP
(see Notes 1 and 7)........................... -- -- -- -- 1,083,956 100,000 --
Sale of common stock ($0.533 per share)........ 483,740 256,382 -- -- 554,550 297,344 --
Sale of common stock ($1.10 per share)......... 1,070,686 1,177,755 -- -- 902,800 993,078 --
Cost of common stock issuances................. -- -- -- -- -- (126,236) --
Issuance of common stock warrants.............. -- -- -- -- -- -- 10,751
Repurchase of common stock ($1.10 per share)... -- -- -- -- (1,312,866) (1,444,153) --
Net loss....................................... -- -- -- -- -- -- --
--------- ---------- ------- ---------- ---------- ----------- ----------
BALANCE, December 31, 1995...................... 1,554,426 1,434,137 -- -- 3,454,739 150,033 10,751
Repurchase of common stock ($1.10 per share)... -- -- -- -- (90,000) (99,000) --
Sale of common stock to employees ($1.10 per
share)........................................ 77,500 85,250 -- -- -- -- --
Sale of common stock to third party ($1.10 per
share)........................................ -- -- -- -- 12,500 13,750 --
Issuance of common stock warrants.............. -- -- -- -- -- -- 41,555
Net loss ...................................... -- -- -- -- -- -- --
--------- ---------- ------- ---------- ---------- ----------- ----------
BALANCE, December 31, 1996...................... 1,631,926 1,519,387 -- -- 3,377,239 64,783 52,306
Issuance of Series A convertible preferred
stock ($4.00 per share, see Note 3)........... -- -- 275,000 1,100,000 -- -- --
Cost of Series A convertible preferred
stock issuances............................... -- -- -- (134,772) -- -- --
Partial settlement of 1995 obligation to
issue common stock to acquire GFP
(see Note 7) ................................. -- -- -- -- 150,000 -- --
Employment contract converted to common stock
($1.10 per share)............................. -- -- -- -- 121,212 133,333 --
Bridge loans converted to common stock
($1.10 per share)............................. 300,561 330,617 -- -- 2,017,101 2,218,811 --
Cost of common stock conversions............... -- -- -- -- -- (28,285) --
Deferred salaries converted to common stock
warrants...................................... -- -- -- -- -- -- 1,184,856
Issuance of common stock warrants.............. -- -- -- -- -- -- 97,244
Cumulative Series A convertible preferred
stock dividends............................... -- -- -- 21,799 -- -- --
Net loss....................................... -- -- -- -- -- -- --
--------- ---------- ------- ---------- ---------- ----------- ----------
BALANCE, September 30, 1997 (unaudited)......... 1,932,487 $1,850,004 275,000 $ 987,027 5,665,552 $ 2,388,642 $1,334,406
========= ========== ======= ========== ========== =========== ==========
<CAPTION>
TOTAL
ACCUMULATED SHAREHOLDERS'
DEFICIT DEFICIT
------------ -------------
<S> <C> <C>
BALANCE, December 31, 1994...................... $ (75,638) $ 254,362
Issuance of common stock to founders........... -- --
Issuance of common stock ($0.084 per share)
and obligation to issue 300,000 shares
($0.028 per share) to acquire GFP
(see Notes 1 and 7)........................... -- 100,000
Sale of common stock ($0.533 per share)........ -- 297,344
Sale of common stock ($1.10 per share)......... -- 993,078
Cost of common stock issuances................. -- (126,236)
Issuance of common stock warrants.............. -- 10,751
Repurchase of common stock ($1.10 per share)... -- (1,444,153)
Net loss....................................... (1,734,475) (1,734,475)
------------ ------------
BALANCE, December 31, 1995...................... (1,810,113) (1,649,329)
Repurchase of common stock ($1.10 per share)... (99,000)
Sale of common stock to employees ($1.10 per
share)........................................ -- --
Sale of common stock to third party ($1.10 per
share)........................................ -- 13,750
Issuance of common stock warrants.............. -- 41,555
Net loss ...................................... (5,872,328) (5,872,328)
------------ -----------
BALANCE, December 31, 1996...................... (7,682,441) (7,565,352)
Issuance of Series A convertible preferred
stock ($4.00 per share, see Note 3)........... -- 1,100,000
Cost of Series A convertible preferred
stock issuances............................... -- (134,772)
Partial settlement of 1995 obligation to
issue common stock to acquire GFP
(see Note 7) ................................. -- --
Employment contract converted to common stock
($1.10 per share)............................. -- 133,333
Bridge loans converted to common stock
($1.10 per share)............................. -- 2,218,811
Cost of common stock conversions............... -- (28,285)
Deferred salaries converted to common stock
warrants...................................... -- 1,184,856
Issuance of common stock warrants.............. -- 97,244
Cumulative Series A convertible preferred
stock dividends............................... (21,799) --
Net loss....................................... (4,418,589) (4,418,589)
------------ -----------
BALANCE, September 30, 1997 (unaudited)......... $(12,122,829) $(7,412,754)
============ ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
GLOBALTEL RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1997 ARE
UNAUDITED)
<TABLE>
<CAPTION>
NINE-MONTH PERIOD ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------ ------------------------
1995 1996 1996 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss................... $(1,734,475) $(5,872,328) $(4,102,847) $(4,418,589)
Adjustments to reconcile
net loss to net cash used
in operating activities--
Depreciation and
amortization............ 118,966 127,287 107,653 300,326
Loss on disposal of
assets.................. -- 12,538 12,538 --
Employment contract
converted to common
stock................... -- -- -- 133,333
Changes in certain assets
and liabilities:
Accounts receivable..... (376,118) (911,929) (224,047) 340,062
Other receivables and
other current assets... (160,061) (315,045) (554,925) 11,322
Accounts payable,
accrued liabilities and
other.................. 658,421 3,807,276 3,100,088 1,423,187
Customer deposits and
prepayments............ 493,908 530,835 358,597 (153,471)
----------- ----------- ----------- -----------
Net cash used in operating
activities................ (999,359) (2,621,366) (1,302,943) (2,363,830)
----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchases of furniture and
equipment................. (260,449) (329,390) (264,154) (823,070)
Proceeds from disposition
of assets................. -- 15,000 15,000 --
Organizational costs
incurred.................. (162,929) -- -- --
Acquisition of business,
net of cash acquired...... (99,003) -- -- --
Deposits made to purchase
furniture and equipment... -- (374,075) (374,075) (133,313)
----------- ----------- ----------- -----------
Net cash used in investing
activities................ (522,381) (688,465) (623,229) (956,383)
----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from issuance of
bridge loans.............. 265,000 3,857,500 2,062,500 2,651,708
Payments made on bridge
loans..................... -- -- -- (305,000)
Payments made on due to
shareholders.............. (707,956) (649,015) (649,015) --
Borrowings under notes
payable................... -- -- -- 12,967
Payments on notes payable.. -- (33,342) -- (77,905)
Cash paid for bridge loan
issue costs............... -- (76,954) (27,654) (193,702)
Proceeds from issuance of
common stock, net......... 2,598,323 99,000 -- --
Repurchase of common stock. (200,000) (99,000) -- --
Proceeds from issuance of
Series A convertible
preferred stock, net...... -- (58,088) -- 1,023,316
----------- ----------- ----------- -----------
Net cash provided by
financing activities...... 1,955,367 3,040,101 1,385,831 3,111,384
----------- ----------- ----------- -----------
Net increase (decrease) in
cash...................... 433,627 (269,730) (540,341) (208,829)
Cash, beginning of period.. 282,360 715,987 715,987 446,257
----------- ----------- ----------- -----------
Cash, end of period........ $ 715,987 $ 446,257 $ 175,646 $ 237,428
=========== =========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Cash paid during the period
for--
Interest................. $ 26,585 $ 17,446 $ 17,446 $ 33,099
Income taxes ............ -- -- -- --
SUPPLEMENTAL DISCLOSURE OF
SIGNIFICANT NONCASH
INVESTING AND FINANCING
ACTIVITIES:
Issuance of common stock
warrants related to bridge
loans..................... $ 10,751 $ 41,555 $ 22,746 $ 97,244
Bridge loans and accrued
interest converted to
common stock.............. -- -- -- 2,549,428
Deferred salaries converted
to common stock warrants.. -- -- -- 1,184,856
Issuance of notes payable
to finance common stock
repurchase................ 1,244,153 -- -- --
Issuance of notes payable
to finance equipment
purchases................. -- 125,652 91,020 --
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
GLOBALTEL RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE NINE-MONTH PERIODS
ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
1. DESCRIPTION OF THE BUSINESS
GlobalTel Resources, Inc. ("the Company"), a Washington corporation, was
formed on November 17, 1994, to provide international telecommunications
services. The Company began operations in 1995 with its entry into the
international call-reorigination business. The Company also markets long-
distance calling cards, and enhanced voice services including voice mail and
conference calling.
On December 29, 1995, the Company acquired GFP Group, Inc. ("GFP"), a
Washington corporation formed on September 15, 1995. GFP was formed primarily
for the purpose of acquiring Ratsten International Telecommunications, Inc.
d/b/a Netstar Telecommunications, Inc. ("Ratsten") and thereafter being
acquired by the Company. Ratsten held certain license rights critical to the
Company's mission of providing global telecommunications services.
The Company provides global long-distance call-reorigination services
through Primecall, Inc., a wholly owned subsidiary. The Company began
generating revenue in March of 1995. Prior to January 1, 1995, the Company's
sole operations consisted of general and administrative activities, which
amounted to $75,638 for the year ended December 31, 1994. As these results of
operations are not material, the Company's financial statements as of and for
the year ended December 31, 1994 are not presented.
During the Company's limited operating history, it has generated substantial
operating losses and expects to incur additional operating losses. These
losses have been principally funded by a combination of common and preferred
stock sales and bridge loans, which mature in 1998 and early 1999 (see Notes 3
and 5). In addition, the Company will require additional capital to bring
certain past due trade accounts payable current and finance its short- and
long-term growth strategies. There can be no assurance that the Company will
be able to obtain the necessary additional capital, or that its operations
will be sufficient to generate future positive operating results.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidated Financial Statements
The accompanying consolidated financial statements include the financial
accounts of the Company and its wholly owned subsidiaries, Primecall and GFP.
All intercompany transactions have been eliminated.
Use of Estimates
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities,
the disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting periods. Actual results could differ from those estimates.
Interim Results
The accompanying consolidated balance sheet as of September 30, 1997, and
the consolidated statements of operations, common stock subject to rescission
and shareholders' deficit and cash flows for the nine-month periods ended
September 30, 1996 and 1997 are unaudited. In the opinion of management, the
interim unaudited consolidated statements have been prepared on the same basis
as the historical audited
F-7
<PAGE>
GLOBALTEL RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE NINE-MONTH PERIODS
ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
consolidated financial statements and include all adjustments, consisting of
normal recurring adjustments necessary for the fair statement of interim
periods. The data disclosed in these notes to the consolidated financial
statements for these interim periods is also unaudited.
Cash
For purposes of the consolidated statements of cash flows, cash includes all
amounts on deposit with financial institutions. The Company has no short-term
investments.
Furniture and Equipment
Furniture and equipment consist of office furniture and computer and
telecommunications equipment. Furniture and equipment are recorded at cost and
are depreciated using the straight-line method over the estimated useful lives
of the related assets, which range from 5 to 10 years. Repairs, maintenance
and minor renewals are charged to expense as incurred. Major renewals and
betterments which substantially extend the useful life of the assets are
capitalized. Upon sale or other disposition of assets, the cost and the
related accumulated depreciation are removed from the accounts and a gain or
loss, if any, is reflected in the consolidated statements of operations.
Furniture and equipment is composed of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- SEPTEMBER 30,
1995 1996 1997
-------- --------- -------------
<S> <C> <C> <C>
Telecommunications equipment............ $281,965 $ 587,791 $ 936,113
Furniture, fixtures and other........... 83,399 206,391 681,139
-------- --------- ----------
365,364 794,182 1,617,252
Less--Accumulated depreciation.......... (55,272) (123,470) (230,135)
-------- --------- ----------
Furniture and equipment, net............ $310,092 $ 670,712 $1,387,117
======== ========= ==========
</TABLE>
The Company recorded depreciation expense of $55,272, $76,884, $69,852 and
$106,665 for the years ended December 31, 1995 and 1996, and for the nine-
month periods ended September 30, 1996 and 1997, respectively.
Other Assets
Other assets consist primarily of a license agreement, organizational costs,
bridge loan issue costs and deposits on telecommunications equipment. The
license agreement purchased by the Company (see Note 7) is being amortized on
a straight-line basis over 15 years. The Company recorded amortization expense
related to the license agreement of $1,970, $11,825, $8,868 and $8,867 for the
years ended December 31, 1995 and 1996, and for the nine-month periods ended
September 30, 1996 and 1997, respectively.
Certain organizational costs (primarily legal expenses) incurred in
connection with establishing and organizing the Company and its subsidiaries
are being amortized over a period of five years. The Company recorded
amortization expense related to these organizational costs of $53,820, $9,579,
$7,184 and $26,050 for the years ended December 31, 1995 and 1996, and for the
nine-month periods ended September 30, 1996 and 1997, respectively.
F-8
<PAGE>
GLOBALTEL RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE NINE-MONTH PERIODS
ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
Bridge loan issue costs incurred in connection with obtaining bridge loans
have been capitalized and are being amortized into interest expense over the
lives of the loans. During 1995 and 1996, and the nine-month periods ended
September 30, 1996 and 1997, the Company recognized $7,904, $28,999, $21,749
and $122,491, respectively, in additional interest expense from amortization
of the bridge loan issue costs.
At December 31, 1996 and September 30, 1997, the Company had made non-
refundable deposits of $374,075 and $507,388, respectively, toward the
purchase of certain telecommunications equipment. The Company expects to take
delivery of this equipment in the fourth quarter of 1997 and in the first
quarter of 1998.
Accrued Liabilities
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- SEPTEMBER 30,
1995 1996 1997
-------- ---------- -------------
<S> <C> <C> <C>
Telecommunications costs................. $ 82,000 $ 511,550 $ 758,958
Deferred salaries........................ -- 667,000 --
Other.................................... 178,394 758,604 567,295
-------- ---------- ----------
$260,394 $1,937,154 $1,326,253
======== ========== ==========
</TABLE>
As of December 31, 1996, the Company had deferred salaries payable to
certain members of the Company's management. Interest accrued on the deferred
balances at an annual rate of 10%. During 1997, an additional $517,856 of
deferred salaries was accrued. During the nine-month period ended
September 30, 1997, the deferred salaries were converted to common stock
warrants (see Note 3).
Equity-Based Compensation
The Company accounts for employee equity-based compensation following the
provisions of Accounting Principles Board Opinion No. 25 ("APB 25"),
"Accounting for Stock Issued to Employees." In accordance with the provisions
of APB 25, the Company has not recognized deferred compensation or
compensation expense in connection with its equity-based plans as the exercise
price of the options granted was equal to fair value at the date of grant (see
Note 3).
Statement of Financial Accounting Standards No. 123 ("SFAS 123"),
"Accounting for Stock-Based Compensation," requires expanded disclosures of
equity-based compensation arrangements with employees and does not require,
but encourages, compensation cost to be measured based on the fair value of
equity instruments when awarded. The Company, as allowed, intends to continue
to measure employee equity-based compensation under APB 25, which recognizes
compensation cost based on the intrinsic value of the equity instrument
awarded.
Revenue Recognition and Cost of Sales
Revenues and related cost of sales are recognized in the period services are
provided. The related accruals for sales, cost of sales and unearned revenues
are included in the consolidated balance sheets.
Income Taxes
The Company accounts for income taxes using the asset and liability method.
To date, the Company has fully reserved all net deferred tax assets.
F-9
<PAGE>
GLOBALTEL RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE NINE-MONTH PERIODS
ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
Concentrations of Risk
During October 1996, the Company began wholesaling long-distance minutes to
other long-distance carriers. As of December 31, 1996, $793,483 of the
Company's accounts receivable was due from a single long-distance carrier.
This receivable was fully collected during the first quarter of 1997.
Approximately 85% of the Company's call-reorigination revenues are from
customers outside of the United States. The continued legality and competitive
advantage of call-reorigination businesses in certain foreign countries is
uncertain, due to changing regulatory environments.
The Company's call-reorigination business is facilitated by a single switch
located in Los Angeles, California.
Pro Forma Net Loss Per Share
Pro forma net loss per share is based on the weighted average number of
shares of common stock and common equivalent shares outstanding using the
treasury stock method and the estimated number of shares of common stock to be
issued in the Company's proposed public offering and upon conversion of the
Company's outstanding Series A preferred stock at September 30, 1997. Common
stock equivalents are excluded from the calculation of pro forma net loss per
share due to their antidilutive effect except that pursuant to Securities and
Exchange Commission requirements, common and common equivalent shares issued
during the 12-month period prior to the initial filing of a registration
statement relating to the Company's proposed initial public offering have been
included in the calculation as if they were outstanding for all periods
presented using the treasury stock method, based on the initial public
offering price.
Pro forma net loss per share has been computed as described above and also
gives effect, even if antidilutive, to shares of Series A preferred stock that
are assumed to convert to common stock upon the closing of the Company's
initial public offering (using the as-if-converted method). If the offering
contemplated by the prospectus is consummated, all of the Series A preferred
stock outstanding as of the effective date of the offering is assumed to be
converted into an aggregate of shares of common stock.
Effect of New Accounting Standard
In February 1997, the Financial Accounting Standards Board issued SFAS 128,
"Earnings Per Share," which revises the calculation and presentation
provisions of APB 15 and related interpretations. SFAS 128 is effective for
the Company's fiscal year ending December 31, 1997, and retroactive
application is required. The Company does not expect the implementation of
SFAS 128 to have a material effect on earnings per share amounts reported
prior to that date.
3. SHAREHOLDERS' DEFICIT
Series A Convertible Preferred Stock
Each share of Series A Convertible Preferred Stock is entitled to a dividend
at a per annum rate equal to 6% of the issuance price, deferrable at the
election of the Company but payable in preference to dividends on any other
securities issued by the Company. All accrued and unpaid dividends on a share
must be paid before dividends on other securities. Each share is also
entitled, in liquidation, to a preferred distribution of
F-10
<PAGE>
GLOBALTEL RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE NINE-MONTH PERIODS
ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
the initial issuance price plus all accrued but unpaid dividends. Each share
is subject to automatic conversion to common stock upon the sale of all or
substantially all of the assets of the Company, an election to convert by two-
thirds of the holders of such shares, or upon the closing of an initial public
offering, the net proceeds of which exceed $25 million if certain other
conditions are satisfied. Any unpaid cumulative dividends at the time of
conversion may be paid at the option of the Company in cash, common stock, or
as notes payable to the preferred shareholders. Each share has a right of
first refusal to purchase a pro rata share of certain types of "new
securities," including, but not limited to, shares of common stock issued as
part of an initial public offering. However, this purchase right is not
applicable to and will expire upon the completion of a public offering or
other event that causes an automatic conversion of the Series A preferred
stock. Each share of Series A preferred stock has a voting right based upon
the number of shares of common stock into which the Series A preferred stock
would then be convertible in addition to certain demand and piggyback
registration rights.
During 1996, the Company incurred $58,088 in connection with its issuance of
Series A convertible preferred stock. These costs were capitalized as other
assets in the accompanying December 31, 1996 consolidated balance sheet and
were subsequently reclassified as a charge to equity in connection with the
Company's private placement of Series A convertible preferred stock.
Common Stock
During 1995, the Company executed a stock purchase agreement with certain
common shareholders to buy back 1,312,866 shares of the Company's common stock
at a price of $1.10 per share. The Company paid $200,000 in cash and issued
$1,244,153 in promissory notes (classified as due to shareholders in the
accompanying December 31, 1995 consolidated balance sheet) bearing interest at
8% to finance the repurchase. These promissory notes were paid in full as of
December 31, 1996.
During September 1997, several holders of bridge loans accepted an offer
from the Company to convert their bridge loans in the amount of $2,314,208,
and related unpaid interest of $235,220 into shares of common stock at a value
equal to $1.10 per share (See Note 5).
During September 1997, the Company issued 121,212 shares of common stock
with an agreed value of $133,333 to a former employee in satisfaction of the
Company's obligations under the employee's severance agreement. The value of
the common stock issued was charged to compensation expense in the
accompanying consolidated statement of operations for the nine-month period
ended September 30, 1997.
Equity-Based Compensation
During 1996, the Company approved the 1996 Stock Option Plan (the "Plan")
which provides for the granting of qualified and nonqualified stock options.
The Company has reserved 2,600,000 shares of common stock for granting of
stock options under the Plan. The Company's Board of Directors ("the Board")
has the authority to determine all matters relating to options to be granted
under the Plan, including the selection of individuals to be granted options,
the number of shares to be subject to each option, the exercise price and the
term and vesting period, if any. The Company recognized no compensation
expense from the vesting of options granted for the years ended December 31,
1995 and 1996 or for the nine-month periods ended September 30, 1996 and 1997.
F-11
<PAGE>
GLOBALTEL RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE NINE-MONTH PERIODS
ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
The following table summarizes activity related to stock options granted to
certain executives and employees of the Company:
<TABLE>
<CAPTION>
EXERCISE
NUMBER OF PRICE PER
SHARES SHARE
--------- ---------
<S> <C> <C>
Balance at January 1, 1995............................ -- $ --
Grants.............................................. 365,500 1.10
Exercised........................................... -- --
Canceled............................................ -- --
---------
Balance at December 31, 1995.......................... 365,500 1.10
Grants.............................................. 644,630 1.10
Exercised........................................... -- --
Canceled............................................ (150,000) 1.10
---------
Balance at December 31, 1996.......................... 860,130 1.10
Grants.............................................. 442,666 1.10
Exercised........................................... -- --
Canceled............................................ (302,668) 1.10
---------
Balance at September 30, 1997......................... 1,000,128 1.10
=========
</TABLE>
There were 65,500, 318,046 and 450,627 options exercisable as of December
31, 1995 and 1996, and as of September 30, 1997, respectively. The outstanding
options at December 31, 1996, have a weighted average remaining contractual
life of 9.7 years. As of September 30, 1997, there were 1,599,872 shares
available for future option grants.
Pro forma information regarding results of operations and loss per share is
required by SFAS 123 for awards granted after December 31, 1994 as if the
Company had accounted for its stock-based awards to employees under a
valuation method permitted by SFAS 123. The value of the Company's stock-based
awards to employees in 1995, 1996 and 1997 was estimated using the minimum
value method. Should the Company complete an initial public offering ("IPO")
of its common stock, options granted after the IPO will be valued using the
Black-Scholes option pricing model. Among other things, the Black-Scholes
model considers the expected volatility of the Company's stock price,
determined in accordance with SFAS 123, in arriving at an option valuation.
The minimum value method does not consider stock price volatility. Had
compensation cost for the Plan been determined consistent with SFAS 123, the
Company's net loss for the years ended December 31, 1995 and 1996 would have
been increased to $1,748,144 and $5,918,197, respectively. The Company intends
to make the complete annual disclosures required under SFAS 123 for all 1997
activity in its consolidated financial statements as of and for the year ended
December 31, 1997.
The weighted average fair value of the Company's stock-based awards granted
to employees was $0.21 and $0.18 as of December 31, 1995 and 1996,
respectively, and was estimated assuming no expected dividends and the
following weighted average assumptions:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1995 1996
------- -------
<S> <C> <C>
Risk-free interest rate.................................... 5.4% 6.2%
Expected life.............................................. 4 years 3 years
</TABLE>
Common Stock Warrants
In connection with the bridge loans issued by the Company, warrants to
purchase 107,507, 394,550 and 928,812 shares of the Company's common stock
were issued in 1995, 1996 and for the nine-month period
F-12
<PAGE>
GLOBALTEL RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE NINE-MONTH PERIODS
ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
ended September 30, 1997, respectively. The 1996 and 1997 warrants generally
provide for increases in the number of shares of common stock issuable if the
Company has not closed a major financing transaction within specified periods.
The 1996 and 1997 warrants have an exercise price of $1.10 and the 1995
warrants are exercisable at no cost. All of the warrants were exercisable
immediately upon issuance. The Company estimated the value of these warrants
to be $10,751, $41,555 and $97,244 in 1995, 1996 and 1997, respectively, and
accordingly, recorded this value as bridge loan issue costs to be amortized as
interest expense over the life of the bridge loans.
The Company also issued warrants to purchase 12,032, 279,000 and 113,000
shares of common stock at an exercise price of $0, $1.10 and $1.10 per share,
to various individuals in consideration for consulting and other services
received during 1995, 1996, and 1997, respectively. With respect to the 1996
warrants, 150,000 vest upon the earlier of two years or the filing of a
registration statement in connection with a public offering. The remaining
129,000 warrants were exercisable immediately upon issuance. The 1995 and 1997
warrants were also immediately exercisable upon issuance. The fair market
value of these warrants when issued were not considered to be material.
During September 1997, several former employees accepted common stock
warrants in lieu of salaries owed to them. Accordingly, deferred salaries of
$1,184,856 were converted into warrants to purchase 1,077,142 shares of common
stock with an exercise price of $0.01 per share. These warrants were
immediately exercisable upon issuance and have a three-year term.
4. INCOME TAXES
Significant components of the Company's deferred tax assets and liabilities
are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1995 1996
--------- -----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforward.................. $ 468,000 $ 1,422,000
Start-up costs................................... 95,000 813,000
Other deferred tax assets........................ 39,000 373,000
Valuation allowance.............................. (538,000) (2,528,000)
--------- -----------
Total deferred tax assets...................... 64,000 80,000
Deferred tax liabilities:
Depreciation of furniture and equipment.......... (4,000) (24,000)
Amortization of other long-term assets........... (60,000) (56,000)
--------- -----------
Total deferred tax liabilities................. (64,000) (80,000)
--------- -----------
Net deferred taxes............................. $ -- $ --
========= ===========
</TABLE>
The Company's net operating loss carryforward is subject to limitations and
begins expiring in 2010. The Company has determined that its deferred tax
assets do not satisfy the recognition criteria set forth under the provisions
of SFAS 109, "Accounting for Income Taxes." Accordingly, a valuation allowance
has been recorded against the applicable deferred tax assets. Therefore, no
tax benefits have been recorded in the accompanying consolidated statements of
operations. The valuation allowance increased by $538,000 and $1,990,000
during 1995 and 1996, respectively.
F-13
<PAGE>
GLOBALTEL RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE NINE-MONTH PERIODS
ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
The difference between the statutory tax rate of approximately 34% and the
tax benefit of zero recorded by the Company is primarily due to the Company's
full valuation allowance against its net deferred tax assets.
5. BRIDGE LOANS
To fund operations and capital expenditures of the Company and, in 1995, to
assist in the purchase of Ratsten (see Note 7), the Company obtained bridge
loans from certain investors, some of whom are shareholders or management of
the Company. All bridge loans bear interest at 10% annually and in certain
cases increase to 12% if the loans are past due. In addition, stock warrants
were granted to certain of these investors as discussed in Note 3. Bridge
loans outstanding were:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- SEPTEMBER 30,
1995 1996 1997
-------- ---------- -------------
<S> <C> <C> <C>
Payable to shareholders and management:
Maturing December 1995 through March 1996,
due upon demand after maturity date....... $210,000 $ 210,000 $ 226,000
Maturing February 1997 through May 1998,
payable in full or convertible at the
option of the holder to common stock upon
closing of additional equity financing
over $25 million, at the price per share
paid by investors in the equity financing. -- 1,105,000 800,000
Payable to other related parties:
Principle and accrued interest converted to
493,467 shares of common stock in
September 1997............................ -- 500,000 --
Maturing December 1999, convertible in
whole or in part at the option of the
holder to common stock at a conversion
price equal to the ratio of annualized
revenues over common shares outstanding at
the time of conversion.................... -- -- 2,000,000
Payable to third parties:
Maturing December 1995 through March 1996,
due upon demand after maturity date....... 55,000 55,000 14,000
Due upon demand............................ -- 150,000 --
Maturing February 1997 through May 1998,
payable in full or convertible at the
option of the holder to common stock upon
closing of additional equity financing
over $25 million, at the price per share
paid by investors in the equity financing. -- 1,202,500 45,000
Maturing June 1998, convertible in whole or
in part at the option of the holder to
common stock upon closing of additional
equity financing over $15 million, at the
price per share paid by investors in the
equity financing. The conversion price to
common stock is the ratio of 1.50 times
annualized revenues over the number of
common shares outstanding................. -- 900,000 1,070,000
-------- ---------- ----------
Total bridge loans........................... 265,000 4,122,500 4,155,000
Less current portion (see Note 6)............ 265,000 1,840,000 2,035,000
-------- ---------- ----------
Long-term bridge loans (see Note 9).......... $ -- $2,282,500 $2,120,000
======== ========== ==========
</TABLE>
F-14
<PAGE>
GLOBALTEL RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE NINE-MONTH PERIODS
ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
In conjunction with the conversion of certain bridge loans to common stock
mentioned in Note 3, capitalized debt issue costs of $64,537 were written-off.
Debt issue costs in the amount of $28,285 related to bridge loans that were
converted at the holders' discretion according to the terms of the bridge loan
agreements were charged to equity. Debt issue costs of $36,252 related to
bridge loans that were extinguished were charged to interest expense in the
Company's consolidated statement of operations for the period ended September
30, 1997.
6. SECURITIES SUBJECT TO RESCISSION
The Company believes that certain of its outstanding shares of common stock
("Rescission Stock") and bridge loans and warrants to purchase shares of
common stock (collectively, the "Rescission Securities") may have been issued
in violation of certain state securities laws. As a result, conditioned on
completion of the proposed IPO, the Company plans to offer to rescind such
prior sales by offering to repurchase the Rescission Securities (the
"Rescission Offer") at the price originally paid plus interest at the annual
statutory rate of eight percent from the date of purchase to the expiration of
the Rescission Offer. As such, the shares of common stock and bridge loans
making up the Rescission Securities have been classified as common stock
subject to rescission and current liabilities, respectively, in the
accompanying consolidated financial statements. As of September 30, 1997,
there were 1,932,487 shares of common stock, $926,000 in aggregate principal
amounts of bridge loans and warrants to purchase an aggregate of approximately
335,000 shares of common stock identified for possible rescission. If all
holders of Rescission Securities as of September 30, 1997 were to accept the
Rescission Offer, the Company would be required to pay approximately $3.1
million including statutory accrued interest.
The Company estimates that the total amount of its obligation for the
statutory accrued interest with respect to Rescission Stock could aggregate
approximately $234,000 as of September 30, 1997, if all offerees holding
Rescission Stock were to accept the Rescission Offer. Because of the
contingent nature of this liability and because the ultimate amount to be
paid, if any, is not presently known, the potential interest liability with
respect to Rescission Stock has not been accrued in the accompanying
consolidated financial statements, but will be recorded as an expense and a
liability of the Company if and when the shares of common stock subject to
rescission are tendered pursuant to the Rescission Offer. The statutory rate
of interest with respect to the bridge loans covered by the Rescission Offer
is less than the interest that has already been accrued by the Company under
the original terms of the bridge loans.
The Company plans to make the Rescission Offer if it is able to complete the
proposed IPO. A portion of the proceeds of the IPO will be used to fund
payments pursuant to the repurchase of Rescission Offer, if any are required.
However, there can be no assurance that the proposed IPO will be successfully
completed. The consolidated financial statements do not include any
adjustments that might result from the outcome of the Rescission Offer.
Furthermore, notwithstanding the Rescission Offer, there can be no assurance
that the Company will not be subject to penalties or fines relating to past
issuances or that other holders of securities from the Company will not assert
or prevail in claims against the Company for rescission or damages under state
or federal securities laws.
F-15
<PAGE>
GLOBALTEL RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE NINE-MONTH PERIODS
ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
7. ACQUISITIONS
Ratsten International Telecommunications, Inc.
On October 18, 1995, GFP purchased 50% of the outstanding common stock of
Ratsten for $100,000 and the other 50% for 543,956 shares of GFP's common
stock in a business acquisition accounted for using the purchase method of
accounting, the purpose of which was to acquire certain licensing rights held
by Ratsten. Prior to the Ratsten acquisition, GFP had issued 540,000 shares of
common stock to its founders. In total, GFP's common stock issued was valued
at $91,000. Of the total purchase price, including the obligation to issue
shares described below, $177,368 was assigned to the license agreement, with
the remainder assigned to certain assets acquired and liabilities assumed. No
goodwill was recognized from the purchase. The sellers of Ratsten made certain
warranties to the Company, primarily that the license agreement was valid and
fully transferable to GFP after the purchase.
The acquisition agreement included an obligation for the issuance of an
additional 300,000 shares of the Company's common stock to the sellers of one-
half of Ratsten, contingent upon the Company obtaining additional financing
(other than bridge funding) in excess of a certain amount. This contingent
obligation was valued at $9,000 as of the date of the agreement. During the
nine-month period ended September 30, 1997, 150,000 of these shares had been
issued.
GFP
On December 29, 1995, pursuant to a share exchange agreement and statutory
share exchange, the Company issued 1,083,956 of voting common stock on a one-
for-one basis for all of GFP's issued and outstanding common stock. GFP's only
significant asset was the license agreement which had been acquired from
Ratsten in anticipation of the share exchange agreement. GFP did not have any
material operations during the period from its inception through December 29,
1995.
8. COMMITMENTS AND CONTINGENCIES
The Company has entered into noncancelable operating lease agreements
involving office space and equipment, certain telecommunications equipment and
licensing agreements with lease terms extending through 2006. Minimum lease
payments are subject to change as provided for in the lease agreements. The
Company's future minimum noncancelable lease payments as of December 31, 1996,
are as follows:
<TABLE>
<CAPTION>
YEARS ENDING
DECEMBER 31,
------------
<S> <C>
1997........................................................ $ 622,521
1998........................................................ 436,884
1999........................................................ 272,989
2000........................................................ 249,573
2001........................................................ 41,100
Thereafter.................................................. 188,375
----------
$1,811,442
==========
</TABLE>
Lease expense for the years ended December 31, 1995 and 1996 and for the
nine-month periods ended September 30, 1996 and 1997 was $125,413, $442,292,
$336,142 and $575,935, respectively.
F-16
<PAGE>
GLOBALTEL RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE NINE-MONTH PERIODS
ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
9. SUBSEQUENT EVENTS (AUDITED)
Initial Public Offering and Reverse Stock Split
On November 10, 1997, the Board approved the filing of a registration
statement with the Securities and Exchange Commission covering the proposed
sale by the Company of up to $25 million of its common stock to the public.
The Board also approved $200,000 in bonuses to be paid to certain individuals
upon successful completion of the IPO. In addition, the Board approved a
reverse common stock split and increased the authorized number of common
shares from 20 million to 50 million. The ratio of the reverse common stock
split will be determined at a later date, but is not to exceed 1:7.
Bridge Loans
In March 1997, the Company obtained additional bridge financing of $651,708,
$451,708 of which was converted to common stock as discussed in Note 3, and
the remainder matures June 1998. In connection with this funding, the Company
initially granted 130,342 warrants to purchase shares of the Company's common
stock at an exercise price of $1.10 per share. In April 1997, a note for
$2,000,000 was issued which matures December 31, 1999. Associated with this
note, the Company granted warrants to purchase 400,000 shares of the Company's
common stock at an exercise price of $1.10. In October 1997, additional bridge
loans of $550,000 were issued which mature in March 1999. Warrants granted in
association with this round of financing totaled 55,000 shares at an exercise
price of $1.10. The bridge loans are convertible at the option of the holder
at any time prior to maturity at the per share common stock price of the most
recent institutional financing or, if no such financing has occurred, at the
fair value per share common stock price in effect as of the date of
conversion. All bridge loans bear interest at an annual rate of ten percent.
The warrants granted in association with these bridge loan issuances were
valued at approximately $59,000 and were recorded as debt issue costs.
In November 1997, the Company obtained additional bridge financing of
$325,000 which was repaid in full from the proceeds of the bridge loans issued
in December 1997. Following the closing of the IPO, each original holder of
these notes will receive shares of common stock in an amount equal to one half
of the initial principal amount of the note divided by the IPO price per
share.
During November and December 1997, the Company obtained additional bridge
note financing of $2,981,500. These notes bear interest at an annual rate of
ten percent and are due in full at the earlier of the closing of the IPO or
January 1999. In addition, following the closing of the IPO, each holder of
these notes will receive shares of common stock equal to the initial principal
amount of the note divided by the IPO price per share. If the IPO has not
closed by July 1, 1998, these bridge note holders will receive warrants to
purchase shares of common stock equal to the initial principal amount of the
note divided by $1.10. The warrants associated with these bridge loans will
have an exercise price of $1.10 per share. Closing costs incurred associated
with these notes included approximately $280,000 in cash, 20,000 shares of
common stock and warrants to purchase 138,000 shares of common stock at strike
prices of either 120% or 140% of the IPO price per share.
As of December 18, 1997, $521,000 of bridge loans outstanding at September
30, 1997 were converted to 473,636 shares of common stock at $1.10 per share.
In addition, $500,000 of bridge loans currently due at
F-17
<PAGE>
GLOBALTEL RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE NINE-MONTH PERIODS
ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
September 30, 1997 were extended to January of 1999. Other terms (such as
interest rates and conversion features) were not effected. Of the $521,000 of
bridge loans converted to common stock, all but $25,000 is subject to
rescission and are classified as current liabilities in the accompanying
consolidated September 30, 1997 balance sheet.
Common Stock Warrants and Options
On November 10, 1997, the Board amended certain common stock warrant
agreements whereby certain warrant holders could exercise their warrants at a
price of $0.70 per share in a cashless exercise transaction rather than at the
original exercise price of $1.10 per share, concurrent with the Company's
proposed IPO. As of December 18, 1997, holders of warrants representing
1,323,802 shares of common stock had indicated their intention to exercise
their warrants under these amended terms. As a result, the Company recognized
approximately $280,000 of additional debt issue costs and $250,000 of
additional interest expense.
As of December 18, 1997, the Company had granted warrants to purchase
154,149 shares of common stock at an exercise price of $0.01 per share to
certain consultants and advisors of the Company, and recognized consulting
expense of approximately $170,000. The Company had also granted warrants to
purchase 242,000 shares of common stock at an exercise price of $1.10 per
share to certain existing bridge loan holders and advisors to the Company. In
addition, the Company granted 82,000 stock options with an exercise price of
$1.10 per share, 40,000 of which vested immediately and the remainder vest
ratably over a three-year period.
Issuance of Common Stock
As of December 18, 1997, the Board had issued 70,000 shares of common stock
to certain advisory board members in recognition of past services rendered to
the Company. The Company recognized consulting expense of approximately
$77,000 in connection with these stock issuance.
Employment Agreements
Effective upon the closing of the Company's proposed IPO, the Company will
enter into employment agreements with five of its executive officers. In
conjunction with these agreements, the officers will be granted options to
purchase a total of 1.4 million shares of common stock at the IPO price per
share. These options will expire in ten years and will vest upon the earlier
of three years or upon the attainment of certain performance goals to be
established by the Board.
F-18
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
No dealer, sales representative or other person has been authorized to give
any information or to make any representation other than those contained in
this Prospectus and, if given or made, such information or representation must
not be relied upon as having been authorized by the Company or any
Underwriter. Neither the delivery of this Prospectus nor any sale made
hereunder shall, under any circumstances, create any implication that there
has been no change in the affairs of the Company since the date hereof or that
the information contained herein is correct as of any date subsequent to the
date hereof. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any securities offered hereby by anyone in any
jurisdiction in which such offer or solicitation is not authorized or in which
the person making such offer or solicitation is not qualified to do so or to
anyone to whom it is unlawful to make such offer or solicitation.
--------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
page
<S> <C>
Summary................................................................... 3
The Company............................................................... 3
The Offering.............................................................. 4
Summary Consolidated Financial Data....................................... 5
Risk Factors.............................................................. 6
Use of Proceeds........................................................... 19
Dividend Policy........................................................... 19
Dilution.................................................................. 20
Capitalization............................................................ 21
Selected Consolidated Financial Data...................................... 22
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 23
Business.................................................................. 32
Management................................................................ 50
Certain Transactions...................................................... 57
Principal Shareholders.................................................... 63
Description of Securities................................................. 66
Rescission Offer.......................................................... 69
Shares Eligible for Future Sale........................................... 70
Underwriting.............................................................. 72
Legal Matters............................................................. 74
Experts................................................................... 74
Additional Information.................................................... 74
Glossary of Terms......................................................... 75
Index to Consolidated Financial Statements................................ F-1
</TABLE>
----------------
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SHARES
[LOGO OF GLOBALTEL]
COMMON STOCK
--------------------
PROSPECTUS
--------------------
Cruttenden Roth
I N C O R P O R A T E D
, 1997
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Sections 23B.08.500 through 23B.08.600 of the Washington Business
Corporation Act (the "WBCA") authorize a corporation to indemnify its
directors, officers, employees and agents against certain liabilities they may
incur in such capacities, including liabilities under the Securities Act. The
Company's Bylaws (Exhibit 3.2 hereto) and indemnification agreements entered
into between the Company and its directors implement this indemnification to
the fullest extent permitted by law, including under circumstances in which
indemnification is otherwise discretionary. Section 23B.08.320 of the WBCA
authorizes a corporation to limit or eliminate its directors' liability to the
corporation or its shareholders for monetary damages for breaches of fiduciary
duties, other than for (1) acts or omissions that involve intentional
misconduct or a knowing violation of law, (2) improper declaration of
dividends, or (3) transactions from which a director derives an improper
personal benefit. The Company's Articles of Incorporation (Exhibit 3.1 hereto)
contain provisions limiting the liability of directors to the Company and to
its shareholders to the fullest extent permitted by Washington law.
The above discussion of the WBCA and the Company's Bylaws and Articles of
Incorporation is not intended to be exhaustive and is qualified in its
entirety by such statute, the Bylaws and the Articles of Incorporation,
respectively.
The Company has obtained officers' and directors' liability insurance for
its directors and officers. In addition, the Underwriting Agreement (Exhibit
1.1 hereto) contains provisions for the indemnification of, among others,
controlling persons, directors and officers of the Company for certain
liabilities.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the registrant in
connection with the sale of the Common Stock being registered. All amounts are
estimated except the SEC Registration Fee, the NASD Filing Fee and the
American Stock Exchange Application Fee.
<TABLE>
<CAPTION>
AMOUNT(1)
---------
<S> <C>
SEC Registration Fee.................................................. $6,273
AMEX Listing Fee...................................................... *
NASD Filing Fee....................................................... 2,570
Blue Sky Qualification Fees and Expenses.............................. *
Accounting Fees and Expenses.......................................... *
Legal Fees and Expenses............................................... *
Transfer Agent and Registrar Fees..................................... *
Printing and Engraving................................................ *
Miscellaneous......................................................... *
------
Total............................................................. $ *
======
</TABLE>
- --------
* To be completed by amendment.
(1) All amounts have been estimated except the SEC, AMEX and NASD fees. All of
the above expenses will be payable by the Company.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
The Company has made the following sales of its securities for the
consideration indicated during the past three years, which sales were not
registered under the Securities Act. Except as indicated below, none of
II-1
<PAGE>
such sales involved an underwriter. All shares of Common Stock issued in
connection with the 1995 recapitalization described below were issued in
reliance on the exemption from registration set forth at Section 3(a)(9) of
the Securities Act as an exchange by an issuer with its existing security
holders where no commission or other remuneration is paid or given for
soliciting such exchange. All warrants or options issued to employees,
directors or consultants of the Company, and all shares of Common Stock issued
in connection with the conversion or exercise of warrants or options held by
employees, directors or consultants, were issued in reliance on the exemption
from registration provided by Rule 701, as transactions pursuant to a
compensatory benefit plan or a written contract relating to compensation, or
the exemption from registration provided by Section 4(2) of the Securities Act
as transactions not involving a public offering. All sales of Common Stock and
issuances of convertible promissory notes for cash consideration were made in
reliance on the exemption from registration provided by Rule 506 under the
Securities Act. All other securities described below were issued in reliance
on the exemptions from registration provided by Section 4(2) of the Securities
Act.
Initial Capitalization. On December 30, 1994 the Company issued 1,490,000
shares of a class of common stock to seven individuals in exchange for
services rendered and to be rendered. In the period from December 1994 to
September 1995 the Company sold 1,657,091 shares of a class of common stock to
19 individuals and entities at $0.53 per share. In the period from September
1995 to December 1995 the Company sold an additional 1,973,486 shares of a
class of common stock to 25 individuals and entities at $1.10 per share.
Purchasers of Common Stock for $1.10 per share also received warrants to
purchase an aggregate of 110,000 shares of common stock at an exercise price
of $1.10 per share.
Recapitalization. In December 1995 the Company issued 3,925,209 shares of
Common Stock to all of its shareholders in exchange for all then-outstanding
common equity securities of the Company.
GFP Acquisition. On December 29, 1995 the Company issued 1,083,956 shares of
voting common stock to seven persons or entities in exchange for all
outstanding equity securities of GFP Group, Inc. and assumed notes of GFP
Group Inc. payable to six individuals in the aggregate principal amount of
$265,000. At the same time the Company issued warrants to purchase for nominal
consideration 107,507 shares of Common Stock to the holders of the assumed
notes.
Repurchase of Common Stock. In December 1995, the Company issued promissory
notes in the aggregate principal amount of $1,244,153 to repurchase 1,131,048
shares of a class of the Company's common stock from six individuals. These
notes were repaid in full during 1996.
Convertible Promissory Notes. From December 1995 to October 1997, the
Company issued promissory notes (the "Financing Notes") in the approximate
aggregate principal amount of $7,324,208 to 37 individuals and entities. In
connection with the issuance of all but eight of the Financing Notes, the
Company also issued to the holders of the notes warrants to purchase shares of
Common Stock. Financing Notes are convertible into shares of Common Stock at a
price of $1.10 per share.
Common Stock Issuance. In early 1996, the Company issued an aggregate of
117,498 shares of Common Stock to one person and one entity in exchange for
services rendered and equipment provided to the Company.
Series A Convertible Preferred Stock. In May and July 1997, the Company sold
for cash 275,000 shares of Series A Convertible Preferred Stock to three non-
U.S. persons for an aggregate offering price of $1.1 million.
Grants of Warrants to Strategic Partners. During 1997 the Company granted
warrants to purchase an aggregate of 20,000 shares of Common Stock, subject to
adjustment, at an exercise price of $1.10 per share to two strategic partners.
Officer Severance. In September 1997, the Company issued 271,212 shares of
Common Stock to a former officer of the Company in satisfaction of a number of
obligations.
II-2
<PAGE>
Deferred Compensation Warrants. In September 1997 the Company issued to nine
employees or consultants warrants to purchase 1,077,142 shares of Common Stock
at an exercise price of $0.01 per share in exchange for the rights of such
employees or consultants to be paid deferred compensation.
Conversions of Promissory Notes. During September 1997 the Company issued
2,330,544 shares of Common Stock in connection with conversions of Financing
Notes in the aggregate principal amount of $2,314,208 held by 25 holders.
Conversions of Trade Payables. During November 1997 the Company issued
170,642 shares of Common Stock in satisfaction of trade payables in the amount
of $187,706.
Bridge to Bridge Notes. During November 1997 the Company issued promissory
notes (the "Bridge to Bridge Notes") in the aggregate principal amount of
$325,000 to three accredited individuals. These notes were repaid in full in
December 1997.
Full Coverage Bridge Notes. During November and December 1997 the Company
issued promissory notes (the "Full Coverage Bridge Notes") in the aggregate
principal amount of $2,981,500 to 44 accredited investors. These notes will be
repaid out of the Offering proceeds.
II-3
<PAGE>
ITEM 27. EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER DESCRIPTION OF DOCUMENT NUMBER
------- ----------------------- ----------
<C> <S> <C>
*1.1 Form of Underwriting Agreement
3.1 Articles of Incorporation, as amended
3.2 Bylaws
*4.1 Specimen Common Stock Certificate
4.2 Form of Stock Purchase Warrant
4.3 Form of Stock Purchase Warrant
4.4 Form of Stock Purchase Warrant
4.5 Form of Stock Purchase Warrant
4.6 Form of Promissory Note
4.7 Form of Promissory Note
4.8 Form of Promissory Note
4.9 Form of Promissory Note
*5.1 Opinion of Heller Ehrman White & McAuliffe
10.1 GlobalTel Resources, Inc. 1996 Stock Option Plan
10.2 Form of Incentive Stock Option Agreement
10.3 Form of Nonqualified Stock Option Agreement
10.4 Form of Director Nonqualified Stock Option Agreement
10.5 Form of Indemnification Agreement with officers and
directors
10.6 Form of Employment Agreement
10.7 Office lease dated as of June 10, 1996 by and between the
Company, as Lessee, and One Wilshire Arcade Imperial,
Ltd., as Lessor, together with First Amendment thereto
dated June 24, 1997.
+10.8 Carrier Agreement dated as of August 20, 1996 by and
between Primecall, Inc. and Cable & Wireless, Inc.
+10.9 Reciprocal Telecommunications Agreement dated as of
December 3, 1996 by and between STAR Vending, Inc. and
Primecall, Inc.
+10.10 Switch Port Lease and Service Agreement dated as of
August 7, 1996 by and between Primecall, Inc. and World
Touch, Inc.
+10.11 Trilogy Telemanagement Service Agreement dated as of
April 2, 1997 by and between Trilogy Telemanagement,
L.L.C. and Primecall, Inc.
+10.12 Agreement for Managed Data Network Services dated April
28, 1995 (the "Scitor ITS Agreement") by and between
NetStar International Telecommunications, Inc.
("NetStar") and Scitor International Telecommunications
Services, Inc. ("Scitor ITS"), together with Amendment
No. 1 to the Scitor ITS Agreement dated February 21, 1996
between NetStar, Scitor ITS and GFP Group, Inc.
+10.13 Exclusive Services and Marketing Agreement dated as of
April 15, 1997 between the Company and International
Business Network for World Commerce & Industry, Ltd.
*10.14 Master Task Agreement dated as of September 19, 1997 by
and between GFP Group, Inc. and Novell, Inc.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER DESCRIPTION OF DOCUMENT NUMBER
------- ----------------------- ----------
<C> <S> <C>
*10.15 Novell Business Internet Services Affiliate Service
Platform Statement of Work to Agreement No. 97-GlobalTel-
001 dated October 21, 1997 between Novell, Inc. and GFP
Group, Inc.
10.16 Share Exchange Agreement dated as of December 29, 1995 by
and among the Company and certain holders of shares of
capital stock of GFP Group, Inc.
10.17 GlobalTel Resources, Inc. 1997 Employee Stock Purchase
Plan
*11.1 Statement of computation of net income per share
23.1 Consent of Heller Ehrman White & McAuliffe (contained in
Exhibit 5.1)
23.2 Consent of Arthur Andersen LLP, Independent Public
Accountants
24.1 Power of Attorney (Page II-5)
27.1 Financial Data Schedule
</TABLE>
- --------
+ Portions of this exhibit have been omitted pursuant to an application for
an order granting confidential treatment. The omitted portions have been
separately filed with the Commission.
* To be filed by amendment.
II-5
<PAGE>
ITEM 28. UNDERTAKINGS
The small business issuer will provide to the underwriter at the closing
specified in the underwriting agreement, certificates in such denominations
and registered in such names as required by the underwriter to permit prompt
delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the small business issuer pursuant to the foregoing provisions, or
otherwise, the small business issuer has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the small business issuer of expenses incurred or
paid by a director, officer or controlling person of the small business issuer
in the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the securities
being registered, the small business issuer will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question of whether such indemnification
by it is against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.
The small business issuer will, for determining any liability under the
Securities Act of 1933, treat the information omitted from the form of
prospectus filed as part of this registration statement in reliance upon
Rule 430A and contained in a form of prospectus filed by the small business
issuer pursuant to Rule 424(b)(1), or (4), or 497(h) under the Securities Act
of 1933 as part of this registration statement as of the time the Commission
declared it effective.
The small business issuer will, for determining any liability under the
Securities Act of 1933, treat each post-effective amendment that contains a
form of prospectus as a new registration statement for the securities offered
in the registration statement, and that offering of the securities at that
time as the initial bona fide offering.
II-6
<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 FOR FILING ON FORM SB-2 AND AUTHORIZED THIS
REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, IN THE
CITY OF SEATTLE, STATE OF WASHINGTON ON DECEMBER 22, 1997.
GLOBALTEL RESOURCES, INC.
/s/ Ronald P. Erickson
By: _________________________________
Ronald P. Erickson
Chairman of the Board, President
and Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Ronald P.
Erickson and Eric D. Orse his true and lawful attorneys-in-fact and agents,
each acting alone, with full power of substitution and resubstitution, for him
and in his name, place and stead, in any and all capacities, to sign any or all
amendments (including post-effective amendments) to the Registration Statement,
and to sign any registration statement for the same offering covered by this
Registration Statement that is to be effective upon filing pursuant to Rule
462(b) under the Securities Act of 1933, as amended, and all post-effective
amendments thereto, and to file the same, with all exhibits thereto, and all
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said attorneys-in-
fact and agents, each acting alone, or his or her substitute or substitutes,
may lawfully do or cause to be done by virtue hereof.
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE OFFICE DATE
--------- ------ ----
<S> <C> <C>
/s/ Ronald P. Erickson Chairman of the Board, December 22, 1997
____________________________________ President and Chief
Ronald P. Erickson Executive Officer
(Principal Executive
Officer)
/s/ Eric D. Orse Director of Finance and December 22, 1997
____________________________________ Treasurer
Eric D. Orse (Principal Financial and
Accounting Officer)
/s/ Ronald B. Fox Senior Vice President and December 22, 1997
____________________________________ Director
Ronald B. Fox
/s/ Randall J. Ottinger Director December 22, 1997
____________________________________
Randall J. Ottinger
/s/ Bruce L. Crockett Director December 22, 1997
____________________________________
Bruce L. Crockett
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE OFFICE DATE
--------- ------ ----
<S> <C> <C>
/s/ Frank E. Krentzman Director December 22, 1997
____________________________________
Frank E. Krentzman
/s/ Michael S. Brownfield Director December 22, 1997
____________________________________
Michael S. Brownfield
/s/ Paul H.F.M. van de Plas Director December 22, 1997
____________________________________
Paul H.F.M. van de Plas
/s/ Steven S.V. Wong Director December 22, 1997
____________________________________
Steven S.V. Wong
/s/ Lyman C. Hamilton Director December 22, 1997
____________________________________
Lyman C. Hamilton
</TABLE>
II-8
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER DESCRIPTION OF DOCUMENT NUMBER
------- ----------------------- ----------
<C> <S> <C>
*1.1 Form of Underwriting Agreement
3.1 Articles of Incorporation, as amended
3.2 Bylaws
*4.1 Specimen Common Stock Certificate
4.2 Form of Stock Purchase Warrant
4.3 Form of Stock Purchase Warrant
4.4 Form of Stock Purchase Warrant
4.5 Form of Stock Purchase Warrant
4.6 Form of Promissory Note
4.7 Form of Promissory Note
4.8 Form of Promissory Note
4.9 Form of Promissory Note
*5.1 Opinion of Heller Ehrman White & McAuliffe
10.1 GlobalTel Resources, Inc. 1996 Stock Option Plan
10.2 Form of Incentive Stock Option Agreement
10.3 Form of Nonqualified Stock Option Agreement
10.4 Form of Director Nonqualified Stock Option Agreement
10.5 Form of Indemnification Agreement with officers and
directors
10.6 Form of Employment Agreement
10.7 Office lease dated as of June 10, 1996 by and between the
Company, as Lessee, and One Wilshire Arcade Imperial,
Ltd., as Lessor, together with First Amendment thereto
dated June 24, 1997.
+10.8 Carrier Agreement dated as of August 20, 1996 by and
between Primecall, Inc. and Cable & Wireless, Inc.
+10.9 Reciprocal Telecommunications Agreement dated as of
December 3, 1996 by and between STAR Vending, Inc. and
Primecall, Inc.
+10.10 Switch Port Lease and Service Agreement dated as of
August 7, 1996 by and between Primecall, Inc. and World
Touch, Inc.
+10.11 Trilogy Telemanagement Service Agreement dated as of
April 2, 1997 by and between Trilogy Telemanagement,
L.L.C. and Primecall, Inc.
+10.12 Agreement for Managed Data Network Services dated April
28, 1995 (the "Scitor ITS Agreement") by and between
NetStar International Telecommunications, Inc.
("NetStar") and Scitor International Telecommunications
Services, Inc. ("Scitor ITS"), together with Amendment
No. 1 to the Scitor ITS Agreement dated February 21, 1996
between NetStar, Scitor ITS and GFP Group, Inc.
+10.13 Exclusive Services and Marketing Agreement dated as of
April 15, 1997 between the Company and International
Business Network for World Commerce & Industry, Ltd.
*10.14 Master Task Agreement dated as of September 19, 1997 by
and between GFP Group, Inc. and Novell, Inc.
*10.15 Novell Business Internet Services Affiliate Service
Platform Statement of Work to Agreement No. 97-GlobalTel-
001 dated October 21, 1997 between Novell, Inc. and GFP,
Inc.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER DESCRIPTION OF DOCUMENT NUMBER
------- ----------------------- ----------
<C> <S> <C>
10.16 Share Exchange Agreement dated as of December 29, 1995 by
and among the Company and certain holders of shares of
capital stock of GFP Group, Inc.
10.17 GlobalTel Resources, Inc. 1997 Employee Stock Purchase
Plan
*11.1 Statement of computation of net income per share
23.1 Consent of Heller Ehrman White & McAuliffe (contained in
Exhibit 5.1)
23.2 Consent of Arthur Andersen LLP, Independent Public
Accountants
24.1 Power of Attorney (Page II-5)
27.1 Financial Data Schedule
</TABLE>
- --------
+ Portions of this exhibit have been omitted pursuant to an application for
an order granting confidential treatment. The omitted portions have been
separately filed with the Commission.
* To be filed by amendment.
<PAGE>
EXHIBIT 3.1
STATE OF WASHINGTON
[SEAL APPEARS HERE]
SECRETARY OF STATE
I, RALPH MURNO, Secretary of State of the State of Washington and custodian of
its seal, hereby certify this certificate that the attached is a true and
correct copy of
ARTICLES OF INCORPORATION
of
GLOBALTEL RESOURCES, INC.
as filed in this office on November 17, 1994
[SEAL APPEARS HERE] Date: March 7, 1997
Given under my hand and the Seal of the State
of Washington at Olympia, the State Capital
/s/ Ralph Munro
---------------------------------------------
Ralph Munro, Secretary of State
E. KELLY
<PAGE>
STATE OF WASHINGTON
________________________________________________________________________________
[SEAL APPEARS HERE]
------------------------------------------------
SECRETARY of STATE
------------------------------------------------
I, RALPH MUNRO, Secretary of State of the State of Washington and custodian of
its seal, hereby issue this
CERTIFICATE OF INCORPORATION
to
GLOBALTEL RESOURCES, INC.
a Washington Profit corporation. Articles of incorporation were filed for record
in this office on the date indicated below:
U.B.I. Number 601 586 302 Date: November 17, 1994
Given under my hand and the seal of the State of
Washington, at Olympia, the State Capitol
/s/ Ralph Munro
------------------------------------------------
Ralph Munro, Secretary of State
<PAGE>
ARTICLES OF INCORPORATION
OF
GLOBALTEL RESOURCES, INC.
ARTICLE I.
----------
NAME
The name of this corporation is GlobalTel Resources, Inc.
ARTICLE II.
-----------
PURPOSES
This corporation is organized to engage in any business, trade or activity
which may be conducted lawfully by a corporation organized under the Washington
Business Corporation Act.
ARTICLE III.
------------
SHARES
This corporation is authorized to issue 10,000,000 shares of common stock
and each share shall have a par value of $.01. Common stock shall consist of a
class of 2,750,000 shares denominated Class A stock, 2,250,000 shares
denominated Class B stock, and 5,000,000 shares denominated Class C stock, which
classes shall be subject to the following:
Class A Stock: Class A stock may be issued from time to time in one or more
-------------
series in any manner permitted by law and the provisions of these Articles of
Incorporation of the corporation, as determined from time to time by the Board
of Directors and stated in the resolution or resolutions providing for the
issuance thereof, prior to the issuance of any shares thereof. The Board of
Directors shall have the authority to fix and determine and to amend, subject to
provisions hereof, the designation, number, preferences, limitations, and
relative rights of the shares of any series that is wholly unissued or to be
established. Unless otherwise specifically provided in the resolution
establishing any series, the Board of Directors shall further have the
authority, after the issuance of shares of a series whose number it has
designated, to amend the resolution establishing such series to decrease the
number of shares of that series, but not below the number of shares of such
series then outstanding. The holders of shares of Class A stock shall be
entitled to receive dividends, out of the funds of the corporation legally
available therefor, at the rate and at the time or times, as may be provided by
the Board of Directors in designating a particular series of Class A stock.
-1-
<PAGE>
Class B Stock: Class B stock may be issued from time to time in one or more
-------------
series in any manner permitted by law and the provisions of these Articles of
Incorporation of the corporation, as determined from time to time by the Board
of Directors and stated in the resolution or resolutions providing for the
issuance thereof, prior to the issuance of any shares thereof. The Board of
Directors shall have the authority to fix and determine and to amend, subject to
provisions hereof, the designation, number, preferences, limitations, and
relative rights of the shares of any series that is wholly unissued or to be
established. Unless otherwise specifically provided in the resolution
establishing any series, the Board of Directors shall further have the
authority, after the issuance of shares of a series whose number it has
designated, to amend the resolution establishing such series to decrease the
number of shares of that series, but not below the number of shares of such
series then outstanding. The holders of shares of Class B stock shall be
entitled to receive dividends, out of the funds of the corporation legally
available therefor, at the rate and at the time or times, as may be provided by
the Board of Directors in designating a particular series of Class B stock.
Class C Stock: Class C stock may be issued from time to time in one or
-------------
more series in any manner permitted by law and the provisions of these Articles
of Incorporation of the corporation, as determined from time to time by the
Board of Directors and stated in the resolution or resolutions providing for the
issuance thereof, prior to the issuance of any shares thereof. The Board of
Directors shall have the authority to fix and determine and to amend, subject to
provisions hereof, the designation, number, preferences, limitations, and
relative rights of the shares of any series that is wholly unissued or to be
established. Unless otherwise specifically provided in the resolution
establishing any series, the Board of Directors shall further have the
authority, after the issuance of shares of a series whose number it has
designated, to amend the resolution establishing such series to decrease the
number of shares of that series, but not below the number of shares of such
series then outstanding. The holders of shares of Class C stock shall be
entitled to receive dividends, out of the funds of the corporation legally
available therefor, at the rate and at the time or times, as may be provided by
the Board of Directors in designating a particular series of Class C stock.
Common stock shall have unlimited voting rights, provided that the holders
of Class A stock shall have the right to elect one less than a majority of the
members of the Board of Directors, and the holders of Class B stock shall have
the right elect one less than a majority of the members of the Board of
Directors. The holders of Class A stock, Class B stock, and Class C stock shall
have the right in common to elect one (1) member of the Board of Directors,
unless otherwise provided by the Board of Directors in the manner set forth
above in this Article III.
-2-
<PAGE>
ARTICLE IV.
-----------
RIGHTS OF SHAREHOLDERS TO ACQUIRE ADDITIONAL SHARES OF STOCK
Shareholders shall have no preemptive rights to acquire additional shares
of this corporation except as may be provided in the Bylaws of the corporation
or in a Shareholders' Agreement between the corporation and its shareholders.
ARTICLE IV.
-----------
NO CUMULATIVE VOTING
At each election for directors, every shareholder entitled to vote at such
election has the right to vote in person or by proxy the number of shares in a
class held by such shareholder for as may persons as there are directors to be
elected by the class of shares held by that Shareholder, subject to the
provisions of the Shareholders' Agreement. No cumulative voting for directors
shall be permitted.
ARTICLE V.
----------
BYLAWS
The Board of Directors shall have the power to adopt, amend or repeal the
Bylaws or adopt new Bylaws. Nothing herein shall deny the concurrent power of
the shareholders to adopt, alter, amend or repeal the Bylaws.
ARTICLE VI.
-----------
REGISTERED OFFICE AND AGENT
The name of the initial registered agent of this corporation and the
address of its initial registered office are as follows:
Kinne F. Hawes
3200 Columbia Seafirst Center
701 Fifth Avenue
Seattle, WA 98104-7026
ARTICLE VII.
------------
DIRECTORS
A. The number of directors of this corporation shall be determined in the
manner specified by the Bylaws and may be increased or decreased from time to
time in the manner provided therein, but shall be no less than three (3). The
initial Board of
-3-
<PAGE>
Directors shall consist of three (3) directors whose names and addresses are as
follows:
Name Address
---- -------
Alan Chin 6855 43rd Avenue N.E.
Seattle, WA 98115
Curt Lew 2347 22nd Avenue So.
Seattle, WA 98144
Ken Sato 1607 116th Ave. N.E.
Bellevue, WA 98004
B. The term of the initial directors shall be until the first annual
meeting of the shareholders or until their successors are elected and qualified,
unless removed in accordance with the provisions of the Bylaws.
ARTICLE VIII.
------------
SHAREHOLDER VOTING REQUIREMENTS FOR CERTAIN TRANSACTIONS
To be adopted by the shareholders, an amendment of the Articles of
Incorporation, a plan of merger or share exchange, the sale, lease, exchange, or
other disposition of all, or substantially all, of the corporation's assets
other than in the usual and regular course of business, or dissolution of the
corporation must be approved by each voting group of shareholders entitled to
vote thereon by a majority of all the votes entitled to be cast by that voting
group, except as otherwise provided by law.
ARTICLE IX.
----------
INCORPORATOR
The name and address of the incorporator is as follows:
Name Address
---- -------
Kinne F. Hawes 3200 Columbia Seafirst Center
701 Fifth Avenue
Seattle, WA 98104-7026
ARTICLE X.
---------
LIMITATION OF DIRECTORS' LIABILITY
A director shall have no liability to the corporation or its shareholders
for monetary damages for conduct as a director, except for acts or omissions
that involve intentional misconduct by the
-4-
<PAGE>
director, or a knowing violation of law by the director, or for conduct
violating RCW 23B.08.310, or for any transaction from which the director will
personally receive a benefit in money, property or services to which the
director is not legally entitled. If the Washington Business Corporation Act is
hereafter amended to authorize corporate action further eliminating or limiting
the personal liability of directors, then the liability of a director shall be
eliminated or limited to the full extent permitted by the Washington Business
Corporation Act, as so amended. Any repeal or modification of this Article shall
not adversely affect any right or protection of a director of the corporation
existing at the time of such repeal or modification for or with respect to an
act or omission of such director occurring prior to such repeal or modification.
ARTICLE XI.
-----------
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 1. Right to Indemnification. Each person who was, or is
------------------------
threatened to be made a party to or is otherwise involved (including, without
limitation, as a witness) in any actual or threatened action, suit or
proceeding, whether civil, criminal, administrative or investigative, by reason
of the fact that he or she is or was serving at the request of the corporation
as a director, trustee, officer, employee or agent of another corporation or of
a partnership, joint venture, trust or other enterprise, including service with
respect to employee benefit plans, whether the basis of such proceeding is
alleged action in an official capacity as a director, trustee, officer, employee
or agent or in any other capacity while serving as a director, trustee, officer,
employee or agent, shall be indemnified and held harmless by the corporation, to
the full extent permitted by applicable law as then in effect, against all
expense, liability and loss (including attorney's fees, judgments, fines, ERISA
excise taxes or penalties and amounts to be paid in settlement) actually and
reasonably incurred or suffered by such person in connection therewith, and such
indemnification shall continue as to a person who has ceased to be a director,
trustee, officer, employee or agent and shall inure to the benefit of his or her
heirs, executors and administrators; provided however, that except as provided
in Section 2 of this Article with respect to proceedings seeking to enforce
rights to indemnification, the corporation shall indemnify any such person
seeking indemnification in connection with a proceeding (or part thereof)
initiated by such person only if such proceeding (or part thereof) was
authorized by the board of directors of the corporation. The right to
indemnification conferred in this Section 1 shall be a contract right and shall
include the right to be paid by the corporation the expenses incurred in
defending any such proceeding in advance of its final disposition; provided,
however, that the payment of such expenses
-5-
<PAGE>
in advance of the final disposition of a proceeding shall be made only upon
delivery to the corporation of an undertaking, by or on behalf of such director
or officer, to repay all amounts so advanced if it shall ultimately be
determined that such director of officer is not entitled to be indemnified
under this Section 1 or otherwise.
Section 2. Right of Claimant to Bring Suit. If a claim under Section 1
-------------------------------
of this Article is not paid in full by the corporation within sixty (60) days
after a written claim has been received by the corporation, except in the case
of a claim for expenses incurred in defending a proceeding in advance of its
final disposition, in which case the applicable period shall be twenty (20)
days, the claimant may at any time thereafter bring suit against the corporation
to recover the unpaid amount of the claim and, to the extent successful in whole
or in part, the claimant shall be entitled to be paid also the expense of
prosecuting such claim. The claimant shall be presumed to be entitled to
indemnification under this Article upon submission of a written claim (and, in
an action brought to enforce a claim for expenses incurred in defending any
proceeding in advance of its final disposition, where the required undertaking
has been tendered to the corporation), and thereafter the corporation shall have
the burden of proof to overcome the presumption that the claimant is not so
entitled. Neither the failure of the corporation (including its board of
directors, independent -legal counsel or its share-holders) to have made a
determination prior to the commencement of such action that indemnification of
or reimbursement or advancement of expenses to the claimant is proper in the
circumstances nor an actual determination by the corporation (including its
board of directors, independent legal counsel or its shareholders) that the
claimant is not entitled to indemnification or to the reimbursement or
advancement of expenses shall be a defense to the action or create a presumption
that the claimant is not so entitled.
Section 3. Nonexclusivity of Rights. The right to indemnification and
------------------------
the payment of expenses incurred in defending a proceeding in advance of its
final disposition conferred in this Article shall not be exclusive of any other
right which any person may have or hereafter acquire under any statute,
provision of the Articles of Incorporation, Bylaws, agreement, vote of
shareholders or disinterested directors or otherwise.
Section 4. Insurance, Contracts and Funding. The corporation may
--------------------------------
maintain insurance, at its expense, to protect itself and any director, trustee,
officer, employee or agent of the corporation or another corporation,
partnership, joint venture, trust or other enterprise against any expense,
liability or loss, whether or not the corporation would have the power to
indemnify such person against such expense, liability or loss under the
Washington Business Corporation Act. The corporation may, without
-6-
<PAGE>
further shareholder action, enter into contracts with any director or officer
of the corporation in furtherance of the provisions of this Article and may
create a trust fund, grant a security interest or use other means (including,
without limitation, a letter of credit) to ensure the payment of such amounts as
may be necessary to effect indemnification as provided in this Article.
Section 5. Indemnification of Employees and Agents of the Corporation. The
----------------------------------------------------------
corporation may, by action of its board of directors from time to time, provide
indemnification and pay expenses in advance of the final disposition of a
proceeding to employees and agents of the corporation with the same scope and
effect as the provisions of this Article with respect to the indemnification and
advancement of expenses of directors and officers of the corporation or pursuant
to rights granted pursuant to, or provided by, the Washington Business
Corporation Act or otherwise.
The undersigned person, of the age of eighteen years or more, as
incorporator of this corporation under the Washington Business Corporation Act,
adopts these Articles of Incorporation.
Dated: November 16, 1994
/s/ Kinne F. Hawes
----------------------------------
Kinee F. Hawes Incorporator
-7-
<PAGE>
CONSENT TO SERVE AS REGISTERED AGENT
------------------------------------
I, Kinne F. Hawes, hereby consent to serve as Registered Agent, in the
State of Washington, for GlobalTel Resources, Inc. I understand that as agent
for the corporation, it will be my responsibility to receive service of process
in the name of the corporation; to forward all mail to the corporation; and to
immediately notify the office of the Secretary of State in the event of my
resignation, or of any changes in the registered office address of the
corporation for which I am agent.
November 16, 1994 /s/ Kinne F. Hawes
-------------------------------
Signature of Registered Agent
3200 Columbia Seafirst Center
701 Fifth Avenue
Seattle, WA 98104-7026
-8-
<PAGE>
STATE OF WASHINGTON
________________________________________________________________________________
[SEAL APPEARS HERE]
------------------------------------------------
SECRETARY OF STATE
------------------------------------------------
I, RALPH MUNRO, Secretary of State of the State of Washington and custodian of
its seal,
hereby certify this certificate that the attached is a true and correct copy of
ARTICLES OF EXCHANGE
of
GLOBALTEL RESOURCES, INC.
as filed in this office on December 29, 1995.
[SEAL APPEARS HERE]
Date: March 7, 1997
Given under my hand and the Seal of
the State of Washington at Olympia,
the State Capital
/s/ Ralph Munro
----------------------------------
Ralph Munro, Secretary of State
E. KELLY
________________________________________________________________________________
<PAGE>
STATE OF WASHINGTON
________________________________________________________________________________
[SEAL APPEARS HERE]
-----------------------------------------------
SECRETARY OF STATE
-----------------------------------------------
I, RALPH MUNRO, Secretary of State of the State of Washington and custodian of
its seal, hereby certify that
ARTICLES OF EXCHANGE
of
GLOBALTEL RESOURCES, INC.
A Washington Profit CORPORATION,
WAS/WERE FILED FOR RECORD IN THIS OFFICE ON THE DATE INDICATED BELOW.
Articles of Exchange between GLOBALTEL RESOURCES, INC. and GFP GROUP, INC., both
Washington corporations, whereby GLOBALTEL RESOURCES, INC. is the acquiring
corporation
CORPORATION NUMBER: 601 586 302 DATE: December 29, 1995
Given under my hand and the seal of the State
of Washington, at Olympia, the State Capitol.
/s/ RALPH MUNRO
---------------------------------------------
Ralph Munro, Secretary of State
________________________________________________________________________________
<PAGE>
[STAMP APPEARS HERE]
ARTICLES OF SHARE EXCHANGE
OF
GLOBALTEL RESOURCES, INC., A WASHINGTON CORPORATION
AND
GFP GROUP, INC., A WASHINGTON CORPORATION
Pursuant to the provisions of RCW 23B.11.050, the following Articles of
Share Exchange are executed for the purpose of exchanging all of the voting
common stock of GFP GROUP, INC., a Washington corporation, a Washington
corporation ("GFP") on a one-for-one basis for the voting common stock of
GLOBALTEL RESOURCES, INC., a Washington corporation ("GlobalTel").
1. The Plan and Agreement of Share Exchange approved by the Board of
Directors of GFP and the Board of Directors of GlobalTel is attached hereto as
Exhibit A.
- ---------
2. The Plan and Agreement of Share Exchange was approved by the
stockholders of GFP and GlobalTel pursuant to RCW 23B.11.030.
3. This share exchange shall be effective on such date as these Article of
Share Exchange are filed in the office of the Washington Secretary of State
pursuant to RCW 23B.11.050.
Dated: December 29, 1995.
GLOBALTEL RESOURCES, INC.,
a Washington corporation
By /s/ Curtis E. Lew
----------------------------
Curtis E. Lew
Its Vice President
<PAGE>
EXHIBIT A
---------
PLAN AND AGREEMENT OF SHARE EXCHANGE
OF GLOBALTEL RESOURCES, INC., A WASHINGTON CORPORATION
TO ACQUIRE ALL OF THE ISSUED AND OUTSTANDING SHARES
OF GFP GROUP, INC., A WASHINGTON CORPORATION
This Plan and Agreement of Share Exchange (this "Plan") sets forth the
terms and conditions under which GLOBALTEL RESOURCES, INC., a Washington
corporation ("GLOBALTEL") is to acquire by a share exchange all of the issued
and outstanding voting common stock of GFP GROUP, INC., a Washington corporation
"(GFP"). GlobalTel and GFP are sometimes referred to jointly as the
"Corporations."
RECITALS
A. Each of the Corporation are corporations organized and existing under
the laws of the State of Washington.
B. The shareholders and directors of each of the Corporation have deemed
it advisable for the mutual benefit of the Corporations and their respective
shareholders that GlobalTel acquire all of the issued and outstanding shares of
voting common stock of GFP by exchanging one share of GlobalTel's voting common
stock for one outstanding share of voting common stock of GFP, pursuant to the
provisions of the Washington Business Corporation Act (the "Share Exchange").
In accordance with the laws of the state of Washington, the Plan of Share
Exchange is as follows:
1. ACQUISITIOIN BY GLOBALTEL. GlobalTel Resources, Inc. shall acquire all
of the issued and outstanding voting common stock of GFP Group, Inc.
2. TERMS AND CONDITIONS OF EXCHANGE. At the effective time of this Share
Exchange, GlobalTel shall issue to the owner of each share of the issued and
outstanding voting common stock of GFP, one share of its voting common stock,
par value $.01.
3. EFFECTIVE TIME. As used in this PLAN, the "Effective Time of the
Merger" shall mean the date on which executed counterparts of the Articles of
Share Exchange have been duly filed by GlobalTel in the office of the Washington
Secretary of State pursuant to RCW 23B.11.050. Notwithstanding anything herein
to the contrary, failure or refusal of the parties thereto to execute, or the
subsequent termination of, a definitive Share Exchange Agreement setting forth
the terms and conditions of the exchange of shares described herein shall
terminate this Agreement.
<PAGE>
STATE OF WASHINGTON
________________________________________________________________________________
[SEAL APPEARS HERE]
------------------------------------------------
SECRETARY OF STATE
------------------------------------------------
I, RALPH MUNRO, Secretary of State of the State of Washington and custodian of
its seal,
hereby certify this certificate that the attached is a true and correct copy of
ARTICLES OF AMENDMENT
of
GLOBALTEL RESOURCES, INC.
as filed in this office on December 29, 1995
[SEAL APPEARS HERE]
Date: March 7, 1997
Given under my hand and the Seal of the State
of Washington at Olympia, the State Capital
/s/ RALPH MUNRO
---------------------------------------------
Ralph Munro, Secretary of State
E.KELLY
________________________________________________________________________________
<PAGE>
STATE OF WASHINGTON
________________________________________________________________________________
[SEAL APPEARS HERE]
------------------------------------------------
SECRETARY OF STATE
------------------------------------------------
I, RALPH MUNRO, Secretary of State of the State of Washington and custodian of
its seal, hereby issue this
CERTIFICATE OF AMENDMENT
to
GLOBALTEL RESOURCES, INC
a Washington Profit corporation. Articles of Amendment were filed for record in
this office on the date indicated below.
U.B.I. Number: 601 586 302 Date: December 29, 1995
Given under my hand and the seal of the State
of Washington, at Olympia, the State Capital
/s/ Ralph Munro
----------------------------------
Ralph Munro, Secretary of State
________________________________________________________________________________
<PAGE>
[STAMP APPEARS HERE]
ARTICLES OF AMENDMENT OF
GLOBALTEL RESOURCES, INC.
Pursuant to RCW Ch. 23B.10, the following Articles of Amendment are
executed by the undersigned corporation, a Washington corporation.
1. The name of the corporation is GlobalTel Resources, Inc.
2. Article III is amended to reclassify the corporation's common stock into
Common Stock of one class, par value $.01, and to authorize the issuance of
20,000,000 shares of Common Stock and 5,000,000 million shares of Preferred
Stock. Article III is therefore amended to read in its entirety as follows:
ARTICLE III
-----------
SHARES; SHARE EXCHANGE
(a) This corporation is authorized to issue 20,000,000 shares of Common
Stock of one class, par value $.01. Common Stock shall have unlimited voting
rights.
(b) This corporation is authorized to issue 5,000,000 shares of Preferred
Stock, and each share shall have a par value of $.01.
(i) The Preferred Stock may be issued from time to time in one or
more series in any manner permitted by law and these Articles of Incorporation
of the corporation, as determined from time to time by the Board of Directors
and stated in the resolution or resolutions providing for the issuance thereof,
prior to the issuance of any shares thereof. The Board of Directors shall have
the authority to fix and determine and to amend, subject to the provisions
hereof, the designations, preferences, limitations and relative rights of the
shares of any series that is wholly unissued or to be established. Unless
otherwise specifically provided in the resolution establishing any series, the
Board of Directors shall further have the authority, after the issuance of
shares of a series whose number it has designated, to amend the resolution
establishing such series to decrease the number of shares of that series, but
not below the number of shares of such series then outstanding.
(ii) The holders of shares of Preferred Stock shall be entitled to
receive dividends, out of the funds of the corporation legally available
therefor, at the rate and at the time or times, whether cumulative or
noncumulative, as may be provided by the Board of Directors in designating a
particular series of
-1-
<PAGE>
Preferred Stock. If such dividends on the Preferred Stock shall be cumulative,
then if dividends shall not have been paid, the deficiency shall be fully paid
or the dividends declared and set apart for payment at such rate, but without
interest on cumulative dividends, before any dividends on the Common Stock shall
be paid or declared and set apart for payment. The holders of the Preferred
Stock shall not be entitled to receive any dividends thereon other than the
dividends referred to in this section.
(iii) The Preferred Stock may be redeemable at such price, in such
amount, and at such time or times as may be provided by the Board of Directors
in designating a particular series of Preferred Stock. In any event, such
Preferred Stock may be repurchased by the corporation to the extend legally
permissible.
(iv) In the event of any liquidation, dissolution, or winding up of
the affairs of the corporation, whether voluntary or involuntary, then, before
any distribution shall be made to the holders of the Common Stock, the holders
of the Preferred Stock at the time outstanding shall be entitled to be paid the
preferential amount or amounts per share as may be provided by the Board of
Directors in designating a particular series of Preferred Stock and dividends
accrued thereon to the date of such payment. The holders of the Preferred Stock
shall not be entitled to receive any distributive amounts upon the liquidation,
dissolution, or winding up of the affairs of the corporation, other than the
distributive amounts referred to in this section, unless otherwise provided by
the Board of Directors in designating a particular series of Preferred Stock.
(v) Shares of Preferred Stock may be convertible into Common Stock
of the corporation upon such terms and conditions, at such rate and subject to
such adjustments as may be provided by the Board of Directors in designating a
particular series of Preferred Stock.
(vi) Holders of Preferred Stock shall have such voting rights, if
any, as may be provided by the Board of Directors in designating a particular
series of Preferred Stock.
-2-
<PAGE>
3. Article IV is amended in its entirety to read as follows:
ARTICLE IV
----------
PREEMPTIVE RIGHTS
No preemptive rights shall exist with respect to shares of stock or
securities convertible into shares of stock of this corporation.
4. Article V is amended in its entirety to read as follows:
ARTICLE V
---------
NO CUMULATIVE VOTING
At each election for directors, every shareholder entitled to vote at such
election has the right to vote in person or by proxy the number of shares held
by such shareholder for as many persons as there are directors to be elected. No
cumulative voting for directors shall be permitted.
5. Article VIII is amended in its entirety to read as follows:
ARTICLE VIII
------------
DIRECTORS
The number of directors of this corporation shall be determined in the
manner specified by the Bylaws and may be increased or decreased from time to
time in the manner provided therein.
6. Article IX is amended in its entirety to read as follows:
ARTICLE IX
----------
SHAREHOLDER VOTING REQUIREMENTS FOR CERTAIN TRANSACTIONS
To be adopted by the shareholders, an amendment of the Articles of
Incorporation, a plan of merger or share exchange, the sale, lease, exchange; or
other disposition of all, or substantially all, of the corporation's assets
other than in the usual and regular course of business, or dissolution of the
corporation must be approved by a majority of all the shares entitled to vote
thereon, except as otherwise provided by law.
7. To accomplish the reclassification of common stock set forth in the
amendment to Article III, each share of Class A, Class B, Class C, all Series,
common stock, $.01 par value, which is
-3-
<PAGE>
outstanding immediately prior to the effective date of these Articles of
Amendment, shall be exchanged for one share of voting Common Stock, $.01 par
value, upon the effectiveness of these Articles of Amendment.
8. The foregoing amendments are effective upon filing of these Articles
of Amendment with the Secretary of State of the State of Washington.
9. The date of the adoption of these amendments is December 29, 1995.
10. These amendments were duly approved by the shareholders of the
corporation in accordance with the provisions of RCW 23B.10.030 and RCW
23B.10.040.
These Articles of Amendment are executed by said corporation by its duly
authorized officer.
Dated: December 29, 1995
GLOBALTEL RESOURCES, INC.
By /s/ Curtis Lew
----------------------
Curtis Lew
VICE PRESIDENT
-4-
<PAGE>
STATE OF WASHINGTON
[SEAL APPEARS HERE]
SECRETARY OF STATE
I, RALPH MUNRO, Secretary of State of the State of Washington and custodian of
its seal, hereby issue this certificate that according to the records on file in
this office,
CERTIFICATE OF EXISTENCE/AUTHORIZATION
OF
GLOBALTEL RESOURCES, INC.
I FURTHER CERTIFY that the records on file in this office show that the
above named profit corporation was formed under the laws of the State of
Washington and was issued a certificate of incorporation in Washington on
November 17, 1994
I FURTHER CERTIFY that as of the date of this certificate, no Articles of
Dissolution have been filed, and that the corporation is duly authorized to
transact business in the corporate form in the State of Washington.
[SEAL APPEARS HERE] Date: March 7, 1997
Given under my hand and the Seal of the State
of Washington at Olympia, the State Capital
/s/ Ralph Munro
-------------------------------
Ralph Munro, Secretary of State
E. Kelly
<PAGE>
EXHIBIT 3.2
AMENDED AND RESTATED BYLAWS OF
GLOBALTEL RESOURCES, INC.
ARTICLE 1
MEETINGS OF SHAREHOLDERS
------------------------
SECTION 1.1 - MEETINGS. Shareholder meetings shall be held at the
----------------------
principal office of the corporation, or at such other location within or without
the State of Washington as shall be determined by the Board of Directors (the
"Board") and stated in the notice of meeting. The exact time at which the
meeting shall commence shall be determined by the president or other person or
persons who call the meeting and set forth in the notice of meeting.
SECTION 1.2 - ANNUAL MEETING. The regular annual meeting of the
----------------------------
shareholders for the election of directors and for the transaction of such other
business as may properly be brought before the meeting shall be held on the 25th
day of March of each year, or on such day and at such time during the one month
preceding or four months following the close of the corporation's fiscal year as
shall be determined each year by the Board. If such annual meeting is omitted by
oversight or otherwise during such period, a subsequent annual meeting may
nonetheless be held, and any business transacted or elections held at such
meeting shall be as valid as if the annual meeting had been held during the
period provided above.
SECTION 1.3 - SPECIAL MEETINGS. Special meetings of the shareholders may
------------------------------
be called at any time by the president, a majority of the Board, or any
shareholder or shareholders holding in the aggregate not less than one-fourth of
all shares entitled to vote at the special meeting. Shareholders may hold a
meeting at any time and place without notice or call, upon appropriate waivers
signed by all shareholders who are entitled to vote at a shareholders' meeting.
SECTION 1.4 - NOTICE. Written notice stating the place, day and hour of
--------------------
the meeting, and in case of a special meeting the purpose or purposes for which
the meeting is called, shall be delivered not less than ten (10) days nor more
than sixty (60) days before the date of the meeting, either personally, by
facsimile transmission, or by mail, by or at the direction of the president, the
secretary, or the person or persons calling the meeting, to each shareholder of
record entitled to vote at such meeting. If by facsimile transmission, such
notice shall be deemed to be delivered when received by the intended recipient.
If mailed, such notice shall be deemed to be delivered when deposited in the
United States mail, postage prepaid, addressed to the shareholder at his or her
address as it appears on the stock transfer books of the corporation. Each
shareholder shall be responsible for providing the
1
<PAGE>
secretary with the shareholder's current mailing address to which notices of
meetings and all other corporate notices may be served upon or mailed to him or
her. A shareholder may waive any notice required for any meeting by executing a
written waiver of notice either before or after said meeting and such waiver
shall be equivalent to the giving of such notice. A shareholder shall be deemed
to have waived notice of any meeting which the shareholder attends if the
shareholder participates in the meeting for any purpose other than to object to
the conduct of the meeting without proper notice having been given.
SECTION 1.5 - QUORUM. A majority of the shares entitled to vote,
--------------------
represented in person or by proxy, shall constitute a quorum at a meeting of
shareholders. When a quorum is present at any meeting, the affirmative vote of
the majority of the shares represented at the meeting, entitled to vote on the
subject matter, and actually voting on the subject matter, shall be the act of
the shareholders, unless otherwise provided by law or by the articles of
incorporation or bylaws of the corporation.
SECTION 1.6 - ADJOURNMENT. A majority of the shares represented at a
-------------------------
meeting, even if less than a quorum, may adjourn the meeting from time to time
without further notice. At such adjourned meeting at which a quorum shall be
present or represented, any business may be transacted which might have been
transacted at the meeting as originally stated in the notice of meeting. The
shareholders present at a duly organized meeting may continue to transact
business until adjournment, notwithstanding the withdrawal of enough
shareholders to leave less than a quorum.
SECTION 1.7 - CHAIRMAN OF MEETING. The president, or in his or her absence
---------------------------------
a chairman elected by the shareholders present, shall call the meetings of the
shareholders to order and shall act as the presiding officer thereof.
SECTION 1.8 - SECRETARY OF MEETING. The secretary shall act as a secretary
----------------------------------
at all meetings of the shareholders, and in his or her absence, the presiding
officer may appoint any person to act as secretary.
SECTION 1.9 - VOTING. Each outstanding share shall be entitled to one vote
--------------------
on each matter submitted to a vote at a meeting of shareholders.
SECTION 1.10 - CONDUCT OF MEETING. Shareholder meetings shall be conducted
---------------------------------
in an orderly and fair manner, but the presiding officer shall not be bound by
any technical rules of parliamentary procedure.
SECTION 1.11 - PROXIES. At all meetings of shareholders, a shareholder may
----------------------
vote by proxy executed in writing by the shareholders or by his or her duly
authorized attorney in fact. Such proxy shall be filed with the secretary of the
corporation before or at
2
<PAGE>
the time of the meeting. No proxy shall be valid after eleven (11) months from
the date of its execution, unless otherwise provided in the proxy.
SECTION 1.12 - SHAREHOLDER ADVISOR. A shareholder or holder of a valid
----------------------------------
proxy may be accompanied at any shareholders' meeting by one personal advisor,
but no such advisor may address the meeting without the consent of the presiding
officer.
SECTION 1.13 - RECORDING OF PROCEEDINGS. The proceedings of a
---------------------------------------
shareholders' meeting may not be mechanically or electronically recorded other
than by the secretary or acting secretary without the express approval of all
individuals in attendance at the meeting.
SECTION 1.14 - RECORD DATE. For the purpose of determining shareholders
--------------------------
entitled to notice of or to vote at any meeting of shareholders or any
adjournment thereof, or entitled to receive payment of any dividend, or in order
to make a determination of shareholders for any other proper purpose, the Board
may by resolution fix in advance a date as the record date, for any such
determination of shareholders. Such date in any case shall not be more than
sixty (60) days and, in case of a meeting of shareholders, not less than ten
(10) days prior to the date on which the particular action requiring such
determination of shareholders is to be taken. If no record date is fixed by the
Board, the date on which notice of the meeting is mailed or the date on which
the resolution of the Board declaring such dividend is adopted, as the case may
be, shall be the record date for such determination of shareholders. When a
determination of shareholders entitled to vote at any meeting of shareholders
has been made as provided in this section, such determination shall apply to any
adjournment thereof.
SECTION 1.15 - LIST OF SHAREHOLDERS. The secretary of the corporation
-----------------------------------
shall make a complete record of the shareholders entitled to vote at a meeting
of shareholders, or any adjournment thereof, arranged in alphabetical order,
with the address of and the number of shares held by each as shown on the
corporation's stock transfer books on the record date. Such record shall be kept
on file at the registered office of the corporation for a period of ten (10)
days prior to the meeting of shareholders. Such record shall be produced and
kept open at the time and place of the shareholders' meeting and shall be
subject to the inspection of any shareholder during the meeting for any proper
purpose.
SECTION 1.16 - SHAREHOLDER CONSENT. Any action which may be taken at a
----------------------------------
meeting of the shareholders may be taken without a meeting if a consent in
writing, setting forth the action so taken, shall be signed by all of the
shareholders entitled to vote with respect to the subject matter thereof. Such
consent shall have the same force and effect as a unanimous vote of
shareholders.
3
<PAGE>
SECTION 1.17 - ATTENDANCE BY CONFERENCE TELECOMMUNICATION. Shareholders
---------------------------------------------------------
may participate in a meeting of the shareholders by means of a conference
telephone or similar communications equipment, by means of which all persons
participating in the meeting can hear each other at the same time, and
participation by such means shall constitute presence in person at a meeting.
ARTICLE 2
DIRECTORS
---------
SECTION 2.1 - AUTHORITY AND SIZE OF BOARD. The business and affairs of the
-----------------------------------------
corporation shall be managed by a board of directors, the number and election of
which shall be as set forth from time to time by resolution of the Board of
Directors. Each director shall hold office until the next annual shareholders'
meeting, or until his or her successor shall have been elected. The number of
directors may be increased or decreased from time to time by vote of the
shareholders, but no decrease shall have the effect of shortening the term of
any incumbent director.
SECTION 2.2 - QUALIFICATIONS AND NOMINATIONS OF DIRECTORS. Any person of
---------------------------------------------------------
lawful age may be elected a director of the corporation.
SECTION 2.3 - VACANCIES. Any vacancy occurring in the Board, unless
-----------------------
caused by the vote of the shareholders, shall be filled by the affirmative vote
of a majority of the remaining directors though less than a quorum of the Board.
A director elected to fill a vacancy shall be elected for the unexpired term of
his or her predecessor in office.
SECTION 2.4 - ANNUAL MEETING. The annual meeting of the Board shall be
----------------------------
held immediately following the adjournment of the annual meeting of shareholders
at the principal office of the corporation, or at such other time and place as
may be designated for the holding of the annual meeting of shareholders pursuant
to Article 1 hereof. The Directors shall meet to elect officers and transact any
other business.
SECTION 2.5 - REGULAR MEETINGS. Regular meetings of the Board shall be
------------------------------
held at the principal office of the corporation, or at such time and place as
may be determined from time to time by the Board, either within or without this
State.
SECTION 2.6 - SPECIAL MEETINGS. Special meetings of the Board may be held
------------------------------
at such time and place, within or without the State of Washington, upon the
written or telephonic call of either the president or by any two (2) directors.
SECTION 2.7 - NOTICES. Notices of regular or special meetings of the Board
---------------------
stating the date, time, place, and in general terms the purpose or purposes
thereof shall be delivered to each director, by mailing written notice or
transmitting notice by
4
<PAGE>
facsimile machine not less than five (5) days before the meeting, except that
no notice shall be required of (i) a meeting held at a time and place fixed by
the Bylaws or by resolution of the Board, or (ii) a meeting at which the entire
board is present, or (iii) the reconvening of a meeting pursuant to adjournment.
If by facsimile transmission, such notice shall be deemed to be delivered when
received by the intended recipient. If mailed, such notice shall be deemed to be
delivered when deposited in the United States mail, postage prepaid, addressed
to the director at the address provided to the secretary. An entry of the
service of notice, given in the manner above provided, shall be made in the
minutes of the proceedings of the Board, and such entry, if read and approved at
the subsequent meeting of the Board, shall be conclusive on the question of
service. A director may waive any notice required for any meeting by executing a
written waiver of notice either before or after said meeting, and such waiver
shall be equivalent to the giving of such notice. A director shall be deemed to
have waived notice of any meeting which the director attends if the director
participates in the meeting for any purpose other than to object to the conduct
of the meeting without proper notice having been given.
SECTION 2.8 - QUORUM. A majority of the number of directors shall
----------------------
constitute a quorum for the transaction of business. Unless otherwise provided
in these Bylaws, the act of the majority of the directors present at a meeting
at which a quorum is present shall be the act of the Board. A majority of those
present at the time and place of any regular or special meeting, although less
than a quorum, may adjourn from time to time, without further notice, until a
quorum shall attend. When a quorum shall attend, any business may be transacted
which might have been transacted at the meeting had the same been held on the
date stated in the notice of meeting.
SECTION 2.9 - ATTENDANCE BY CONFERENCE TELECOMMUNICATION. Members of the
--------------------------------------------------------
Board may participate in a meeting of such Board by means of a conference
telephone or similar communications equipment, by means of which all persons
participating in the meeting can hear each other at the same time, and
participation by such means shall constitute presence in person at a meeting.
SECTION 2.10 - CONSENT TO ACTION. Any action which may be taken at a
--------------------------------
meeting of the Board, or at a meeting of any committee of the Board, may be
taken without a meeting if a consent in writing, setting forth the action so
taken, shall be signed by all of the directors or all the members of the
committee. Such consent shall have the same force and effect as a unanimous vote
at a duly convened meeting.
SECTION 2.11 - REMOVAL OF DIRECTORS. The entire Board may be removed, with
------------------------------------
or without cause, at a special meeting of shareholders called expressly for that
purpose, by a vote of the holders of a majority of the shares then entitled to
vote at an election of directors. Any individual director may be removed, with
or without
5
<PAGE>
cause, at a special meeting of shareholders called expressly for that purpose,
by a vote of the holders of a majority of the shares then entitled to vote at an
election of directors. Any vacancy caused by such removal shall be filled by the
shareholders at such meeting, and any director elected to fill such vacancy
shall serve only for the unexpired term of his or her predecessor in office.
SECTION 2.12 - RESIGNATION OF DIRECTOR. Any director may resign his or her
--------------------------------------
membership on the Board at any time. Such resignation shall be made in writing
and delivered to and filed with the secretary (except that a resignation of the
secretary who is also a director shall be delivered to and filed with the
president). Resignations so made shall be effective upon acceptance by the
Board, unless some other reasonable time is stated in the resignation, and then
from the date so fixed.
SECTION 2.13 - MANIFESTATION OF DISSENT. A director of the corporation who
---------------------------------------
is present at a meeting of the Board at which action on any corporate matter is
taken shall be presumed to have assented to the action taken unless his or her
dissent shall be entered in the minutes of the meeting or unless he or she shall
file his or her written dissent to such action with the person acting as the
secretary of the meeting before the adjournment thereof or shall forward such
dissent by registered or certified mail to the secretary of the corporation
immediately after the adjournment of the meeting. Such right to dissent shall
not apply to a director who voted in favor of such action.
ARTICLE 3
OFFICERS AND EMPLOYEES
----------------------
SECTION 3.1 - OFFICERS. The officers of the corporation shall consist of a
----------------------
president, one or more executive vice presidents and/or vice presidents as shall
be determined by the Board, a secretary, a treasurer and such other officers as
shall be determined by the Board. The officers of the corporation shall be
elected annually by the Board at its annual meeting, and each officer shall hold
office until his or her successor shall have been duly elected and qualified or
until his or her death, resignation, retirement or removal by the Board. A
vacancy in any office may be filled for the unexpired portion of the term by the
Board. Any two (2) or more offices may be held by the same person.
SECTION 3.2 - REMOVAL OF OFFICERS. Any officer, agent, or employee of the
---------------------------------
corporation may be removed by the Board at any time with or without cause. Such
removal, however, shall be without prejudice to the contract rights, if any, of
the persons so removed. Election or appointment of an officer or agent or
employee shall not of itself create contract rights.
SECTION 3.3 - RESIGNATION OF OFFICERS. Any officer may resign his or her
-------------------------------------
office at any time. Such resignation shall be made in writing and delivered to
and filed with the secretary (except that
6
<PAGE>
a resignation of the secretary shall be delivered to and filed with the
president). Resignations so made shall be effective, in the case of an officer
and director, upon acceptance by the Board, and if by an officer other than a
director, upon receipt by the secretary (or by the president, as the case may
be) unless some other reasonable time is stated in the resignation, and then
from the date so fixed.
SECTION 3.4 - VACANCY. If any corporate office becomes vacant by reason of
---------------------
death, resignation, removal or otherwise, the Board or the executive officer
possessing delegated authority to appoint such an officer, shall have the power
to fill such vacancy. In case of the absence or disability of any officer, the
Board or the president may delegate the powers or duties of any such officer to
another officer until such time as the Board or shareholders take other action.
SECTION 3.5 - COMPENSATION. The Board, or a committee thereof appointed for
--------------------------
that purpose, shall establish the types and amounts of compensation for all
officers. Compensation for all other employees or agents of the corporation
shall be established by or at the direction of the president subject to
guidelines established by the Board.
SECTION 3.6 - EXERCISE OF RIGHTS AS SHAREHOLDERS. Unless otherwise ordered
------------------------------------------------
by the Board, the president, or his or her designee acting by written
designation, shall have full power and authority on behalf of the corporation to
attend and to vote at any meeting of shareholders of any corporation in which
this corporation may hold stock, other than in a fiduciary capacity, and may
exercise on behalf of this corporation any and all of the rights and powers
incident to the ownership of such stock at any such meeting, and shall have
power and authority to execute and deliver proxies and consents on behalf of
this corporation in connection with the exercise by this of the rights and
powers incident to the ownership of such stock. The Board, from time to time,
may confer like powers upon any other person or persons.
SECTION 3.7 - DUTIES OF PRESIDENT. The president shall be the chief
---------------------------------
executive officer of the corporation and shall have general management of the
business of the corporation. The president shall preside at all meetings of the
shareholders and at meetings of the Board. The president shall see that all
orders and resolutions of the Board are carried into effect. The president shall
have general supervision over the property, business, and affairs of the
corporation and its several officers. The president shall have the power and
shall perform the duties as are regularly and customarily performed by the chief
executive officer of a corporation and may delegate such of his or her duties as
he or she may see fit to delegate to a vice president or other officers of the
corporation. The president may appoint agents or employees other than those
appointed by the Board, and he or she shall perform such other
7
<PAGE>
duties as may be prescribed from time to time by the Board or by the Bylaws.
SECTION 3.8 - DUTIES OF VICE PRESIDENT. The vice president shall have
---------------------------------------
such powers and perform such duties as may be assigned to him or her by the
Board. In the absence of the president, the vice president shall be the chief
executive officer of the corporation.
SECTION 3.9 - DUTIES OF SECRETARY. The secretary shall, subject to the
----------------------------------
direction of the president, keep the minutes of all meetings of the shareholders
and of the Board, and to the extent ordered by the Board or the president the
minutes of all meetings of all committees. The secretary shall cause notice to
be given of the meetings of the shareholders, of the Board, and of any committee
appointed by the Board. The secretary shall have custody of the corporate seal,
if one has been adopted, and general charge of the records, documents, and
papers of the corporation not pertaining to the performance of the duties vested
in other officers, which shall at all reasonable times be open to the
examination of any director. Without limiting the generality of the foregoing,
the secretary shall have charge (directly or through such transfer agents or
registrars as the Board may appoint) of the issuance, transfer, and registration
of certificates for shares of the corporation and of the records pertaining
thereto. Said records shall be kept in such manner as to show at any time the
number of shares of the corporation issued and outstanding, the manner in which
and the time when such shares were paid for, the names and addresses of the
holders of record thereof, the numbers and classes of shares held by each, and
the time when each became such holder of record. The secretary shall perform
such other duties as may be assigned to him or her by the Board or the
president.
SECTION 3.10 - DUTIES OF TREASURER. Except as otherwise set forth herein,
----------------------------------
the treasurer shall, subject to the direction of the president, have general
custody of all the property, funds and securities of the corporation and have
general supervision of the collection and disbursement of funds of the
corporation. The treasurer shall provide for the keeping of proper records of
all transactions of the corporation. The treasurer shall perform such other
duties as may be assigned to him or her by the Board or the president.
SECTION 3.11 - OTHER OFFICERS. Such other officers as shall be appointed by
-----------------------------
the Board, or the president, acting pursuant to delegated authority of the
Board, shall exercise such powers and perform such duties as pertain to their
several offices, or as may be conferred upon, or assigned to, them by the Board
or the president or his or her designee.
SECTION 3.12 - CLERKS AND AGENTS. The president, or any other officer of
--------------------------------
the corporation authorized by him or her, may, subject
8
<PAGE>
to the supervision of the Board, appoint such custodians, bookkeepers and other
clerks, agents, and employees as he or she shall deem advisable for the prompt
and orderly transaction of the business of the corporation and shall define
their duties, fix the salaries to be paid to them and dismiss them.
ARTICLE 4
SHARES AND CERTIFICATES FOR SHARES
----------------------------------
SECTION 4.1 - CONSIDERATION. Certificates for shares of the corporation
---------------------------
shall be issued for consideration consisting of any tangible or intangible
property or benefit to the corporation, including without limitation cash,
promissory notes, services performed, contracts for services to be performed, or
other securities of the corporation, and upon a good faith determination by the
Board that the consideration received or to be received for the shares to be
issued is adequate.
SECTION 4.2 - STOCK CERTIFICATES. Shares may but need not be represented by
--------------------------------
certificates. If shares are represented by certificates, the certificates shall
be in such form as designated by the Board, shall be numbered in the order in
which they shall be issued, and shall be signed by the president or by a
vice-president, and by the secretary or treasurer. The signatures may be
facsimiles if the certificate is countersigned by a transfer agent or registered
by a registrar other than the corporation or an employee of the corporation. If
a corporate seal is maintained, it or a facsimile thereof may be affixed to the
certificate. Each certificate shall state upon its face that the corporation is
organized under the laws of the State of Washington, the name of the person to
whom it is issued, and the number and class of shares which the certificate
represents, and the par value of each share represented by the certificate or a
statement that the shares are without par value. In case any officer or officers
who shall have signed or whose facsimile signature or signatures shall have been
used on any such certificate or certificates shall cease to fill such office or
offices of the corporation, whether because of death, resignation, or otherwise,
before such certificate or certificates shall have been delivered by the
corporation, such certificate or certificates may nevertheless be issued and
delivered by the corporation as though the person or persons who signed such
certificate or certificates or whose facsimile signature or signatures were used
thereon had not ceased to fill such office or offices of the corporation.
SECTION 4.3 - LOST CERTIFICATES. No new certificate shall be issued until
-------------------------------
the former certificate for the shares represented thereby shall have been
surrendered and canceled, except in the case of lost or destroyed certificates,
and in that case only after the receipt by the corporation of a bond or other
security or indemnification agreement, satisfactory to the Board, indemnifying
the corporation and all persons against loss in consequence of the issuance of
such new certificate.
9
<PAGE>
SECTION 4.4 - TRANSFER OF SHARES. Shares of the corporation may be
--------------------------------
transferred by endorsement by the signature of the owner, his or her agent,
attorney or legal representative, and the delivery of the certificate; but no
transfer shall be valid except between the parties thereto, until the same shall
have been entered upon the books of the corporation, so as to show the names of
the parties, by and to whom transferred, the numbers and designation of the
shares and the date of transfer.
SECTION 4.5 DELETED BY AMENDMENT.
10
<PAGE>
SECTION 4.6 - HOLDER OF RECORD. The person registered on the books of the
------------------------------
corporation as the owner of the issued shares shall be recognized by the
corporation as the person exclusively entitled to have and to exercise the
rights and privileges incident to the ownership of such shares. Notwithstanding
the preceding sentence, the Board may adopt by resolution a procedure whereby a
shareholder may certify in writing to the corporation that all or a portion of
the shares registered in the name of such shareholder are held for the account
of a specified person or persons. Upon receipt by the corporation of a
certification complying with such and adopted procedure, the person specified in
the certification shall be deemed, for the purpose or purposes set forth in the
certification, to be the holders of record of the number of shares specified in
place of the shareholder making the certification.
SECTION 4.7 - ISSUANCE OF SHARES. Any shares authorized but not issued
--------------------------------
shall be issued, sold, or otherwise transferred by this corporation only upon
authorization of the Board.
SECTION 4.8 - SUBSCRIPTIONS. A subscription for shares of this corporation
---------------------------
shall be in writing and upon such terms as may be approved by the Board.
SECTION 4.9 - PAYMENT OF SUBSCRIPTIONS. A subscription for shares shall be
--------------------------------------
paid in accordance with the terms set forth in the subscription or related
subscription agreement, if any. If the subscription or subscription agreement
does not require payment on or before a stated date or at a fixed period after a
stated date, then payment shall be made in such manner and at such times as may
be determined by the Board and expressed by it in a written call for payment;
provided that the call shall be uniform as to all shares of the same class or
series and that the call shall be mailed to each subscriber at his or her last
post office address known to the corporation at least thirty (30) days in
advance of the date upon which payment or the first installment, if installment
payments are called for, is due.
SECTION 4.10 - DEFAULT IN PAYMENT OF SUBSCRIPTIONS. If a payment required
--------------------------------------------------
by a subscription, a subscription agreement, or a call of the Board is not paid
when due, then the corporation may make written demand for payment upon the
defaulting subscriber by
11
<PAGE>
personal service or by mailing a copy of the demand to the subscriber at his or
her last post office address known to the corporation. If the payment is not
made within twenty (20) days of the serving or mailing of the demand for
payment, the corporation may terminate the subscription, forfeit the
subscriber's rights thereunder, retain as liquidated damages any sums previously
paid on the subscription, and hold and dispose of the shares as though never
subject to the subscription. In lieu of forfeiture, the corporation may proceed
to collect the amount due in the same manner as any debt due the corporation.
SECTION 4.11 - OTHER RULES AND REGULATIONS. The Board may make such
------------------------------------------
additional rules and regulations, not contrary to law or these Bylaws, as it may
deem expedient concerning the issuance, transfer and registration of
certificates for shares of the corporation.
ARTICLE 5
SEAL
----
SECTION 5.1 - CORPORATE SEAL. In the exercise of its discretion, the
----------------------------
Board may adopt and maintain a suitable seal for the corporation.
ARTICLE 6
INDEMNIFICATION OF DIRECTORS AND OFFICERS
-----------------------------------------
SECTION 6.1 - RIGHT TO INDEMNIFICATION. Each person who was or is
--------------------------------------
threatened to be made a party to or is otherwise involved (including, without
limitation, as a witness) in any actual or threatened action, suit or
proceeding, whether civil, criminal, administrative or investigative, and
whether formal or informal, by reason of the fact that he or she is or was a
director or officer, of the corporation or, while a director or officer, he or
she is or was serving at the request of the corporation as a director, trustee,
officer, employee or agent of another foreign or domestic corporation or of a
foreign or domestic partnership, joint venture, trust or other enterprise,
including service with respect to employee benefit plans (hereinafter
"Indemnitee"), whether the basis of such proceeding is alleged action in an
official capacity while serving as a director, trustee, officer, employee, or
agent or in any other capacity while serving as a director, trustee, officer,
employee or agent, shall be indemnified and held harmless by the corporation, to
the full extent permitted by applicable law as then in effect, against all
expense, liability and loss (including attorneys' fees, judgments, fines, ERISA
excise taxes or penalties and amounts to be paid in settlement) actually and
reasonably incurred or suffered by such Indemnitee in connection therewith, and
such indemnification shall continue as to an Indemnitee who has ceased to be a
director, trustee, officer, employee or agent and shall inure to the benefit of
the Indemnitee's heirs, personal representatives and administrators; provided,
however, that no indemnification shall be provided to any
12
<PAGE>
such Indemnitee if the corporation is prohibited by the Washington Business
Corporation Act or other applicable law as then in effect from paying such
indemnification; and, provided further, that except as provided in section 6.2
with respect to proceedings seeking to enforce rights to indemnification, the
corporation shall indemnify any such Indemnitee seeking indemnification in
connection with an action or proceeding (or part thereof) initiated by such
Indemnitee only if such action or proceeding (or part thereof) was authorized
or ratified by the Board. The right to indemnification conferred in this Section
shall be a contract right and shall include the right to be paid by the
corporation the expenses incurred in defending any such proceeding in advance of
its final disposition; provided, however, that the payment of such expenses in
advance of the final disposition of an action or proceeding shall be made only
(1) upon delivery to the corporation of an undertaking, by or on behalf of such
Indemnitee, to repay all amounts so advanced if it shall ultimately be
determined by final judicial decision from which there is no further right to
appeal that such Indemnitee is not entitled to be indemnified under this section
or otherwise, and (2) upon delivery to the corporation of a written affirmation
(hereinafter an "Affirmation") by the Indemnitee of his or her good faith belief
that such Indemnitee has met the standard of conduct necessary for
indemnification by the corporation pursuant to this section.
SECTION 6.2 - RIGHT OF INDEMNITEE TO BRING SUIT. If a claim under section
-----------------------------------------------
6.1 is not paid in full by the corporation within sixty (60) days after a
written claim has been received by the corporation, except in the case of a
claim for expenses incurred in defending an action or proceeding (or part
thereof) in advance of its final disposition, in which case the applicable
period shall be twenty (20) days, the Indemnitee may at any time thereafter
bring suit or other action against the corporation to recover the unpaid amount
of the claim. If successful in whole or in part, the Indemnitee shall be
entitled to be paid also the reasonable expense of prosecuting such claim. The
Indemnitee shall be presumed to be entitled to indemnification under this
Article upon submission of a written claim (and, in an action brought to enforce
a claim for reasonable expenses incurred in defending any proceeding in advance
of its final disposition, where the required undertaking and Affirmation have
been tendered to the corporation), and thereafter the corporation shall have the
burden of proof to overcome the presumption that the Indemnitee is not so
entitled. Neither the failure of the corporation (including its Board,
independent legal counsel or its shareholders) to have made a determination
prior to the commencement of such action or proceeding that indemnification of
or reimbursement or advancement of expenses to the Indemnitee is proper in the
circumstances nor an actual determination by the corporation (including its
Board, independent legal counsel or its shareholders) that the Indemnitee is not
entitled to indemnification or to the reimbursement or advancement of
expenses shall be a defense to the action or create a presumption that the
Indemnitee is not so entitled.
13
<PAGE>
SECTION 6.3 - NONEXCLUSIVITY OF RIGHTS. The right to indemnification and
--------------------------------------
the payment of expenses incurred in defending a proceeding in advance of its
final disposition conferred in this Article shall not be exclusive of any other
right which any person may have or hereafter acquire under any statute,
provision of the Articles of Incorporation, Bylaws, agreement, vote of
shareholders or disinterested directors or otherwise.
SECTION 6.4 - INSURANCE, CONTRACTS AND FUNDING. The corporation may
----------------------------------------------
maintain insurance, at its expense, to protect itself and any director,
trustee, officer, employee or agent of the corporation or another corporation,
partnership, joint venture, trust or other enterprise against any expense,
liability or loss, whether or not the corporation would have the power to
indemnify such person against such expense, liability or loss under the
Washington Business Corporation Act or other applicable law then in effect. The
corporation may, without further shareholder action, enter into contracts with
any director or officer of the corporation in furtherance of the provisions of
this Article and may create a trust fund, grant a security interest or use other
means (including, without limitation, a letter of credit) to ensure the payment
of such amounts as may be necessary to effect indemnification as provided in
this Article.
SECTION 6.5 - INDEMNIFICATION OF EMPLOYEES AND AGENTS OF THE CORPORATION.
------------------------------------------------------------------------
The corporation may, by action of its Board from time to time, provide
indemnification and pay expenses in advance of the final disposition of a
proceeding to employees and agents of the corporation with the same scope and
effect as the provisions of this Article with respect to the indemnification and
advancement of expenses of directors and officers of the corporation or pursuant
to rights granted pursuant to, or provided by, the Washington Business
Corporation Act or other applicable law then in effect.
SECTION 6.6 - PERSONS SERVING OTHER ENTITIES. Any individual who is or was
--------------------------------------------
a director, officer, or employee of the corporation who, while a director,
officer or employee of the corporation, is or was serving (a) at the request of
the corporation or as a director, trustee, officer, employee or agent of another
foreign or domestic corporation or of a foreign of domestic partnership or joint
venture, trust or other enterprise, or (b) as a trustee of an employee benefit
plan and the duties of the director or officer to the corporation also impose
duties on, or otherwise involve services by the director or officer to the plan
or to participants in or beneficiaries of the plan shall be deemed to be so
serving at the request of the corporation and entitled to indemnification and
advancement of expenses under section 6.1.
ARTICLE 7
MISCELLANEOUS PROVISIONS
------------------------
SECTION 7.1 - FISCAL YEAR. The fiscal year of the corporation shall be
-------------------------
determined by the Board.
14
<PAGE>
SECTION 7.2 - RECORDS. The Article of Incorporation, the Bylaws, and the
---------------------
proceedings of all meetings of the shareholders, the Board and standing
committees of the Board shall be recorded in appropriate minute books provided
for that purpose. The minutes of each meeting shall be signed by the secretary
or other officer appointed to act as secretary.
SECTION 7.3 - INSPECTION. A copy of the Bylaws, with all amendments
------------------------
thereto, shall at all times be kept in a convenient place at the principal
office of the corporation, and shall be open for inspection of all shareholders
during normal business hours.
SECTION 7.4 - AMENDMENTS. The Bylaws may be amended, altered or repealed,
------------------------
at any regular or special meeting of the Board, by a vote of the majority of the
whole Board, provided that a written statement of the proposed action shall have
been delivered personally or by facsimile transmission or mailed to all
directors with the notice of the meeting. Section 4.5 of the Bylaws may be
amended by the shareholders of the corporation only by the affirmative vote of
the holders of two-thirds (2/3) of the issued and outstanding shares of the
corporation.
15
<PAGE>
EXHIBIT 4.2
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED
STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THESE
SECURITIES MAY BE OFFERED, SOLD OR OTHERWISE TRANSFERRED ONLY (A) TO THE
CORPORATION, (B) OUTSIDE THE UNITED STATES IN ACCORDANCE WITH RULE 904 OR
REGULATION S UNDER THE SECURITIES ACT IF APPLICABLE, OR (C) INSIDE THE UNITED
STATES (i) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144
THEREUNDER, IF APPLICABLE, AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES
LAWS OR (ii) IN COMPLIANCE WITH ANOTHER APPLICABLE EXEMPTION UNDER THE
SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS, SUCH COMPLIANCE, AT THE
OPTION OF THE CORPORATION, TO BE EVIDENCED BY AN OPINION OF COUNSEL, IN FORM
ACCEPTABLE TO THE CORPORATION, THAT NO VIOLATION OF SUCH REGISTRATION PROVISIONS
WOULD RESULT FROM ANY PROPOSED TRANSFER OR ASSIGNMENT.
GLOBALTEL RESOURCES, INC.
STOCK PURCHASE WARRANT
1. Number and Price of Shares Subject to Warrant. Subject to the terms
---------------------------------------------
and conditions herein set forth, is entitled to
------------------------------
purchase from GlobalTel Resources, Inc., a Washington corporation (the
"Company"), at any time on or before the expiration date set forth in this
Section 1, and upon surrender hereof at the principal office of the Company and
payment of the purchase price at said office in cash or by check,
------------
shares of fully paid and non-assessable Common
- ----------------------------
Stock, $.01 par value, of the Company (the "Shares"). Subject to adjustment as
hereinafter provided the purchase price of one share of Common Stock shall be
$1.10. The purchase price of one share of Common Stock payable from time to time
upon the exercise of this Warrant (whether such price be the price specified
above or an adjusted price determined as hereinafter provided) is referred to
herein as the "Warrant Price."
This Warrant shall remain exercisable pursuant to the provisions of Section
6 until the earlier of (a) 5:00 p.m. Pacific Time on the day of closing of a
public offering of Common Stock of the Company registered under the Securities
Act of 1933, as amended (the "Securities Act"), in which the aggregate primary
proceeds to the Company (net of discount to underwriters but before expenses)
equals at least $25,000,000 or (b) 5:00 p.m. Pacific Time on April 24, 2000.
2. Adjustment of Warrant Price and Number of Shares. The number of Shares
------------------------------------------------
issuable upon the exercise of this Warrant
1
<PAGE>
shall be subject to adjustment from time to time upon the happening of certain
events as follows:
(a) Adjustment for Dividends in Stock. In case at any time or from time to
---------------------------------
time on or after the date hereof the holders of the Common Stock of the Company
shall have received, or, on or after the record date fixed for the determination
of eligible shareholders, shall have become entitled to receive, without payment
therefor, other or additional stock of the Company by way of dividend, then and
in each case, the holder of this Warrant shall, upon the exercise hereof, be
entitled to receive, in addition to the number of shares of Common Stock
receivable thereupon, and without payment of any additional consideration
therefor, the amount of such other or additional stock of the Company which such
holder would hold on the date of such exercise had it been the holder of record
of such Common Stock on the date hereof and had thereafter, during the period
from the date hereof to and including the date of such exercise, retained such
shares and/or all other additional stock receivable by it as aforesaid during
such period, giving effect to all adjustments called for during such period by
paragraphs (b) and (c) of this paragraph 2.
(b) Adjustment for Reclassification, Reorganization or Merger. In case of
---------------------------------------------------------
any reclassification or change of the outstanding securities of the Company or
of any reorganization of the Company (or any other corporation the stock or
securities of which are at the time receivable upon the exercise of this
Warrant) on or after the date hereof, or in case, after such date, the Company
(or any such corporation) shall merger with or into another corporation or
convey all or substantially all of its assets to another corporation, then and
in each such case the holder of this Warrant, upon exercise hereof at any time
after the consummation of such reclassification, change, reorganization, merger
or conveyance, shall be entitled to receive, in lieu of the stock or other
securities and property receivable upon the exercise hereof prior to such
consummation, the stock or other securities or property to which such holders
would have been entitled upon such consummation if such holder had exercised
this Warrant immediately prior thereto, all subject to further adjustment as
provided in paragraphs (a) and (c); in each such case, the terms of this
paragraph 2 shall be applicable to the shares of stock or other securities
properly receivable upon the exercise of this Warrant after such consummation.
(c) Stock Splits and Reverse Stock Splits. If at any time on or after the
-------------------------------------
date hereof the Company shall subdivide its outstanding shares of Common Stock
into a greater number of shares, the Warrant Price in effect immediately prior
to such subdivision shall thereby be proportionately reduced and the number of
shares receivable upon exercise of the Warrant shall
2
<PAGE>
thereby be proportionately increased; and, conversely, if at any time on or
after the date hereof the outstanding number of shares of Common Stock shall be
combined into a smaller number of shares, the Warrant Price in effect
immediately prior to such combination shall thereby be proportionately increased
and the number of shares receivable upon exercise of the Warrant shall thereby
be proportionately decreased.
In the event of any adjustment in the number of shares covered by
this Warrant, any fractional shares resulting from such adjustment shall be
disregarded and this Warrant shall cover only the number of full shares
resulting from such adjustment. The foregoing adjustments shall be made by the
Board of Directors of the Company, or by the applicable terms of any assumption
or substitution document, and any adjustments so made shall be final, binding
and conclusive.
3. Other Adjustments. Except as provided in paragraph 2, no adjustment on
-----------------
account of dividends on Common Stock will be made upon the exercise hereof.
4. No Stockholder Rights. This Warrant shall not entitle its holder to
---------------------
any of the rights of a stockholder of the Company.
5. Reservation of Stock. The Company covenants that during the period
--------------------
this Warrant is exercisable, the Company will reserve from its authorized and
unissued Common Stock a sufficient number of shares to provide for the issuance
of the shares upon the exercise of this Warrant. The Company agrees that its
issuance of this Warrant shall constitute full authority to its officers who are
charged with the duty of executing stock certificates to execute and issue the
necessary certificates for shares of Common Stock upon the exercise of this
Warrant.
6. Exercise of Warrant. This Warrant may be exercised by the registered
-------------------
holder or its registered assigns, in whole or in part, by the surrender of this
Warrant at the principal office of the Company, accompanied by payment in full
of the Warrant Price as described above by certified or cashier's check;
provided, however, that the minimum partial exercise shall not be less than 50%
of the Shares. Upon partial exercise hereof, a new warrant or warrants
containing the same date and provisions as this Warrant shall be issued by the
Company to the registered holder for the number of shares of Common Stock with
respect to which this Warrant shall not have been exercised. This Warrant (or
any portion thereof) shall be deemed to have been exercised immediately prior to
the close of business on the date of its surrender for exercise as provided
above, and the person entitled to receive the shares of Common Stock issuable
upon such exercise
3
<PAGE>
shall be treated for all purposes as the holder of such shares of record as of
the close of business on such date. As promptly as practicable on or after such
date, the Company shall issue and deliver to the person or persons entitled to
receive the same a certificate or certificates for the number of full shares of
Common Stock issuable upon such exercise, together with cash in lieu of any
fraction of a share as provided above.
7. Certificate of Adjustment. Whenever the Warrant Price is adjusted, as
-------------------------
herein provided, the Company shall deliver to the record holder of this Warrant
a certificate of an officer of the Company setting forth the Warrant Price after
such adjustment and setting forth a brief statement of the facts requiring such
adjustment.
8. Transfer of Warrant. This Warrant may not be transferred by the holder
-------------------
without the written consent of the Company (except by operation of law or to a
successor by merger, acquisition or other corporate reorganization) and
compliance with applicable federal and state securities laws to the satisfaction
of the Company.
9. Compliance with Securities Laws.
-------------------------------
(a) The holder represents and agrees that this Warrant (and the
Shares, if the warrant is exercised) are purchased only for investment, for
holder's own account, and without any present intention to sell or distribute
the Warrant or the Shares. The holder further acknowledges that the Shares will
not be issued pursuant to the exercise of this Warrant unless the exercise of
the warrant and the issuance and delivery of such Shares shall comply with all
relevant provisions of law, including, without limitation, the Securities Act
and other federal and state securities laws and regulations and the requirements
of any stock exchange or quotation system upon which the Shares may then be
listed.
(b) The holder of this Warrant acknowledges and agrees that this
Warrant and the Shares have not been registered under the Securities Act and
accordingly will not be transferrable except as permitted under the various
exemptions contained in the Securities Act, or upon satisfaction of the
registration and prospectus delivery requirements of the Securities Act.
Therefore, the Warrant and Shares must be held indefinitely unless they are
subsequently registered under the Securities Act or an exemption from such
registration is available. The holder understands that the certificate
evidencing the Shares will be imprinted with a legend which prohibits the
transfer thereof unless they are registered or unless the Company receives an
opinion of counsel reasonably satisfactory to the Company that
4
<PAGE>
such registration is not required. The holder understands that a stop transfer
instruction may be in effect with respect to transfer or the Warrant and Shares
consistent with the requirements of the securities laws.
10. Miscellaneous. This Warrant shall be goverened solely by the laws of
-------------
the State of Washington without regard to the conflicts of laws provisions
thereof to the contrary. The headings in this Warrant are for purposes of
convenience and reference only, and shall not be deemed to constitute a part
hereof. Neither this Warrant nor any term hereof may be changed, waived,
discharged or terminated except by an instrument in writing signed by the
Company and the registered holder hereof. All notices and other communications
from the Company to the holder of this Warrant shall be delivered in person or
mailed first-class, postage prepaid, to the address furnished to the Company in
writing by the last holder of this Warrant who shall have furnished an address
to the Company in writing. Each such notice or other communication shall for all
purposes of this Warrant be treated as effective or having been given when
delivered if delivered personally, or, if sent by mail, at the earlier of its
receipt or 72 hours after the same has been deposited in a regularly maintained
receptacle for the deposit of the United States mail, addressed and mailed as
aforesaid.
ISSUED this day of , 1996.
---- -----
GLOBALTEL RESOURCES, INC.
a Washington corporation
By: /s/
--------------------------
Title: Chief Executive Officer
-----------------------
Warrant Number
----
5
<PAGE>
EXHIBIT 4.3
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED
STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THESE
SECURITIES MAY BE OFFERED, SOLD OR OTHERWISE TRANSFERRED ONLY (A) TO THE
CORPORATION, (B) OUTSIDE THE UNITED STATES IN ACCORDANCE WITH RULE 904 OR
REGULATION S UNDER THE SECURITIES ACT IF APPLICABLE, OR (C) INSIDE THE UNITED
STATES (i) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144
THEREUNDER, IF APPLICABLE, AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES
LAWS OR (ii) IN COMPLIANCE WITH ANOTHER APPLICABLE EXEMPTION UNDER THE
SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS, SUCH COMPLIANCE, AT THE
OPTION OF THE CORPORATION, TO BE EVIDENCED BY AN OPINION OF COUNSEL, IN FORM
ACCEPTABLE TO THE CORPORATION, THAT NO VIOLATION OF SUCH REGISTRATION PROVISIONS
WOULD RESULT FROM ANY PROPOSED TRANSFER OR ASSIGNMENT.
GLOBALTEL RESOURCES, INC.
STOCK PURCHASE WARRANT
1. Number and Price of Shares Subject to Warrant. Subject to the terms
---------------------------------------------
and conditions herein set forth,
--------------------------------------------
is entitled to purchase from GlobalTel Resources, Inc., a Washington
- -----
corporation (the "Company"), at any time on or before the expiration date set
forth in this Section 1, and upon surrender hereof at the principal office of
the Company and payment of the purchase price at said office in cash or by
check, the number of shares of fully paid and non-assessable Common Stock, $.01
par value, of the Company hereinafter provided (the "Shares"). The initial
number of Shares shall be shares of Common Stock,
---------------------
provided, however, that the number of shares shall increase by an additional
- -----------------------
shares of Common Stock on the 180th day after the date
- ---------------------
hereof if no Institutional Funding (as hereinafter defined) has occurred on or
before said date, and the number of Shares shall further increase by an
additional Ten Thousand (10,000) shares of Common Stock on the 360th day after
the date hereof if no Institutional Funding (as hereinafter defined) has
occurred on or before said date. As used herein, an "Institutional Funding"
means one or more offerings by the Company of its securities that have closed
since the date hereof and provided to the Company aggregate gross proceeds of at
least Twenty-Five Million Dollars ($25,000,000). Subject to adjustment as
hereinafter provided, the purchase price of one share of Common Stock shall be
$1.10. The purchase price of one share of Common Stock payable from time to time
upon the exercise of this Warrant (whether such price be the price specified
above or an adjusted price determined as hereinafter provided) is referred to
herein as the "Warrant Price."
1
<PAGE>
This Warrant shall remain exercisable pursuant to the provisions of Section
6 until the earlier of (a) 5:00 p.m. Pacific Time on the day of closing of a
public offering of Common Stock of the Company registered under the Securities
Act of 1933, as amended (the "Securities Act"), in which the aggregate primary
proceeds to the Company (net of discount to underwriters but before expenses)
equals at least $25,000,000 or (b) 5:00 p.m. Pacific Time on the third calendar
anniversary of the date of this Warrant.
2. Adjustment of Warrant Price and Number of Shares. The number of
------------------------------------------------
Shares issuable upon the exercise of this Warrant shall be subject to adjustment
from time to time upon the happening of certain events as follows:
(a) Adjustment for Dividends in Stock. In case at any time or from
---------------------------------
time to time on or after the date hereof the holders of the Common Stock of the
Company shall have received, or, on or after the record date fixed for the
determination of eligible shareholders, shall have become entitled to receive,
without payment therefor, other or additional stock of the Company by way of
dividend, then and in each case, the holder of this Warrant shall, upon the
exercise hereof, be entitled to receive, in addition to the number of shares of
Common Stock receivable thereupon, and without payment of any additional
consideration therefor, the amount of such other or additional stock of the
Company which such holder would hold on the date of such exercise had it been
the holder of record of such Common Stock on the date hereof and had thereafter,
during the period from the date hereof to and including the date of such
exercise, retained such shares and/or all other additional stock receivable by
it as aforesaid during such period, giving effect to all adjustments called for
during such period by paragraphs (b) and (c) of this paragraph 2.
(b) Adjustment for Reclassification, Reorganization or Merger. In
---------------------------------------------------------
case of any reclassification or change of the outstanding securities of the
Company or of any reorganization of the Company (or any other corporation the
stock or securities of which are at the time receivable upon the exercise of
this Warrant) on or after the date hereof, or in case, after such date, the
Company (or any such corporation) shall merge with or into another corporation
or convey all or substantially all of its assets to another corporation, then
and in each such case the holder of this Warrant, upon exercise hereof at any
time after the consummation of such reclassification, change, reorganization,
merger or conveyance, shall be entitled to receive, in lieu of the stock or
other securities and property receivable upon the exercise hereof prior to such
consummation, the stock or other securities or property to which such holders
would have been entitled upon such consummation if such holder had exercised
this Warrant immediately prior thereto, all subject to further adjustment as
provided in paragraphs (a) and (c); in each such
2
<PAGE>
case, the terms of this paragraph 2 shall be applicable to the shares of stock
or other securities properly receivable upon the exercise of this Warrant after
such consummation.
(c) Stock Splits and Reverse Stock Splits. If at any time on or after
-------------------------------------
the date hereof the Company shall subdivide its outstanding shares of Common
Stock into a greater number of shares, the Warrant Price in effect immediately
prior to such subdivision shall thereby be proportionately reduced and the
number of shares receivable upon exercise of the Warrant shall thereby be
proportionately increased; and, conversely, if at any time on or after the date
hereof the outstanding number of shares of Common Stock shall be combined into a
smaller number of shares, the Warrant Price in effect immediately prior to such
combination shall thereby be proportionately increased and the number of shares
receivable upon exercise of the Warrant shall thereby be proportionately
decreased. In the event of any adjustment in the number of shares covered by
this Warrant, any fractional shares resulting from such adjustment shall be
disregarded and this Warrant shall cover only the number of full shares
resulting from such adjustment. The foregoing adjustments shall be made by the
Board of Directors of the Company, or by the applicable terms of any assumption
or substitution document, and any adjustments so made shall be final, binding
and conclusive.
3. Other Adjustments. Except as provided in paragraph 2, no adjustment on
-----------------
account of dividends on Common Stock will be made upon the exercise hereof.
4. No Stockholder Rights. This Warrant shall not entitle its holder to
---------------------
any of the rights of a stockholder of the Company.
5. Reservation of Stock. The Company covenants that during the period
--------------------
this Warrant is exercisable, the Company will reserve from its authorized and
unissued Common Stock a sufficient number of shares to provide for the issuance
of the shares upon the exercise of this Warrant. The Company agrees that its
issuance of this Warrant shall constitute full authority to its officers who are
charged with the duty of executing stock certificates to execute and issue the
necessary certificates for shares of Common Stock upon the exercise of this
Warrant.
6. Exercise of Warrant. This Warrant may be exercised by the registered
-------------------
holder or its registered assigns, in whole or in part, by the surrender of this
Warrant at the principal office of the Company, accompanied by payment in full
of the Warrant Price as described above by certified or cashier's check;
provided, however, that the minimum partial exercise shall not be less than 50%
of the Shares. Upon partial exercise hereof, a new warrant or warrants
containing the same date and provisions as this Warrant shall be issued by the
Company to the registered holder for the number of shares of Common Stock with
respect to which this
3
<PAGE>
Warrant shall not have been exercised. This Warrant (or any portion thereof)
shall be deemed to have been exercised immediately prior to the close of
business on the date of its surrender for exercise as provided above, and the
person entitled to receive the shares of Common Stock issuable upon such
exercise shall be treated for all purposes as the holder of such shares or
record as of the close of business on such date. As promptly as practicable on
or after such date, the Company shall issue and deliver to the person or persons
entitled to receive the same a certificate or certificates for the number of
full shares of Common Stock issuable upon such exercise, together with cash in
lieu of any fraction of a share as provided above.
7. Certificate of Funding; Certificate of Adjustment. If an Institutional
-------------------------------------------------
Funding (as defined in Section 1) occurs on or before the 240th day after the
date of this Warrant, the Company shall deliver to the record holder of this
Warrant a certificate of an officer of the Company confirming the occurrence of
the Institutional Funding and setting forth a brief description of the
transaction(s) constituting the Institutional Funding. Whenever the Warrant
Price is adjusted, as herein provided, the Company shall deliver to the record
holder of this Warrant a certificate of an officer of the Company setting forth
the Warrant Price after such adjustment and setting forth a brief statement of
the facts requiring such adjustment.
8. Transfer of Warrant. This Warrant may not be transferred by the holder
-------------------
without the written consent of the Company (except by operation of law or to a
successor by merger, acquisition or other corporate reorganization) and
compliance with applicable federal and state securities laws to the satisfaction
of the Company.
9. Compliance with Securities Laws.
-------------------------------
(a) The holder represents and agrees that this Warrant (and the
Shares, if the warrant is exercised) are purchased only for investment, for
holder's own account, and without any present intention to sell or distribute
the Warrant or the Shares. The holder further acknowledges that the Shares will
not be issued pursuant to the exercise of this Warrant unless the exercise of
the warrant and the issuance and delivery of such Shares shall comply with all
relevant provisions of law, including, without limitation, the Securities Act
and other federal and state securities laws and regulations and the requirements
of any stock exchange or quotation system upon which the Shares may then be
listed.
(b) The holder of this Warrant acknowledges and agrees that this
Warrant and the Shares have not been registered under the Securities Act and
accordingly will not be transferrable except as permitted under the various
exemptions contained in the
4
<PAGE>
Securities Act, or upon satisfaction of the registration and prospectus delivery
requirements of the Securities Act. Therefore, the Warrant and Shares must be
held indefinitely unless they are subsequently registered under the Securities
Act or an exemption from such registration is available. The holder understands
that the certificate evidencing the Shares will be imprinted with a legend which
prohibits the transfer thereof unless they are registered or unless the Company
receives an opinion of counsel reasonably satisfactory to the Company that such
registration is not required. The holder understands that a stop transfer
instruction may be in effect with respect to transfer of the Warrant and Shares
consistent with the requirements of the securities laws.
10. Miscellaneous. This Warrant shall be goverened solely by the laws of
-------------
the State of Washington without regard to the conflicts of laws provisions
thereof to the contrary. The headings in this Warrant are for purposes of
convenience and reference only, and shall not be deemed to constitute a part
hereof. Neither this Warrant nor any term hereof may be changed, waived,
discharged or terminated except by an instrument in writing signed by the
Company and the registered holder hereof. All notices and other communications
from the Company to the holder of this Warrant shall be delivered in person or
mailed first-class, postage prepaid, to the address furnished to the Company in
writing by the last holder of this Warrant who shall have furnished an address
to the Company in writing. Each such notice or other communication shall for all
purposes of this Warrant be treated as effective or having been given when
delivered if delivered personally, or, if sent by mail, at the earlier of its
receipt or 72 hours after the same has been deposited in a regularly maintained
receptacle for the deposit of the United States mail, addressed and mailed as
aforesaid.
ISSUED this day of , 1996.
---- ------- -
GLOBALTEL RESOURCES, INC.,
a Washington corporation
By: /s/ Ronald P. Erickson
----------------------
Title: Chief Executive Officer
-----------------------
Warrant No.
----
5
<PAGE>
EXHIBIT 4.4
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED
STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THESE
SECURITIES MAY BE OFFERED, SOLD OR OTHERWISE TRANSFERRED ONLY (A) TO THE
CORPORATION, (B) OUTSIDE THE UNITED STATES IN ACCORDANCE WITH RULE 904 OR
REGULATION S UNDER THE SECURITIES ACT IF APPLICABLE, OR (C) INSIDE THE UNITED
STATES (i) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144
THEREUNDER, IF APPLICABLE, AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES
LAWS OR (ii) IN COMPLIANCE WITH ANOTHER APPLICABLE EXEMPTION UNDER THE
SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS, SUCH COMPLIANCE, AT THE
OPTION OF THE CORPORATION, TO BE EVIDENCED BY AN OPINION OF COUNSEL, IN FORM
ACCEPTABLE TO THE CORPORATION, THAT NO VIOLATION OF SUCH REGISTRATION
PROVISIONS WOULD RESULT FROM ANY PROPOSED TRANSFER OR ASSIGNMENT.
GLOBALTEL RESOURCES, INC.
STOCK PURCHASE WARRANT
1. Number of Shares Subject to Warrant. Subject to the terms and
-----------------------------------
conditions herein set forth,
---------------------------------------------
, is entitled to purchase from GlobalTel Resources, Inc.,
- ----------------------
a Washington corporation (the "Company"), at any time on or before the
expiration date set forth in Paragraph 3, and upon surrender hereof at the
principal office of the Company and payment of the purchase price at said office
in cash or by check, the number of shares of fully paid and non-assessable
Common Stock, $.01 par value, of the Company hereinafter provided (the
"Shares"). The initial number of Shares shall be
------------------------------
shares of Common Stock; provided, however, that the number of Shares shall
--------- ------- ----
increase by an additional shares of Common Stock
-----------------------------
on July 31, 1997 if no Institutional Funding (as hereinafter defined) has
occurred on or before said date. As used herein, an "Institutional Funding"
means (i) one or more offerings by the Company of its convertible debt or equity
securities that have closed since the date hereof and provided to the Company
aggregate gross proceeds of at least Fifteen Million Dollars ($15,000,000) and
---
(ii) a commitment received by the Company from one or more institutional
investors to purchase additional securities of the Company by December 31, 1997
for aggregate gross proceeds of not less than twenty-five Million Dollars
($25,000,000).
2. Price of Shares Subject to Warrant. Subject to adjustment as
----------------------------------
hereinafter provided, the purchase price of one share of Common Stock shall be
$1.10. The purchase price of one share of Common Stock payable from time to
time upon the exercise of this Warrant (whether such price be the price
specified above or an adjusted price determined as hereinafter provided) is
referred to herein as the "Warrant Price."
1
<PAGE>
3. Exercise Period. This Warrant shall remain exercisable pursuant to the
---------------
provisions of Paragraph 8 until the earlier of (a) 5:00 p.m. Pacific Time on the
day of closing of a public offering of Common Stock of the Company registered
under the Securities Act of 1933, as amended (the "Securities Act"), in which
the aggregate primary proceeds to the Company (net of discount to underwriters
but before expenses) equals at least $25,000,000 or (b) 5:00 p.m. Pacific Time
on the third calendar anniversary of the date of this Warrant. The Company shall
give the holder of this Warrant notice of the planned completion of such a
public offering at least twenty (20) days in advance of the closing date.
4. Adjustment of Warrant Price and Number of Shares. The number of
------------------------------------------------
Shares issuable upon the exercise of this Warrant shall be subject to adjustment
from time to time upon the happening of certain events as follows:
(a) Adjustment for Dividends in Stock. In case at any time or from
---------------------------------
time to time on or after the date hereof the holders of the Common Stock of the
Company shall have received, or, on or after the record date fixed for the
determination of eligible shareholders, shall have become entitled to receive,
without payment therefor, other or additional stock of the Company by way of
dividend, then and in each case, the holder of this Warrant shall, upon the
exercise hereof, be entitled to receive, in addition to the number of shares of
Common Stock receivable thereupon, and without payment of any additional
consideration therefor, the amount of such other or additional stock of the
Company which such holder would hold on the date of such exercise had it been
the holder of record of such Common Stock on the date hereof and had thereafter,
during the period from the date hereof to and including the date of such
exercise, retained such shares and/or all other additional stock receivable by
it as aforesaid during such period, giving effect to all adjustments called for
during such period by paragraphs (b) and (c) of this Paragraph 4.
(b) Adjustment for Reclassification, Reorganization or Merger. In
---------------------------------------------------------
case of any reclassification or change of the outstanding securities of the
Company or of any reorganization of the Company (or any other corporation the
stock or securities of which are at the time receivable upon the exercise of
this Warrant) on or after the date hereof, or in case, after such date, the
Company (or any such corporation) shall merge with or into another corporation
or convey all or substantially all of its assets to another corporation, then
and in each such case the holder of this Warrant, upon exercise hereof at any
time after the consummation of such reclassification, change, reorganization,
merger or conveyance, shall be entitled to receive, in lieu of the stock or
other securities and property receivable upon the exercise hereof prior to such
consummation, the stock or other securities or property to which such holders
would have been entitled upon such consummation if such holder had exercised
this Warrant immediately prior thereto, all subject to further adjustment as
provided in paragraphs (a) and (c); in each such case, the terms of this
Paragraph 4 shall be applicable to the shares of stock or other securities
properly receivable upon the exercise of this Warrant after such consummation.
2
<PAGE>
(c) Stock Splits and Reverse Stock Splits. If at any time on or
-------------------------------------
after the date hereof the Company shall subdivide its outstanding shares of
Common Stock into a greater number of shares, the Warrant Price in effect
immediately prior to such subdivision shall thereby be proportionately reduced
and the number of shares receivable upon exercise of the Warrant shall thereby
be proportionately increased; and, conversely, if at any time on or after the
date hereof the outstanding number of shares of Common Stock shall be combined
into a smaller number of shares, the Warrant Price in effect immediately prior
to such combination shall thereby be proportionately increased and the number of
shares receivable upon exercise of the Warrant shall thereby be proportionately
decreased. In the event of any adjustment in the number of shares covered by
this Warrant, any fractional shares resulting from such adjustment shall be
disregarded and this Warrant shall cover only the number of full shares
resulting from such adjustment. The foregoing adjustments shall be made by the
Board of Directors of the Company, or by the applicable terms of any assumption
or substitution document, and any adjustments so made shall be final, binding
and conclusive.
5. Other Adjustments. Except as provided in Paragraph 4, no adjustment
-----------------
on account of dividends on Common Stock will be made upon the exercise hereof.
6. No Stockholder Rights. This Warrant shall not entitle its holder to
---------------------
any of the rights of a stockholder of the Company.
7. Reservation of Stock. The Company covenants that during the period
--------------------
this Warrant is exercisable, the Company will reserve from its authorized and
unissued Common Stock a sufficient number of shares to provide for the issuance
of the shares upon the exercise of this Warrant. The Company agrees that its
issuance of this Warrant shall constitute full authority to its officers who are
charged with the duty of executing stock certificates to execute and issue the
necessary certificates for shares of Common Stock upon the exercise of this
Warrant.
8. Exercise of Warrant. This Warrant may be exercised by the registered
-------------------
holder or its registered assigns, in whole or in part, by the surrender of this
Warrant at the principal office of the Company, accompanied by payment in full
of the Warrant Price as described above by certified or cashier's check;
provided, however, that the minimum partial exercise shall not be less than 10%
- -------- ------- ----
of the Shares. Upon partial exercise hereof, a new warrant or warrants
containing the same date and provisions as this Warrant shall be issued by the
Company to the registered holder for the number of shares of Common Stock with
respect to which this Warrant shall not have been exercised. This Warrant (or
any portion thereof) shall be deemed to have been exercised immediately prior to
the close of business on the date of its surrender for exercise as provided
above, and the person entitled to receive the shares of Common Stock issuable
upon such exercise shall be treated for all purposes as the holder of such
shares of record as of the close of business on such date. As promptly as
practicable on or after such date, the Company shall issue and deliver to the
person or persons entitled to receive the same a certificate or certificates for
the number of full shares of Common Stock
3
<PAGE>
issuable upon such exercise, together with cash in lieu of any fraction of a
share as provided above.
9. Certificates of Funding; Certificate of Adjustment. If an
--------------------------------------------------
Institutional Funding (as defined in Paragraph 1) occurs on or before June 30,
1997, the Company shall deliver to the record holder of this Warrant a
certificate of an officer of the Company confirming the occurrence of the
Institutional Funding and setting forth a brief description of the
transaction(s) and commitments constituting the Institutional Funding. Whenever
the Warrant Price or the number of Shares subject to exercise under this Warrant
is adjusted, as herein provided, the Company shall deliver to the record holder
of this Warrant a certificate of an officer of the Company setting forth the
Warrant Price after such adjustment or the adjusted number of Shares and a brief
statement of the facts requiring such adjustment.
10. Transfer of Warrant. This Warrant may not be transferred by the holder
-------------------
without the written consent of the Company such written consent to not be
unreasonably withheld (except by operation of law or, to a successor by merger,
acquisition or other corporate reorganization or upon a distribution by the
partnership to its partners in liquidation of the partnership) and compliance
with applicable federal and state securities laws to the satisfaction of the
Company.
11. Compliance with Securities Laws.
-------------------------------
(a) The holder represents and agrees that this Warrant (and the
Shares, if the warrant is exercised) are purchased only for investment, for
holder's own account, and without any present intention to sell or distribute
the Warrant or the Shares. The holder further acknowledges that the Shares will
not be issued pursuant to the exercise of this Warrant unless the exercise of
the warrant and the issuance and delivery of such Shares shall comply with all
relevant provisions of law, including, without limitation, the Securities Act
and other federal and state securities laws and regulations and the requirements
of any stock exchange or quotation system upon which the Shares may then be
listed.
(b) The holder of this Warrant acknowledges and agrees that this
Warrant and the Shares have not been registered under the Securities Act and
accordingly will not be transferable except as permitted under the various
exemptions contained in the Securities Act, or upon satisfaction of the
registration and prospectus delivery requirements of the Securities Act.
Therefore, the Warrant and Shares must be held indefinitely unless they are
subsequently registered under the Securities Act or an exemption from such
registration is available. The holder understands that the certificate
evidencing the Shares will be imprinted with a legend which prohibits the
transfer thereof unless they are registered or unless the Company receives an
opinion of counsel reasonably satisfactory to the Company that such registration
is not required. The holder understands that a stop transfer instruction may be
in effect with respect to transfer of the Warrant and Shares consistent with the
requirements of the securities laws.
4
<PAGE>
12. Board Representation. In the event Institutional Funding (as defined
--------------------
in Paragraph 1) does not occur prior to June 30, 1997, at such time as the
holder of this Warrant has completed (or arranged for the completion by
affiliates) of loans to the Company, on mutually satisfactory terms and
conditions, in an aggregate amount of not less than $2,000,000, the Board of
Directors of the Company shall (i) exercise its authority under the Company's
bylaws to increase the number of directors by one position and to appoint to the
vacancy so created a person selected by the holder of this Warrant, and (ii)
nominate and recommend such person (or any replacement person selected by the
holder of this Warrant) for election to the Board of Directors by the
shareholders of the Company at each succeeding annual meeting of shareholders so
long as this Warrant is issued and outstanding.
13. Piggyback Registration Rights. If, on or before December 5, 1999, the
-----------------------------
Company proposes to register any of its shares of Common Stock under the
Securities Act in connection with an underwritten public offering of such Common
Stock for the account of the Company solely for cash on a form that would also
permit registration of the Shares and the shares of Common Stock (the
"Conversion Shares") obtained by exercise of the conversion rights set forth in
that certain Promissory Note of even date herewith issued by the Company to
, it will promptly give written notice of its intention to do so to
- -----------
each holder of this Warrant and owner of Shares or Conversion Shares if such
person holds (or upon full exercise of this Warrant would hold) more than 1% of
the then-outstanding shares of the Common Stock of the Company on a fully
diluted basis. Upon the written request of such a holder or owner given within
twenty (20) days after receipt of any such notice (which request shall specify
the number of Shares or Conversion Shares (or both) desired to be included in
such underwritten public offering by the Company), the Company will use its
reasonable best efforts to cause all Shares and Conversion Shares requested by
the holder or owner to be included in such registration to be registered to
permit their inclusion in such underwritten public offering; provided, however,
-------- -------
that the Company shall not be required to cause any Shares or Conversion Shares
- ----
(or both) to be so registered or included or to give notice of registration (i)
if in the underwriters' opinion the inclusion will jeopardize the success of the
offering of shares of Common Stock by the Company or (ii) in the case of a
registration on any form which does not include substantially the same
information as would be required to be included in the registration statement
covering the sale of Shares of Conversion Shares (or both) for cash. If some but
not all shares of Common Stock with respect to which the Company shall have
received requests for registration pursuant to piggyback registration rights
granted hereunder or pursuant to any other agreement shall be excluded from such
registration, the Company shall make appropriate allocation of shares to be
registered among all holders of Common Stock having a contractual right to
register their shares and at the time desiring to register their shares pro rata
in the proportion that the number of shares held by each such holder bears to
the total number of shares held by all such holders then desiring to have their
shares registered for sale. With respect to the Shares or Conversion Shares (or
both) so included, the holder shall bear the cost of any underwriting discount
or selling expenses for the sale of such Shares or Conversion Shares (or both)
and the cost of the attorneys' fees for the holder's own attorney, if any, and
the Company shall bear all other costs and expenses of the registration,
5
<PAGE>
including attorneys and accountants fees, printing costs, SEC and blue sky
filing fees and transfer agent fees and expenses. The Company shall not be
required under this Paragraph 13 to include any of the Shares or Conversion
Shares (or both) in an underwriting of shares unless the holder (i) accepts the
terms of the underwriting as agreed upon between the Company and the
underwriters selected by it, assuming normal and customary underwriting terms
and (ii) furnishes to the Company such information regarding itself as shall be
reasonably required to effect the registration of the Shares or Conversion
Shares (or both). The rights granted pursuant to this Paragraph 13 may not be
assigned by the holder without the Company's prior written consent. The holder
hereby agrees that it shall not, to the extent required by the Company and the
underwriter of the offering giving rise to piggyback rights hereunder sell or
otherwise transfer or dispose of (other than to donees who agree to be
similarly bound) any shares of Common Stock during the one-hundred-twenty day
period following the effective date of a registration statement filed by the
Company under the Securities Act with respect to such offering. The Company
retains the right in its sole discretion to abandon or withdraw any registration
statement at any time.
14. Attorney Fees. The Company shall reimburse the holder of this Warrant
-------------
for its reasonable attorney fees incurred in connection with the provision of
financing by in an amount not to exceed $25,000.
- ---------- --------------
15. Representations and Warranties. The Company represents and warrants to
------------------------------
the holder of this Warrant on the date hereof as follows:
1 Corporate Organization and Authority. The Company is a
------------------------------------
corporation duly organized, validly existing, authorized to exercise all its
corporate powers, rights and privileges, and in good standing in the State of
Washington; and it has the corporate power and corporate authority to own and
operate its properties and to carry on its business as now conducted and as
proposed to be conducted.
2 Capitalization. The authorized capital of the Company consists of
--------------
Twenty Million (20,000,000) shares of Common Stock, of which approximately Five
Million Nine Thousand One Hundred Sixty Five (5,009,165) are issued and
outstanding and Five Million (5,000,000) shares of Preferred Stock, none of
which shares are outstanding. The outstanding shares have been duly authorized
and validly issued (including, without limitation, issued in compliance with
applicable federal and state securities laws), fully-paid, and non-assessable.
The Company has options outstanding to its employees, consultants, officers and
directors for 1,494,130 shares of common stock and has reserved 2,600,000 shares
of Common Stock for issuance to officers, directors, employees, or consultants
of the Company including shares issuable upon exercise of outstanding options.
The Company also has warrants outstanding to lenders and other persons for
544,057 shares of Common Stock. Except as set forth above, there are no
outstanding warrants, options, conversion privileges, preemptive rights, or
other rights or agreements to purchase or otherwise acquire or issue any
6
<PAGE>
equity securities of the Company, nor has the issuance of any of the aforesaid
rights to acquire securities of the Company been authorized.
15.3 Authorization. All corporate action on the part of the Company,
-------------
its officers, directors, and shareholders necessary for the authorization,
execution, delivery, and performance of all obligations under this Warrant and
the Promissory Note of even date herewith in favor of has been
--------------
taken, and this Warrant and that Promissory Note (collectively, the
"Transactional Agreements") constitute legally binding and valid obligations of
the Company enforceable in accordance with their terms.
4 Corporate Power. The Company has all requisite legal and
---------------
corporate power and authority to execute and deliver the Transactional
Agreements, to issue the Shares issuable upon exercise of the Warrant, and to
carry out and perform its obligations under the terms of the Transactional
Agreements.
5 No Conflict with Other Instruments. The execution, delivery, and
----------------------------------
performance of the Transactional Agreements will not result in any violation of,
be in conflict with, or constitute a default under, with or without the passage
of time or the giving of notice: (i) any provision of the Company's amended
articles of incorporation or its bylaws; (ii) any provision of any judgment,
decree, or order to which the Company is a party or by which it is bound; (iii)
any material contract, obligation, or commitment to which the Company is a party
or by which it is bound; or (iv) to the Company's knowledge, any statute, rule,
or governmental regulation applicable to the Company.
6 Disclosure. The Company has delivered to the holder of this
----------
Warrant a copy of its draft Private Placement Memorandum dated November, 1996
(the "PPM"). The Transactional Agreements, the PPM, and any other documentation
furnished to the holder by the Company in connection with the holder's decision
to purchase this Warrant, together with any exhibits or appendices hereto, do
not contain any untrue statement of a material fact or omit any material fact
necessary to make the statements contained therein or herein in view of the
circumstances under which they were made not misleading, except that, with
respect to projections contained in the PPM, the Company represents only that
such projections were prepared in good faith and that the Company reasonably
believes that there is a reasonable basis for such projections. The Company has
provided the holder with all the information that the holder has requested for
deciding whether to purchase this Warrant.
7 Financial Statements. The Company has delivered to the initial
--------------------
holder of this Warrant its unaudited financial statements for the period ending
December 31, 1996. These financial statements fairly and accurately set out and
describe the financial condition and operating results of the Company as of the
dates and during the periods indicated thereon, and they have been prepared in
the ordinary course of business using accounting methods applied in a manner
consistent with the Company's financial statements for previous periods.
7
<PAGE>
16. Miscellaneous. This Warrant shall be governed solely by the laws of
-------------
the State of Washington without regard to the conflicts of laws provisions
thereof to the contrary. The headings in this Warrant are for purposes of
convenience and reference only, and shall not be deemed to constitute a part
hereof. Neither this Warrant nor any term hereof may be changed, waived,
discharged or terminated except by an instrument in writing signed by the
Company and the registered holder hereof. All notices and other communications
from the Company to the holder of this Warrant shall be delivered in person or
mailed first-class, postage prepaid, to the address furnished to the Company in
writing by the last holder of this Warrant who shall have furnished an address
to the Company in writing. Each such notice or other communication shall for
all purposes of this Warrant be treated as effective or having been given when
delivered if delivered personally, or, if sent by mail, at the earlier of its
receipt or 72 hours after the same has been deposited in a regularly maintained
receptacle for the deposit of the United States mail, addressed and mailed as
aforesaid.
ISSUED this day of 1997.
----- -----
GLOBALTEL RESOURCES, INC.,
a Washington corporation
By:
-------------------------------------
Ronald P. Erickson
President and Chief Executive Officer
Warrant No.
----
8
<PAGE>
EXHIBIT 4.5
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED
STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THESE
SECURITIES MAY BE OFFERED, SOLD OR OTHERWISE TRANSFERRED ONLY (A) TO THE
CORPORATION, (B) OUTSIDE THE UNITED STATES IN ACCORDANCE WITH RULE 904 OR
REGULATION S UNDER THE SECURITIES ACT IF APPLICABLE, OR (C) INSIDE THE UNITED
STATES (i) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144
THEREUNDER, IF APPLICABLE, AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES
LAWS OR (ii) IN COMPLIANCE WITH ANOTHER APPLICABLE EXEMPTION UNDER THE
SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS, SUCH COMPLIANCE, AT THE
OPTION OF THE CORPORATION, TO BE EVIDENCED BY AN OPINION OF COUNSEL, IN FORM
ACCEPTABLE TO THE CORPORATION, THAT NO VIOLATION OF SUCH REGISTRATION PROVISIONS
WOULD RESULT FROM ANY PROPOSED TRANSFER OR ASSIGNMENT.
GLOBALTEL RESOURCES, INC.
STOCK PURCHASE WARRANT
1. Number of Shares Subject to Warrant. Subject to the terms and
-----------------------------------
conditions herein set forth, , an individual, is
-----------------------
entitled to purchase from GlobalTel Resources, Inc., a Washington corporation
(the "Company"), at any time on or before the expiration date set forth in
Paragraph 3, and upon surrender hereof at the principal office of the Company
and payment of the purchase price at said office in cash or by check, the number
of shares of fully paid and non-assessable Common Stock, $.01 par value, of the
Company hereinafter provided (the "Shares"). The initial number of Shares shall
be shares of Common Stock; provided, however, that the
---------------------- -------- ------- ----
number of Shares shall increase by an additional shares
----------------------
of Common Stock on March 31, 1997 if no Institutional Funding (as hereinafter
defined) has occurred on or before said date. As used herein, an "Institutional
Funding" means (i) one or more offerings by the Company of its convertible debt
or equity securities that have closed since the date hereof and provided to the
Company aggregate gross proceeds of at least Fifteen Million Dollars
($15,000,000) and (ii) a commitment received by the Company from one or more
---
institutional investors to purchase additional securities of the Company by
December 31, 1997 for aggregate gross proceeds of not less than Twenty-Five
Million Dollars ($25,000,000). In addition, if any of the offerings by the
Company of its convertible debt or equity securities that close on or before
March 31, 1997, are completed on the basis of a per share price of Common Stock
of less than $5.00, the number of Shares shall also increase by an amount
determined by the following formula:
x (5.00 - Actual Price)
-----------------------------
(Actual Price - 1.10)
1
<PAGE>
As used herein "Actual Price" means the price per share of Common Stock used in
any Common Stock offering on or before March 31, 1997, or implicit in any
offering of other securities convertible to Common Stock on or prior to such
date.
2. Price of Shares Subject to Warrant. Subject to adjustment as
----------------------------------
hereinafter provided, the purchase price of one share of Common Stock shall be
$1.10. The purchase price of one share of Common Stock payable from time to
time upon the exercise of this Warrant (whether such price be the price
specified above or an adjusted price determined as hereinafter provided) is
referred to herein as the "Warrant Price."
3. Exercise Period. This Warrant shall remain exercisable pursuant to the
---------------
provisions of Paragraph 8 until the earlier of (a) 5:00 p.m. Pacific Time on the
day of closing of a public offering of Common Stock of the Company registered
under the Securities Act of 1933, as amended (the "Securities Act"), in which
the aggregate primary proceeds to the Company (net of discount to underwriters
but before expenses) equals at least $25,000,000 or (b) 5:00 p.m. Pacific Time
on the third calendar anniversary of the date of this Warrant. The Company shall
give the holder of this Warrant notice of the planned completion of such a
public offering at least twenty (20) days in advance of the closing date.
4. Adjustment of Warrant Price and Number of Shares. The number of
------------------------------------------------
Shares issuable upon the exercise of this Warrant shall be subject to adjustment
from time to time upon the happening of certain events as follows:
(a) Adjustment for Dividends in Stock. In case at any time or from
---------------------------------
time to time on or after the date hereof the holders of the Common Stock of the
Company shall have received, or, on or after the record date fixed for the
determination of eligible shareholders, shall have become entitled to receive,
without payment therefor, other or additional stock of the Company by way of
dividend, then and in each case, the holder of this Warrant shall, upon the
exercise hereof, be entitled to receive, in addition to the number of shares of
Common Stock receivable thereupon, and without payment of any additional
consideration therefor, the amount of such other or additional stock of the
Company which such holder would hold on the date of such exercise had it been
the holder of record of such Common Stock on the date hereof and had thereafter,
during the period from the date hereof to and including the date of such
exercise, retained such shares and/or all other additional stock receivable by
it as aforesaid during such period, giving effect to all adjustments called for
during such period by paragraphs (b) and (c) of this Paragraph 4.
(b) Adjustment for Reclassification, Reorganization or Merger. In
---------------------------------------------------------
case of any reclassification or change of the outstanding securities of the
Company or of any reorganization of the Company (or any other corporation the
stock or securities of which are at the time
2
<PAGE>
receivable upon the exercise of this Warrant) on or after the date hereof, or in
case, after such date, the Company (or any such corporation) shall merge with or
into another corporation or convey all or substantially all of its assets to
another corporation, then and in each such case the holder of this Warrant, upon
exercise hereof at any time after the consummation of such reclassification,
change, reorganization, merger or conveyance, shall be entitled to receive, in
lieu of the stock or other securities and property receivable upon the exercise
hereof prior to such consummation, the stock or other securities or property to
which such holders would have been entitled upon such consummation, the stock or
other securities or property to which such holders would have been entitled upon
such consummation if such holder had exercised this Warrant immediately prior
thereto, all subject to further adjustment as provided in paragraphs (a) and
(c); in each such case, the terms of this Paragraph 4 shall be applicable to the
shares of stock or other securities properly receivable upon the exercise of
this Warrant after such consummation.
(c) Stock Splits and Reverse Stock Splits. If at any time on or after
-------------------------------------
the date hereof the Company shall subdivide its outstanding shares of Common
Stock into a greater number of shares, the Warrant Price in effect immediately
prior to such subdivision shall thereby be proportionately reduced and the
number of shares receivable upon exercise of the Warrant shall thereby be
proportionately increased; and, conversely, if at any time on or after the date
hereof the outstanding number of shares of Common Stock shall be combined into a
smaller number of shares, the Warrant Price in effect immediately prior to such
combination shall thereby be proportionately increased and the number of shares
receivable upon exercise of the Warrant shall thereby be proportionately
decreased. In the event of any adjustment in the number of shares covered by
this Warrant, any fractional shares resulting from such adjustment shall be
disregarded and this Warrant shall cover only the number of full shares
resulting from such adjustment. The foregoing adjustments shall be made by the
Board of Directors of the Company, or by the applicable terms of any assumption
or substitution document, and any adjustments so made shall be final, binding
and conclusive.
5. Other Adjustments. Except as provided in Paragraph 4, no adjustment
-----------------
on account of dividends on Common Stock will be made upon the exercise hereof.
6. No Stockholder Rights. This Warrant shall not entitle its holder to
---------------------
any of the rights of a stockholder of the Company.
7. Reservation of Stock. The Company covenants that during the period
--------------------
this Warrant is exercisable, the Company will reserve from its authorized and
unissued Common Stock a sufficient number of shares to provide for the issuance
of the shares upon the exercise of this Warrant. The Company agrees that its
issuance of this Warrant shall constitute full authority to its officers who are
charged with the duty of executing stock certificates to execute and issue the
necessary certificates for shares of Common Stock upon the exercise of this
Warrant.
3
<PAGE>
8. Exercise of Warrant. This Warrant may be exercised by the registered
-------------------
holder or its registered assigns, in whole or in part, by the surrender of this
Warrant at the principal office of the Company, accompanied by payment in full
of the Warrant Price as described above by certified or cashier's check;
provided, however, that the minimum partial exercise shall not be less than 10%
- -------- ------- ----
of the Shares. Upon partial exercise hereof, a new warrant or warrants
containing the same date and provisions as this Warrant shall be issued by the
Company to the registered holder for the number of shares of Common Stock with
respect to which this Warrant shall not have been exercised. The Warrant (or any
portion thereof) shall be deemed to have been exercised immediately prior to the
close of business on the date of its surrender for exercise as provided above,
and the person entitled to receive the shares of Common Stock issuable upon such
exercise shall be treated for all purposes as the holder of such shares of
record as of the close of business on such date. As promptly as practicable on
or after such date, the Company shall issue and deliver to the person or persons
entitled to receive the same a certificate or certificates for the number of
full shares of Common Stock issuable upon such exercise, together with cash in
lieu of any fraction of a share as provided above.
9. Certificates of Funding; Certificate of Adjustment. If an
--------------------------------------------------
Institutional Funding (as defined in Paragraph 1) occurs on or before March 31,
1997, the Company shall deliver to the record holder of this Warrant a
certificate of an officer of the Company confirming the occurrence of the
Institutional Funding and setting forth a brief description of the
transaction(s) and commitments constituting the Institutional Funding. Whenever
the Warrant Price or the number of Shares subject to exercise under this Warrant
is adjusted, as herein provided, the Company shall deliver to the record holder
of this Warrant a certificate of an officer of the Company setting forth the
Warrant Price after such adjustment or the adjusted number of Shares and a brief
statement of the facts requiring such adjustment.
10. Transfer of Warrant. This Warrant may not be transferred by the
-------------------
holder without the written consent of the Company (except by operation of law
or, to a successor by merger, acquisition or other corporate reorganization or
upon a distribution by the partnership to its partners in liquidation of the
partnership) and compliance with applicable federal and state securities laws to
the satisfaction of the Company.
11. Compliance with Securities Laws.
-------------------------------
(a) The holder represents and agrees that this Warrant (and the
Shares, if the warrant is exercised) are purchased only for investment, for
holder's own account, and without any present intention to sell or distribute
the Warrant or the Shares. The holder further acknowledges that the Shares will
not be issued pursuant to the exercise of this Warrant unless the exercise of
the warrant and the issuance and delivery of such Shares shall comply with all
relevant provisions of law, including, without limitation, the Securities Act
and other federal and
4
<PAGE>
state securities laws and regulations and the requirements of any stock exchange
or quotation system upon which the Shares may then be listed.
(b) The holder of this Warrant acknowledges and agrees that this
Warrant and the Shares have not been registered under the Securities Act and
accordingly will not be transferrable except as permitted under the various
exemptions contained in the Securities Act, or upon satisfaction of the
registration and prospectus delivery requirements of the Securities Act.
Therefore, the Warrant and Shares must be held indefinitely unless they are
subsequently registered under the Securities Act or an exemption from such
registration is available. The holder understands that the certificate
evidencing the Shares will be imprinted with a legend which prohibits the
transfer thereof unless they are registered or unless the Company receives an
opinion of counsel reasonably satisfactory to the Company that such registration
is not required. The holder understands that a stop transfer instruction may be
in effect with respect to transfer of the Warrant and Shares consistent with the
requirements of the securities laws.
12. Board Representation. In the event Institutional Funding (as defined
--------------------
in Paragraph 1) does not occur prior to April 1, 1997, at such time as the
holder of this Warrant has completed (or arranged for the completion by
affiliates) of loans to the Company, on mutually satisfactory terms and
conditions, in an aggregate amount in excess of $2,000,000, the Board of
Directors of the Company shall (i) exercise its authority under the Company's
bylaws to increase the number of directors by one position and to appoint to the
vacancy so created a person selected by the holder of this Warrant, and (ii)
nominate and recommend such person (or any replacement person selected by the
holder of this Warrant) for election to the Board of Directors by the
shareholders of the Company at each succeeding annual meeting of shareholders so
long as this Warrant is issued and outstanding.
13. Piggyback Registration Rights. If, on or before December 5, 1999, the
-----------------------------
Company proposes to register any of its shares of Common Stock under the
Securities Act in connection with an underwritten public offering of such Common
Stock for the account of the Company solely for cash on a form that would also
permit registration of the Shares and the shares of Common Stock (the
"Conversion Shares") obtained by exercise of the conversion rights set forth in
that certain Promissory Note of even date herewith issued by the Company to
, it will promptly give written notice of its intention to do
- ----------------
so to each holder of this Warrant and owner of Shares or Conversion Shares if
such person holds (or upon full exercise of this Warrant would hold) more than
1% of the then-outstanding shares of the Common Stock of the Company on a fully
diluted basis. Upon the written request of such a holder or owner given within
twenty (20) days after receipt of any such notice (which request shall specify
the number of Shares or Conversion Shares (or both) desired to be included in
such underwritten public offering by the Company), the Company will use its
reasonable best efforts to cause all Shares and Conversion Shares requested by
the holder or owner to be included in such registration to be registered to
permit their inclusion in such underwritten public offering; provided, however,
-------- -------
that
- ----
5
<PAGE>
the Company shall not be required to cause any Shares or Conversion Shares (or
both) to be so registered or included or to give notice of registration (i) if
in the underwriters' opinion the inclusion will jeopardize the success of the
offering of shares of Common Stock by the Company or (ii) in the case of a
registration on any form which does not include substantially the same
information as would be required to be included in the registration statement
covering the sale of Shares or Conversion Shares (or both) for cash. If some but
not all shares of Common Stock with respect to which the Company shall have
received requests for registration pursuant to piggyback registration rights
granted hereunder or pursuant to any other agreement shall be excluded from such
registration, the Company shall make appropriate allocation of shares to be
registered among all holders of Common Stock having a contractual right to
register their shares and at the time desiring to register their shares pro
rata in the proportion that the number of shares held by each such holder bears
to the total number of shares held by all such holders then desiring to have
their shares registered for sale. With respect to the Shares or Conversion
Shares (or both) so included, the holder shall bear the cost of any underwriting
discount or selling expenses for the sale of such Shares or Conversion Shares
(or both) and the cost of the attorneys' fees for the holder's own attorney, if
any, and the Company shall bear all other costs and expenses of the
registration, including attorneys and accountants fees, printing costs, SEC and
blue sky filing fees and transfer agent fees and expenses. The Company shall not
be required under this Paragraph 13 to include any of the Shares or Conversion
Shares (or both) in an underwriting of shares unless the holder (i) accepts the
terms of the underwriting as agreed upon between the Company and the
underwriters selected by it, assuming normal and customary underwriting terms
and (ii) furnishes to the Company such information regarding itself as shall be
reasonably required to effect the registration of the Shares or Conversion
Shares (or both). The rights granted pursuant to this Paragraph 13 may not be
assigned by the holder without the Company's prior written consent. The holder
hereby agrees that it shall not, to the extent required by the Company and the
underwriter of the offering giving rise to piggyback rights hereunder sell or
otherwise transfer or dispose of (other than to donees who agree to be similarly
bound) any shares of Common Stock during the one-hundred-twenty day period
following the effective date of a registration statement filed by the Company
under the Securities Act with respect to such offering. The Company retains the
right in its sole discretion to abandon or withdraw any registration statement
at any time.
14. Attorney Fees. The Company shall reimburse the holder of this Warrant
-------------
for its reasonable attorney fees incurred in connection with this transaction in
an amount not to exceed $5,000.
15. Representations and Warranties. The Company represents and warrants to
------------------------------
the holder of this Warrant on the date hereof as follows:
1 Corporate Organization and Authority. The Company is a
------------------------------------
corporation duly organized, validly existing, authorized to exercise all its
corporate powers, rights and
6
<PAGE>
privileges, and in good standing in the State of Washington; and it has the
corporate power and corporate authority to own and operate its properties and to
carry on its business as now conducted and as proposed to be conducted.
2 Capitalization. The authorized capital of the Company consists of
--------------
Twenty Million (20,000,000) shares of Common Stock, of which approximately Five
Million Nine Thousand One Hundred Sixty Five (5,009,165) are issued and
outstanding and Five million (5,000,000) shares of Preferred Stock, none of
which shares are outstanding. The outstanding shares have been duly authorized
and validly issued (including, without limitation, issued in compliance with
applicable federal and state securities laws), fully-paid, and non-assessable.
The Company has options outstanding to its employees, consultants, officers and
directors for 1,319,500 shares of common stock and has reserved 2,600,000 shares
of Common Stock for issuance to officers, directors, employees, or consultants
of the Company including shares issuable upon exercise of outstanding options.
The Company also has warrants outstanding to lenders and other persons for
340,757 shares of Common Stock. Except as set forth above, there are no
outstanding warrants, options, conversion privileges, preemptive rights, or
other rights or agreements to purchase or otherwise acquire or issue any equity
securities of the Company, nor has the issuance of any of the aforesaid rights
to acquire securities of the Company been authorized.
15.3 Authorization. All corporate action on the part of the Company,
-------------
its officers, directors, and shareholders necessary for the authorization,
execution, delivery, and performance of all obligations under this Warrant and
the Promissory Note of even date herewith in favor of has been
----------------
taken, and this Warrant and that promissory Note (collectively, the
"Transactional Agreements") constitute legally binding and valid obligations of
the Company enforceable in accordance with their terms.
4 Corporate Power. The Company has all requisite legal and
---------------
corporate power and authority to execute and deliver the Transactional
Agreements, to issue the Shares issuable upon exercise of the Warrant, and to
carry out and perform its obligations under the terms of the Transactional
Agreements.
5 No Conflict with Other Instruments. The execution, delivery, and
----------------------------------
performance of the Transactional Agreements will not result in any violation of,
be in conflict with, or constitute a default under, with or without the passage
of time or the giving of notice: (i) any provision of the Company's amended
articles of incorporation or its bylaws; (ii) any provision of any judgment,
decree, or order to which the Company is a party or by which it is bound; (iii)
any material contract, obligation, or commitment to which the Company is a party
or by which it is bound; or (iv) to the Company's knowledge, any statute, rule,
or governmental regulation applicable to the Company.
7
<PAGE>
6 Disclosure. The Company has delivered to the holder of this Warrant
----------
a copy of its draft Private Placement Memorandum dated November, 1996 (the
"PPM"). The Transactional Agreements, the PPM, and any other documentation
furnished to the holder by the Company in connection with the holder's decision
to purchase this Warrant, together with any exhibits or appendices hereto, do
not contain any untrue statement of a material fact or omit any material fact
necessary to make the statements contained therein or herein in view of the
circumstances under which they were made not misleading, except that, with
respect to projections contained in the PPM, the Company represents only that
such projections were prepared in good faith and that the Company reasonably
believes that there is a reasonable basis for such projections. The Company has
provided the holder with all the information that the holder has requested for
deciding whether to purchase this Warrant.
7 Financial Statements. The Company has delivered to the initial holder
--------------------
of this Warrant its unaudited financial statements for the period ending
September 30, 1996. These financial statements fairly and accurately set out
and describe the financial condition and operating results of the Company as of
the dates and during the periods indicated thereon, and they have been prepared
in the ordinary course of business using accounting methods applied in a manner
consistent with the Company's financial statements for previous periods.
8
<PAGE>
16. Miscellaneous. This Warrant shall be governed solely by the laws of
-------------
the State of Washington without regard to the conflicts of laws provisions
thereof to the contrary. The headings in this Warrant are for purposes of
convenience and reference only, and shall not be deemed to constitute a part
hereof. Neither this Warrant nor any term hereof may be changed, waived,
discharged or terminated except by an instrument in writing signed by the
Company and the registered holder hereof. All notices and other communications
from the Company to the holder of this Warrant shall be delivered in person or
mailed first-class, postage prepaid, to the address furnished to the Company in
writing by the last holder of this Warrant who shall have furnished an address
to the Company in writing. Each such notice or other communication shall for all
purposes of this Warrant be treated as effective or having been given when
delivered if delivered personally, or, if sent by mail, at the earlier of its
receipt or 72 hours after the same has been deposited in a regularly maintained
receptacle for the deposit of the United States mail, addressed and mailed as
aforesaid.
ISSUED this day of , 1997.
--- --------
GLOBALTEL RESOURCES, INC.,
a Washington corporation
By: /s/ RONALD P. ERICKSON
-------------------------------------
Ronald P. Erickson
President and Chief Executive Officer
Warrant No.
----
9
<PAGE>
EXHIBIT 4.6
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED
STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THESE
SECURITIES AND INTEREST HEREIN MAY BE OFFERED, SOLD OR OTHERWISE TRANSFERRED
ONLY (A) TO THE CORPORATION, (B) OUTSIDE THE UNITED STATES IN ACCORDANCE WITH
RULE 904 OR REGULATION S UNDER THE SECURITIES ACT IF APPLICABLE, OR (C) INSIDE
THE UNITED STATES (i) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY
RULE 144 THEREUNDER, IF APPLICABLE, AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS OR (ii) IN COMPLIANCE WITH ANOTHER APPLICABLE EXEMPTION UNDER
THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS, SUCH COMPLIANCE, AT
THE OPTION OF THE CORPORATION, TO BE EVIDENCED BY AN OPINION OF COUNSEL, IN FORM
ACCEPTABLE TO THE CORPORATION, THAT NO VIOLATION OF SUCH REGISTRATION PROVISIONS
WOULD RESULT FROM ANY PROPOSED TRANSFER OR ASSIGNMENT.
PROMISSORY NOTE
- ----------- ---------------
FOR VALUE RECEIVED, the undersigned, GLOBALTEL RESOURCES, INC., a
Washington corporation (the "Maker"), HEREBY PROMISES TO PAY to the order of
(the "Holder"), the principal sum of
- -------------- ------------------------
together interest as hereinafter provided, pursuant
- ----------------------------
to the terms and provisions of this Note.
Maker further agrees as follows:
1. Interest. Maker shall pay interest on principal balances owing hereunder
at a rate of 10% per annum. Interest shall be computed on the basis of a 365-day
year, for the actual number of days elapsed. After any breach or default, all
sums then and thereafter owing hereon, including then accrued and thereafter
accruing interest, shall bear interest at a rate per annum of 12% (the "Default
Rate"). Notwithstanding any other provision of this Note, interest, fees and
charges payable by reason of the indebtedness evidenced hereby shall not exceed
the maximum, if any, permitted by any governing law.
2. Conversion or Payment.
---------------------
2.1 If the conditions for conversion of this Note described in
Section 2.2 do not occur prior to eighteen (18) months after the date of this
Note (the "Term") all principal and accrued interest hereunder shall be payable
at the end of the Term.
1
<PAGE>
2.2 If, prior to the end of the Term, Maker closes an offering or
offerings (the "Offering") of its securities with aggregate gross proceeds to
Maker of at least Twenty-Five Million Dollars ($25,000,000) (the "Conversion
Condition"):
(a) Maker shall apply all unpaid principal and accrued interest
hereunder to the purchase of such number of shares of common stock equal to the
total amount of the unpaid principal and accrued interest hereunder on the date
of the Conversion Condition divided by the Per Share Price ((the price per
share to be paid by the investors for the offering, unless there is a Per Common
Share Price (if the securities are a class of preferred stock convertible into
shares of common stock, the price per share of common stock that the investors
would have effectively paid if the securities were converted into shares of
common stock at the date of closing), in which case the Per Common Share Price
shall be used)), and, upon issuance of such number of the shares to Holder,
this Note shall be deemed fully paid and be of no further force or effect.
3. Default. In the event of any default, all sums owing and to become
-------
owing hereunder shall bear interest thereafter at the Default Rate per annum
and, at the option of the Holder, shall become immediately due and payable. A
"default" shall mean any one or more of the following: (a) failure to pay when
due any sum then owing hereon; (b) any failure to perform or comply with any of
the agreements, terms and conditions of this Note; or (c) the insolvency of
Maker or the filing of any petition or other pleading by or against Maker for
the appointment of a receiver or under or pursuant to any bankruptcy or other
debtor relief law. Maker agrees to pay all costs and expenses which the Holder
may incur by reason of any default, including, without limitation, reasonable
attorneys' fees with respect to legal services relating to any default and to a
determination of any rights or remedies of the Holder under this Note, and
reasonable attorneys' fees relating to any actions or proceedings which the
Holder may institute or in which the Holder may appear or participate and in any
reviews thereof and appeals therefrom. Any judgment recovered by the Holder
hereon shall bear interest at the Default Rate per annum, but not to exceed the
highest rate then permitted by law.
4. Payment and Notices. In the event there is no conversion condition,
-------------------
any payment hereon shall be applied first to interest then accrued and then to
principal. Principal, interest and fees are payable in lawful money of the
United States of America, in same day funds, to the Holder at:
---------------
or at such other
- -------------------------------------------------------------
place as the Holder may specify in writing. Any notice required or permitted
hereunder shall be given in writing and shall be conclusively deemed effectively
given upon personal delivery, or five days after deposit in the
2
<PAGE>
United States mail, by registered or certified mail, postage prepaid, addressed
(i) if to Maker, as set forth below Maker's name and signature on the signature
page of this Note and (ii) if to Holder, at the address set forth in this
Section 4, or at such other address as Maker or Holder may designate by ten (10)
days' advance written notice to Holder or Maker, respectively.
5. Governing Law. This Note shall be governed for all purposes by the
-------------
laws of Washington (excluding, however, all choice-of-law provisions in
Washington law), and all parties hereto consent and agree to the exclusive
jurisdiction of the Superior Court of the State of Washington and exclusive
venue in King County, Washington. If any term or provision of this Note, or the
applicability thereof to any person or circumstances, shall to any extent be
invalid or unenforceable, the remainder of this Note, or the application of such
term or provision to persons or circumstances other than those as to which it is
held invalid or unenforceable, shall not be affected thereby and shall continue
in full force and effect.
GLOBALTEL RESOURCES, INC.
By: /s/
----------------------------------
Title: ______________________________
1520 Eastlake Avenue East
Suite 210
Seattle, WA 98102
3
<PAGE>
EXHIBIT 4.7
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED
STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THESE
SECURITIES AND INTEREST HEREIN MAY BE OFFERED, SOLD OR OTHERWISE TRANSFERRED
ONLY (A) TO THE CORPORATION, (B) OUTSIDE THE UNITED STATES IN ACCORDANCE WITH
RULE 904 OR REGULATION S UNDER THE SECURITIES ACT IF APPLICABLE, OR (C) INSIDE
THE UNITED STATES (i) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY
RULE 144 THEREUNDER, IF APPLICABLE, AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS OR (ii) IN COMPLIANCE WITH ANOTHER APPLICABLE EXEMPTION UNDER
THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS, SUCH COMPLIANCE, AT
THE OPTION OF THE CORPORATION, TO BE EVIDENCED BY AN OPINION OF COUNSEL, IN FORM
ACCEPTABLE TO THE CORPORATION, THAT NO VIOLATION OF SUCH REGISTRATION PROVISIONS
WOULD RESULT FROM ANY PROPOSED TRANSFER OR ASSIGNMENT.
PROMISSORY NOTE
--------- -------
FOR VALUE RECEIVED, the undersigned, GLOBALTEL RESOURCES, INC., a
Washington corporation (the "Maker"), HEREBY PROMISES TO PAY to the order of
Robert N. Staudacher (the "Holder"), the principal sum of
- -------------------- ---------------------
together with interest as hereinafter provided,
- ------------------ ------------
pursuant to the terms and provisions of this Note.
Maker further agrees as follows:
1. Interest. Maker shall pay interest on principal balances owing
--------
hereunder at a rate of 10% per annum. Interest shall be computed on the basis of
a 365-day year, for the actual number of days elapsed. After any breach or
default, all sums then and thereafter owing hereon, including then accrued and
thereafter accruing interest, shall bear interest at a rate per annum of 12%
(the "Default Rate"). Notwithstanding any other provision of this Note,
interest, fees and charges payable by reason of the indebtedness evidenced
hereby shall not exceed the maximum, if any, permitted by any governing law.
2. Conversion or Payment.
---------------------
2.1 If the conditions for conversion of this Note described in
Section 2.2 do not occur prior to twelve (12) months after the date of this Note
(the "Term") all principal and accrued interest hereunder shall be payable at
the end of the Term.
<PAGE>
2.2 If, prior to the end of the Term, Maker closes an offering or
offerings (the "Offering") of its securities with aggregate gross proceeds to
Maker of at least Twenty-Five Million Dollars ($25,000,000) (the "Conversion
Condition"):
(a) Maker shall give written notice to Holder at least five (5)
days prior to the closing that will cause the Conversion Condition to be
satisfied (the "Conversion Closing") of (i) the date of the Conversion Closing,
(ii) the rights and preferences of the securities of Maker to be sold at the
Conversion Closing (the "Offered Shares") and (iii) the price per share to be
paid for the Offered Shares by the investors at the Conversion Closing (the "Per
Share Price"), and (iv) if the securities are a class of preferred stock
convertible into shares of common stock, the price per share of common stock
that the investors would have effectively paid if the securities were converted
into shares of common stock at the Conversion Closing (the "Per Common Share
Price"), and
(b) Holder shall have the right, at its sole discretion, by
written notice to Maker at any time prior to the date of the Conversion Closing,
to apply all unpaid principal and accrued interest hereunder to the purchase of
such number of shares of common stock equal to the total amount of the unpaid
principal and accrued interest hereunder on the date of the Conversion Closing
divided by the Per Share Price (unless there is a Per Common Share Price, in
which case the Per Common Share Price shall be used), and, upon issuance of such
number of the shares to Holder, this Note shall be deemed fully paid and be of
no further force or effect, and
(c) If Holder does not give written notice of its election to
purchase all of the shares of common stock available for purchase under
Subsection 2(b), Maker shall pay to Holder the unpaid principal and accrued
interest hereunder in full upon, or immediately after, the Conversion Closing.
3. Default. In the event of any default, all sums owing and to become
-------
owing hereunder shall bear interest thereafter at the Default Rate per annum
and, at the option of the Holder, shall become immediately due and payable. A
"default" shall mean any one or more of the following: (a) failure to pay when
due any sum then owing hereon; (b) any failure to perform or comply with any of
the agreements, terms and conditions of this Note; or (c) the insolvency of
Maker or the filing of any petition or other pleading by or against Maker for
the appointment of a receiver or under or pursuant to any bankruptcy or other
debtor relief law. Maker agrees to pay all costs and expenses which the Holder
may incur by reason of any default, including, without limitation, reasonable
attorneys' fees with respect to legal services relating to any default and to a
determination of any rights or remedies of the Holder under this Note, and
reasonable
<PAGE>
attorneys' fees relating to any actions or proceedings which the Holder may
institute or in which the Holder may appear or participate and in any reviews
thereof and appeals therefrom. Any judgment recovered by the Holder hereon
shall bear interest at the Default Rate per annum, but not to exceed the highest
rate then permitted by law.
4. Payment and Notices. Any payment hereon at the option of Holder shall
-------------------
be applied first to interest then accrued and then to principal. Principal,
interest and fees are payable in lawful money of the United States of America,
in same day funds, to the Holder at:
---------------------------------------
, or at such other place as the Holder
- ----------------------------------------
may specify in writing. Any notice required or permitted hereunder shall be
given in writing and shall be conclusively deemed effectively given upon
personal delivery, or five days after deposit in the United States mail, by
registered or certified mail, postage prepaid, addressed (i) if to Maker, as set
forth below Maker's name and signature on the signature page of this Note and
(ii) if to Holder, at the address set forth in this Section 4, or at such other
address as Maker or Holder may designate by ten (10) days' advance written
notice to Holder or Maker, respectively.
5. Governing Law. This Note shall be governed for all purposes by the
-------------
laws of Washington (excluding, however, all choice-of-law provisions in
Washington law), and all parties hereto consent and agree to the exclusive
jurisdiction of the Superior Court of the State of Washington and exclusive
venue in King County, Washington. If any term or provision of this Note, or the
applicability thereof to any person or circumstances, shall to any extent be
invalid or unenforceable, the remainder of this Note, or the application of such
term or provision to persons or circumstances other than those as to which it is
held invalid or unenforceable, shall not be affected thereby and shall continue
in full force and effect.
GLOBALTEL RESOURCES, INC.
By: /s/ RONALD P. ERICKSON
------------------------------
Title: PRESIDENT
---------------------------
1520 Eastlake Avenue East
Suite 210
Seattle, WA 98102
<PAGE>
EXHIBIT 4.8
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED
STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THESE
SECURITIES AND INTEREST HEREIN MAY BE OFFERED, SOLD OR OTHERWISE TRANSFERRED
ONLY (A) TO THE CORPORATION, (B) OUTSIDE THE UNITED STATES IN ACCORDANCE WITH
RULE 904 OR REGULATION S UNDER THE SECURITIES ACT IF APPLICABLE, OR (C) INSIDE
THE UNITED STATES (i) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY
RULE 144 THEREUNDER, IF APPLICABLE, AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS OR (ii) IN COMPLIANCE WITH ANOTHER APPLICABLE EXEMPTION UNDER
THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS, SUCH COMPLIANCE, AT
THE OPTION OF THE CORPORATION, TO BE EVIDENCED BY AN OPINION OF COUNSEL, IN FORM
ACCEPTABLE TO THE CORPORATION, THAT NO VIOLATION OF SUCH REGISTRATION PROVISIONS
WOULD RESULT FROM ANY PROPOSED TRANSFER OR ASSIGNMENT.
PROMISSORY NOTE
, 1997
- ------------- --------
FOR VALUE RECEIVED, the undersigned, GLOBALTEL RESOURCES, INC., a
Washington corporation (the "Maker"), HEREBY PROMISES TO PAY to the order of
, (the
- --------------------------------------------------------------------
"Holder"), the principal sum of together
-----------------------------------
with interest as hereinafter provided, pursuant to the terms and provisions of
this Note.
Maker further agrees as follows:
1. Interest. Interest on the principal sum of this Note shall accrue at
--------
the rate of ten percent (10%) per annum and shall be computed on the basis of a
365-day year for the actual number of days elapsed. Maker shall pay all accrued
interest on the principal sum of the Note on the sixth (6th) month anniversary
of the date of this Note, the twelfth (12th) month anniversary of the date of
this Note, and on the Maturity Date of this Note (as hereinafter defined). When
an interest payment is due hereunder, Maker may (i) make such payment in cash to
Holder as provided in Section 4 or (ii) execute and deliver to Holder a
promissory note ("PIK Note") in favor of Holder as payment-in-kind for the
interest payment installment amount then due and payable. Each PIK Note shall be
substantially in the form of this Note, except that voluntary conversion of the
PIK Note shall be governed by Section 2 of this Note, rather than terms
contained in the PIK Note itself. After any breach or default, all sums then and
thereafter owing hereon, including then accrued and thereafter accruing
interest, shall bear interest at a rate per annum of 12% (the "Default Rate").
Notwithstanding any other provision of this Note, interest, fees and charges
payable by reason of the indebtedness evidenced hereby shall not exceed the
maximum, if any, permitted by any governing law.
1
<PAGE>
2. Payment or Conversion.
---------------------
2.1 All principal and accrued interest then outstanding under this
Note and all PIK Notes shall be payable in full on December 31, 1999 (the
"Maturity Date"). Prior to the Maturity Date, Holder may voluntarily apply some
or all of the outstanding principal and accrued interest under this Note and all
PIK Notes to the purchase of shares of common stock as provided in Sections 2.2
and 2.3. Prior to the Maturity Date, Maker may prepay some or all of the
outstanding principal and accrued interest under this Note and all PIK Notes
without penalty upon thirty (30) days prior notice to Holder, provided, however,
-------- -------
that Holder may exercise any applicable conversion rights under Sections 2.2 and
- ----
2.3 hereof at any time prior to the noticed date of intended prepayment.
2.2 Prior to the Maturity Date or, prior to the notice date of the
intended prepayment if earlier, Holder shall have the right, at its sole
discretion, by written notice to Maker to apply a portion or all outstanding
principal and accrued interest hereunder and under all PIK Notes to the purchase
of such number of shares of common stock of Maker equal to the amount of unpaid
principal and accrued interest to be converted as specified by Holder in said
notice divided by the Formula Conversion Per Share Price.
(a) The "Formula Conversion Per Share Price" shall be the price
per share of common stock determined by the formula:
Revenues
--------
Shares
As used herein: "Revenues" means Maker's annualized gross revenues for the
twelve-month period beginning April 1, 1997, which shall be determined
(regardless of Maker's actual experience after June 30, 1997) by (i) multiplying
Maker's actual gross international callback revenues for the three month period
April 1 through June 30, 1997 times four (4), (ii) adding to that product the
-----
product determined by multiplying Maker's actual gross revenues from its carrier
sales business times two (2), and (iii) subtracting from that sum the amount of
-----
any negative retained earnings Holder may have through December 31, 1996 and
(iv) adding the amount of capital contributed to the Maker through the assumed
exercised of all vested and exercisable options.
"Shares" means the then-existing number of issued and outstanding shares of
common and preferred stock of Maker on the date of conversion on a fully diluted
basis (that is, assuming (i) the conversion to common stock of all other forms
of debt and equity securities then outstanding and having an unqualified and
exercisable right to convert such securities into common stock, and (ii) the
exercise of all options to purchase common stock then vested and exercisable).
2
<PAGE>
(b) Holder may make more than one election to convert a portion
of the indebtedness from Maker to Holder to shares of common stock of Maker,
provided that each such election is made, and the resulting sale completed,
prior to the occurrence of the Maturity Date (or the notice date of prepayment,
if earlier). Holder's notice to Maker exercising this voluntary conversion right
shall specify the amount of indebtedness to be so converted (which, in no event,
shall be less than $50,000) and the date on which the purchase of shares of
common stock is to be completed (which shall be not less than 5 and not more
than 20 days after the date of the notice). The amount of indebtedness from
Maker to Holder specified in the notice shall be applied to the purchase of
shares in the following order: (i) accrued interest under the PIK Notes, if any,
in the order of their issuance, (ii) accrued interest under this Note, (iii)
unpaid principal under the PIK Notes, if any, in the order of their issuance,
and (iv) unpaid principal under this Note.
2.3 In no event shall the Formula Conversion Per Share Price be
greater than 70% of the price per of common stock paid by the first
institutional investor investing not less than $2 million into the Maker after
the date hereof.
3. Default. In the event of any default, all sums owing and to become
-------
owing hereunder shall bear interest thereafter at the Default Rate per annum
and, at the option of the Holder, shall become immediately due and payable. A
"default" shall mean any one or more of the following: (a) failure to pay when
due any sum then owing hereon or under any PIK Note; (b) any failure to perform
or comply with any of the agreements, terms and conditions of this Note or any
PIK Note; or (c) the insolvency of Maker or the filing of any petition or other
pleading by or against Maker for the appointment of a receiver or under or
pursuant to any bankruptcy or other debtor relief law. Maker agrees to pay all
costs and expenses which the Holder may incur by reason of any default,
including, without limitation, reasonable attorneys' fees with respect to legal
services relating to any default and to a determination of any rights or
remedies of the Holder under this Note, and reasonable attorneys' fees relating
to any actions or proceedings which the Holder may institute or in which the
Holder may appear or participate and in any reviews thereof and appeals
therefrom. Any judgment recovered by the Holder hereon shall bear interest at
the Default Rate per annum, but not to exceed the highest rate then permitted by
law.
4. Payment and Notices. Subject to the provisions of Section 2, any
-------------------
payment hereon shall be applied first to interest then accrued and then to
principal. Except as provided to the contrary in Section 2, principal, interest
and fees are payable in lawful money of the United States of America, in same
day funds, to the Holder at:
--------------------------------------------------
or at such other place as the Holder may specify in writing. Any notice
- ------
required or permitted hereunder shall be given in writing and shall be
conclusively deemed effectively given upon personal delivery, or five days after
deposit in the United States mail, by registered or certified mail, postage
prepaid, addressed (i) if to Maker, as set forth below Maker's name and
signature on the signature page of this Note and (ii) if to Holder, at
3
<PAGE>
the address set forth in this Section 4, or at such other address as Maker or
Holder may designate by ten (10) days' advance written notice to Holder or
Maker, respectively.
5. Governing Law. This Note shall be governed for all purposes by the
-------------
laws of Washington (excluding, however, all choice-of-law provisions in
Washington law). If any term or provision of this Note, or the
applicability thereof to any person or circumstances, shall to any extent be
invalid or unenforceable, the remainder of this Note, or the application of such
term or provision to persons or circumstances other than those as to which it is
held invalid or unenforceable, shall not be affected thereby and shall continue
in full force and effect.
GLOBALTEL RESOURCES, INC.,
a Washington corporation
By: /s/ Ronald P. Erickson
----------------------------------
Ronald P. Erickson
President and CEO
1520 Eastlake Avenue East, Suite 210
Seattle, WA 98102
<PAGE>
EXHIBIT 4.9
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED
STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THESE
SECURITIES AND INTEREST HEREIN MAY BE OFFERED, SOLD OR OTHERWISE TRANSFERRED
ONLY (A) TO THE CORPORATION, (B) OUTSIDE THE UNITED STATES IN ACCORDANCE WITH
RULE 904 OR REGULATION S UNDER THE SECURITIES ACT IF APPLICABLE, OR (C) INSIDE
THE UNITED STATES (i) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY
RULE 144 THEREUNDER, IF APPLICABLE, AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS OR (ii) IN COMPLIANCE WITH ANOTHER APPLICABLE EXEMPTION UNDER
THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS, SUCH COMPLIANCE, AT
THE OPTION OF THE CORPORATION, TO BE EVIDENCED BY AN OPINION OF COUNSEL, IN FORM
ACCEPTABLE TO THE CORPORATION, THAT NO VIOLATION OF SUCH REGISTRATION PROVISIONS
WOULD RESULT FROM ANY PROPOSED TRANSFER OR ASSIGNMENT.
PROMISSORY NOTE
1996
- -------- -----------
FOR VALUE RECEIVED, the undersigned, GLOBALTEL RESOURCES, INC., a
Washington corporation (the "Maker"), HEREBY PROMISES TO PAY to the order of
(the "Holder"), the
- ---------------------------------------------------------
principal sum of together
------------------------------------------------------
with interest as hereinafter provided, pursuant to the terms and provisions of
this Note.
Maker further agrees as follows:
1. Interest. Interest on the principal sum of this Note shall accrue at
--------
the rate of ten percent (10%) per annum and shall be computed on the basis of a
365-day year for the actual number of days elapsed. Maker shall pay all accrued
interest on the principal sum of the Note on the sixth (6th) month anniversary
of the date of this Note, the twelfth (12th) month anniversary of the date of
this Note, and on the Maturity Date of this Note (as hereinafter defined). When
an interest payment is due hereunder, Maker may (i) make such payment in cash to
Holder as provided in Section 4 or (ii) execute and deliver to Holder a
promissory note ("PIK Note") in favor of Holder as payment-in-kind for the
interest payment installment amount then due and payable. Each PIK Note shall be
substantially in the form of this Note, except that voluntary conversion of the
PIK Note shall be governed by Section 2 of this Note, rather than terms
contained in the PIK Note itself. After any breach or default, all sums then and
thereafter owing hereon, including then accrued and thereafter accruing
interest, shall bear interest at a rate per annum of 12% (the "Default Rate").
Notwithstanding any other provision of this Note, interest, fees and charges
payable by reason of the indebtedness evidenced hereby shall not exceed the
maximum, if any, permitted by any governing law.
1
<PAGE>
2. Payment or Conversion.
---------------------
2.1 All principal and accrued interest then outstanding under this
Note and all PIK Notes shall be payable in full on June 5, 1998 (the "Maturity
Date"). Prior to the Maturity Date, Holder may voluntarily apply some or all of
the outstanding principal and accrued interest under this Note and all PIK Notes
to the purchase of shares of common stock as provided in Sections 2.2. and 2.3.
Prior to the Maturity Date, Maker may prepay some or all of the outstanding
principal and accrued interest under this Note and all PIK Notes without penalty
upon ten (10) days prior to Holder, provided, however, that Holder may exercise
-------- -------
any applicable conversion rights under Sections 2.2 and 2.3 hereof at any time
prior to the noticed date of intended prepayment.
2.2 If, prior to the Maturity Date, Maker closes an offering or
offerings (the "Offering") of its convertible debt or equity securities with
aggregate gross proceeds to Maker of at least Fifteen Million Dollars
($15,000,000) (the "Conversion Condition"):
(a) Maker shall give written notice to Holder at least twenty
(20) days prior to the closing that will cause the Conversion Condition to be
satisfied (the "Conversion Closing") of (i) the date of the Conversion Closing;
(ii) the rights and preferences of the equity securities of Maker (the "Offered
Shares") to be sold at the Conversion Closing or into which the debt securities
of Maker to be sold at the Conversion Closing will be convertible; (iii) the
price per share for the Offered Shares to be paid at the Conversion Closing if
the Offered Shares themselves are to be sold or in effect on the Conversion
Closing if debt securities convertible into the Offered Shares are to be sold
(the "Per Share Price"), and (iv) if the Offered Shares are a class of preferred
stock convertible into shares of common stock, the price per share of common
stock that the investors would have effectively paid or had in effect if the
equity securities sold by Maker were converted into shares of common stock at
the Conversion Closing (the "Per Common Share Price"), and
(b) If Holder in its sole discretion so elects by written notice
to Maker at any time prior to the date of the Conversion Closing, Maker shall,
concurrent with the Conversion Closing, apply all unpaid principal and accrued
interest hereunder plus the outstanding balance of principal and interest under
all PIK Notes, or so much thereof as Holder may have specified in said notice,
to the purchase by Holder of such number of shares of common stock equal to the
total amount of such indebtedness on the date of the Conversion Closing divided
by the Per Share Price (unless there is a Per Common Share Price, in which case
the Per Common Share Price shall be used). The amount of indebtedness from Maker
to Holder to be converted into shares of common stock as specified in the notice
shall be applied to the purchase of shares in the following order: (i) accrued
interest under the PIK Notes, if any, in the order of their issuance, (ii)
accrued interest under this Note, (iii) unpaid principal under the PIK Notes, if
any, in the order of their issuance, and (iv) unpaid principal under this Note.
Upon issuance of such number of the shares of common stock to Holder, the amount
of such indebtedness shall be deemed fully paid and be of no further force or
effect.
2
<PAGE>
2.3 If the Conversion Condition has not occurred by April 1, 1997,
Holder shall have the right, as its sole discretion, by written notice to Maker
at any time or times prior to the occurrence of the Conversion Closing to apply
a portion or all outstanding principal and accrued interest hereunder and under
all PIK Notes to the purchase of such number of shares of common stock of Maker
equal to the amount of unpaid principal and accrued interest to be converted as
specified by Holder in said notice divided by the Formula Conversion Per Share
Price.
(a) The "Formula Conversion Per Share Price" shall be the price
per share of common stock determined by the formula:
F x Revenues
------------
Shares
As used herein: "Revenues" means Maker's annualized gross revenues for the
twelve-month period beginning March 1, 1997, which shall be determined by
multiplying Maker's actual gross revenues for the three-month period of March 1,
1997 through May 31, 1997 times four (4) (regardless of the Company's actual
-----
experience after May 31, 1997).
"Shares" means the then-existing number of issued and outstanding shares of
common stock of Maker on the date of conversion on a fully diluted basis (that
is, assuming (i) the conversion to common stock of all other forms of debt and
equity securities then outstanding and having an unqualified and exercisable
right to convert such securities into common stock, and (ii) the exercise of all
options to purchase common stock then vested and exercisable).
"F" means (i) 1.0 if the written conversion notice to Maker is given prior
to September 1, 1997, (ii) 1.25 if the notice is given prior to December 1,
1997, (iii) and 1.50 if the notice is given on or after December 1, 1997, but
prior to the Maturity Date.
(b) Holder may make more than one election to convert a portion
of the indebtedness from Maker to Holder to shares of common stock of Maker,
provided that each such election is made, and the resulting sale completed,
prior to the occurrence of the Conversion Closing. Holder's notice to Maker
exercising this voluntary conversion right shall specify the amount of
indebtedness to be so converted (which, in no event, shall be less than $50,000)
and the date on which the purchase of shares of common stock is to be completed
(which shall be not less than 5 and not more than 20 days after the date of the
notice). The amount of indebtedness from Maker to Holder specified in the notice
shall be applied to the purchase of shares in the following order: (i) accrued
interest under the PIK notes, if any, in the order of their issuance, (ii)
accrued interest under this Note, (iii) unpaid principal under the PIK Notes, if
any, in the order of their issuance, and (iv) unpaid principal under this Note.
3. Default. In the event of any default, all sums owing and to become
-------
owing hereunder shall bear interest thereafter at the Default Rate per annum
and, at the option of the Holder, shall become immediately due and payable. A
"default" shall mean any one or more of the following: (a) failure to pay when
due any sum then owing herein or under any
3
<PAGE>
PIK Note: (b) any failure to perform or comply with any of the agreements, terms
and conditions of this Note or any PIK Note; or (c) the insolvency of Maker or
the filing of any petition or other pleading by or against Maker for the
appointment of a receiver or under or pursuant to any bankruptcy or other debtor
relief law. Maker agrees to pay all costs and expenses which the Holder may
incur by reason of any default, including, without limitation, reasonable
attorneys' fees with respect to legal services relating to any default and to a
determination of any rights or remedies of the Holder under this Note, and
reasonable attorneys' fees relating to any actions or proceedings which the
Holder may institute or in which the Holder may appear or participate and in any
reviews thereof and appeals therefrom. Any judgment recovered by the Holder
hereon shall bear interest at the Default Rate per annum, but not to exceed the
highest rate then permitted by law.
4. Payment and Notices. Subject to the provisions of Section 2, any
-------------------
payment hereon shall be applied first to interest then accrued and then to
principal. Except as provided to the contrary in Section 2, principal, interest
and fees are payable in lawful money of the United States of America, in same
day funds, to the Holder at: , or at
------------------------------------------
such other place as the Holder may specify in writing. Any notice required or
permitted hereunder shall be given in writing and shall be conclusively deemed
effectively given upon personal delivery, or five days after deposit in the
United States mail, by registered or certified mail, postage prepaid, addressed
(i) if to Maker, as set forth below Maker's name and signature on the signature
page of this Note and (ii) if to Holder, at the address set forth in this
Section 4, or at such other address as Maker or Holder may designate by ten (10)
days' advance written notice to Holder or Maker, respectively.
5. Governing Law. This Note shall be governed for all purposes by the
-------------
laws of Washington (excluding, however, all choice-of-law provisions in
Washington law). If any term or provision of this Note, or the applicability
thereof to any person or circumstances, shall to any extent be invalid or
unenforceable, the remainder of this Note, or the application of such term or
provision to persons or circumstances other than those as to which it is held
invalid or unenforceable, shall not be affected thereby and shall continue in
full force and effect.
GLOBALTEL RESOURCES, INC.,
a Washington corporation
By: _______________________
Ronald P. Erickson
President and CEO
1520 Eastlake Avenue East, Suite 210
Seattle, WA 98102
<PAGE>
EX. 10.1
GLOBALTEL RESOURCES, INC.
1996 STOCK OPTION PLAN
This 1996 Stock Option Plan (the "Plan") provides for the grant of options
to acquire shares of common stock, $0.01 par value (the "Common Stock"), of
GlobalTel Resources, Inc., a Washington corporation (the "Company"). Stock
options granted under this Plan that qualify under Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"), are referred to in this Plan as
"Incentive Stock Options." Incentive Stock Options and stock options that do not
qualify under Section 422 of the Code ("Non-Qualified Stock Option") granted
under this Plan are referred to as "Options."
1. PURPOSES.
The purposes of this Plan are to retain the services of directors, valued
key employees and consultants of the Company and such other persons as the Plan
Administrator shall select in accordance with Section 3 below, to encourage such
persons to acquire a greater proprietary interest in the Company, thereby
strengthening their incentive to achieve the objectives of the shareholders of
the Company, and to serve as an aid and inducement in the hiring of new
employees and to provide an equity incentive to directors, consultants and other
persons selected by the Plan Administrator.
2. ADMINISTRATION.
This Plan shall be administered by the Board of Directors of the Company
(the "Board"). If the Board so desires, the Plan shall be administered by a
committee designated by the Board and composed of one (1) or more members of the
Board, which committee (the "Committee") may be an executive, compensation or
other committee, including a separate committee especially created for this
purpose. In the event the Company is or becomes subject to the provisions of
Section 16 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), the Board shall attempt to provide for administration of the Plan,
insofar as it relates to the participation of officers, directors or
shareholders of the Company who at the time in question are subject to the
reporting and liability provisions of Section 16 of the Exchange Act (the
"Insiders"), in a manner which shall qualify the grant, exercise, expiration or
surrender of options under this Plan for the treatment afforded by Securities
and Exchange Commission Rule 16b-3, as amended from time to time, or any
successor rule or regulatory requirements (the "Rule"). The Committee shall have
the powers and authority vested in the Board hereunder (including the power and
authority to interpret and provision of this Plan or of any Option). The members
of any such Committee shall serve at the pleasure of the Board. A majority of
the members of the Committee shall constitute a quorum, and all actions of the
Committee shall be taken by a majority of the members present. Any action may be
taken by a written instrument signed by all members of the Committee and any
action so taken be fully effective as if it had been taken at a meeting. The
Board, or any committee thereof appointed to administer the Plan, is referred to
herein as the "Plan Administrator."
Subject to the provisions of this Plan, and with a view to effecting its
purpose, the Plan Administrator shall have sole authority, in its absolute
discretion, to (a) construe and interpret this Plan; (b) define the terms used
in this Plan; (c) prescribe, amend and rescind rules and regulations relating to
this Plan; (d) correct any defect, supply any omission or reconcile any
inconsistency in this Plan; (e) grant Options under this Plan; (f) determine the
individuals to whom Options shall be granted under this Plan and whether the
Option is an Incentive Stock Option or a Non-Qualified Stock Option; (g)
determine the time or times at which Options shall be granted under this Plan;
(h) determine the number of shares of Common Stock subject to each Option, the
exercise price of each Option, the duration of each Option and the times at
which each Option shall become exercisable; (i) determine all other terms and
conditions of Options; and (j) make all other determinations necessary or
advisable for the administration of the Plan. All decisions, determinations and
interpretations made by the Plan Administrator shall be binding and conclusive
on all participants in this Plan and on their legal representatives, heirs and
beneficiaries.
The Board or the Committee may delegate to one or more executive officers
of the Company the authority to grant Options under this Plan to employees of
the Company who, on the Date of Grant, are not Insiders, and in
1
<PAGE>
connection therewith the authority to determine: (a) the number of shares of
Common Stock subject to such Option; (b) the duration of the Option; (c) the
vesting schedule for determining the times at which such Option shall become
exercisable; and (d) all other terms and conditions of such Options. The
exercise price for any Option granted by action of an executive officer or
officers pursuant to such delegation of authority shall not be less than the
fair market value per share of the Common Stock on the Date of Grant. Unless
expressly approved in advance by the Board or the Committee, such delegation of
authority shall not include the authority to accelerate the vesting, extend the
period for exercise or otherwise alter the terms of outstanding Options. The
term "Plan Administrator" when used in any provision of this Plan other than
Sections 2, 5(m), 5(n) and 11, shall be deemed to refer to the Board or the
Committee, as the case may be, and an executive officer who has been authorized
to grant Options pursuant hereto, insofar as such provision may be applied to
non-Insiders and Options granted to non-Insiders.
3. ELIGIBILITY.
Incentive Stock Options may be granted to any individual who, at the time
the Option is granted, is an employee of the Company or any Related Corporation
(as defined below), including employees who are directors of the Company
("Employees"). Non-Qualified Stock Options may be granted to Employees and to
such other persons, including members of any special advisory committees or
groups, as the Plan Administrator shall select. In the event and beginning at
such time as the Company is or becomes subject to the provisions of Section 16
of the Securities Exchange Act, Options shall be granted hereunder to
non-employee directors solely on the terms and conditions set forth in Section 6
hereof. Options may be granted in substitution for outstanding Options of
another corporation in connection with the merger, consolidation, acquisition of
property or stock or other reorganization between such other corporation and the
Company or any subsidiary of the Company. Options also may be granted in
exchange for outstanding Options. Any person to whom an Option is granted under
this Plan is referred to as an "Optionee". Any person who is the owner of an
Option is referred to as a "Holder".
As used in this Plan, the term "Related Corporation", shall mean any
corporation (other than the Company) that is a "Parent Corporation" of the
Company or "Subsidiary Corporation" of the Company, as those terms are defined
in Sections 424(e) and 424(f)j respectively, of the Code (or any successor
provisions), and the regulations thereunder (as amended from time to time).
4. STOCK.
The Plan Administrator is authorized to grant Options to acquire up to
1,000,000 shares of Common Stock. The number of shares with respect to which
Options may be granted hereunder is subject to adjustment as set forth in
Section 5(m) hereof. In the event that any outstanding Option expires or is
terminated for any reason under this Plan, the shares of Common Stock allocable
to the unexercised portion of such Option may again be subject to an Option to
the same Optionee or to a different person eligible under Section 3 of this
Plan; provided however, that any canceled Options will be counted against the
maximum number of shares with respect to which Options may be granted to any
particular person as set forth in Section 3 hereof. Shares of Common Stock
issued upon exercise of Options granted hereunder or under the Existing Plan
which are purchased or otherwise reacquired by the Company from option holders
following exercise will again be available for grant hereunder, provided,
--------
however, that, beginning at such time and continuing for so long as the Company
- -------
is subject to the provisions of Section 16 of the Exchange Act, or any similar
successor regulatory requirement, such reacquired shares will not be available
for issuance hereunder if such availability would cause the Plan to fail to
qualify under the Rule (as defined in Section 2 above).
5. TERMS AND CONDITIONS OF OPTIONS.
Each Option granted under this Plan shall be evidenced by a written
agreement approved by the Plan Administrator (the "Agreement"). Agreements may
contain such provisions, not inconsistent with this Plan, as the Plan
Administrator in its discretion may deem advisable. All Options also shall
comply with the following requirements:
2
<PAGE>
(a) Number of Shares and Type of Option.
Each Agreement shall state the number of shares of Common Stock to which it
pertains and whether the Option is intended to be an Incentive Stock Option or a
Non-Qualified Stock Option. In the absence of action to the contrary by the Plan
Administrator in connection with the grant of an Option, all Options shall be
Non-Qualified Stock Options. The aggregate fair market value (determined at the
Date of Grant, as defined below) of the stock with respect to which Incentive
Stock Options are exercisable for the first time by the Optionee during any
calendar year (granted under this Plan and all other Incentive Stock Option
plans of the Company, a Related Corporation or a predecessor corporation) shall
not exceed $100,000, or such other limit as may be prescribed by the Code as it
may be amended from time to time. Any portion of an Option which exceeds the
annual limit shall not be void but rather shall be a Non-Qualified Stock Option.
(b) Date of Grant.
Each Agreement shall state the date the Plan Administrator has deemed to be
the effective date of the Option for purposes of this Plan (the "Date of
Grant").
(c) Option Price.
Each Agreement shall state the price per share of Common Stock at which it
is exercisable. The exercise price shall be fixed by the Plan Administrator at
whatever price the Plan Administrator may determine in the exercise of its sole
discretion; provided that the per share exercise price for an Incentive Stock
Option shall not be less than the fair market value per share of the Common
Stock at the Date of Grant as determined by the Plan Administrator in good
faith; provided further, that with respect to Incentive Stock Options granted to
greater-than-ten percent (greater than 10%) shareholders of the Company (as
determined with reference to Section 424(d) of the Code), the exercise price per
share shall not be less than one hundred ten percent (110%) of the fair market
value per share of the Common Stock at the Date of Grant as determined by the
Plan Administrator in good faith; and, provided further, that Options granted in
substitution for outstanding options of another corporation in connection with
the merger, consolidation, acquisition of property or stock or other
reorganization involving such other corporation and the Company or any
subsidiary of the Company may be granted with an exercise price equal to the
exercise price for the substituted option of the other corporation, subject to
any adjustment consistent with the terms of the transaction pursuant to which
the substitution is to occur:
(d) Duration of Options.
At the time of the grant of the Option, the Plan Administrator shall
designate, subject to paragraph 5(g) below, the expiration date of the Option,
which date shall not be later than 10 years from the Date of Grant in the case
of Incentive Stock Options; provided, that the expiration date of any Incentive
Stock Option granted to a greater-than-ten percent (greater than 10%)
shareholder of the Company (as determined with reference to Section 424(d) of
the Code) shall not be later than five years from the Date of Grant. In the
absence of action to the contrary by the Plan Administrator in connection with
the grant of a particular Option, and except in the case of Incentive Stock
Options as described above, all Options granted under this Section 5 shall
expire ten (10) years from the Date of Grant.
(e) Vesting Schedule.
No Option shall be exercisable until it has vested. The vesting schedule
for each Option shall be specified by the Plan Administrator at the time of
grant of the Option prior to the provision of services with respect to which
such Option is granted; provided, that if no vesting schedule is specified at
the time of grant, on the Date of Grant twenty-five (25%) of the Option shall
be vested and become exercisable, the following portion of the Option
<PAGE>
shall be vested and become exercisable according to the following schedule:
<TABLE>
<CAPTION>
Number of Years Percentage of Total
Following Date of Grant Option Vested
<S> <C>
One 50%
Two 75%
Three 100%
</TABLE>
The Plan Administrator may specify a vesting schedule for all or any
portion of an Option based on the achievement of performance objectives
established in advance of the commencement by the Optionee of services related
to the achievement of the performance objectives. Performance objectives shall
be expressed in terms of one or more of the following: return on equity, return
on assets, share price, market share, sales, earnings per share, costs, net
earnings, net worth, inventories, cash and cash equivalents, gross margin or the
Company's performance relative to its internal business plan. Performance
objectives may be in respect of the performance of the Company as a whole
(whether on a consolidated or unconsolidated basis), a Related Corporation, or a
subdivision, operating unit, product line or other basis. Performance objectives
may be absolute or relative and may be expressed in terms of a progression or a
range. An option which is exercisable (in whole or in part) upon the achievement
of one or more performance objectives may be exercised only following written
notice to the Optionee from the Plan Administrator that the performance
objective has been achieved.
(f) Accelerations of Vesting.
The vesting of one or more outstanding Options may be accelerated by the
Plan Administrator at such times and in such amounts as it shall determine in
its sole discretion. The vesting of Options also shall be accelerated under the
circumstances described in Section 5(m) and 5(n) below.
(g) Term of Option.
Vested Options shall terminate, to the extent not previously exercised,
upon the occurrence of the first of the following events: (i) the expiration of
the Option, as designated by the Plan Administrator in accordance with Section
5(d) above; (ii) the date of an Optionee's termination of employment or
contractual relationship with the Company or any Related Corporation for cause
(as determined in the sole discretion of the Plan Administrator); (iii) the
expiration of ninety (90) days from the date of an Optionee's termination of
employment or contractual relationship with the Company or any Related
Corporation or any reason whatsoever other than cause, death or Disability (as
defined below) unless, the exercise period is extended by the Plan Administrator
until a date not later than the expiration of one year from (A) the date of
death of the Optionee or (B) cessation of an Optionee's employment or
contractual relationship by reason of Disability (as defined below) unless, the
exercise period is extended by the Plan Administrator until a date not later
than the expiration date of the Option. If an Optionee's employment or
contractual relationship is terminated by death, any Option held by the Optionee
shall be exercisable only by the person or persons to whom such Optionee's
rights under such Option shall pass by the Optionee's will or by the laws of
descent and distribution of the state or county of the Optionee's domicile at
the time of death. For purposes of the Plan, unless otherwise defined in the
Agreement, "Disability" shall mean any physical, mental or other health
condition which substantially impairs the Optionee's ability to perform his or
her assigned duties for one hundred twenty (120) days or more in any two hundred
forty (240) day period or that can be expected to result in death. The Plan
Administrator shall determine whether an Optionee has incurred a Disability on
the basis of medical evidence acceptable to the Plan Administrator. Upon making
a determination of Disability, the Plan Administrator shall, for purposes of the
Plan, determine the date of an Optionee's termination of employment or
contractual relationship.
Unless accelerated in accordance with Section 5(f) above, unvested Options
shall terminate immediately upon termination of employment of the Optionee by
the Company for any reason whatsoever, including death or Disability.
For purposes of this Plan, transfer of employment between or among the Company
and/or any Related
4
<PAGE>
Corporation shall not be deemed to constitute a termination of employment with
the Company or any Related Corporation. For purposes of this subsection with
respect to Incentive Stock Options, employment shall be deemed to continue while
the Optionee is on military leave, sick leave or other bona fide leave of
absence (as determined by the Plan Administrator). The foregoing
notwithstanding, employment shall not be deemed to continue beyond the first
ninety (90) days of such leave, unless the Optionee's re-employment rights are
guaranteed by statute or by contract.
(h) Exercise of Options.
Options shall be exercisable, either all or in part, at any time after
vesting, until termination; provided, however, that any Optionee who is subject
to the reporting and liability provisions of Section 16 or the Exchange Act with
respect to the Common Stock shall be precluded from selling or transferring any
Common Stock or other security underlying an Option during the six (6) months
immediately following the grant of that Option. If less than all of the shares
included in the vested portion of any Option are purchased, the remainder may be
purchased at any subsequent time prior to the expiration of the Option term. No
portion of any option for less than one hundred (100) shares (as adjusted
pursuant to Section 5(m) below) may be exercised; provided, that if the vested
portion of any Option is less than one hundred (100) shares, it may be exercised
with respect to all shares for which it is vested. Only whole shares may be
issued pursuant to an Option, and to the extent that an Option covers less than
one (1) share, it is unexercisable.
Options or portions thereof may be exercised by giving written notice to
the Company, which notice shall specify the number of shares to be purchased,
and be accompanied by payment in the amount of the aggregate exercise price for
the Common Stock so purchased, which payment shall be in the form specified in
Section 5(i) below. The Company shall not be obligated to issue, transfer or
deliver a certificate of Common Stock to the Holder of any Option, until
provision has been made by the Holder, to the satisfaction of the Company, for
the payment of the aggregate exercise price for all shares for which the Option
shall have been exercised and for satisfaction of any tax withholding
obligations associated with such exercise. During the lifetime of an Optionee,
Options are exercisable only by the Optionee or a transferee who takes title to
the Option in the manner permitted by Subsection 5(k) hereof.
(i) Payment upon Exercise of Option.
Upon the exercise of any Option, the aggregate exercise price shall be paid
to the Company in cash or by certified or cashier's check. In addition, the
Holder may pay for all or any portion of the aggregate exercise price by
complying with one or more of the following alternatives:
(1) by delivering to the Company shares of Common Stock previously
held by such Holder, or by the Company withholding shares of Common Stock
otherwise deliverable pursuant to exercise of the Option, which shares of
Common Stock received or withheld shall have a fair market value at the
date of exercise (as determined by the Plan Administrator) equal to the
aggregate exercise price to be paid by the Optionee upon such exercise;
(2) by delivering a properly executed exercise notice together with
irrevocable instructions to a broker to promptly deliver to the Company the
amount of sale or loan proceeds to pay the exercise price; or
(3) by complying with any other payment mechanism approved by the
Plan Administrator at the time of exercise.
5
<PAGE>
(j) Rights as a Shareholder.
A Holder shall have no rights as a shareholder with respect to any shares
covered by an Option until such Holder becomes a record holder of such shares,
irrespective of whether such Holder has given notice of exercise. Subject to
the provisions of Sections 5(m) and 5(n) hereof, no rights shall accrue to a
Holder and no adjustments shall be made on account of dividends (ordinary or
extraordinary, whether in cash, securities or other property) or distributions
or other rights declared on, or created in, the Common Stock for which the
record date is prior to the date the Holder becomes a record holder of the
shares of Common Stock covered by the Option, irrespective of whether such
Holder has given notice of exercise.
(k) Transfer of Option.
Options granted under this Plan and the rights and privileges conferred by
this Plan may not be transferred, assigned, pledged or hypothecated in any
manner (whether by operation of law or otherwise) other than by will, by
applicable laws of descent and distribution or (except in the case of an
Incentive Stock Option) pursuant to a qualified domestic relations order, and
shall not be subject to execution, attachment or similar process; provided
however, that any Agreement may provide or be amended to provide that the Option
to which it relates is transferrable without payment of consideration to
immediate family members of the Optionee or to trusts or partnerships
established exclusively for the benefit of the Optionee and the Optionee's
immediate family members. Upon any attempt to transfer, assign, pledge,
hypothecate or otherwise dispose of any Option or of any right or privilege
conferred by this Plan contrary to the provisions hereof, or upon the sale, levy
or any attachment or similar process upon the rights and privileges conferred by
this Plan, such Option shall thereupon terminate and become null and void.
(l) Securities Regulation and Tax Withholding.
(1) Shares shall not be issued with respect to an Option unless the
exercise of such Option and the issuance and delivery of such shares shall
comply with all relevant provisions of law, including, without limitation, any
applicable state securities laws, the Securities Act of 1933, as amended, the
Exchange Act, the rules and regulations hereunder and the requirements of any
stock exchange upon which such shares may then be listed, and such issuance
shall be further subject to the approval of counsel for the Company with respect
to such compliance, including the availability of an exemption from registration
for the issuance and sale of such shares. The inability of the Company to obtain
from any regulatory body the authority deemed by the Company to be necessary for
the lawful issuance and sale of any shares under this Plan, or the
unavailability of an exemption from registration for the issuance and sale of
any shares under this Plan, shall relieve the Company of any liability with
respect to the non-issuance or sale of such shares.
As a condition to the exercise of an Option, the Plan Administrator may
require the Holder to represent and warrant in writing at the time of such
exercise that the shares are being purchased only for investment and without any
then-present intention to sell or distribute such shares. At the option of the
Plan Administrator, a stop-transfer order against such shares may be placed on
the stock books and records of the Company, and a legend indicating that the
stock may not be pledged, sold or otherwise transferred unless an opinion of
counsel is provided stating that such transfer is not in violation of any
applicable law or regulation, may be stamped on the certificates representing
such shares in order to assure an exemption from registration. The Plan
Administrator also may require such other documentation as may from time to time
be necessary to comply with federal and state securities laws. THE COMPANY HAS
NO OBLIGATION TO UNDERTAKE REGISTRATION OF OPTIONS OR THE SHARES OF STOCK
ISSUABLE UPON THE EXERCISE OF OPTIONS.
(2) The Holder shall pay to the Company by certified or cashier's
check, promptly upon exercise of an Option or, if later, the date that the
amount of such obligations becomes determinable, all applicable federal, state,
local and foreign withholding taxes that the Plan Administrator, in its
discretion, determines to result upon exercise of an Option or from a transfer
or other disposition of shares of Common Stock acquired upon exercise of an
Option or otherwise related to an Option or shares of Common Stock acquired in
connection with an Option. Upon approval of the Plan Administrator, a Holder may
satisfy such obligation by complying with one
6
<PAGE>
or more of the following alternatives selected by the Plan Administrator:
(A) by delivering to the Company shares of Common Stock previously
held by such Holder or by the Company withholding shares of Common Stock
otherwise deliverable pursuant to the exercise of the Option, which shares
of Common Stock received or withheld shall have a fair market value at the
date of exercise (as determined by the Plan Administrator) equal to the tax
obligation to be paid by the Optionee upon such exercise; provided that if
the Holder is an Insider or if beneficial ownership of the shares issuable
upon exercise of the Option is attributable to an Insider pursuant to the
regulations under Section 16 of the Exchange Act, the Holder will have
executed, by a date not later than six (6) months prior to the date of
exercise, an irrevocable election to satisfy its obligations under this
Paragraph 2 through the Company withholding shares of Common Stock
otherwise deliverable pursuant to the exercise of the Option;
(B) by executing appropriate loan documents approved by the Plan
Administrator by which the Holder borrows funds from the Company to pay the
withholding taxes due under this Paragraph 2, with such repayment terms as
the Plan Administrator shall select; or
(C) by complying with any other payment mechanism approved by the Plan
Administrator from time to time.
(3) The issuance, transfer or delivery of certificates of Common Stock
pursuant to the exercise of Options may be delayed, at the discretion of the
Plan Administrator, until the Plan Administrator is satisfied that the
applicable requirements of the federal and state securities laws and the
withholding provisions of the Code have been met.
(m) Stock Dividend, Reorganization or Liquidation.
(1) If (i) the Company shall at any time be involved in a transaction
described in Section 424(a) of the Code (or any successor provision) or any
"corporate transaction" described in the regulations thereunder; (ii) the
Company shall declare a dividend payable in, or shall subdivide or combine, its
Common Stock or (iii) any other event with substantially the same effect shall
occur, the Plan Administrator shall, with respect to each outstanding Option,
proportionately adjust the number of shares of Common Stock subject to such
Option, the exercise price per share or both so as to preserve the rights of the
Holder substantially proportionate to the rights of the Holder prior to such
event, and to the extent that such action shall include an increase or decrease
in the number of shares of Common Stock subject to outstanding Options, the
number of shares available under Section 4 of this Plan and the number of shares
of Common Stock underlying Options to be granted pursuant to Section 6 hereof
shall automatically be increased or decreased, as the case may be,
proportionately, without further action on the part of the Plan Administrator,
the Company, the Company's shareholders, or any Holder.
(2) If the Company shall at any time declare an extraordinary dividend with
respect to the Common Stock, whether payable in cash or other property, the Plan
Administrator may, in the exercise of its sole discretion and with respect to
each outstanding Option, proportionately adjust the number of shares of Common
Stock subject to such Option, adjust the exercise price per share or both so as
to preserve the rights of the Holder substantially proportionate to the rights
of the Holder prior to such event, and to the extent that such action shall
include an increase or decrease in the number of shares of Common Stock subject
to outstanding Options and the number of shares available under Section 4 of
this Plan shall automatically be increased or decreased, as the case may be,
proportionately, without further action on the part of the Plan Administrator,
the Company, the Company's shareholders, or any Holder.
(3) If the Company is liquidated or dissolved, the Plan Administrator may
allow the Holders of any outstanding Options to exercise all or any part of the
unvested portion of the Options held by them; provided, however, that such
Options must be exercised prior to the effective date of such liquidation or
dissolution. If the Holders do not exercise their Options prior to such
effective date, each outstanding Option shall terminate as of the effective date
of the liquidation or dissolution.
7
<PAGE>
(4) The foregoing adjustments in the shares subject to Options shall be
made by the Plan Administrator, or by any successor administrator of this Plan,
or by the applicable terms of any assumption or substitution document.
(5) The grant of an Option shall not affect in any way the right or power
of the Company to make adjustments, reclassifications, reorganizations or
changes of its capital or business structure, to merge, consolidate or dissolve,
to liquidate or to sell or transfer all or any part of its business or assets.
(n) Change in Control.
(1) Any and all Options that are outstanding under the Plan at the time of
occurrence of any of the events described in Subparagraphs (A), (B), (C) and (D)
below (an "Eligible Option") shall become immediately vested and fully
exercisable for the periods indicated (each such exercise period referred to as
an "Acceleration Window"):
(A) For a period of forty-five (45) days beginning on the day on which
any Person together with all Affiliates and Associates (as such terms are
defined below) of such Person shall become the Beneficial Owner (as defined
below) of fifty percent (50%) or more of the shares of Common Stock then
outstanding, but shall not include the Corporation, any subsidiary of the
Corporation, any employee benefit plan of the Corporation or of any
subsidiary of the Corporation, or any Person or entity organized, appointed
or established by the Corporation for or pursuant to the terms of any such
employee benefit plan;
(B) Beginning on the date that a tender or exchange offer for Common
Stock by any Person (other than the Corporation, any subsidiary of the
Corporation, any employee benefit plan of the Corporation or of any
subsidiary of the Corporation, or any Person or entity organized, appointed
or established by the Corporation for or pursuant to the terms of any such
employee benefit plan) is first published or sent or given within the
meaning of Rule 14d-2 under the Exchange Act and continuing so long as such
offer remains open (including any extensions or renewals of such offer),
unless by the terms of such offer the offeror, upon consummation thereof,
would be the Beneficial Owner of less than thirty percent (30%) of the
shares of Common Stock then outstanding;
(C) For a period of twenty (20) days beginning on the day on which the
shareholders of the Corporation (or, if later, approval by the shareholders
of any Person) duly approve any merger, consolidation, reorganization or
other transaction providing for the conversion or exchange of more than
fifty percent (50%) of the outstanding shares of Common Stock into
securities of any Person, or cash, or property, or a combination of any of
the foregoing; or
(D) For a period of twenty (20) days beginning on the day on which, at
any meeting of the shareholders of the Company involving a contest for the
election of directors, individuals constituting a majority of the Board of
Directors who were not the Board of Director's nominees for election
immediately prior to the meeting are elected; provided, however, that with
respect to the events specified in Subparagraphs (A), (B) and (C) above,
such accelerated vesting shall not occur if the event that would otherwise
trigger the accelerated vesting of Eligible Options has received the prior
approval of a majority of all of the directors of the Corporation,
excluding for such purposes the votes of directors who are directors or
officers of, or have a material financial interest in any Person (other
than the Corporation) who is a party to the event specified in Subparagraph
(A), (B) or (C) above which otherwise would trigger acceleration of vesting
and provided, further, that no Option which is to be converted into an
option to purchase shares of Exchange Stock as stated at item (3) below
shall be accelerated pursuant to this Section 5(n).
(2) The exercisability of any Eligible Option which remains unexercised
following expiration of an Acceleration Window shall be governed by the vesting
schedule and other terms of the Agreement representing such Option.
8
<PAGE>
(3) If the shareholders of the Corporation receive shares of capital stock
of another Person ("Exchange Stock") in exchange for or in place of shares of
Common Stock in any transaction involving any merger, consolidation,
reorganization or other transaction providing for the conversion or exchange of
all or substantially all outstanding shares of Common Stock into Exchange Stock,
then at the closing of such transaction all Options granted hereunder shall be
converted into options to purchase shares of Exchange Stock unless the
Corporation (by the affirmative vote of a majority of all of the directors of
the Corporation, excluding for such purposes the votes of directors who are
directors or officers of, or have a material financial interest in the Person
issuing the Exchange Stock and any Affiliate of such Person), in its sole
discretion, determines that any or all such Options granted hereunder shall not
be so converted but instead shall terminate. The amount and price of converted
Options shall be determined by adjusting the amount and price of the Options
granted hereunder in the same proportion as used for determining the shares of
Exchange Stock the holders of the Common Stock received in such merger,
consolidation, reorganization or other transaction. Unless altered by the Plan
Administrator, the vesting schedule set forth in the Option Agreement shall
continue to apply to the Options granted for Exchange Stock.
For the purposes of this Subsection 5(n): (i) "Person" shall include any
individual, firm, corporation, partnership or other entity; (ii) "Affiliate" and
"Associate" shall have the meanings assigned to them in Rule 12b-2 under the
Exchange Act; and (iii) "Beneficial Owner" shall have the meaning assigned to it
in Rule 16a-1 under the Exchange Act.
(o) Stock Restriction Agreement.
The Company may require at the time of grant of an Option or at any time
prior to its exercise or any portion thereof that the Holder agree that Shares
issuable upon exercise thereof are subject to a right of first refusal for the
benefit of the Company and subject to repurchase by the Company, at its option,
upon termination of employment, death, Disability or upon the involuntary
transfer of such Shares. The terms of such right of first refusal and options
to purchase may be set forth in the Agreement or in a separate document.
6. DIRECTOR GRANTS.
In the event and beginning at such time as the Company is or becomes
subject to the provisions of Section 16 of the Securities Exchange Act,
Directors who are not also employees of the Company ("Non-Employee Directors")
shall only be eligible to receive options under the Plan in accordance with the
terms and conditions of this Section 6 and Directors who are employees of the
Company shall remain eligible to receive option grants under the other
provisions of the Plan.
(a) Number of Shares and Date of Grant.
Concurrent with his or her election to the Board of Directors and so long
as shares are available for grant pursuant to Section 4, each Director shall
automatically receive an Non-Qualified Stock Option to purchase [1,000] shares
of Common Stock, subject to adjustment as set forth in Section 5(m) hereof. The
grant date of each Option shall be the date of such Director's election,
appointment or subsequent re-election to the Board of Directors of the Company.
Concurrent with his or her anniversary of election to the Board of Directors,
and so long as (i) shares are available for grant pursuant to Section 4, (ii)
the Director was not also reelected that year and (iii) the individual remains a
Director, each Director shall automatically receive an Non-Qualified Stock
Option to purchase [1,000] shares of Common Stock, subject to adjustment as set
forth in Section 5(m) hereof. Options granted pursuant to this Section 6 shall
be Non-Qualified Stock Options.
(b) Option Price.
The exercise price of Options granted under this Section 6 shall be the
fair market value of the Company's Common Stock on the Date of Grant. For the
purposes of this Section, the term "fair market value" on any given day means:
(i) the fair market value of the Common Stock as determined by the Board in its
sole discretion on the date of grant, (ii) if the Common Stock is listed on a
national securities exchange, the average of the high and low prices of the
Common Stock of the Company on such exchange; or (iii) if the Common Stock is
quoted in the
9
<PAGE>
over-the-counter securities market, the last sale price of the Common Stock as
quoted by Nasdaq National Market or, if the Common Stock is not quoted in the
National Market, the mean between the closing bid and asked prices of Common
Stock as quoted by Nasdaq.
(c) Vesting.
In order to ensure that the Company will receive the benefits contemplated
in exchange for the Options, no Option granted under this Section 6 shall be
exercisable until it has vested. Options shall vest and become exercisable as
follows: twenty-five percent (25%) on the first anniversary of the Date of
Grant; and twenty-five percent (25%) on each anniversary of the Date of Grant
thereafter.
(d) Term of Option.
Options shall terminate, to the extent not previously exercised, upon the
occurrence of the first of the following events:
(i) ten (10) years from the Date of Grant;
(ii) the expiration of ninety (90) days from the date of Optionee's
termination as a Director of the Company for any reason other than death or
Disability (as defined below); or
(iii) the expiration of one (1) year from the date of death of
Optionee or the cessation of Optionee's service as a Director by reason of
Disability (as defined below).
For purposes of this Section 6, unless otherwise defined in the Agreement,
"Disability" shall mean any physical, mental or other health condition which
substantially impairs the Optionee's ability to perform his or her duties as a
director of the Company for one hundred twenty (120) days or more in any two
hundred forty (240) day period or that can be expected to result in death.
(e) Other Terms.
Except as otherwise provided in this Section 6, all Options granted to Non-
Employee Directors shall be subject to the provisions of the Plan, including
Section 5.
(f) Amendments.
In the event the Company is or becomes subject to the provisions of Section
16 of the Securities Exchange Act, the provisions of this Section 6 shall not be
amended more than once every six (6) months, other than to comport with changes
in the Code, the Employee Retirement Income Security Act, or the rules
thereunder.
7. EFFECTIVE DATE; TERM.
This Plan shall be effective as of ____________ __, 1996. Incentive Stock
Options may be granted by the Plan Administrator from time to time thereafter
until the tenth anniversary of such date. Non-Qualified Stock Options may be
granted until this Plan is terminated by the Board in its sole discretion.
Termination of this Plan shall not terminate any Option granted prior to such
termination. Any Options granted by the Plan Administrator prior to the approval
of this Plan by the shareholders of the Company shall be granted subject to
ratification of this Plan by the shareholders of the Company within twelve (12)
months after this Plan is adopted by the Board. The Plan Administrator may
require any shareholder approval that it considers necessary for the Company to
comply with or to avail the Company and/or the Optionees of the benefits of any
securities, tax, market listing or other administrative or regulatory
requirement. If such shareholder ratification is sought within twelve (12)
months after this Plan is adopted by the Board and such shareholder ratification
is not obtained, each and every Option granted under this Plan shall be null and
void and shall convey no rights to the Holder thereof.
10
<PAGE>
8. NO OBLIGATIONS TO EXERCISE OPTION.
The grant of an Option shall impose no obligation upon the Optionee to
exercise such Option.
9. NO RIGHT TO OPTIONS OR TO EMPLOYMENT.
Whether or not any Options are to be granted under this Plan shall be
exclusively within the discretion of the Plan Administrator, and nothing
contained in this Plan shall be construed as giving any person any right to
participate under this Plan. The grant of an Option shall in no way constitute
any form of agreement or understanding binding on the Company or any Related
Company, express or implied, that the Company or any Related Company will employ
or contract with an Optionee for any length of time, nor shall it interfere in
any way with the Company's or, where applicable, a Related Company's right to
terminate Optionee's employment at any time, which right is hereby reserved.
10. APPLICATION OF FUNDS.
The proceeds received by the Company from the sale of Common Stock issued
upon the exercise of Options shall be used for general corporate purposes,
unless otherwise directed by the Board.
11. INDEMNIFICATION OF PLAN ADMINISTRATOR.
In addition to all other rights of indemnification they may have as members
of the Board, members of the Plan Administrator shall be indemnified by the
Company for all reasonable expenses and liabilities of any type or nature,
including attorneys' fees, incurred in connection with any action, suit or
proceeding to which they or any of them are a party by reason of, or in
connection with, this Plan or any Option granted under this Plan, and against
all amounts paid by them in settlement thereof (provided that such settlement is
approved by independent legal counsel selected by the Company), except to the
extent that such expenses relate to matters for which it is adjudged that such
Plan Administrator member is liable for willful misconduct; provided, that
within fifteen (15) days after the institution of any such action, suit or
proceeding, the Plan Administrator member involved therein shall, in writing,
notify the Company of such action, suit or proceeding, so that the Company may
have the opportunity to make appropriate arrangements to prosecute or defend the
same.
12. AMENDMENT OF PLAN.
The Plan Administrator may, at any time, modify, amend or terminate this
Plan or modify or amend Options granted under this Plan, including, without
limitation, such modifications or amendments as are necessary to maintain
compliance with applicable statutes, rules or regulations; provided however, no
amendment with respect to an outstanding Option which has the effect of reducing
the benefits afforded to the Holder thereof shall be made over the objection of
such Holder; further provided, that the events triggering acceleration of
vesting of outstanding Options may be modified, expanded or eliminated without
the consent of Holders. The Plan Administrator may condition the effectiveness
of any such amendment on the receipt of shareholder approval at such time and in
such manner as the Plan Administrator may consider necessary for the Company to
comply with or to avail the Company, the Optionees or both of the benefits of
any securities, tax, market listing or other administrative or regulatory
requirement which the Plan Administrator determines to be desirable. Without
limiting the generality of the foregoing, the Plan Administrator may modify
grants to persons who are eligible to receive Options under this Plan who are
foreign nationals or employed outside the United States to recognize differences
in local law, tax policy or custom.
Date Approved by Board of Directors of Company: _______________
Date Approved by Shareholders of Company: _____________
11
<PAGE>
Exhibit 10.2
THIS OPTION AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE HEREOF
HAVE NOT BEEN REGISTERED UNDER STATE OR FEDERAL SECURITIES LAWS. THIS OPTION
MAY NOT BE TRANSFERRED EXCEPT BY WILL OR UNDER THE LAWS OF DESCENT AND
DISTRIBUTION. THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE HEREOF MAY NOT
BE OFFERED OR SOLD, PLEDGED (EXCEPT A PLEDGE PURSUANT TO THE TERMS OF WHICH ANY
OFFER OR SALE UPON FORECLOSURE WOULD BE MADE IN A MANNER THAT WOULD NOT VIOLATE
THE REGISTRATION PROVISIONS OF FEDERAL OR STATE SECURITIES LAWS) OR OTHERWISE
DISTRIBUTED FOR VALUE, NOR MAY THE SHARES OF COMMON STOCK ISSUED UPON EXERCISE
HEREOF BE TRANSFERRED ON THE BOOKS OF THE COMPANY, WITHOUT AN OPINION OF
COUNSEL, CONCURRED IN BY COUNSEL FOR THE COMPANY, THAT NO VIOLATION OF SAID
REGISTRATION PROVISIONS WOULD RESULT THEREFROM.
GLOBALTEL RESOURCES, INC.
1996 STOCK OPTION PLAN
INCENTIVE
STOCK OPTION AGREEMENT
----------------------
THIS STOCK OPTION AGREEMENT (this "Agreement") is entered into as of the
______ day of _______________________ 1996 ("Date of Grant"), by and between
GlobalTel Resources, Inc., a Washington corporation (the "Company"), and
________________________________ (the "Optionee").
1. Grant of Option. Subject to the terms and conditions hereof and the
---------------
Company's 1996 Stock Option Plan (the "Plan"), the Company hereby grants to the
Optionee the right and option (the "Option") to purchase up to
______________________ (______) shares (the "Shares") of the common stock, $0.01
par value, of the Company, at a price per share of $__________ (the "Exercise
Price"). This Option is intended to qualify as an Incentive Stock Option for
purposes of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"). In the case of any stock split, stock dividend or like change in the
nature of shares granted by this Agreement occurring after the date hereof, the
number of shares and option price shall be proportionately adjusted as set forth
in Section 5(m) of the Plan. On the Date of Grant twenty-five percent (25%) of
the Option shall be vested and become exercisable, the following portion of the
Option shall be vested and become exercisable according to the following
schedule:
<TABLE>
<CAPTION>
Number of Years Percentage of Total
Following Date of Grant Option Vested
----------------------- -------------------
<S> <C>
1 50%
2 75%
3 100%
</TABLE>
1
<PAGE>
The vesting of the Option is subject to acceleration in accordance with the
provisions of Section 5(m) of the Plan.
2. Termination of Option. The Option shall terminate, to the extent not
---------------------
previously exercised, ten (10) years from the Date of Grant or earlier in
accordance with Sections 5(g), 5(k) and 5(m) of the Plan. The unvested portion
of the Option shall terminate immediately upon the Optionee's termination of
employment for any reason whatsoever.
3. Non-transferable. This Option may not be transferred, assigned,
----------------
pledged or hypothecated in any manner (whether by operation of law or otherwise)
other than by will or by applicable laws of descent and distribution, and shall
not be subject to execution, attachment or similar process. Upon any attempt to
transfer, assign, pledge, hypothecate or otherwise dispose of this Option or of
any right or privilege conferred hereby, contrary to the provisions hereof, or
upon the sale or levy or any attachment or similar process upon the rights and
privileges conferred hereby, this Option shall thereupon terminate and become
null and void.
4. Investment Intent. By accepting the Option, the Optionee represents
-----------------
and agrees for himself and all persons who acquire rights in the Option through
the Optionee, that none of the Shares purchased upon exercise of the Option will
be distributed in violation of applicable federal and state laws and
regulations. If requested by the Company, the Optionee shall furnish evidence
satisfactory to the Company (including a written and signed representation
letter and a consent to be bound by all transfer restrictions imposed by
applicable law, legend condition or otherwise) to that effect, prior to delivery
of the purchased Shares.
5. Exercise. Subject to Sections 1 and 2 hereof and the Plan, this Option
--------
may be exercised in whole or in part by means of a written notice of exercise
signed and delivered by the Optionee (or, in the case of exercise after death of
the Optionee, by the executor, administrator, heir or legatee of the Optionee,
as the case may be) to the Company at the address set forth herein for notices
to the Company. Such notice (a) shall state the number of Shares to be
purchased and the date of exercise, and (b) shall be accompanied by payment of
the full exercise price by personal check or by any other means approved by the
Plan Administrator.
6. Withholding. Prior to delivery of any Shares purchased upon exercise
-----------
of this Option, the Company shall determine the amount of any United States
federal and state income tax, if any, which is required to be withheld under
applicable law and shall, as a condition of exercise of this Option and delivery
of certificates representing the Shares purchased upon exercise of
2
<PAGE>
the Option, collect from the Optionee the amount of any such tax to the extent
not previously withheld.
7. Rights of the Optionee. Neither this Option, the execution of this
----------------------
Agreement nor the exercise of any portion of this Option shall confer upon the
optionee any right to, or guarantee of, continued employment by the Company, or
in any way limit the right of the Company to terminate employment of the
Optionee at any time, subject to the terms of any employment agreements between
the Company and the Optionee.
8. Professional Advice. The acceptance and exercise of the Option may
-------------------
have consequences under federal and state tax and securities laws which may vary
depending upon the individual circumstances of the Optionee. Accordingly, the
Optionee acknowledges that he has been advised to consult his personal legal and
tax advisor in connection with this Agreement and his dealings with respect to
the Option. Without limiting other matters to be considered, the Optionee
should consider whether upon exercise of the Option, the Optionee will file an
election with the Internal Revenue Service pursuant to Section 83(b) of the
Code.
9. Agreement Subject to a Plan. The Option and this Agreement are subject
---------------------------
to the terms and conditions set forth in the Plan and in any amendments to the
Plan existing now or in the future, which terms and conditions are incorporated
herein by reference. A copy of the Plan previously has been delivered to the
Optionee. Should any conflict exist between the provisions of the Plan and
those of this Agreement, those of the Plan shall govern and control. This
Agreement and the Plan comprise the entire understanding between the Company and
the Optionee with respect to the Option.
10. Stock Restriction Agreement. The Company may require at the time of
---------------------------
grant of this Option or at any time prior to its exercise, in whole or in part,
that the Optionee agree that Shares issuable upon exercise hereof are subject to
a right of first refusal for the benefit of the Company and subject to
repurchase by the Company, at its option, upon termination of employment, death,
disability or upon the involuntary transfer of such Shares. The terms of such
right of first refusal and options to purchase may be set forth in a separate
document.
11. Governing Law. This Agreement shall be governed by, and construed in
-------------
accordance with, the laws of the state of Washington without regard to its
conflict of laws principles to the contrary, and shall bind and inure to the
benefit of the heirs, executors, personal representatives, successors and
permitted assigns of the parties hereto.
3
<PAGE>
12. Notices. Any notice required or permitted to be made or given
-------
hereunder shall be mailed via certified or registered mail or delivered
personally to the addresses set forth below, or as changed from time to time by
written notice to the other:
Company: GlobalTel Resources, Inc.
1520 Eastlake Avenue East
Seattle, WA 98102
Attention: Craig R. Palmer
Optionee: -------------------------------
-------------------------------
-------------------------------
-------------------------------
Notice and other communications shall be deemed received and effective upon the
earlier of (i) hand delivery to the recipient, or (ii) five (5) days after being
mailed by certified or registered mail, postage prepaid, return receipt
requested.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first above written.
GLOBALTEL RESOURCES, INC. OPTIONEE:
By
---------------------------- -------------------------
Its
------------------------
4
<PAGE>
By his or her signature below, the spouse of the Optionee, if such Optionee
is married as of the date of his or her execution of this Agreement,
acknowledges that he or she has read this Agreement and is familiar with the
terms and provisions thereof, and agrees to be bound by all the terms and
conditions of such Agreement and the Plan.
-----------------------------------
Spouse's Signature
-----------------------------------
Print Name
Dated:
----------------------------
By his or her signature below, the Optionee represents that he or she is
not married as of the date of execution of this Agreement.
----------------------------------
Optionee's Signature
Dated:
---------------------------
5
<PAGE>
EX. 10.3
THIS OPTION AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE HEREOF
HAVE NOT BEEN REGISTERED UNDER STATE OR FEDERAL SECURITIES LAWS. THIS OPTION
MAY NOT BE TRANSFERRED EXCEPT BY WILL OR UNDER THE LAWS OF DESCENT AND
DISTRIBUTION. THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE HEREOF MAY NOT
BE OFFERED OR SOLD, PLEDGED (EXCEPT A PLEDGE PURSUANT TO THE TERMS OF WHICH ANY
OFFER OR SALE UPON FORECLOSURE WOULD BE MADE IN A MANNER THAT WOULD NOT VIOLATE
THE REGISTRATION PROVISIONS OF FEDERAL OR STATE SECURITIES LAWS) OR OTHERWISE
DISTRIBUTED FOR VALUE, NOR MAY THE SHARES OF COMMON STOCK ISSUED UPON EXERCISE
HEREOF BE TRANSFERRED ON THE BOOKS OF THE COMPANY, WITHOUT AN OPINION OF
COUNSEL, CONCURRED IN BY COUNSEL FOR THE COMPANY, THAT NO VIOLATION OF SAID
REGISTRATION PROVISIONS WOULD RESULT THEREFROM.
GLOBALTEL RESOURCES, INC.
1996 STOCK OPTION PLAN
NON-QUALIFIED
STOCK OPTION AGREEMENT
----------------------
THIS STOCK OPTION AGREEMENT (this "Agreement") is entered into as of the
_____ day of __________, 1996 ("Date of Grant"), by and between GlobalTel
Resources, Inc., a Washington corporation (the "Company") and
____________________ (the "Optionee").
A. Grant of Option. Subject to the terms and conditions hereof and the
---------------
Company's 1996 Stock Option Plan (the "Plan"), the Company hereby grants to the
Optionee the right and option (the "Option") to purchase up to
___________________ (_______) shares of (the "Shares") of common stock, $0.01
par value, of the Company, at a price per share of $__________ (the "Exercise
Price"). This Option is intended not to qualify as an Incentive Stock Option
---
for purposes of Section 422 of the Internal Revenue Code of 1986, as amended
(the "Code"). In the case of any stock split, stock dividend or like change in
the nature of shares granted by this Agreement occurring after the date hereof,
the number of shares and option price shall be proportionately adjusted as set
forth in Section 5(m) of the Plan. On the Date of Grant twenty-five percent
(25%) of the Option shall be vested and become exercisable, the following
portion of the Option shall be vested and become exercisable according to the
following schedule:
Number of Years Percentage of Total
Following Date of Grant Option Vested
----------------------- -------------------
1 50%
2 75%
3 100%
1
<PAGE>
B. Termination of Option. The vested portion of the Option shall
---------------------
terminate, to the extent not previously exercised, ten (10) years from the Date
of Grant or earlier in accordance with Sections 5(g), 5(k) and 5(m) of the Plan.
The unvested portion of the Option shall terminate immediately upon the
Optionee's termination of employment for any reason whatsoever.
C. Non-Transferable. This Option may not be transferred, assigned,
----------------
pledged or hypothecated in any manner (whether by operation of law or otherwise)
other than by will or by the applicable laws of descent and distribution, and
shall not be subject to execution, attachment or similar process. Upon any
attempt to transfer, assign, pledge, hypothecate or otherwise dispose of this
Option or of any right or privilege conferred hereby, contrary to the provisions
hereof, or upon the sale or levy or any attachment or similar process upon the
rights and privileges conferred hereby, this Option shall thereupon terminate
and become null and void.
D. Investment Intent. By accepting the Option, the Optionee
-----------------
represents and agrees for himself and all persons who acquire rights in the
Option through the Optionee, that none of the Shares purchased upon exercise of
the Option will be distributed in violation of applicable federal and state laws
and regulations. If requested by the Company, the Optionee shall furnish
evidence satisfactory to the Company (including a written and signed
representation letter and a consent to be bound by all transfer restrictions
imposed by applicable law, legend condition or otherwise) to that effect, prior
to delivery of the purchased Shares.
E. Exercise. Subject to Sections 1 and 2 hereof and the Plan, this
--------
Option may be exercised in whole or in part by means of a written notice of
exercise signed and delivered by the Optionee (or, in the case of exercise after
death of the Optionee by the executor, administrator, heir or legatee of the
Optionee as the case may be) to the Company at the address set forth herein for
notices to the Company. Such notice (a) shall state the number of Shares to be
purchased and the date of exercise, and (b) shall be accompanied by payment of
the full exercise price. Payment of the exercise price may be by personal check
or by any other means approved by the Plan Administrator.
F. Withholding. Prior to delivery of any Shares purchased upon
-----------
exercise of this Option, the Company shall determine the amount of any United
States federal and state income tax, if any, which is required to be withheld
under applicable law and shall, as a condition of exercise of this Option and
delivery of certificates representing the Shares purchased upon exercise of the
Option, collect from the Optionee the amount of any such tax to the extent not
previously withheld.
2
<PAGE>
G. Rights of the Optionee. Neither this Option, the execution of
----------------------
this Agreement nor the exercise of any portion of this Option shall confer upon
the Optionee any right to, or guarantee of, continued employment by the Company,
or in any way limit the right of the Company to terminate employment of the
Optionee at any time, subject to the terms of any employment agreements between
the Company and the Optionee.
H. Professional Advice. The acceptance and exercise of the Option
-------------------
may have consequences under federal and state tax and securities laws which may
vary depending upon the individual circumstances of the Optionee. Accordingly,
the Optionee acknowledges that he has been advised to consult his personal legal
and tax advisor in connection with this Agreement and his dealings with respect
to the Option. Without limiting other matters to be considered, the Optionee
should consider whether upon exercise of the Option, the Optionee will file an
election with the Internal Revenue Service pursuant to Section 83(b) of the
Code.
I. Agreement Subject to Plan. The Option and this Agreement are
-------------------------
subject to the terms and conditions set forth in the Plan and in any amendments
to the Plan existing now or in the future, which terms and conditions are
incorporated herein by reference. A copy of the Plan previously has been
delivered to the Optionee. Should any conflict exist between the provisions of
the Plan and those of this Agreement, those of the Plan shall govern and
control. This Agreement and the Plan compromise the entire understanding
between the Company and the Optionee with respect to the Option.
J. Stock Restriction Agreement. The Company may require at
---------------------------
the time of grant of this Option or at any time prior to its exercise, in whole
or in part, that the Optionee agree that Shares issuable upon exercise hereof
are subject to a right of first refusal for the benefit of the Company and
subject to repurchase by the Company, at its option, upon termination of
employment, death, disability or upon the involuntary transfer of such Shares.
The terms of such right of first refusal and options to purchase may be set
forth in a separate document.
K. Governing Law. This Agreement shall be governed by, and construed
-------------
in accordance with, the laws of the state of Washington without regard to its
conflict of laws principles to the contrary, and shall bind and inure to the
benefit of the heirs, executors, personal representatives, successors and
permitted assigns of the parties hereto.
L. Notices. Any notice required or permitted to be made or given
-------
hereunder shall be mailed via certified or registered mail or delivered
personally to the addresses set forth below, or as changed from time to time by
written notice to the other:
3
<PAGE>
Company: GlobalTel Resources, Inc.
1520 Eastlake Avenue East
Seattle, WA 98102
Attention: Craig R. Palmer
Optionee:
-------------------------
-------------------------
-------------------------
-------------------------
Notices and other communications shall be deemed received and effective upon the
earlier of (i) hand delivery to the recipient, or (ii) five (5) days after being
mailed by certified or registered mail, postage prepaid, return receipt
requested.
IN WITNESS WHEREOF, the undersigned have executed this
Agreement as of the date first above written.
GLOBALTEL RESOURCES, INC. OPTIONEE:
By
---------------------------- ---------------------------
Its
------------------------
4
<PAGE>
By his or her signature below, the spouse of the Optionee, if such
Optionee is married as of the date of his or her execution of this Agreement,
acknowledges that he or she has read this Agreement and is familiar with the
terms and provisions thereof, and agrees to be bound by all the terms and
conditions of such Agreement and the Plan.
------------------------------
Spouse's Signature
------------------------------
Print Name
Dated:
------------------------
By his or her signature below, the Optionee represents that he or she
is not married as of the date of execution of this Agreement.
------------------------------
Optionee's Signature
Dated:
------------------------
5
<PAGE>
EX. 10.4
THIS OPTION AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE HEREOF
HAVE NOT BEEN REGISTERED UNDER STATE OR FEDERAL SECURITIES LAWS. THIS OPTION
MAY NOT BE TRANSFERRED EXCEPT BY WILL OR UNDER THE LAWS OF DESCENT AND
DISTRIBUTION. THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE HEREOF MAY NOT
BE OFFERED OR SOLD, PLEDGED (EXCEPT A PLEDGE PURSUANT TO THE TERMS OF WHICH ANY
OFFER OR SALE UPON FORECLOSURE WOULD BE MADE IN A MANNER THAT WOULD NOT VIOLATE
THE REGISTRATION PROVISIONS OF FEDERAL OR STATE SECURITIES LAWS) OR OTHERWISE
DISTRIBUTED FOR VALUE, NOR MAY THE SHARES OF COMMON STOCK ISSUED UPON EXERCISE
HEREOF BE TRANSFERRED ON THE BOOKS OF THE COMPANY, WITHOUT AN OPINION OF
COUNSEL, CONCURRED IN BY COUNSEL FOR THE COMPANY, THAT NO VIOLATION OF SAID
REGISTRATION PROVISIONS WOULD RESULT THEREFROM.
GLOBALTEL RESOURCES, INC.
1996 STOCK OPTION PLAN
DIRECTOR NON-QUALIFIED
STOCK OPTION AGREEMENT
----------------------
THIS STOCK OPTION AGREEMENT (this "Agreement") is entered into as of the
_____ day of __________, 1996 ("Date of Grant"), by and between GlobalTel
Resources, Inc., a Washington corporation (the "Company") and
____________________ (the "Optionee").
A. Grant of Option. Subject to the terms and conditions hereof and the
---------------
Company's 1996 Stock Option Plan (the "Plan"), the Company hereby grants to the
Optionee the right and option (the "Option") to purchase up to ________________
(_______) shares of (the "Shares") of common stock, $0.01 par value, of the
Company, at a price per share of $__________ (the "Exercise Price"). This Option
is intended not to qualify as an Incentive Stock Option for purposes of Section
---
422 of the Internal Revenue Code of 1986, as amended (the "Code"). In the case
of any stock split, stock dividend or like change in the nature of shares
granted by this Agreement occurring after the date hereof, the number of shares
and option price shall be proportionately adjusted as set forth in Section 5(m)
of the Plan. On the Date of Grant twenty-five percent (25%) of the Option shall
be vested and become exercisable, the following portion of the Option shall be
vested and become exercisable according to the following schedule:
<TABLE>
<CAPTION>
Number of Years Percentage of Total
Following Date of Grant Option Vested
----------------------- -------------------
<S> <C>
1 50%
2 75%
3 100%
</TABLE>
1
<PAGE>
B. Termination of Option. The vested portion of the Option shall
---------------------
terminate, to the extent not previously exercised, ten (10) years from the Date
of Grant or earlier in accordance with Sections 5(k), 5(m) and 6(d) of the Plan.
The unvested portion of the Option shall terminate immediately upon the
Optionee's termination of employment for any reason whatsoever.
C. Non-Transferable. This Option may not be transferred, assigned,
----------------
pledged or hypothecated in any manner (whether by operation of law or otherwise)
other than by will or by the applicable laws of descent and distribution, and
shall not be subject to execution, attachment or similar process. Upon any
attempt to transfer, assign, pledge, hypothecate or otherwise dispose of this
Option or of any right or privilege conferred hereby, contrary to the provisions
hereof, or upon the sale or levy or any attachment or similar process upon the
rights and privileges conferred hereby, this Option shall thereupon terminate
and become null and void.
D. Investment Intent. By accepting the Option, the Optionee
-----------------
represents and agrees for himself and all persons who acquire rights in the
Option through the Optionee, that none of the Shares purchased upon exercise of
the Option will be distributed in violation of applicable federal and state laws
and regulations. If requested by the Company, the Optionee shall furnish
evidence satisfactory to the Company (including a written and signed
representation letter and a consent to be bound by all transfer restrictions
imposed by applicable law, legend condition or otherwise) to that effect, prior
to delivery of the purchased Shares.
E. Exercise. Subject to Sections 1 and 2 hereof and the Plan, this
--------
Option may be exercised in whole or in part by means of a written notice of
exercise signed and delivered by the Optionee (or, in the case of exercise after
death of the Optionee by the executor, administrator, heir or legatee of the
Optionee as the case may be) to the Company at the address set forth herein for
notices to the Company. Such notice (a) shall state the number of Shares to be
purchased and the date of exercise, and (b) shall be accompanied by payment of
the full exercise price. Payment of the exercise price may be in cash, by
personal check or by any other means approved by the Plan Administrator.
F. Withholding. Prior to delivery of any Shares purchased upon
-----------
exercise of this Option, the Company shall determine the amount of any United
States federal and state income tax, if any, which is required to be withheld
under applicable law and shall, as a condition of exercise of this Option and
delivery of certificates representing the Shares purchased upon exercise of the
Option, collect from the Optionee the amount of any such tax to the extent not
previously withheld.
2
<PAGE>
G. Rights of the Optionee. Neither this Option, the execution of
----------------------
this Agreement nor the exercise of any portion of this Option shall confer upon
the Optionee any right to, or guarantee of, continued employment by the Company,
or in any way limit the right of the Company to terminate employment of the
Optionee at any time, subject to the terms of any employment agreements between
the Company and the Optionee.
H. Professional Advice. The acceptance and exercise of the Option
-------------------
may have consequences under federal and state tax and securities laws which may
vary depending upon the individual circumstances of the Optionee. Accordingly,
the Optionee acknowledges that he has been advised to consult his personal legal
and tax advisor in connection with this Agreement and his dealings with respect
to the Option. Without limiting other matters to be considered, the Optionee
should consider whether upon exercise of the Option, the Optionee will file an
election with the Internal Revenue Service pursuant to Section 83(b) of the
Code.
I. Agreement Subject to Plan. The Option and this Agreement are
-------------------------
subject to the terms and conditions set forth in the Plan and in any amendments
to the Plan existing now or in the future, which terms and conditions are
incorporated herein by reference. A copy of the Plan previously has been
delivered to the Optionee. Should any conflict exist between the provisions of
the Plan and those of this Agreement, those of the Plan shall govern and
control. This Agreement and the Plan compromise the entire understanding
between the Company and the Optionee with respect to the Option.
J. Stock Restriction Agreement. The Company may require at the time
---------------------------
of grant of this Option or at any time prior to its exercise, in whole or in
part, that the Optionee agree that Shares issuable upon exercise hereof are
subject to a right of first refusal for the benefit of the Company and subject
to repurchase by the Company, at its option, upon termination of employment,
death, disability or upon the involuntary transfer of such Shares. The terms of
such right of first refusal and options to purchase may be set forth in a
separate document.
K. Governing Law. This Agreement shall be governed by, and construed
-------------
in accordance with, the laws of the state of Washington without regard to its
conflict of laws principles to the contrary, and shall bind and inure to the
benefit of the heirs, executors, personal representatives, successors and
permitted assigns of the parties hereto.
L. Notices. Any notice required or permitted to be made or given
-------
hereunder shall be mailed via certified or registered mail or delivered
personally to the addresses set forth below, or as changed from time to time by
written notice to the other:
3
<PAGE>
Company: GlobalTel Resources, Inc.
1520 Eastlake Avenue East
Seattle, WA 98102
Attention: Craig R. Palmer
Optionee:
-------------------------
-------------------------
-------------------------
-------------------------
Notices and other communications shall be deemed received and effective upon the
earlier of (i) hand delivery to the recipient, or (ii) five (5) days after being
mailed by certified or registered mail, postage prepaid, return receipt
requested.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first above written.
GLOBALTEL RESOURCES, INC. OPTIONEE:
By
---------------------------- ---------------------------
Its
------------------------
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By his or her signature below, the spouse of the Optionee, if such
Optionee is married as of the date of his or her execution of this Agreement,
acknowledges that he or she has read this Agreement and is familiar with the
terms and provisions thereof, and agrees to be bound by all the terms and
conditions of such Agreement and the Plan.
------------------------------
Spouse's Signature
------------------------------
Print Name
Dated:
------------------------
By his or her signature below, the Optionee represents that he or she is
not married as of the date of execution of this Agreement.
------------------------------
Optionee's Signature
Dated:
------------------------
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EXHIBIT 10.5
GLOBALTEL RESOURCES, INC.
INDEMNIFICATION AGREEMENT
This Indemnification Agreement (this "Agreement") dated as of ___________,
1997 is made between GlobalTel Resources, Inc., a Washington corporation (the
"Company"), and ______________________ ("Indemnitee").
RECITALS
A. Indemnitee is an officer or director of the Company and in such
capacity is performing valuable services for the Company.
B. The Company and Indemnitee recognize the difficulty in obtaining
directors' and officers' liability insurance, the significant cost of such
insurance and the general reduction in the coverage of such insurance.
C. The Company and Indemnitee further recognize the substantial increase
in litigation subjecting officers and directors to expensive litigation risks at
the same time that such liability insurance has been severely limited.
D. The shareholders of the Company have adopted bylaws (the "Bylaws")
providing for indemnification of the officers, directors, agents and employees
of the Company to the full extent permitted by the Washington Business
Corporation Act (the "Statute").
E. The Bylaws and the Statute specifically provide that they are not
exclusive, and thereby contemplate that contracts may be entered into between
the Company and the members of its Board of Directors and its officers with
respect to indemnification of such directors and officers.
F. In order to induce Indemnitee to continue to serve as an officer and/or
director, as the case may be, of the Company, the Company has agreed to enter
into this Agreement with Indemnitee.
AGREEMENT
In consideration of the recitals above, the mutual covenants and agreements
herein contained, and Indemnitee's continued service as an officer and/or
director, as the case may be, of the Company after the date hereof, the parties
to this Agreement agree as follows:
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1. INDEMNITY OF INDEMNITEE
1.1 SCOPE
The Company agrees to hold harmless and indemnify Indemnitee to the full
extent permitted by law, notwithstanding that such indemnification is not
specifically authorized by this Agreement, the Company's Articles of
Incorporation, the Bylaws, the Statute or otherwise. As of the date of this
Agreement, and notwithstanding the limitations in 23B.08.510 through 23B.08.550
of the Statute, the Corporation shall indemnify and hold harmless Indemnitee
against any and all Damages (as defined below) except for Damages arising out
of:
(a) Indemnitee's acts or omissions finally adjudged to be intentional
misconduct or a knowing violation of law;
(b) Conduct of Indemnitee finally adjudged to be in violation of
RCW 23B.08.310; or
(c) Any transaction in which it is finally adjudged that Indemnitee
personally received a benefit in money, property or services to which Indemnitee
was not legally entitled.
Except as provided in Section 3, the Corporation shall not indemnify
Indemnitee in connection with a Proceeding (as defined below), or part thereof,
initiated by Indemnitee unless such Proceeding, or part thereof, was authorized
by the Board of Directors of the Corporation.
In the event of any change, after the date of this Agreement, in any
applicable law, statute or rule regarding the right of a Washington corporation
to indemnify a member of its board of directors or an officer, such changes, to
the extent that they would expand Indemnitee's rights hereunder, shall be within
the purview of Indemnitee's rights and the Company's obligations hereunder, and,
to the extent that they would narrow Indemnitee's rights hereunder, shall be
excluded from this Agreement; provided, however, that any change that is
required by applicable laws, statutes or rules to be applied to this Agreement
shall be so applied regardless of whether the effect of such change is to narrow
Indemnitee's rights hereunder.
1.2 NONEXCLUSIVITY
The indemnification provided by this Agreement shall not be deemed
exclusive of any rights to which Indemnitee may be entitled under the Company's
Articles of Incorporation, the Bylaws, any agreement, any vote of shareholders
or disinterested directors, the Statute, or otherwise, whether as to action in
Indemnitee's official capacity or otherwise.
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1.3 ADDITIONAL INDEMNITY
If Indemnitee was or is made a party, or is threatened to be made a party,
to or is otherwise involved (including, without limitation, as a witness) in any
Proceeding (as defined below), the Company shall hold harmless and indemnify
Indemnitee from and against any and all losses, claims, damages, liabilities or
expenses (including attorneys' fees, judgments, fines, ERISA excise taxes or
penalties, amounts paid in settlement and other expenses incurred in connection
with such Proceeding) (collectively, "Damages").
1.4 DEFINITION OF PROCEEDING
For purposes of this Agreement, "Proceeding" shall mean any actual, pending
or threatened action, suit, claim or proceeding, whether civil, criminal,
administrative or investigative and whether formal or informal, in which
Indemnitee is, was or becomes involved by reason of the fact that Indemnitee is
or was a director, officer, employee or agent of the Company or that, being or
having been such a director, officer, employee or agent, Indemnitee is or was
serving at the request of the Company as a director, officer, employee, trustee
or agent of another corporation or of a partnership, joint venture, trust or
other enterprise (collectively a "Related Company"), including service with
respect to an employee benefit plan, whether the basis of such proceeding is
alleged action (or inaction) by Indemnitee in an official capacity as a
director, officer, employee, trustee or agent or in any other capacity while
serving as a director, officer, employee, trustee or agent; provided, however,
that, except with respect to an action to enforce the provisions of this
Agreement, "Proceeding" shall not include any action, suit, claim or proceeding
instituted by or at the direction of Indemnitee unless such action, suit, claim
or proceeding is or was authorized by the Company's Board of Directors.
1.5 DETERMINATION OF ENTITLEMENT
In the event that a determination of Indemnitee's entitlement to
indemnification is required pursuant to Section 23B.08.550 of the Statute or any
successor thereto or pursuant to other applicable law, the appropriate decision-
maker shall make such determination; provided, however, that Indemnitee shall
initially be presumed in all cases to be entitled to indemnification, that
Indemnitee may establish a conclusive presumption of any fact necessary to such
a determination by delivering to the Company a declaration made under penalty of
perjury that such fact is true and that, unless the Company shall deliver to
Indemnitee written notice of a determination that Indemnitee is not entitled to
indemnification within twenty (20) days of the Company's receipt of Indemnitee's
initial written request for indemnification such determination shall
conclusively be deemed to have been made in favor of the Company's provision of
indemnification and Company hereby agrees not to assert otherwise.
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1.6 SURVIVAL
The indemnification provided under this Agreement shall apply to any and
all Proceedings, notwithstanding that Indemnitee has ceased to be a director,
officer, employee, trustee or agent of the Company or a Related Company.
2. EXPENSE ADVANCES
2.1 GENERALLY
The right to indemnification of Damages conferred by Section 1 shall
include the right to have the Company pay Indemnitee's expenses in any
Proceeding as such expenses are incurred and in advance of such Proceeding's
final disposition (such right is referred to hereinafter as an "Expense
Advance").
2.2 CONDITIONS TO EXPENSE ADVANCE
The Company's obligation to provide an Expense Advance is subject to the
following conditions:
2.2.1 UNDERTAKING
If the Proceeding arose in connection with Indemnitee's service as a
director or officer of the Company (and not in any other capacity in which
Indemnitee rendered service, including service to any Related Company), then
Indemnitee or his or her representative shall have executed and delivered to the
Company an undertaking, which need not be secured and shall be accepted without
reference to Indemnitee's financial ability to make repayment, by or on behalf
of Indemnitee to repay all Expense Advances if and to the extent that it shall
ultimately be determined by a final, unappealable decision rendered by a court
having jurisdiction over the parties and the question that Indemnitee is not
entitled to be indemnified for such Expense Advance under this Agreement or
otherwise.
2.2.2 COOPERATION
Indemnitee shall give the Company such information and cooperation as it
may reasonably request and as shall be within Indemnitee's power.
2.2.3 AFFIRMATION
Indemnitee shall furnish, upon request by the Company and if required under
applicable law, a written affirmation of Indemnitee's good faith belief that any
applicable standards of conduct have been met by Indemnitee.
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3. PROCEDURES FOR ENFORCEMENT
3.1 ENFORCEMENT
In the event that a claim for indemnity, an Expense Advance or otherwise is
made hereunder and is not paid in full within sixty days (twenty days for an
Expense Advance) after written notice of such claim is delivered to the Company,
Indemnitee may, but need not, at any time thereafter bring suit against the
Company to recover the unpaid amount of the claim (an "Enforcement Action").
3.2 PRESUMPTIONS IN ENFORCEMENT ACTION
In any Enforcement Action the following presumptions (and limitation on
presumptions) shall apply:
(a) The Company shall conclusively be presumed to have entered into this
Agreement and assumed the obligations imposed on it hereunder in order to induce
indemnitee to continue as an officer and/or director, as the case may be, of the
Company;
(b) Neither (i) the failure of the Company (including the Company's Board
of Directors, independent or special legal counsel or the Company's
shareholders) to have made a determination prior to the commencement of the
Enforcement Action that indemnification of Indemnitee is proper in the
circumstances nor (ii) an actual determination by the Company, its Board of
Directors, independent or special legal counsel or shareholders that Indemnitee
is not entitled to indemnification shall be a defense to the Enforcement Action
or create a presumption that Indemnitee is not entitled to indemnification
hereunder; and
(c) If Indemnitee is or was serving as a director, officer, employee,
trustee or agent of a corporation of which a majority of the shares entitled to
vote in the election of its directors is held by the Company or in an executive
or management capacity in a partnership, joint venture, trust or other
enterprise of which the Company or a wholly owned subsidiary of the Company is a
general partner or has a majority ownership, then such corporation, partnership,
joint venture, trust or enterprise shall conclusively be deemed a Related
Company and Indemnitee shall conclusively be deemed to be serving such Related
Company at the request of the Company.
3.3 ATTORNEYS' FEES AND EXPENSES FOR ENFORCEMENT ACTION
In the event Indemnitee is required to bring an Enforcement Action, the
Company shall indemnify and hold harmless Indemnitee against all of Indemnitee's
fees and expenses in bringing and pursuing the Enforcement Action (including
attorneys' fees at any stage, including on appeal); provided, however, that the
Company shall not be required to provide such indemnity for such attorneys' fees
or expenses if a court of
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competent jurisdiction determines that each of the
material assertions made by Indemnitee in such Enforcement Action was not made
in good faith or was frivolous.
4. LIMITATIONS ON INDEMNITY; MUTUAL ACKNOWLEDGMENT
4.1 LIMITATION ON INDEMNITY
No indemnity pursuant to this Agreement shall be provided by the Company:
(a) On account of any suit in which a final, unappealable judgment is
rendered against Indemnitee for an accounting of profits made from the purchase
or sale by Indemnitee of securities of the Company in violation of the
provisions of Section 16(b) of the Securities Exchange Act of 1934 and
amendments thereto;
(b) For Damages that have been paid directly to Indemnitee by an insurance
carrier under a policy of officers' and directors' liability insurance
maintained by the Company;
(c) On account of Indemnitee's conduct which is finally adjudged to fall
within one or more of the exclusions set forth in Section 1.1 above; or
(d) If a final decision by a court having jurisdiction in the matter shall
determine that such indemnification is not lawful.
4.2 MUTUAL ACKNOWLEDGMENT
The Company and Indemnitee acknowledge that, in certain instances, federal
law or public policy may override applicable state law and prohibit the Company
from indemnifying Indemnitee under this Agreement or otherwise. For example,
the Company and Indemnitee acknowledge that the Securities and Exchange
Commission (the "SEC") has taken the position that indemnification is not
permissible for liabilities arising under certain federal securities laws, and
federal legislation prohibits indemnification for certain ERISA violations.
Furthermore, Indemnitee understands and acknowledges that the Company has
undertaken or may be required in the future to undertake with the SEC to submit
the question of indemnification to a court in certain circumstances for a
determination of the Company's right under public policy to indemnify
Indemnitee.
5. NOTIFICATION AND DEFENSE OF CLAIM
5.1 NOTIFICATION
Promptly after receipt by Indemnitee of notice of the commencement of any
Proceeding, Indemnitee will, if a claim in respect thereof is to be made against
the Company under this Agreement, notify the Company of the commencement
thereof; but the omission so to notify the Company will not relieve the Company
from any liability
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which it may have to Indemnitee under this Agreement unless
and only to the extent that such omission can be shown to have prejudiced the
Company's ability to defend the Proceeding.
5.2 DEFENSE OF CLAIM
With respect to any such Proceeding as to which Indemnitee notifies the
Company of the commencement thereof:
(a) The Company may participate therein at its own expense;
(b) The Company, jointly with any other indemnifying party similarly
notified, may assume the defense thereof, with counsel satisfactory to
Indemnitee. After notice from the Company to Indemnitee of its election so to
assume the defense thereof, the Company shall not be liable to Indemnitee under
this Agreement for any legal or other expenses (other than reasonable costs of
investigation) subsequently incurred by Indemnitee in connection with the
defense thereof unless (i) the employment of counsel by Indemnitee has been
authorized by the Company, (ii) Indemnitee shall have reasonably concluded that
there may be a conflict of interest between the Company and Indemnitee in the
conduct of the defense of such action, or (iii) the Company shall not in fact
have employed counsel to assume the defense of such action, in each of which
cases the fees and expenses of counsel shall be at the expense of the Company.
The Company shall not be entitled to assume the defense of any action, suit or
proceeding brought by or on behalf of the Company or as to which Indemnitee
shall have made the conclusion provided for in (ii) above;
(c) The Company shall not be liable to indemnify Indemnitee under this
Agreement for any amounts paid in settlement of any Proceeding effected without
its written consent;
(d) The Company shall not settle any action or claim in any manner which
would impose any penalty or limitation on Indemnitee without Indemnitee's
written consent; and
(e) Neither the Company nor Indemnitee will unreasonably withhold its, his
or her consent to any proposed settlement.
6. SEVERABILITY
Nothing in this Agreement is intended to require or shall be construed as
requiring the Company to do or fail to do any act in violation of applicable
law. The Company's inability, pursuant to court order, to perform its
obligations under this Agreement shall not constitute a breach of this
Agreement. The provisions of this Agreement shall be severable, as provided in
this Section 6. If this Agreement or any portion hereof shall be
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invalidated on any ground by any court of competent jurisdiction, then the
Company shall nevertheless indemnify Indemnitee to the full extent permitted by
any applicable portion of this Agreement that shall not have been invalidated,
and the balance of this Agreement not so invalidated shall be enforceable in
accordance with its terms.
7. GOVERNING LAW; BINDING EFFECT; AMENDMENT AND TERMINATION
(a) This Agreement shall be interpreted and enforced in accordance with the
laws of the State of Washington.
(b) This Agreement shall be binding upon Indemnitee and upon the Company,
its successors and assigns, and shall inure to the benefit of Indemnitee,
Indemnitee's heirs, personal representatives and assigns and to the benefit of
the Company, its successors and assigns.
(c) No amendment, modification, termination or cancellation of this
Agreement shall be effective unless in writing signed by both parties.
IN WITNESS WHEREOF, the parties have executed this Agreement on and as of
the day and year first above written.
GLOBALTEL RESOURCES, INC.
________________________________
By: ___________________________
Its: __________________________
INDEMNITEE:
________________________________
________________________________
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EXHIBIT 10.6
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (the "Agreement") dated October 31, 1997 is
made between GLOBALTEL RESOURCES, INC. (the "Company"), and ____________________
("Executive"). By its terms, this Agreement shall, on and after the IPO Date
supersede all prior employment agreements between the parties hereto. In
consideration of the mutual covenants and conditions set forth in this
Agreement, the parties agree as follows:
This Agreement shall become effective on the date the Company completes an
initial public offering of its common stock that yields, to the Company, net
proceeds in excess of Fifteen Million Dollars ($15,000,000) (the "IPO Date").
If the IPO Date has not occurred by January 30, 1998, for any reason whatsoever
(including but not limited to a decision by the Company not to offer its common
stock for sale in a public offering), this Agreement shall be null and void,
without the need for further action by either party. If the IPO Date occurs
prior to January 30, 1998, the Company shall employ Executive on the following
terms and conditions.
1 ENGAGEMENT
1. Term
----
The term of employment pursuant to this Agreement will extend from the IPO Date
for a period of one (1) year, unless earlier terminated as hereinafter provided.
2. Title and Location
-------------------
Executive will serve as a ___________________________ of the Company and shall
perform all functions customarily assigned to such a position. Absent
Executive's concurrence, Executive's primary place of employment shall be
Seattle, Washington.
2 COMPENSATION
1. Salary
------
Executive will receive an annual Base Salary of $____________per annum.
2. Bonus
-----
Executive will be entitled to receive during the term of this Agreement
incentive or bonus payments of up to one times annual salary pursuant to any
plans or agreements approved by the
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Company's Compensation Committee of the Board and the Board of Directors, and
payable by their express terms and conditions to Executive.
3. Benefits
--------
During the term of this Agreement, the Company shall provide Executive with
health, life, disability and other appropriate insurance, vacation, sick leave
and other benefits as are generally provided to other management-level employees
holding similar positions with the Company. Executive will have at least four
weeks of paid vacation per year.
4. Stock Options
-------------
On the IPO Date, the Company shall issue to Executive stock options, pursuant to
its 1996 Stock Option Plan (the "Plan"), exercisable at a price per share equal
to the per share price at which common stock is sold in the public offering
completed on the IPO Date. The number of shares for which options are issued
shall be equivalent to the number of shares that Executive would have held on
the IPO Date had he held ___________ shares on the date of this Agreement,
giving effect to all recapitalizations, stock splits and other adjustments to
the Company's capital structure that may occur between the date of this
Agreement and the IPO Date. The options shall, to the extent permitted by the
Plan, be Incentive Stock Option and shall otherwise be Non-Qualified Stock
Options. Said options shall be governed by the terms and conditions of the Plan
and, in addition, said options shall vest over three years based upon
performance criteria as established by the Compensation Committee of the Board
of Directors of the Company. The foregoing additional vesting requirements
shall be deemed fully satisfied if, prior to the third (3rd) calendar
anniversary of the IPO Date, there is a Change of Control Event. As used
herein, a "Change of Control Event" is a sale or merger of the Company to or
with a non-affiliate or a change in the identity of the majority of the Board of
Directors other than through normal transition. All options not exercised prior
to the tenth (10th) calendar anniversary of the IPO Date, whether or not vested,
shall expire.
3 NEGATIVE COVENANTS
1. Non-Competition
---------------
Without the written consent of the Company, Executive will not, during the term
of employment under this Agreement and for one (1) year following the
termination of employment under this Agreement, work directly or indirectly (as
an employee, consultant, advisor or owner, except as a holder of less than 5% of
a public company) for any business or activity which is in a business
substantially similar to that of the Company, anywhere in the Company's
marketplace. For purposes of this covenant, a business activity is
substantially similar to the business of the Company if it involves a product or
service that the Company was developing, manufacturing,
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marketing or distributing, or otherwise commercially exploiting during the
Executive's employment with the Company.
2. Nondisclosure
-------------
Executive acknowledges that in the course of carrying out his responsibilities
to the Company under this Agreement he will have access to and be entrusted with
confidential information relating to the patents, copyrights, trademarks, trade
secrets, technology, business and finances of the Company. All of this
information, except information that is in the public domain through no fault of
Executive, is collectively referred to as "Confidential Information." Executive
shall keep in confidence and trust all Confidential Information. Without the
Company's prior written consent, Executive shall not use or disclose any
Confidential Information, during or after his employment with the Company,
except as required in the ordinary course of his duties for the Company.
3. Relief for Breach
-----------------
Executive agrees that damages for breach of the covenants contained in sections
3.1 and 3.2 would be difficult to determine and therefore agrees that these
provisions may be enforced by temporary or permanent injunction. The right to
such injunctive relief shall be in addition to and not in place of any further
remedies to which the Company may be entitled.
4. Reasonableness
--------------
Executive agrees that the provisions of sections 3.1, 3.2 and 3.3 are
reasonable. However, if any court of competent jurisdiction determines that any
provision within these sections is unreasonable in any respect, the parties
intend that the provisions of these sections should be enforced to the fullest
extent allowed by such court.
5. Survival of Covenants
---------------------
The provisions of this Article shall survive the termination of employment under
this Agreement.
4 DUTIES
1. Duties
------
Executive agrees that during the term of this Agreement he/she will diligently
perform all duties assigned to him/her by the Company which are reasonably
commensurate with the positions held by Executive pursuant to 1.2 above, and
will devote all of his/her efforts to those duties on a full-time basis and to
the best of his/her skill and ability. It is understood that Executive may have
other investment activities and sit on , subject to the limitations in Section 3
above, boards of directors of other companies.
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5 TERMINATION
1. Termination Prior to the End of Term
------------------------------------
(a) The Company may terminate this Agreement on written notice of not less
than six (6) months, except as otherwise provided in sections 5.1(b), 5.1(c) and
5.2. Executive may terminate employment under this Agreement on written notice
of not less than three (3) months.
(b) The Company may, at its option, terminate employment under this
Agreement at any time without notice in the event that Executive commits a
felony for which Executive is found guilty by a court of competent jurisdiction
or commits any intentional damage to or misappropriation of the property or
business of the Company. Any such termination shall be considered a termination
for cause. In the event of a termination for cause, Executive shall be paid all
compensation and benefits earned through the date of termination, but shall not
be entitled to receive any further compensation or benefits other than payments
already due as of that date.
(c) This Agreement shall terminate in the event that Executive dies, or is
unable to perform his/her duties as a result of a physical or mental disability
at any time during the term of this Agreement. In the event of a termination
under this subsection, Executive or his/her estate shall be paid all
compensation and benefits earned through the date of such termination, but shall
not be entitled to receive any compensation or benefits other than payments
already due as of that date. For purposes of this Agreement, Executive will be
considered unable to perform his/her duties as a result of a physical or mental
disability if that disability exists, or is reasonably expected to exist, for
more than ninety (90) days in any twelve (12) consecutive calendar months.
2. Severance Pay
-------------
If the Company gives notice under section 5.1(a), then at the Company's option:
(a) The Company shall honor Executive's employment contract to the stated
end of the employment term and thereafter pay Executive severance pay equal to
Executive's then-current monthly Base Salary multiplied by six (6); or
(b) the Company may terminate Executive's employment prior to the end of
the notice period, in exchange for severance pay equal to Executive's then-
current monthly salary multiplied by (i) the number of months remaining in the
notice period plus (ii) six (6).
Executive agrees to accept this amount as full compensation for the
termination. Severance pay under this section will be paid in payments made
according to the Company's regular payroll practices over the remainder of the
notice period and the six-month severance period. Executives options and all
other benefits shall be accrue until the date of termination and
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in the case of stock options shall be vested on a prorated basis up to and
including the date of termination.
3. Payment on Resignation
----------------------
If Executive gives notice under Section 5.1(a), the Company may, at its option,
elect to terminate Executive's employment prior to the end of the notice period.
Regardless of whether the Company elects to have Executive continue to work
through the notice period provided in Section 5.1(a), or elects to terminate
Executive's employment prior to the end of that notice period, Executive shall
be paid all compensation and benefits earned through his/her last day of work,
but shall not be entitled to receive any further compensation or benefits other
than payments already due as of that date.
4. Return of Property
------------------
Upon termination, Executive will deliver to the Company, in a reasonable state
of repair, all property, both real and personal, including documents and copies
thereof, and including computer software and files, produced, owned, or leased
by the Company and used by or in the possession of Executive while employed by
the Company. Except, if the Executive possesses, the Executive shall be
permitted to keep the company owned home computer, printer, and fax machine in
his home and the company owned cellular phone.
6 GENERAL
1. Assignment
----------
Executive may not assign any right, benefit or interest in this Agreement
without the written consent of the Company, and any purported assignment without
such consent will be void. This Agreement shall be binding upon the Company,
its successors and assigns.
2. Severability
------------
If any provision of this Agreement is unenforceable or invalid for any reason,
it will be severable from the remainder of this Agreement. The Agreement will
then be construed as though such provision was not contained herein, and the
remainder of the Agreement will continue in full force and effect.
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3. Waiver and Consent
------------------
No consent or waiver, express or implied, by either party to or of any breach or
default by the other party of any or all of its obligations under this Agreement
will be valid unless it is in writing and stated to be a consent or waiver
pursuant to this section.
4. Binding Effect
--------------
This Agreement will inure to the benefit of and be binding upon the respective
legal representatives and successors.
5. Counterparts
------------
This Agreement may be executed in any number of counterparts with the same
effect as if all parties to this Agreement or such other writing had signed the
same document. All counterparts will be construed together and will constitute
one instrument.
6. Headings
--------
The section headings in this Agreement are for reference and shall not by
themselves determine the construction or interpretation of the Agreement.
7. Arbitration
-----------
All disputes between the parties relating to this Agreement shall be submitted
to binding arbitration before JAMS/Endispute in Seattle, Washington. Either
party may commence the arbitration by delivery of a written notice to the other,
describing the issue in dispute and its position with regard to the issue. The
arbiter shall determine the extent of discovery allowable. Except as otherwise
provided in this Agreement, the arbitration shall be conducted in accordance
with the rules of the American Arbitration Association then in effect. The
award of the arbiter shall be final and binding, and judgment upon an award may
be entered in any court of competent jurisdiction. In any such arbitration, the
prevailing party shall receive their reasonable attorneys fees and costs of
arbitration. Nothing contained in this section shall prevent the Company from
exercising its rights as provided in Article 3.
8. Entire Agreement
----------------
This Agreement constitutes the entire agreement between the parties and
supersedes all prior oral or written agreements or understandings between the
parties with respect to the subject matter of this Agreement.
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IN WITNESS WHEREOF the parties hereto have executed this Agreement effective as
of the day and year first above-written.
GLOBALTEL RESOURCES, INC. EXECUTIVE:
By:______________________ ___________________________
Title:__________________ Name: ____________________
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Exhibit 10.7
ONE WILSHIRE ARCADE IMPERIAL, LTD.
FIRST AMENDMENT TO LEASE RE LICENSE
FOR USE OF TELECOMMUNICATIONS CONDUIT
AND SPECIAL CONDUIT INTERCONNECTION ROOM
PARTIES: ONE WILSHIRE ARCADE IMPERIAL, LTD,
a California Limited Partnership
624 S. Grand Avenue, Suite 1207
Los Angeles, CA 90017
("Landlord")
PRIMECALL, INC.
a Washington corporation
624 So. Grand Avenue
Suite 2840
Los Angeles, California 90017
("Tenant")
DATE: June 24, 1997
PLACE: Los Angeles, California
RECITALS
--------
A. Landlord is the owner of the One Wilshire Building, located at 624 S.
Grand Avenue, Los Angeles, California 90017 (the "Building"). Landlord leases to
Tenant Suite 2840 in the Building (the"Premises") pursuant to a written lease
dated June 10, 1996, as amended to date (the "Lease").
B. Landlord has set aside a portion of the fourth floor of the Building
for use as a special conduit room (the "Conduit Room") and has set aside a
portion of the Building's parking elevator shaft for use as a special conduit
shaft (the "Conduit Shaft"). The purpose of the Conduit Room and the Conduit
Shaft will be to facilitate interconnections between various telecommunications
company tenants in the Building who elect to participate.
C. Tenant wishes to obtain a license from Landlord for use of the Conduit
Room, in common with others, and use of certain conduit space (the "Connecting
Conduit") running from the Premises through the Conduit Shaft to the Conduit
Room. Landlord is willing to give Tenant a non-exclusive license, revocable by
Landlord at will under the circumstances described in Section 5 below, for use
of the Conduit Room and the Connecting Conduit on the terms and conditions set
forth below.
NOW THEREFORE, the parties hereby agree as follows:
1
<PAGE>
AGREEMENT
---------
1. License for Use of Conduit. Landlord hereby grants to Tenant a
--------------------------
non-exclusive license, revocable by Landlord at will under the circumstances
described in Section 5 below, for use of the Conduit Room and the Connecting
Conduit. Such use shall be on the terms and conditions set forth in this
Amendment. Tenant shall have the right to commence such use on or after the date
Landlord first makes the Conduit Room available for use by Landlord's licensees
following Landlord's construction of the Conduit Room and installation of the
Connecting Conduit (the "Effective Date"). If for any reason the Conduit Room
has not been constructed or the Connecting Conduit has not been installed by
the estimated Effective Date of August 1, 1997, Landlord shall have no liability
to Tenant for such delay. However, in such event, Tenant, as Tenant's sole and
exclusive remedy, shall have no obligation for the monthly license fee described
in Section 2 until the Conduit Room has been constructed, the Connecting Conduit
has been installed, and the Effective Date has occurred.
In connection with Tenant's use of the Conduit Room, Tenant shall be
provided with use of the following items ("Landlord Installations") in the
Conduit Room in the quantities indicated:
______ 22-inch relay racks
1 2' by 2' lockable cabinets
------
______ 4' by 6' lockable cages
The Connecting Conduit shall run from the Premises and through the Conduit
Shaft to one of Tenant's racks, cages or cabinets in the Conduit Room, as
designated by Tenant. Landlord, in its reasonable discretion, shall designate
which conduit in the Conduit Shaft shall be used for the Connecting Conduit. The
Connecting Conduit shall consist of conduit in the following quantities and
sizes:
1 1-inch conduits
------
______ 4-inch conduits
Tenant acknowledges that other tenants and licensees in the Building will
also be using similar Landlord Installations in the Conduit Room. Tenant agrees
to use the Conduit Room only for the purpose of facilitating interconnections
between Tenant's telecommunications system and the telecommunications systems of
other tenants and licensees who reserve Landlord Installations in the Conduit
Room and who consent in writing to such an interconnection. Tenant agrees not to
store, install or use any equipment, conduit, cable, connecting lines or other
property of Tenant in the Conduit Room for any other purpose. Tenant shall
cooperate in keeping the Conduit Room locked and in restricting access to the
Conduit Room to employees, contractors and other persons who need access in
order to facilitate such interconnections. In no event shall Tenant cause (or
permit its employees, representatives, contractors or invitees to cause) any
interference with or damage to the Landlord Installations, equipment, conduits,
cable, wiring or connecting lines owned or used by other tenants in the Conduit
Room. Landlord shall equip the Conduit Room with security cameras and a 24-hour
security access system. Landlord shall also provide all tenants and licenses of
Landlord who use the Conduit Room with standard specifications for all wiring,
cabling and connecting lines to be installed in the Conduit Room by such tenants
or licensees. Landlord also shall have the right, in Landlord's reasonable
discretion, to enforce such other security measures and installation guidelines
as Landlord deems appropriate. However, Landlord shall have no liability to
Tenant for any damage or in terference caused by any person to the Landlord
Installations assigned to Tenant or to the cable, wiring, connecting lines,
equipment or other property of Tenant in the Conduit Room or the Connecting
Conduit.
Landlord's only obligation to Tenant regarding the installation of
facilities pursuant to this Amendment shall be to install the Landlord
Installations assigned to Tenant in the Conduit Room and the Connecting Conduit.
The cost of such work, together with Landlord's related administrative fee, is
included in Tenant's installation payment to Landlord described in item
2
<PAGE>
(b) in Section 2 below. Tenant's share of Landlord's cost of constructing the
Conduit Room and the Conduit Shaft themselves is included in Tenant's one-time
participation payment described in item (a) in Section 2.
All installation of wiring or cabling that Tenant wishes installed in the
Connecting Conduit shall be installed by Landlord's designated contractor at
Tenant's expense. Tenant agrees to pay Landlord the cost of such work, together
with Landlord's 10% administrative fee, within 10 days after receipt of a
billing from Landlord. Landlord shall have the right, at Landlord's election, to
require Tenant to pay for the work in advance.
All installation of wiring, cabling and connections for Tenant's use within
the Conduit Room, including but not limited to any wiring, cabling or
connections in or about the Landlord Installations, shall be performed at
Tenant's sole expense by a qualified, duly licensed contractor selected by
Tenant. Landlord shall have no obligation or liability with respect to such work
by Tenant's contractors. Tenant shall cause all such work by Tenant's
contractors to be completed and paid for promptly to prevent any mechanic's
liens being filed. Tenant shall also cause all such work by Tenant's contractors
to comply with Landlord's rules and regulations in effect from time to time for
work in the Building, as well as the requirements in Landlord's Special Conduit
Room Rules in effect from time to time. (The Special Conduit Room Rules
initially shall be as set forth in Exhibit A.) Such requirements include, but
shall not be limited to, the requirement that, prior to starting the work, the
contractor or Tenant must provide to Landlord (i) evidence of insurance coverage
for the work in conformity with the standards in Landlord's rules, (ii) copies
of all legally required permits for the work, and (iii) a copy of the written
consent of any other licensee in the Conduit Room with whose facilities a
connection will be made as part of the work. Tenant shall notify Landlord in
writing before Tenant's contractor commences any such work, so that Landlord
may, if Landlord so elects, post notices of nonresponsibility.
Tenant's ongoing use of the Conduit Room, the Connecting Conduit and
Tenant's cable, wiring, and connecting lines shall comply with all applicable
laws, the other provisions of the Lease, and the Building's rules (including but
not limited to the Special Conduit Room Rules) adopted by Landlord from time to
time. Tenant's use shall not interfere in any way with the operation of the
Building or with the occupancy or activities of any other tenant.
2. License Fees. Tenant agrees to pay Landlord a license fee for use of
------------
the Conduit Room and the Connecting Conduit, which initially shall be (a) a
one-time participation fee of $12,000 for use of the Conduit Room, plus (b)
installation costs in the amount of $11,100 for the Connecting Conduit and for
the Landlord Installations assigned to Tenant in the Conduit Room (not including
Tenant's cable, wiring, or connecting lines in the Connecting Conduit and the
Conduit Room). The additional installation amounts of section b shall be due and
payable within 30 days of the actual installation date. (No portion of such
amounts shall be refundable if the Lease or this license is terminated for any
reason.)
After Tenant's initial payment, the license fee for the Conduit Room and
the Connecting Conduit shall be $500 per month, subject to adjustment as
provided below. Such license fee shall be due and payable to Landlord on the
first day of each month or portion of a calendar month throughout the balance of
the Lease term, unless and until this license is revoked by Landlord in
accordance with Section 5 below. (Any such revocation shall not affect the
balance of the Lease, except that Landlord may treat any default by Tenant
hereunder as a default under the Lease.) Such license fee shall be paid together
with Tenant's Base Rent and other monthly charges, with the first such
installment of the license fee due on the Effective Date. The monthly license
fee for any partial calendar month shall be equitably prorated, as calculated by
Landlord in its reasonable discretion. In addition to the monthly charges stated
above, Tenant shall be obligated to pay for any power usage on a monthly basis
if Tenant requires equipment to be hooked up to a power source.
The amount of the monthly license fee shall be adjusted as of each January
1 during the Lease term. For purposes of calculating such adjustment, the
Consumer Price Index for All Urban Consumers, U.S. City Average, All Items
(1967=100), unadjusted (herein the "Index") published by the Bureau of Labor
Statistics of the United States Department of Labor for the month during which
the Effective Date occurs shall be the base Index figure (the "Base Index"). The
Base Index shall be compared to the Index figure for December of each year
during the term of the Lease, including the initial partial calendar year during
which the Effective Date occurs. In the event that the Index figure for December
of any year during the term of the Lease shall be greater than the Base Index,
then in addition to the monthly license fee, Tenant shall pay to Landlord a
monthly amount equal to the same percentage increase in the monthly license fee
as the percentage increase in the Index for
3
<PAGE>
such December over the Base Index. Such amount shall be payable monthly
commencing with the payment of the license fee for the January immediately
following such December.
In the event that the Index for any December during the term of the Lease
is not yet available upon the date that any installment of the monthly license
fee is due, Tenant shall continue paying the monthly license fee, as previously
adjusted, in the amount applicable for such December until the Index for that
month is published, whereupon Tenant shall immediately pay Landlord the
adjustments which would have been due in the months following such December had
the Index for such December been available. In the event that publication of the
Index is discontinued, Landlord and Tenant agree that the index of consumer
prices which is most closely analogous to the Index shall be used in place of
the Index for calculation of the adjustments payable hereunder. In the event
that the referents or techniques employed in the calculation of the Index shall
be modified and such modification would have resulted in a different figure for
the Base Index, Landlord and Tenant agree that the Base Index shall be
appropriately adjusted and that the Index, as modified, shall be used as
provided hereunder.
3. INDEMNITY AND WAIVER. Tenant hereby agrees to indemnify and hold
--------------------
harmless Landlord and its partners, its agent Paramount Group, Inc. and their
respective officers, directors, shareholders, agents and employees
(collectively, the "Landlord Group") from and against any and all claims
(including but not limited to claims for bodily injury or property damage),
actions, mechanic's liens, losses, liabilities, and expenses (including
reasonable attorney fees and costs of defense by Landlord's legal counsel)
(collectively, "Claims"), which may arise from the installation, operation, use,
maintenance or removal of conduit, cable, wiring, connecting lines, equipment or
other property pursuant to this Amendment or from Tenant's use of the Conduit
Room, the Connecting Conduit, or the Landlord Installations. Similarly, Tenant
shall pay upon demand by Landlord the costs to repair any physical damage to the
Building caused by such installation, operation, use, maintenance or removal.
Tenant hereby waives and releases the Landlord Group from any Claims Tenant may
have at any time (including but not limited to Claims relating to interruptions
in services) arising out of or relating in any way to the installation,
operation, use, maintenance, or removal of conduit, cable, wiring, connecting
lines, equipment or other property described in this Amendment or Tenant's use
of the Conduit Room, the Connecting Conduit, or the Landlord Installations,
whether or not caused by the negligence of any member of the Landlord Group or
Landlord's contractors. Such waiver and release shall not apply to Claims to the
extent caused by Landlord's wilful misconduct. However, in no event shall
Landlord or any member of the Landlord Group be liable to Tenant for lost
profits or consequential, incidental or punitive damages of any kind.
4. REMOVAL OF CABLE, WIRING AND CONNECTING LINES. Tenant agrees that,
---------------------------------------------
upon the termination of this license as described in Section 5 below, Tenant
(or, at Landlord's election, the contractor designated by Landlord) shall
promptly remove, at Tenant's sole cost and expense, all cable, wiring,
connecting lines, and other installations, equipment or property installed or
placed by or for Tenant in the Conduit Room or the Connecting Conduit (excepting
the Connecting Conduit itself and the Landlord Installations, which shall remain
the property of Landlord), and restore those portions of the Building damaged by
such removal to their condition immediately prior to the installation or
placement of such items. If Tenant fails to promptly remove all such items
pursuant to this Section 4, or if Landlord elects to have such work performed by
Landlord's contractor, Landlord may remove such items and restore those portions
of the Building damaged by such removal to their condition immediately prior to
the installation or placement of such items, in which case Tenant agrees
promptly to pay Landlord's reasonable costs of removal and restoration,
including Landlord's administrative fee.
5. NO LEASE OR EASEMENT OF CONDUIT ROOM OR CONNECTING CONDUIT:
-----------------------------------------------------------
TERMINATION OF LICENSE. Tenant acknowledges that the rights granted to Tenant
- ----------------------
hereunder do not constitute a lease of any portion of the Conduit Room, the
Connecting Conduit or the Landlord Installations nor an easement, but rather
constitute a non-exclusive license for use in common with others. Such license
is revocable by Landlord in Landlord's sole discretion upon any default by
Tenant under the Lease which is not cured within the applicable cure period.
Landlord shall retain such rights of revocation notwithstanding any expenditure
of money on the installations described herein or other actual or alleged
reliance by Tenant. Such revocation shall be made by written notice from
Landlord to Tenant. The license shall terminate in any event, without notice
from Landlord, upon the expiration or termination of the Lease. Such license is
personal to Tenant, and Tenant's rights hereunder may not be assigned (except in
connection with a permitted assignment of Tenant's entire interest in the
Lease), sub-licensed, or otherwise transferred in any fashion, regardless of
whether such an arrangement is called an assignment, a sub-license, a co-
location agreement or any other name. Tenant agrees not to permit any third
party to place, use or operate their own equipment, wiring, cabling or
connecting lines in or about Tenant's Landlord Installations or Connecting
Conduit. Any default by Tenant under this Amendment shall be deemed to be a
default under the Lease. The license fee described in Section 2 above shall be
deemed to be additional rent for the Premises described in the Lease, and Tenant
acknowledges that the availability of the license enhances the value of those
Premises. Tenant shall remain obligated for such additional rent for the balance
of
4
<PAGE>
the Lease term, and shall remain obligated for Tenant's other obligations under
this Amendment, regardless of whether Tenant actually makes use of the license,
or whether Tenant surrenders the license, or whether the license is terminated
due to Tenant's default under the Lease.
6. Applicability of Other Provisions. Except as explicitly provided
---------------------------------
otherwise herein, Tenant's obligations under the Lease for the protection of the
Building, Landlord, the Landlord Group, and third parties, including but not
limited to Tenant's obligations regarding maintenance, repairs, mechanic's
liens, insurance, attorneys' fees and costs of suit, shall apply in the same
fashion with respect to Tenant's use of the Conduit Room, the Connecting Conduit
and the Landlord Installations as they do with respect to Tenant's use of the
Premises.
7. Miscellaneous. This Amendment supersedes all prior or contemporaneous
-------------
understandings, negotiations, or agreements between the parties, whether written
or oral, with respect to its subject matter. The Lease, as amended herein, may
be further amended only in a writing signed by both Landlord and Tenant.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the date
and at the place first written above.
LANDLORD: ONE WILSHIRE ARCADE IMPERIAL, LTD.
a california Limited partnership
By: Paramount Group, Inc., Its Agent
By: /s/ Daniel K. Brown
--------------------------------------------
Daniel K. Brown
Its Director Property Management Western Region
-------------------------------------------
By:_____________________________________________
Its ___________________________________________
TENANT: PRIMECALL, INC.
a Washington corporation
BY: /s/ Mike Sims
---------------------------------------------
Mike Sims
Its COO
----------------------------------------------
By:________________________________________________
Its _______________________________________________
5
<PAGE>
[LOGO OF PARAMOUNT GROUP, INC. APPEARS HERE]
ONE WILSHIRE BUILDING
---------------------
CONDUIT ("MEET POINT") ROOM RULES
---------------------------------
The Meet Point Room is a conduit room located on the fourth floor of the
One Wilshire Building located at 624 S. Grand Avenue, Los Angeles, California
90017 (the "Building") for the special purpose of facilitating interconnections
between various telecommunications providers and users who currently hold
licenses with the Building for the use of such facilities ("Participants"). As
a condition to maintaining their license and to the ongoing use of the Meet
Point Room, all Participants must comply with the Meet Point Room set forth
herein and as may be adopted or revised by the Building in its reasonable
discretion from time to time.
These Meet Point Room Rules are in addition to the terms, convenants, and
conditions of any agreement (including but not limited to a lease) between
Participant and the Building for use of the Meet Point Room. In the event these
Rules conflict with any provision of such agreement, such agreement shall
control.
The Building may waive any one or more of these Meet Point Room Rules for
the benefit of a Participant, but no such waiver by the Building shall be
construed as a waiver of such Rules in favor of anyone other than such
Participant for whose benefit such waiver was expressly intended, nor prevent
the Building from thereafter enforcing such Rules against such Participant or
any or all of the other Participants.
The Building reserves the right to make such other and reasonable Meet
Point Room Rules as, in its judgement, may from time to time be necessary or
desirable. Participant agrees to abide by all such Meet Point Room Rules as
stated herein and any additional rules and regulations which are adopted.
1. Participants must furnish the Building with the names (and other necessary
identification as Building may require) of its personnel who are authorized
by Participant to enter the Meet Point Room. Participants are responsible
for keeping such authorized user list current.
2. Participants wishing to enter into the Meet Point Room must sign in at the
Meet Point Room log book located at the Building Security Desk.
3. Each person wishing to enter the Meet Point Room must be on the authorized
user list. Positive proof of identity is required before entrance to the
Meet Point Room is permitted. A driver's license or other authenticated
photograph identification is the only acceptable form of positive proof.
Such form of identification will be held as security until Participant
completes Participant's activities in the Meet Point Room.
4. Each person wishing to enter the Meet Point Room must obtain a security
access card from Building Security each time he or she wishes to enter. On
entering or leaving the Meet Point Room, Participant must make sure the
door is shut and not left ajar.
5. If Participant intends to perform cross-connect work in the Meet Point
Room, upon entry Participant must submit a fully executed (by Participant
and the Building's authorized representative) Cross-Connect Authority Form
in the form provided by the Building.
6. Upon leaving the Meet Point Room, Participant must sign out in the Meet
Point Room log book at which time Participant's photo identification will
be returned.
7. All activities in the Meet Point Room must be in compliance with the law
including all applicable local, state, and federal laws, rules, codes and
regulations.
CRR-1
<PAGE>
8. Participants desiring to interconnect to another Participant's cross-
connect array must negotiate such interconnection directly with such other
Participant and the Building shall have no obligations in that regard.
9. All cross-connects must be accomplished utilizing Building-standard cable
and wire and following approved procedures.
10. All wiring shall be routed through the furnished channels, raceways, etc.
All cable shall be dressed-in and secured so as to ensure a professional
appearance, run straight and level, with 90 degree corners where possible.
Where to wraps are used, the end shall be cut to preserve the professional
appearance.
11. Groups of cable routed to the Meet Point Room shall remain bundled together
to the degree possible for easy indentification.
12. All cables must be clearly labeled utilizing Building-provided tags.
13. The Meet Point Room must be kept clean and free of debris at all times.
14. Tampering in any way with other Participants' circuits and cross-connects
is not permissible and is grounds for immediate revocation of Participant's
Meet Point Room rights. All other infractions of Meet Point Room Rules must
be corrected within 24 hours of notification.
15. If circuit tampering is detected at any time by any Participant, it must be
reported immediately to the Building Security Desk.
16. Notification of infraction is accomplished by Building Management's
delivery of a written warning to the Participant.
17. Receipt of three (3) warnings within a six-month period is cause for
immediate revocation of Meet Point Room participation rights.
18. Meet Point Room participation rights are subject to revocation for any
default under the agreement between the Building and Participant regarding
Participant's use of the Meet Point Room.
19. Upon expiration or revocation of Meet Point Room participation rights,
Participant must make arrangements to vacate the Meet Point Room and remove
all cross-connects associated with Participant's assigned array(s) within
30 calender days of notification.
CRR-2
<PAGE>
Amendment for Conduit Use
7/7/97
Meet Room
Pay one time $12,000.00 participation fee plus installation costs of $11,000.00.
Due 30 Days after actual installation date. The above fees are non refundable.
After above payment, a $500.00 a month license fee will be due on the 1st of
each month, through term of lease will be due.
The license fee rate will be review in the month of January yearly using factors
outlined in the agreement.
<PAGE>
PARAMOUNT GROUP, INC.
OFFICE LEASE
(CALIFORNIA)
TABLE OF CONTENTS
<TABLE>
<S> <C>
SUMMARY OF LEASE TERMS...................................................... 1
AGREEMENT................................................................... 3
1. PREMISES......................................................... 3
2. TERM............................................................. 3
3. RENT............................................................. 3
4. RENT ESCALATION.................................................. 3
5. TAX ON TENANT'S PROPERTY; OTHER TAXES............................ 6
6. SECURITY DEPOSIT................................................. 7
7. LATE PAYMENTS.................................................... 7
8. USE OF PREMISES.................................................. 7
9. BUILDING SERVICES................................................ 8
10. CONDITION OF PREMISES............................................ 9
11. DAMAGE TO PREMISES OR BUILDING................................... 9
12. EMINENT DOMAN.................................................... 10
13. DEFAULT.......................................................... 11
14. REMEDIES UPON DEFAULT............................................ 12
15. SURRENDER OF PREMISES; REMOVAL OF PROPERTY....................... 13
16. COSTS OF SUIT; ATTORNEYS' FEES; WAIVER OF JURY TRIAL............. 14
17. ASSIGNMENT AND SUBLETTING........................................ 15
18. TRANSFER OF LANDLORD'S INTEREST.................................. 18
19. HOLDING OVER..................................................... 18
20. NOTICES.......................................................... 18
21. QUIET ENJOYMENT.................................................. 18
22. TENANT'S FURTHER OBLIGATIONS..................................... 18
23. ESTOPPEL CERTIFICATE BY LESSEE................................... 19
24. SUBORDINATION AND ATTORNMENT..................................... 19
25. RIGHTS RESERVED TO LANDLORD...................................... 19
26. FORCE MAJEURE.................................................... 20
27. WAIVER OF CLAIMS; INDEMNITY...................................... 20
28. INSURANCE........................................................ 21
29. FIXTURES, TENANT IMPROVEMENTS AND LATERATIONS.................... 22
30. MECHANIC'S LIENS................................................. 23
31. ALTERNATE SPACE.................................................. 23
32. HAZARDOUS MATERIALS.............................................. 23
33. MISCELLANEOUS.................................................... 24
34. "AS IS" CONDITION................................................ 26
35. TENANT'S SUPPLEMENTAL AIR-CONDITIONING........................... 27
</TABLE>
EXHIBITS AND RIDERS
<PAGE>
PARAMOUNT GROUP, INC
--------------------
OFFICE LEASE
------------
(California)
THIS LEASE is made as of the 10th day of June, 1996, between One
Wilshire Arcade Imperial, Ltd., a California Limited Partnership, by Paramount
Group, Inc., a Delaware corporation, its agent (hereinafter called "Landlord"),
and Primecall, Inc., a Washington corporation (hereinafter called "Tenant").
SUMMARY OF LEASE TERMS
----------------------
A. Addresses:
1. Tenant's Premises and Notice Address: 624 South Grand Avenue, Suite
2840, Los Angeles,
CA 90017
2. Landlord's Notice Address: 642 South Grand Avenue, Suite
1207, Los Angeles, CA 90017
With copy to: Paramount Group, Inc., 1633
Broadway, Suite 1801, New
York, NY 10019
3. Landlord's Address for Rent Payments: One Wilshire Arcade Imperial,
Ltd., File #53077, Los
Angeles, CA 90074-3077
B. Approximate Rentable Area of the Premises:
1,500 rentable square feet. The parties agree that such figure is only a
reasonable estimate of the area of the Premises. The figures in items E, G,
H, and J below and the other provisions of this Lease shall not be adjusted
due to any difference between the actual area of the Premises and the
estimated area shown above.
C. Lease Term: 10 years, 0 months.
D. 1. Estimated Commencement Date: July 1, 1996.
2. Commencement Date: The later of the following 2 dates:
(a) July 1, 1996; or
(b) The date upon which Landlord tenders possession of the Premises
to Tenant.
<PAGE>
E. Schedule of Monthly Base Rents:
The following schedule of monthly Base Rents shall apply during the term of
the Lease, subject to adjustments pursuant to the Rent Escalation Rider to the
Lease regarding increases in the Consumer Price Index:
<TABLE>
<CAPTION>
Monthly Monthly
Period Base Rent Rent Credit
------ --------- -----------
<S> <C> <C>
From July 1, 1996 to Sept. 30, 1996 $3,375.00 $3,375.00
From Oct 1, 1996 to June 30, 2006 $3,375.00 None
</TABLE>
The Base Rent for the period from October 1, 1996 to December 31, 1996,
shall be prepaid by Tenant upon execution of this Lease. If the actual
Commencement Date is before or after the Estimated Commencement Date, then all
dates set forth above shall be correspondingly accelerated or delayed, as the
case may be. Base Rent for any partial calendar month shall be equitably
prorated as calculated by Landlord in its reasonable discretion. In the event of
any default by Tenant under this Lease which is not cured within the applicable
cure period set forth in Section 13.2, Tenant shall be obligated to pay to
Landlord, without any further notice from Landlord, a sum equal to all rent
credits previously credited to Tenant pursuant to the above schedule, and no
further rent credits shall be applicable for the balance of the Lease term.
F. Base Years for Expenses: Real Estate Taxes-1996-1997; Operating and
Utility Costs-1996.
G. Tenant's "Percentage Share" of Real Estate Taxes, Operating and
Utility Costs: 0.2634%
H. Security Deposit: $3,375.00.
I. Permitted Use: Telecommunications business.
J. Maximum Tenant Improvement Allowance: None. Tenant to take space "as
is" as described in Section 34.
K. Tenant's Parking Allotment: 1 parking space.
L. Landlord's Brokers: None.
M. Riders:
The following exhibits, riders and addenda are attached to and are
part of this Lease:
Exhibit A - Floor Plan of Premises
Exhibit B - Rules and Regulations
Parking Space Rider
Rent Escalation Rider
Telecommunications Conduit Rider
Emergency Generator Rider
Extension Option Rider
N. Guaranty: Not applicable.
2
<PAGE>
AGREEMENT
---------
1. PREMISES. Landlord hereby leases the Premises to Tenant and Tenant
hereby hires and takes the Premises from Landlord. The Premises are located at
the address set forth in Section A(1) on page 1 and are more particularly shown
on Exhibit "A" attached hereto and incorporated herein by this reference. The
office building in which the Premises are located is referred to herein as the
"Building."
2. TERM.
2.1 The term of this Lease shall commence on the "Commencement Date"
indicated in Section D on Page 1 and shall extend for the period set forth in
Section C on Page 1. In the event that Landlord, for any reason, cannot tender
possession of the Premises to Tenant on or before the "Estimated Commencement
Date" indicated in Section D on Page 1, this Lease shall not be void or
voidable, nor shall Landlord be liable to Tenant in any way as a result of such
failure to tender possession. In the event that Landlord cannot tender
possession of the Premises to Tenant for any reason other than the acts or
omissions of Tenant, Tenant's obligation to pay rent hereunder shall be deferred
by a period of time equal to the delay in Landlord's delivery of possession not
caused by Tenant. If such inability to tender possession of the Premises for
reasons other than the acts or omissions of Tenant continues for a period in
excess of 90 days after the Estimated Commencement Date, Tenant shall have the
right, exercisable by notice to Landlord, to terminate this Lease, but the
suspension of rent obligations and the right of termination pursuant to this
Section 2.1 shall be Tenant's sole remedies in the circumstances herein
described.
2.2 In the event that Tenant is allowed to enter into possession of the
Premises prior to the Commencement Date, such possession shall be deemed to be
pursuant to, and shall be governed by, the terms, covenants and conditions of
this Lease, including without limitation the covenant to pay rent, as though the
Commencement Date occurred upon the date of taking of possession by Tenant.
2.3 In the event that the Commencement Date falls on other than the first
day of a month, rent for any initial partial month of the term hereof shall be
appropriately prorated; and if the date of commencement of Tenant's rent
obligations is delayed, pursuant to Section 2.1, the end of the term hereof
shall be correspondingly delayed. At the request of either party hereto, both
parties shall execute a memorandum confirming the date of commencement of
Tenant's rent obligations.
3. RENT. Beginning on the Commencement Date (subject to adjustment
pursuant to Section 2.1 above), the base rent ("Base Rent") for the Premises
shall be in accordance with the Schedule of Monthly Base Rents set forth in
Section E on Page 2. Each installment of Base Rent shall be payable in advance
on the first day of each and every month throughout the term of this Lease.
Tenant agrees to pay all rent, without offset, demand or deduction of any kind,
to Landlord by mail to the address set forth in Section A(3) on page 1 or in
such manner, to such other person or at such other place as Landlord may from
time to time designate. Tenant agrees that no payment made to Landlord by check
or other instrument shall contain a restrictive endorsement of any kind; and if
any such instrument should contain a restrictive endorsement in violation of the
foregoing, that endorsement shall have no legal effect whatever, notwithstanding
that such item is processed for payment.
4. RENT ESCALATION.
4.1 Tenant shall pay, as monthly rent hereunder, in addition to the Base
Rent, the sums provided in this Section 4. Tenant shall be advised of any
change, from time to time, in rent escalation payments required hereunder by
written notice from Landlord, which shall include information in such detail as
Landlord may reasonably determine to be necessary in support of such change.
Tenant shall have 30 days after the receipt of any such notice to protest the
change indicated therein, and Tenant's failure to make such protest in a written
notice to Landlord within such 30-day period shall be conclusively deemed to be
Tenant's agreement to such charges. Notwithstanding any such protest all rent
escalation payments falling due after service of such notice shall be made in
accordance with such notice until the protest has been resolved, whereupon any
necessary adjustment shall be made between Landlord and Tenant. Any audit
arising out of such a protest by Tenant shall be done, at Tenant's expense, in
accordance with generally accepted auditing and management standards by a major
public accounting firm selected by Tenant and approved by Landlord in its
reasonable discretion. Such audit shall be performed at the offices of Paramount
Group, Inc. in New York City or at such other location in the United States as
Landlord may select from time to time for the maintenance of its accounting
records for the Building.
4.2 Following the first December 31 during the term of the Lease, Tenant
shall pay Landlord in a single lump sum upon billing therefor, Tenant's
Percentage Share (as defined in Section G on Page 2 of the Lease) of each of the
following amounts: (1) the amount (if any) by which Real Estate Taxes for the
then current tax fiscal year exceed the Real
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Estate Taxes for the Base Year for Real Estate Taxes set forth in Section F on
Page 2; (2) the amount (if any) by which Operating Costs for the just completed
calendar year exceed the Operating Costs for the Base Year for Operating Costs
set forth in Section F on Page 2; and (3) the amount (if any) by which Utility
Costs for the just completed calendar year exceed the Utility Costs for the Base
Year for Utility Costs set forth in Section F on Page 2. At the same time Tenant
shall also pay to Landlord one-twelfth of Tenant's Percentage Share of such
amounts for each month that has commenced since December 31 as estimated
payments towards Tenant's share of the Real Estate Taxes, Operating Costs, and
Utility Costs for the following year. Following each succeeding December 31,
Landlord again shall determine in the same fashion the increase or decrease (if
any) in annual Real Estate Taxes, Operating Costs, and Utility Costs over or
under those for the previous year. If there is an increase in one or more of the
three categories, Tenant shall pay to Landlord in a single lump sum upon billing
Tenant's Percentage Share of the increase plus one-twelfth of Tenant's
Percentage Share of such increase for each month that has then commenced in the
new calendar year. If there is a decrease in one or more of the three
categories, Landlord shall refund to Tenant or, at Landlord's option, credit
against the next rent falling due under the Lease the amount of the overpayment
made by Tenant during the preceding calendar year, provided that the amount of
such refund or credit shall in no event exceed the total payments previously
made by Tenant for such calendar year toward Tenant's Percentage Share of excess
charges for the category in question. Thereafter, with each month's Base Rent
until the next adjustment hereunder, Tenant shall pay one-twelfth of Tenant's
Percentage Share of each of the following amounts: (I) the excess (if any) of
annual Real Estate Taxes (based on the then-current fiscal year) over the Base
Year Real Estate Taxes; (II) the excess (if any) of annual Operating Costs
(based on the preceding calendar year) over the Base Year Operating Costs; and
(III) the excess (if any) of annual Utility Costs (based on the preceding
calendar year) over Base Year Utility Costs. The Real Estate Taxes for any
partial fiscal year at the end of the Lease term and the Operating Costs and
Utility Costs for any partial calendar year at the end of the Lease term shall
be appropriately prorated.
For purposes hereof, "Real Estate Taxes" shall include any form of
assessment, license fee, license tax, business license fee, commercial rental
tax, levy, penalty, charge, tax or similar imposition (other than net income,
inheritance or estate taxes) imposed by any authority having the direct or
indirect power to tax, including any city, county, state or federal government,
or any school, agricultural, lighting, drainage, flood control or other special
district thereof, as against any legal or equitable interest of Landlord in the
Premises or in the real property of which the Premises and the Building are a
part, including, but not limited to, the following:
(i) Any tax on Landlord's "right" to rent or "right" to other
income from the Premises or as against Landlord's business of leasing the
Premises;
(ii) Any assessment, tax, fee, levy or charge in substitution,
partially or totally, of any assessment, tax, fee, levy of charge previously
included within the definition of Real Estate Taxes, it being acknowledged by
Tenant and Landlord that Proposition 13 was adopted by the voters of the State
of California in the June, 1978 Election and that assessments, taxes, fees,
levies and charges may be imposed by governmental agencies for such services as
fire protection, street, sidewalk and road maintenance, refuse removal and for
other governmental services formerly provided without charge to property owners
or occupants. It is the intention of Tenant and Landlord that all such new and
increased assessments, taxes, fees, levies and charges be included within the
definition of "Real Property Taxes" for the purpose of this Lease;
(iii) Any assessment, tax, fee, levy or charge allocable to or
measured by the area of the Premises or the rent payable hereunder, including,
without limitation, any gross income tax or excise tax levied by the State, City
or Federal government, or any political subdivision thereof, with respect to the
receipt of such rent, or upon or with respect to the possession, leasing,
operating, management, maintenance, alteration, repair, use or occupancy by
Tenant of the Premises, or any portion thereof;
(iv) Any assessment, tax, fee, levy or charge upon this transaction
or any document to which Tenant is a party, creating or transferring an interest
or an estate in the Premises;
(v) Any assessment, tax, fee, levy or charge by any governmental
agency related to any transportation plan, fund or system instituted within the
geographic area of which the Building is a part; or
(vi) Reasonable legal and other professional fees, costs and
disbursements incurred in connection with proceedings to contest, determine or
reduce real property taxes.
The definition of "Real Estate Taxes," including any additional tax the
nature of which was previously included within the definition of "Real Estate
Taxes," shall include any increases in such taxes, levies, charges or
assessments occasioned by increases in tax rates or increases in assessed
valuations, whether occurring by sale or otherwise.
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As used in this Lease, the term "Operating Costs" shall mean all costs and
expenses of management, operation, maintenance, overhaul, improvement or repair
of the Building, the common areas and the site, as determined by standard
accounting practices, including the following costs by way of illustration but
not limitation:
(a) Any and all assessments imposed with respect to the Building,
common areas, and/or the site on which the Building is located, pursuant to any
covenants, conditions and restrictions affecting the site, common areas or
Building;
(b) Any costs, levies or assessments resulting from statutes or
regulations promulgated by any governmental authority in connection with the
use or occupancy of the Building or the Premises;
(c) Costs of all insurance obtained by Landlord;
(d) Wages, salaries and other labor costs (including but not
limited to social security taxes, unemployment, taxes, other payroll taxes
and governmental charges and the costs, if any, of providing disability,
hospitalization, medical welfare, pension, retirement or other employee
benefits, whether or not imposed by law) of employees, independent contractors
and other persons engaged in the management, operation, maintenance, overhaul,
improvement or repair of the Building;
(e) Building management office and storage rental;
(f) Management and administrative fees (which Tenant acknowledges
are presently 6% of accured gross revenues of the Building and which may be
adjusted from time to time);
(g) Supplies, materials, equipment and tools;
(h) Costs of, and appropriate reserves for, repair, painting,
resurfacing, and maintenance of the Building, the common areas, the site and
the parking facilities, and their respective fixtures and equipment systems,
including but not limited to the elevators, the structural portions of the
Building, and the plumbing, heating, ventilation, air-conditioning, telephone
cable riser, and electrical systems installed or furnished by Landlord;
(i) Depreciation on a straight-line basis and rental of personal
property used in maintenance;
(j) Amortization on a straight-line basis over the useful life
(together with interest at the interest rate defined in Subsection 33.9
of this Lease on the unamortized balance) of all costs of a capital nature
(including, without limitation, capital improvements, capital replacements,
capital repairs, capital equipment and capital tools);
(1) reasonably intended to produce a reduction in Operating
Costs, Utility Costs or energy consumption; or
(2) required under any governmental or quassi-governmental law,
rule, order, ordinance or regulation that was not applicable to the Building at
the time it was originally constructed; or
(3) for repair or replacement of any Building equipment needed
to operate the Building at the same quality levels as prior to the replacement;
(k) Costs and expenses of gardening and landscaping;
(l) Maintenance of signs (other than signs of tenants of the
Building);
(m) Personal property taxes levied on or attributable to personal
property used in connection with the Building, the common areas, or the site;
(n) Costs of all service contracts pertaining to the Premises, the
Building or the site;
(o) Reasonable accounting, audit, verification, legal and other
consulting fees;
(p) Costs and expenses of lighting, janitorial service, cleaning,
refuse removal, security and similar items, including appropriate reserves;
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(q) Any costs incurred with respect to a transportation system
manager, rider share coordinator or any private transportation system
established for the benefit of tenants in the Building, whether or not imposed
by any governmental authority;
(r) If the Building has a helipad, it costs to the extent not covered
by users fees; and
(s) Fees imposed by any federal, state or local government for fire
and police protection, trash removal or other similar services which do not
constitute Real Estate Taxes.
The following shall be excluded from Operating Costs: federal and state
income taxes imposed on Landlord's net income; any and all costs or expenses to
procure tenants for the Building, including but not limited to brokerage
commissions, legal fees,and costs of remodeling suites; mortgage or debt
service; and depreciation, except that amortization or improvements of the type
specified in Subsection (j)above shall in no event be considered "depreciation".
For purposes hereof, "Utility Costs": shall include all charges, surcharges
and other costs of all utilities paid for by Landlord in connection with the
Premises and/or Building, cost of furnishing gas, electricity and other fuels or
power sources to the Premises and/or Building, and costs of furnishing water and
sewer services to the Premises and/or Building.
The term "Building" as used in this Section 4.2 shall be deemed to include
not only the Building but also any parking facility owned, leased or operated by
Landlord in order to meet the parking requirements of the Building.
If the average occupancy of the rentable area of the Building during the
Tenant's Base Year for Operating and Utility Costs as set forth in Section F on
page 2 or during any other calender year of the lease term is less than 90 % of
the total rentable area of the Building, the Operating Costs and Utility Costs
shall be adjusted by Landlord for such calendar year, prior to the pass-through
of Operating Costs and Utility Costs to Tenant pursuant to this Section 4.2, to
reflect what they would have been had 90% of the rentable area been occupied
during that year. In making such calculation, the Landlord's reasonable opinion
of what portion, if any, of each costs and affected by changes in occupancy
shall be binding upon the parties.
5. TAX ON TENANT'S PROPERTY; OTHER TAXES.
5.1 Tenants shall be liable for, and shall pay at least 10 days before
delinquency, and Tenant hereby indemnifies and holds Landlords harmless from
and against any personal property, fixtures, machinery, equipment, apparatus
systems and appurtenances placed by Tenant in or about, or utilized by Tenant
in, upon or in connection with, the Premises ("Equipment Taxes"). If any
Equipment Taxes are levied against Landlord or Landlord's property or if the
assessed value of Landlords property is increased by the inclusion therein of a
value placed upon such personal property, fixtures, machinery, equipment,
apparatus, systems or appurtenances of Tenant, and if Landlord, after written
notice to Tenant, pays the Equipment Taxes or taxes based upon such an increased
assessment (which Landlord shall have the right to do regardless of the validity
of such levy, but only under proper protest if requested by Tenant prior to such
payment and if payment under protest is permissible). Tenant shall pay to
Landlord upon demand, as additional rent hereunder, the taxes so levied against
Landlord or the proportion of such taxes resulting from such increased in the
assessment; provided however, that in any such event Tenant shall have the
right, in the name of Landlord and with Landlord's full cooperation, but at no
cost to Landlord, to bring suit in any court of competent jurisdiction to
recover the amount of such tax so paid under protest, and any amount so
recovered shall belong to Tenants.
5.2 If the tenant improvements in the Premises, whether installed and/or
paid for by Landlord or Tenant and whether or not affixed to the real property
so as to become a part thereof, are assessed for real property tax purposes at a
valuation higher than the valuation at which tenant improvements conforming to
Landlord's building standards in other space in the Building are assessed, then
the real property taxes and assessments levied against Landlord or Landlord's
property by reason of such excess assessed valuation shall be deemed to be
Equipment Taxes and shall be governed by the provisions of Section 5.1. Any such
amounts, and any similar amounts attributable to excess improvements by other
tenants of the Building and Recovered by Landlords from such other tenants under
comparable lease provisions, shall not be included in Real Estate Taxes for
purposes of rent escalation under Section 4 of this Lease.
5.3 Tenant shall pay, as additional rent hereunder, upon demand and in
such manner and at such times as Landlord shall direct from time to time by
written notice to Tenant, any excise, sales, privilege or other tax, assessment
or other charge (other than income or franchise taxes) imposed, assessed or
levied by any governmental or quasi-governmental authority or agency upon
Landlord on account of this Lease, the rent or other payments made by Tenant
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hereunder, any other benefit received by Landlord hereunder, Landlord's business
as a lessor hereunder, or otherwise in respect of or as a result of the
agreement or relationship of Landlord and Tenant hereunder.
6. SECURITY DEPOSIT.
6.1 A deposit (the "Security Deposit") in the amount set forth in Section
H on page 2 shall be paid by Tenant upon execution of this Lease and shall be
held by Landlord without liability for interest and as security for the
performance by Tenant of Tenant's covenants and obligations under this Lease, it
being expressly understood that the Security Deposit shall not be considered an
advance payment of rent or a measure of Landlord's damages in case of default by
Tenant. Upon the occurrence of any breach or default under this Lease by Tenant,
Landlord may, from time to time, without prejudice to any other remedy, use the
Security Deposit or any portion thereof to the extent necessary to make good any
arrearages of rent or any other damage, injury, expense, or liability caused to
Landlord by such breach or default. Following any application of the Security
Deposit, Tenant shall pay to Landlord on demand an amount to restore the
Security Deposit to its original amount. In the event of bankruptcy or other
debtor relief proceedings by or against Tenant, the Security Deposit shall be
deemed to be applied first to the payment of rent and other charges due
Landlord, in the order that such rent or charges become due and owing, for all
periods prior to filing of such proceedings. Landlord shall not be required to
keep the Security Deposit separate from its general funds. Upon termination of
this Lease any remaining balance of the Security Deposit shall be returned by
Landlord to Tenant within 14 days after termination of Tenant's tenancy.
6.2 (Intentionally deleted.)
7. LATE PAYMENTS. All covenants and agreements to be performed by Tenant
under any of the terms of this Lease shall be performed by Tenant at Tenant's
sole cost and expense and without any abatement of rent. Tenant acknowledges
that the late payment by Tenant to Landlord of any sums due under this Lease
will cause Landlord to incur costs not contemplated by this Lease, the exact
amount of such cost being extremely difficult and impractical to fix. Such costs
include, without limitation, processing and accounting charges, and late charges
that may be imposed on Landlord by terms of any note or other obligation secured
by any encumbrance covering the Premises or the Building of which the Premises
are a part. Therefore, if any monthly installment of rent is not received by
Landlord by the date when due, or if Tenant fails to pay any other sum of money
due hereunder, Tenant shall pay to Landlord, as additional rent, the sum of ten
percent (10%) of the overdue amount as a late charge. Landlord's acceptance of
any late charge, or interest pursuant to Section 33.9, shall not be deemed to be
liquidated damages, nor constitute a waiver of Tenant's default with respect to
the overdue amount, nor prevent Landlord from exercising any of the other rights
and remedies available to Landlord under this Lease or any law now or hereafter
in effect. Further, in the event such late charge is imposed by Landlord for 2
consecutive months for whatever reason, Landlord shall have the option to
require that, beginning with the first payment of rent due following the
imposition of the second consecutive late charge, rent shall no longer be paid
in monthly installments but shall be payable 3 months in advance.
8. USE OF PREMISES. Tenant, and any permitted subtenant or assignee,
shall use the Premises only for the use described in Section 1 on page 2. Any
other use of the Premises is absolutely prohibited. Tenant shall not use or
occupy the Premises in violation of any recorded covenants, conditions and
restrictions affecting the land on which the Building is located nor of any law,
ordinance, rule and regulation. Tenant shall not do or permit to be done
anything which will invalidate or increase the cost of any fire, extended
coverage or any other insurance policy covering the Building or property located
therein and shall comply with all rules, orders, regulations and requirements of
any applicable fire rating bureau or other organization performing a similar
function. Tenant shall promptly upon demand reimburse Landlord as additional
rent for any additional premium charged for any issuance policy by reason of
Tenant's failure to comply with the provision of this Section 8. Tenant shall
not do or permit anything to be done in or about the Premises which will in any
way obstruct or interfere with the rights of other tenants of occupants of the
Building, or injure or annoy them, or use or allow the Premises to be used for
any improper, immoral, unlawful or objectionable purpose, nor shall Tenant
cause, maintain or permit any nuisance in, on or about the Premises. Tenant
shall not commit or suffer to be committed any waste in or upon the Premises and
shall keep the Premises in first class repair and appearance. Tenant shall not
place a load upon the Premises exceeding the average pounds of live load per
square foot of floor area specified for the Building by Landlord's architect,
with any partitions to be considered a part of the live load. Landlord reserves
the right to prescribe the weight and position of all safes, files and heavy
equipment which Tenant desires to place in the Premises so as to distribute
properly the weight thereof. Tenant's business machines and mechanical equipment
which cause vibration or noise that may be transmitted to the Building structure
or to any other space in the Building shall be so installed, maintained and used
by Tenant as to eliminate such vibration or noise. Tenant shall be responsible
for the cost of all structural engineering required to determine structural
load. In any event, unless specifically authorized herein, Tenant shall not
prepare or serve, or authorize the preparation or service of, food or beverages
in the Premises, except only the occasional preparation of coffee, tea, hot
chocolate and other such common refreshments for Tenant and its employees.
Tenant shall not conduct any auction in or about the Premises or the Building
without Landlord's prior written consent.
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9. BUILDING SERVICES.
9.1 Throughout the term of this Lease, subject to shortage and accidents
beyond Landlord's reasonable control, and subject to reimbursement pursuant to
Section 4.2, Landlord shall repair and maintain all structural elements of the
Building and common areas (including, without limitation, the structural walls,
doors, floor, ceilings, roof, elevators, stairwells, lobby, heating system, air
conditioning system, telephone cable riser for Building-standard service from
the Building's main terminal to the terminal box on the same floor as the
Premises [but excluding Tenant's telephone equipment and the cable and wiring
from such equipment to the terminal box], plumbing and electrical wiring) and
maintain the exterior of the Premises, including grounds, walks, drives and
loading area, if any. Tenant shall reimburse Landlord upon demand as additional
rent hereunder, for the cost of any repairs or extraordinary maintenance
necessitated by acts of Tenant or Tenant's employees, contractors, agents,
licensees or invitees.
9.2 Provided that Tenant is not in default hereunder, subject to
shortages and accidents beyond Landlord's reasonable control, Landlord shall
furnish building standard heating and air conditioning service Monday through
Friday from 8:00 A.M. to 6:00 P.M., and Saturday from 8:00 A:M. to 1:00 P.M.,
except for holidays. No heating or air conditioning will be furnished by
Landlord on Sundays, holidays or during hours other than as set forth above,
except upon prior arrangement with Tenant and at an extra charge as may be
agreed to between Landlord and Tenant. For purposes of this Section 9.2,
"holidays" shall mean and refer to the holidays of Christmas, New Year's Day,
President's Day, Memorial Day, the Fourth of July, Labor Day, Thanksgiving and
the day after Thanksgiving, as those holidays are defined, recognized or
established by governmental authorities or agencies from time to time and such
other days the New York Stock Exchange is closed. Tenant shall install, at its
expense, such additional air conditioning equipment as may be reasonably
determined by Landlord to be necessary in order to maintain building air
conditioning standards resulting from Tenant's installation and operation of
computer equipment or other special equipment or facilities placing a greater
burden on the air conditioning system than would general office use. Landlord
shall furnish electric current to the Premises in amounts reasonably sufficient
for normal business use, including operation of building standard lighting and
operation of typewriters and standard fractional horsepower office machinery.
Tenant agrees that, at all times during the term of this Lease, Tenant's use of
electric current shall never exceed the capacity of the feeders to the Building
or the risers or wiring installation in the Building. Tenant shall not install
or use or permit the installation or use upon or about the Premises of any
computer or electronic data processing or other equipment using current in
excess of 110 volts or requiring power in excess of 500 watts, without the
express prior written consent of Landlord. Tenant shall pay monthly upon billing
as additional rent under this Lease such sums as Landlord's building engineer
may reasonably determine to be necessary in order to reimburse Landlord for the
additional cost of utilities (including, without limitation, electricity, gas
and other fuels or power sources, and water, and Landlord's reasonable costs of
administration) attributable to the operation of additional air conditioning
equipment and any other requirements in excess of those for normal office use by
reason of the operation of computer equipment or other special equipment or
facilities, or attributable to Tenant's conducting business beyond the business
hours described in the first sentence of this Section 9.2. Moreover, at
Landlord's election, Landlord may separately meter at Tenant's expense the
electrical usage of some or all of Tenant's equipment, facilities or Premises.
In such event Tenant shall pay the charges for all such separately metered
electrical usage within 10 days after receipt of a billing therefor. Any such
amounts billed directly to Tenant shall not be included in the Building's
"Utility Costs" for purposes of Section 4 above. Any extra maintenance charges
or service calls attributable to the actions of Tenant (e.g., continual
---
adjustments of the thermostats or the failure to keep window coverings closed as
necessary) shall be payable by Tenant to Landlord upon demand, as additional
rent hereunder.
9.3 Landlord shall furnish unheated water from mains for drinking,
lavatory and toilet purposes drawn through fixtures installed by Landlord, or by
Tenant with Landlord's express prior written consent, and heated water for
lavatory purposes from regular building supply in such quantities as required in
Landlord's judgement for the comfortable and normal use of the Premises. Tenant
shall pay Landlord for additional water which is furnished for any other
purpose. The amount that Tenant shall pay Landlord for such additional water
shall be the average price per gallon charged to the Landlord for the Building
by the entity providing water, increased by 25% to cover Landlord's
administrative expense.
9.4 Landlord shall furnish janitor service (including washing of windows
with reasonable frequency as determined by Landlord) in and about the Premises,
to the extent necessitated by normal office use of the Premises, Monday through
Friday, holidays excepted. Landlord shall have no obligation to furnish janitor
service for any portion of the Premises which is occupied after 7:00 p.m., is
locked or may be used (to the extent permitted under this Lease) for the
preparation, dispensing or consumption of food or beverages or for any purpose
other than general office use, and Tenant shall keep all such portions of the
Premises in a clean and orderly condition at Tenant's sole cost and expense. In
the event that Tenant shall fail to keep such portions of the Premises in a
clean and orderly condition, Landlord may do so and any costs incurred by
Landlord in connection therewith shall be payable by Tenant to Landlord upon
demand, as additional rent hereunder. Tenant shall also pay to Landlord, as
additional rent hereunder, amounts equal to any increase in cost of janitor
service in and about the Premises if such increase in costs is due to (a) use of
the Premises by Tenant during hours other
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than normal business hours, or (b) location in or about the Premises of any
fixtures, improvements, materials or finish items (including without limitation
wall coverings and floor coverings) other than those which are of the standard
type adopted by Landlord for the Building. Only those persons who have been
approved by Landlord may perform janitorial services.
9.5 Landlord shall furnish passenger and freight elevator service in
common with Landlord and other tenants Monday through Friday from 8:00 A.M. to
6.00 P.M. and Saturday from 8:00 A.M. to 1:00 P.M. Landlord shall provide
limited passenger elevator service daily at all times such normal passenger
service is not furnished.
9.6 Landlord does not warrant that any service will be free from
interruptions caused by repairs, renewals, improvements, changes of service,
alterations, strikes, lockouts, labor controversies, accidents, inability to
obtain fuel, steam, water or supplies or other cause, provided the cause is
beyond the reasonable control of Landlord. Landlord agrees to give Tenant notice
of any extended interruptions of which Landlord has prior knowledge. No
interruption of service shall be deemed an eviction or disturbance of Tenant's
use and possession of the Premises or any part thereof, nor relieve Tenant from
performance of Tenant's obligations under this Lease. Landlord shall not be
liable for any failure to make such repairs or furnish such services unless the
failure shall be reasonably curable by Landlord and nonetheless shall persist
for an unreasonable time after written notice from Tenant of the need for such
repairs or the failure to furnish such service. There shall be no abatement of
rent and no liability of Landlord by reason of any injury to or interference
with Tenant's business arising from the making of any repairs, alterations or
improvements, or provision of any service in or to any portion of the Building,
including the Premises, or in or to the fixtures, appurtenances and equipment
therein; provided that in making such repairs, alterations or improvements or
providing such service Landlord shall interfere as little as reasonably
practicable with the conduct of Tenant's business in the Premises, without,
however, being obligated to incur liability for overtime or other premium
payment to its agents, employees or contractors in connection therewith. If
Tenant's beneficial use of all or a substantial portion of the Premises is
prevented for a period in excess of 3 consecutive business days (excluding
Saturdays, Sundays, and holidays), the Base Rent shall be equitably abated
commencing with the fourth business day and continuing until such use is no
longer prevented. Such abatement, to the extent provided above, shall be
Tenant's sole remedy. Except as provided above, Tenant shall not be entitled to
any abatement or reduction of rent or other remedy by reason of Landlord's
failure to furnish any of the services or Building systems called for by this
Lease when such failure is caused by accident, breakage, repairs, strikes,
lockouts or other labor disturbances or labor disputes of any character, or any
other cause. As a material inducement to Landlord's entry into this Lease,
Tenant waives and releases any rights it may have to make repairs at Landlord's
expense under Sections 1941 and 1942 of the California Civil Code.
10. CONDITIONS OF PREMISES. By occupying the Premises, Tenant shall be
deemed to accept the same and acknowledge that they comply fully with Landlord's
covenants and obligations hereunder, subject to completion of any items which it
is Landlord's responsibility hereunder to furnish and which are listed by
Landlord and Tenant upon inspection of the Premises. Tenant acknowledges that
neither Landlord nor any agent, employee or representative of Landlord has made
any representation or warranty with respect to any matter, including but not
limited to any matter regarding the Building or Premises, the applicable zoning
or the effect of other applicable laws, or the suitability or fitness of the
Building or Premises for the conduct of Tenant's business or any other purpose.
Tenant is relying solely on its own investigations with respect to all such
matters. During the term of this Lease, Tenant shall maintain the Premises in as
good condition as when Tenant took possession, ordinary wear and tear and
repairs which are specifically made the responsibility of Landlord hereunder
excepted, and shall repair all damage or injury to the Building or to fixtures,
appurtenances and equipment of the Building caused by Tenant's installation or
removal of its property or resulting from the negligence or tortious conduct of
Tenant, its employees, contractors, agents, licensees and invitees. In the event
of failure by Tenant to perform its covenants of maintenance and repair
hereunder, Landlord may perform such maintenance and repair, and any amounts
expended by Landlord in connection therewith shall be payable by Tenant to
Landlord upon demand, as additional rent hereunder.
11. DAMAGE TO PREMISES OR BUILDING.
11.1 In the event that the Building should be totally destroyed by fire or
other casualty, this Lease shall terminate. In the event the Premises or a
substantial portion of the Building should be so damaged or destroyed that
rebuilding or repairs cannot, in Landlord's opinion, be completed within 180
days after the date of such damage or Landlord will not receive insurance
proceeds sufficient to cover the costs of such repairs, reconstruction and
restoration (including proceeds from Tenant and/or Tenant's insurance which
Tenant is required to deliver to Landlord pursuant to Subsection 11.2 below),
Landlord may at its option terminate this Lease upon notice to Tenant, or
Landlord may proceed to restore the Building. In the event that such rebuilding
or repairs can, in Landlord's opinion, be completed within 180 days after the
date of such damage and Landlord will receive insurance proceeds sufficient to
cover the costs of such repairs, reconstruction and restoration (including
proceeds from Tenant and/or Tenant's insurance which Tenant is required to
deliver to Landlord pursuant to Subsection 11.2 below), Landlord shall restore
the Building. In the event that Landlord is obligated or elects to restore the
Building, Landlord shall commence to rebuild or repair the Building reasonably
promptly after such
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damage or destruction and shall proceed with reasonable diligence to restore it
to substantially the condition in which it was immediately prior to the
casualty, except that Landlord shall not be required to rebuild, repair or
replace any part of the partitions, fixtures, alterations, decorations or other
Improvements which may have been constructed by or specifically for Tenant
(except the improvements built by Landlord pursuant to the Landlord's
Improvement Construction Rider, which Landlord shall restore), or by or for
other tenants within the Building. In such event this Lease shall remain in full
force and effect, provided that if Tenant is dispossessed by reason of such
casualty from all or a substantial portion of the Premises for more than 3
consecutive business days, Tenant shall be entitled to a ratable abatement of
the Base Rent during the time and to the extent the Premises are unfit for
occupancy, commencing with the fourth business day; and provided further that
Tenant shall have the right to terminate this Lease upon notice served upon
Landlord prior to actual completion of any necessary restoration of the Premises
if such restoration is not substantially completed within 360 days after the
casualty. Such abatement or termination, to the extent provided above, shall be
Tenant's sole remedy. Notwithstanding the foregoing to the contrary, if the
damage is due to the negligence or wilful misconduct of Tenant or any of
Tenant's agents, employees or invitees, there shall be no abatement of rent.
Except for abatement of rent as provided hereinabove, Tenant shall not be
entitled to any compensation or damages for loss of, or interference with,
Tenant's business or use or access of all or any part of the Premises resulting
from any such damage, repair, reconstruction or restoration.
11.2 In the event of any damage or destruction of all or any part of the
Premises, Tenant shall immediately; (a) notify Landlord thereof; and (b) deliver
to Landlord all insurance proceeds received by Tenant with respect to the
Leasehold improvements and Tenant changes in the Premises to the extent such
items are not covered by Landlord's casualty insurance (excluding proceeds for
Tenant's furniture and other personal property), whether or not this Lease is
terminated as permitted in this Section 11, and Tenant hereby assigns to
Landlord all rights to receive such insurance proceeds. If, for any reason
(including Tenant's failure to obtain insurance for the full replacement cost of
any Tenant changes which Tenant is required to insure pursuant to this Lease),
Tenant fails to receive insurance proceeds covering the full replacement cost of
such Tenant changes which are damaged, Tenant shall be deemed to have
self-insured the replacement cost of such tenant changes, and upon any damage or
destruction thereof, Tenant shall immediately pay to Landlord the full
replacement cost of such items, less any insurance proceeds actually received by
Landlord from Landlord's or Tenant's insurance with respect to such items.
11.3 In the event any holder of a mortgage or deed of trust on the
Building should require that the insurance proceeds payable upon damage or
destruction to the Building by fire or other casualty be used to retire the debt
secured by such mortgage or deed of trust, or in the event any lessor under any
underlying or ground lease should require that such proceeds be paid to such
lessor, Landlord shall in no event have any obligation to rebuild, and at
Landlord's election this Lease shall terminate.
11.4 With the exception of insurance required to be carried by Tenant
under Section 28 of this Lease, and except as provided in Section 11.2, any
insurance which may be carried by Landlord or Tenant against loss or damage to
the Building or to the Premises shall be for the sole benefit of the party
carrying such insurance and under its sole control. Landlord shall not be
required to carry insurance of any kind on Tenant's property and, except by
reason of the breach by Landlord of any of its obligations hereunder, shall not
be obligated to repair any damage thereto or to replace the same.
11.5 In addition to its termination rights in Subsection 11.1 above,
Landlord shall have the right to terminate this Lease if any damage to the
Building or Premises occurs during the last 12 months of the Term of this Lease
and Landlord estimates that the repair, reconstruction or restoration of such
damage cannot be completed within the earlier of (a) the scheduled expiration
date of the Lease Term, or (b) 60 days after the date of such casualty.
11.6 Tenant, as a material inducement to Landlord's entering into this
Lease, irrevocably waives and releases its rights under the provisions of
Sections 1932(2) and 1933(4) of the California Civil Code (and any successor
statutes permitting Tenant to terminate this Lease as a result of any damage or
destruction), it being the intention of the parties hereto that the express
terms of this Lease shall control under any circumstances in which those
provisions might otherwise apply.
12. EMINENT DOMAIN.
12.1 In the event that the whole of the Premises, or so much thereof as to
render the balance unusable to Tenant for the purposes leased hereunder, as
reasonably determined by Landlord, shall be lawfully condemned or taken in any
manner for any public or quasi-public use, or conveyed by Landlord in lieu
thereof (a "Taking"), this Lease and the term hereby granted shall forthwith
cease and terminate on the date of the taking possession by of the condemning
authority (the "Date of Taking").
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12.2 In the event of a taking of a portion of the Premises which does not
result in the termination of this Lease pursuant to Section 12.1, above, the
Base Rent shall be abated in proportion to the part of the Premises so taken.
12.3 In the event that there is a Taking of a portion of the Building
other than the Premises, and if, in the opinion of Landlord, the Taking is so
substantial as to render the remainder of the Building uneconomic to maintain
despite reasonable reconstruction or remodeling, or if it would be necessary to
alter the Building or Premises materially, Landlord may terminate this Lease by
notifying Tenant of such termination within 60 days following the Date of
taking, and this Lease shall end on the date specified in the notice of
termination, which shall not be less than 60 days after the giving of such
notice.
12.4 No temporary Taking of the Building or Premises and/or of Tenant's
rights therein or under this Lease shall terminate this Lease or give Tenant any
right to abatement of rent hereunder. Tenant shall be entitled to receive such
portion or portions of any award made for the temporary use with respect to the
period of the taking which is within the term of this Lease, provided that, if
such taking shall remain in force at the expiration or earlier termination of
this Lease, then Tenant shall pay to Landlord a sum equal to the reasonable
costs of performing Tenant's obligations under Section 15 with respect to
Tenant's surrender of the Premises and, upon such payment, shall be excused from
such obligations. For purposes of this Section 12.4, a temporary taking shall be
defined as a taking for a period of 270 days or less.
12.5 Except for the award in the event of a temporary Taking as
contemplated in Section 12.4, above, Tenant hereby releases and shall have no
interest in, or right to participate with respect to the determination of, any
compensation for any Taking, except only that Tenant shall be entitled to the
portion of any award specifically designated by the condemning authority to be
for any personal property of Tenant included in any such Taking or for any
relocation expenses or business interruption loss incurred by Tenant.
13. DEFAULT.
13.1 The following events shall be deemed to be events of default by
Tenant under this Lease:
(a) If Tenant shall fail to pay any installment of rent or any
other sum required to be paid by Tenant under this Lease as due.
(b) If Tenant shall fail to comply with any term, provision or
covenant of this Lease, other than provisions pertaining to the payment of
money.
(c) If Tenant shall make an assignment for the benefit of
creditors.
(d) If Tenant shall file a petition under any section or chapter
of the federal Bankruptcy Code, as amended from time to time, or under any
similar law or statute of the United States or any State thereof pertaining to
bankruptcy, insolvency or debtor relief, or Tenant shall have a petition or
other proceedings filed against Tenant under any such law or chapter thereof and
such petition or proceeding shall not be vacated or set aside within 60 days
after such filing.
(e) If a receiver or trustee shall be appointed for all or
substantially all of the assets of Tenant and such receivership shall not be
terminated and possession of such assets restored to Tenant within 30 days after
such appointment.
(f) If Tenant shall desert or vacate any substantial portion of
the Premises and the same shall remain unoccupied for more than 14 days
thereafter.
(g) If Tenant shall assign this Lease or sublet the Premises in
violation of the terms hereof.
13.2 Any shorter period for cure provided by law notwithstanding, and in
lieu thereof, including without limitation California Code of Civil Procedure
Section 1161, Tenant may cure any monetary default under Subsection 13.1(a),
above, at any time within 5 days after written notice of default is received by
Tenant from Landlord; and (except as specifically provided otherwise in Section
24) Tenant may cure any non-monetary default within 15 days after written notice
of default is received by Tenant from Landlord, provided that if such
non-monetary default is curable but is of such a nature that the cure cannot be
completed within 15 days, Tenant shall be allowed to cure the default if Tenant
promptly commences the cure upon receipt of the notice and diligently prosecutes
the same to completion, which completion shall occur not later than 60 days
from the date of such notice from Landlord.
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14. REMEDIES UPON DEFAULT.
14.1 Upon the occurrence of any event of default by Tenant, Landlord shall
have, in addition to any other remedies available to Landlord at law or in
equity, the option to pursue any one or more of the following remedies (each and
all of which shall be cumulative and non-exclusive) without any notice or demand
whatsoever:
(a) Terminate this Lease, in which event Tenant shall immediately
surrender the Premises to Landlord, and if Tenant fails to do so, Landlord may,
without prejudice to any other remedy which it may have for possession or
arrearages in rent, enter upon and take possession of the Premises and expel or
remove Tenant and any other person who may be occupying the Premises or any part
thereof, without being liable for prosecution or any claim or damages therefor;
and Landlord may recover from Tenant the following:
(1) The worth at the time of award of any unpaid rent which has
been earned at the time of such termination; plus
(2) The worth at the time of award of the amount by which the
unpaid rent which would have been earned after termination until the time of
award exceeds the amount of such rental loss that Tenant proves could have been
reasonably avoided; plus
(3) The worth at the time of award of the amount by which the
unpaid rent for the balance of the term after the time of award exceeds the
amount of such rental loss that Tenant proves could have been reasonably
avoided; plus
(4) Any other amount necessary to compensate Landlord for all
the detriment proximately caused by Tenant's failure to perform its obligations
under this Lease or which in the ordinary course of things would be likely to
result therefrom, specifically including but not limited to attorney's fees,
removal and storage (or disposal) of Tenant's personal property, unreimbursed
leasehold improvement costs (e.g., the amounts Landlord has expended for
leasehold improvements which have not been recovered as of the termination of
the Lease when amortized on a straight-line basis over the originally scheduled
lease term), brokerage commissions and advertising expenses incurred, expenses
of remodeling the Premises or any portion thereof for a new tenant, whether for
the same or a different use, and any special concessions made to obtain a new
tenant; and
(5) At Landlord's election, such other amounts in addition to
or in lieu of the foregoing as may be permitted from time to time by applicable
law.
The term "rent" as used in this Subsection 14.1(a) shall be deemed to be and to
mean all sums of every nature required to be paid by Tenant pursuant to the
terms of this Lease, whether to Landlord or to others. Any such sums which are
based on percentages of income, increased costs or other historical data shall
be reasonable estimates or projections computed by Landlord on the basis of the
amounts thereof accruing during the 24-month period immediately prior to
default, except that if it becomes necessary to compute such sums before a
24-month period has expired, then the computation shall be made on the basis of
the amounts accruing during such shorter period. As used in Subsections
14.1(a)(1) and (2), above, the "worth at the time of award" shall be computed by
allowing interest from the date the sums became due at the lesser of (i) the
Bank of America prime rate on the due date plus 6%, or (ii) the maximum rate
permitted by law. As used in Subsection 14.1(a)(3), above, the "worth at the
time of award" shall be computed by discounting such amount at the discount
rate of the Federal Reserve Bank of San Francisco at the time of award plus 1%.
(b) In the event of any such default by Tenant, in addition to any
other remedies available to Landlord under this Lease, at law or in equity,
Landlord shall also have the right, with or without terminating this Lease, to
re-enter the Premises and remove all persons and property from the Premises;
such property may be removed, stored and/or disposed of pursuant to any
procedures permitted by applicable law, including but not limited to those
described in Section 15.3. No re-entry or taking possession of the Premises by
Landlord pursuant to this Subsection 14.1(b), and no acceptance of surrender of
the Premises or other action on Landlord's part, shall be construed as an
election to terminate this Lease unless a written notice of such intention be
given to Tenant or unless the termination thereof be decreed by a court of
competent jurisdiction.
(c) In the event of any such default by Tenant, in addition to any
other remedies available to Landlord under this Lease, at law or in equity,
Landlord shall have the right to continue this Lease in full force and effect,
whether or not Tenant shall have abandoned the Premises. The foregoing remedy
shall also be available to Landlord pursuant to California Civil Code Section
1951.4 and any successor statute in the event Tenant has abandoned the Premises.
In the event Landlord elects to continue this Lease in full force and effect
pursuant to this Subsection 14.1(c), then Landlord shall
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be entitled to enforce all of its rights and remedies under this Lease,
including the right to recover rent as it becomes due. Landlord's election not
to terminate this Lease pursuant to this Subsection 14.1(c) or pursuant to any
other provision of this Lease, at law or in equity, shall not preclude Landlord
from subsequently electing to terminate this Lease or pursuing any of its other
remedies.
(d) Whether or not Landlord elects to terminate this Lease on account
of any default by Tenant, Landlord shall have the right to terminate any and all
subleases, licenses, concessions or other consensual arrangements for possession
entered into by Tenant and affecting the Premises or may, in Landlord's sole
discretion, succeed to Tenant's interest in such subleases, licenses,
concessions or arrangements. If Landlord so elects to succeed to Tenant's
interest, Tenant shall, as of the date of notice by Landlord of such election,
have no further right to or interest in the rent or other consideration
receivable thereunder.
14.2 Following the occurrence of an event of default by Tenant, Landlord
shall have the right to require that any or all subsequent amounts paid by
Tenant to Landlord hereunder, whether in cure of the default in question or
otherwise, be paid in the form of cash, money order, cashier's or certified
check drawn on an institution acceptable to Landlord, or by other means approved
by Landlord, notwithstanding any prior practice of accepting payments in any
different form.
14.3 All rights, options and remedies of Landlord contained in this Section
14 and elsewhere in this Lease shall be construed and held to be cumulative, and
no one of them shall be exclusive of the other, and Landlord shall have the
right to pursue any one or more of such remedies or any other remedy or relief
which may be provided by law or in equity, whether or not stated in this Lease.
Nothing in this Section 14 shall be deemed to limit or otherwise affect Tenant's
indemnification of Landlord pursuant to any provision of this Lease.
14.4 Landlord shall not be deemed in default in the performance of any
obligation required to be performed by Landlord under this Lease unless Landlord
has failed to perform such obligation within 30 days after the receipt of
written notice from Tenant specifying in detail Landlord's failure to perform;
provided however, that if the nature of Landlord's obligation is such that more
than 30 days are required for its performance, then Landlord shall not be deemed
in default if it commences such performance within such 30-day period and
thereafter diligently pursues the same to completion. Upon any such uncured
default by Landlord, Tenant shall be entitled, as Tenant's sole and exclusive
remedy, to recover from Landlord Tenant's actual damages (but not lost profits
or other incidental or consequential damages) shown by Tenant to have been
directly caused thereby; provided, however; (a) Tenant shall have no right to
offset or abate rent in the event of any default by Landlord under this Lease,
except to the extent offset rights are specifically provided to Tenant in this
Lease; (b) Tenant shall in no event be entitled to terminate this Lease by
reason of Landlord's default; and (c) Tenant's rights and remedies hereunder
shall be limited to the extent Tenant has expressly waived in this Lease any of
such rights or remedies, including the limitation on Landlord's liability
contained in Section 33.17 hereof.
14.5 No waiver by Landlord or Tenant of any violation or breach of any of
the terms, provisions and covenants herein contained shall be deemed or
construed to constitute a waiver of any other or later violation or breach of
the same or any other of the terms, provisions, and covenants herein contained.
Forbearance by Landlord in enforcement of one or more of the remedies herein
provided upon an event of default shall not be deemed or construed to constitute
a waiver of such default. The acceptance of any rent hereunder by Landlord
following the occurrence of any default, whether or not known to Landlord, shall
not be deemed a waiver of any such default, except only a default in the payment
of the rent so accepted, subject to the provisions of Section 33.1.
15. SURRENDER OF PREMISES; REMOVAL OF PROPERTY.
15.1 No act or thing done by Landlord or any agent or employee of Landlord
during the term hereof shall be deemed to constitute an acceptance by Landlord
of a surrender of the Premises unless such intent is specifically acknowledged
in a writing signed by Landlord. The delivery of keys to the Premises to
Landlord or any agent or employee of Landlord shall not constitute a surrender
of the Premises or effect a termination of this Lease, whether or not the keys
are thereafter retained by Landlord, and notwithstanding such delivery Tenant
shall be entitled to the return of such keys at any reasonable time upon request
until this Lease shall have been properly terminated. The voluntary or other
surrender of this Lease by Tenant, whether accepted by Landlord or not, or a
mutual termination hereof, shall not work a merger, and at the option of
Landlord shall operate as an assignment to Landlord of all subleases or
subtenancies affecting the Premises.
15.2 Upon the expiration of the term of this Lease, or upon any earlier
termination of this Lease, Tenant shall, subject to the provisions of this
Section 15, quit and surrender possession of the Premises to Landlord in as good
order and condition as when Tenant took possession and as thereafter improved by
Landlord and/or Tenant, reasonable wear and tear and repairs which are
specifically made the responsibility of Landlord hereunder excepted. Upon such
expiration or
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termination, Tenant shall, without expense to Landlord, remove or cause to be
removed from the Premises all debris and rubbish, and such items of furniture,
equipment, free-standing cabinet work, movable partitions and other articles of
personal property owned by Tenant or installed or placed by Tenant at its
expense in the Premises, and such similar articles of any other persons claiming
under Tenant, as Landlord may, in its sole discretion, require to be removed,
and Tenant shall repair at its own expense all damage to the Premises and
Building resulting from such removal.
15.3 Whenever Landlord shall re-enter the Premises as provided in this
Lease, any personal property of Tenant not removed by Tenant upon the expiration
of the term of this Lease, or within 48 hours after a termination by reason of
Tenant's default as provided in this Lease, shall be deemed abandoned by Tenant
and may be disposed of by Landlord (without liability to Tenant) in accordance
with Sections 1980 through 1991 of the California Civil Code and Section 1174 of
the California Code of Civil Procedure, or in accordance with any laws or
judicial decisions which may supplement or supplant those provisions from time
to time, or in accordance with any other legally permissible procedure, whether
by public or private sale or otherwise. Landlord shall be entitled to apply any
proceeds of the sale of such items to any sums due to Landlord by Tenant and to
Landlord's costs of removal, storage and sale of such items. Alternatively,
Landlord shall be entitled to treat Tenant's failure to remove such items from
the Premises as either a permitted or unpermitted holdover pursuant to Section
19 of this Lease.
15.4 All fixtures, alterations, additions, repairs, improvements and/or
appurtenances attached to or built into or on or about the Premises prior to or
during the term hereof, whether by Landlord at its expense or at the expense of
Tenant, or by Tenant at its expense, or by previous occupants of the Premises,
shall be and remain part of the Premises and shall not be removed by Tenant at
the end of the term of this Lease. Such fixtures, alterations, additions,
repairs, improvements and/or appurtenances shall include, without limitation,
floor coverings, drapes, paneling, molding, doors, kitchen and dishwashing
fixtures and equipment, plumbing systems, electrical systems, lighting systems,
silencing equipment, communication systems, all fixtures and outlets for the
systems mentioned above and for all telephone, radio, telegraph and television
purposes, and any special flooring or ceiling installations. Notwithstanding the
foregoing, Landlord may, in its sole discretion, require Tenant, at Tenant's
sole cost and expense, to remove any fixtures, alterations, additions, repairs,
improvements and/or appurtenances attached or built into or on or about the
Premises, and to repair any damage to the Building and Premises occasioned by
the installation, construction, operation and/or removal of such fixtures,
equipment, alterations, additions, repairs, improvements and/or appurtenances.
If Tenant shall fail to complete such removal and repair such damage, Landlord
may do so and may charge the reasonable cost thereof to Tenant.
15.5 Tenant hereby waives all claims for damages or other liability in
connection with Landlord's re-entering and taking possession of the Premises or
removing, retaining, storing or selling the property of Tenant as herein
provided, and Tenant hereby indemnifies and holds Landlord harmless from any
such damages or other liability, and no such re-entry shall be considered or
construed to be a forcible entry.
16. COSTS OF SUIT; ATTORNEYS' FEES; WAIVER OF JURY TRIAL.
16.1 If Tenant or Landlord shall bring any action for any relief,
declaratory or otherwise, against the other arising out of or under this Lease,
including any suit by Landlord for the recovery of rent or possession of the
Premises, the losing party shall pay the successful party its costs of suit,
including, without limitation, a reasonable sum for attorneys' and other
professional fees relating to such suit, and such fees shall be deemed to have
accrued on the commencement of such action and shall be paid whether or not such
action is contested or prosecuted to judgment.
16.2 In the event that Landlord shall, without fault of Landlord's part, be
made party to any litigation instituted by Tenant or by any third party against
Tenant, or by or against any person holding under or using the Premises by
license of Tenant, or for the foreclosure of any lien for labor or material
furnished to or for Tenant or of any such other person, Tenant hereby
indemnifies and holds Landlord harmless from and against all costs and expenses,
including reasonable attorneys' fees, incurred by Landlord in or in connection
with such litigation.
16.3 In order to limit the cost of resolving any disputes between the
parties, and as a material inducement to each party to enter into this Lease,
each party hereby waives the right to a jury trial with respect to any
litigation between the parties arising out of this Lease, Tenant's occupancy of
the Premises, or Landlord's ownership, operation or management of the Building,
irrespective of any rights to a jury trial which either party otherwise then
would have under applicable statutes, constitutions, judicial decisions or other
laws.
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17. ASSIGNMENT AND SUBLETTING.
17.1 Except as hereinafter provided, Tenant shall not sublet all or any
part of the Premises, nor assign this Lease, nor enter any license, "co-location
agreement" or other agreement permitting a third party (other than Tenant's
employees and occasional guests) to use or occupy any portion of the Premises,
without Landlord's express prior written consent, which consent shall not
unreasonably be withheld. (For purposes of the balance of this Section 17.1 and
Sections 17.2 through 17.4, the term "sublease" shall be deemed to include
licenses, co-location agreements, and other agreements for use or occupancy of
the Premises as described in the preceding sentence. The terms "subtenant" and
"sublet" shall be construed accordingly.)
In order to assist Landlord in evaluating any proposed assignment or
sublease, Tenant agrees to provide Landlord with the proposed subtenant or
assignee's current financial statement and financial statements for the
preceding 2 years and such other information concerning the business background
and financial condition of the proposed subtenant or assignee and of Tenant as
Landlord may reasonably request.
Landlord and Tenant hereby agree that Landlord's disapproval of any
proposed sublease or assignment hereunder shall be deemed reasonable if based
upon any reasonable factor, including, without limitation, any or all of the
following factors:
(a) The proposed transfer would result in more than two subleases of
portions of the Premises being in effect at any time during the term;
(b) The rent payable by the proposed transferee would be less than
the fair market rental value for the space as determined pursuant to the last
paragraph of this Section 17.1;
(c) The proposed transferee is an existing tenant or occupant of the
Building or has negotiated with Landlord within the last twelve months for space
in the Building or is another transferee prohibited by the next to last
paragraph of this Section 17.1;
(d) The proposed transferee is a governmental entity;
(e) The transaction calls for new demising walls to be built, and
the portion of the Premises proposed to be sublet or assigned is irregular in
shape and/or has inadequate means of ingress and egress;
(f) The use of the Premises by the proposed transferee (i) is not
permitted by the use provisions of this Lease, or (ii) might, in Landlord's
reasonable opinion, violate any right for an exclusive use granted by Landlord
to another Tenant in the Building;
(g) The transfer would likely result, in Landlord's reasonable
opinion, in a significant increase in the use of the parking areas or common
areas of the Building due to the transferee's employees or visitors, and/or
significant increase in the demand for utilities and services to be provided by
Landlord to the Premises;
(h) The assignee or subtenant does not, in Landlord's reasonable
opinion, have the financial capability to fulfill the obligations imposed by the
transfer, or in the case of an assignment, the assignee does not, in Landlord's
reasonable opinion, have income and net worth at least equal to that of Tenant;
(i) The transferee is not, in the Landlord's reasonable opinion, of
reputable or good character or consistent with Landlord's desired tenant mix;
(j) The transferee is a real estate developer or landlord or is
acting directly or indirectly on behalf of a real estate developer or landlord;
(k) The proposed transferee may, in Landlord's reasonable opinion,
increase the chances of significant hazardous waste contamination within the
Premises or the Building;
(l) In the reasonable judgment of the Landlord, the purpose for
which the transferee intends to use the Premises is not in keeping with the
standards of the Landlord for the Building or is in violation of the terms of
any other lease in the Building; or
(m) Landlord has not leased 95% of the rentable area in the
Building.
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Notwithstanding the foregoing, Tenant may, subject to the rest of the
terms hereof, sublet all of the Premises or assign this Lease to any entity
controlling, controlled by or under common control with Tenant, (including
assignment or subletting to any corporation resulting from a merger or
consolidation with Tenant, or to any person or entity which acquires all the
assets of Tenant's business as a going concern) provided that, with regard to
each such assignment or subletting: (A) Landlord receives the financial
statements prescribed above and such other financial and background information
as Landlord may request regarding the assignee or subtenant at least 20 days
prior to such proposed assignment or sublease; (B) the Landlord determines, in
its reasonable discretion, that the income and net worth of the assignee or
subtenant comply with the standards prescribed in item (h) above; (C) the use of
the Premises is not altered; (D) the Landlord determines, in its sole and
absolute discretion, that the transaction is not being entered into as a
subterfuge to avoid the restrictions on assignment and subletting in the Lease;
and (E) the subtenant or assignee expressly assumes the obligations of Tenant
hereunder as prescribed below in this Section 17.1.
Neither this Lease nor the term hereby demised shall be mortgaged by
Tenant, nor shall Tenant mortgage, assign, pledge or otherwise transfer the
interest of Tenant in and to any sublease or the rentals payable thereunder or
in the Security Deposit.
Any sublease, assignment, mortgage, pledge, encumbrance, or transfer made
in violation of this Section 17.1 shall be void and at Landlord's election shall
terminate this Lease.
Each subtenant, assignee or transferee of Tenant, other than Landlord,
shall assume all obligations of Tenant under this Lease and shall be and remain
liable jointly and severally with Tenant for the payment of the rent, and for
the due performance of all the terms, covenants, conditions and agreements
herein contained on Tenant's part to be performed for the term of this Lease
(provided that in the case of a sublease, the subtenant's obligations shall be
limited to those obligations relating to the subleased space and the common
areas during the sublease term). No sublease or assignment shall be deemed
approved by Landlord unless such subtenant or assignee and Tenant shall deliver
to Landlord a counterpart of such sublease or assignment and an instrument in a
form acceptable to Landlord, which contains a covenant of assumption by the
subtenant or assignee satisfactory in substance and form to Landlord, consistent
with the requirements of this Section 17.1, but the failure or refusal of the
subtenant or assignee to execute such instrument or assumption shall not release
or discharge the subtenant or assignee from its liability as set forth above.
No subtenant or assignee not complying with the foregoing requirements
shall have any interest in the Security Deposit. Any assignee that does
comply with the foregoing requirements shall automatically succeed to Tenant's
position with respect to the Security Deposit, and Landlord shall have the right
to refund all or any portion of the Security Deposit to the assignee at any time
or under any circumstances with no liability to the assignor.
Landlord may require that the assignee or subtenant remit directly to
Landlord on a monthly basis, all monies due to Tenant by said assignee or
subtenant. In such event Landlord shall apply the sums received to the
obligations of Tenant and its successors under this Lease.
In the event of default by any assignee or subtenant or any successor of
Tenant in the performance of any of the terms hereof, Landlord may proceed
directly against Tenant without the necessity of exhausting remedies against
such assignee, subtenant or successor.
Landlord may consent to subsequent assignments of the Lease or sublettings
or amendments or modifications to the Lease with the assignee or other successor
of Tenant, and without obtaining Tenant's consent thereto, and any such actions
shall not relieve Tenant of liability under this Lease.
Consent by Landlord to one assignment or subletting shall not be deemed
consent to any subsequent assignment or subletting.
If Tenant is a corporation which, under California law, is not deemed a
publicly-held corporation, or is an unincorporated association or partnership,
the transfer, assignment or hypothecation of any stock or interest controlling
such corporation, association or partnership shall be deemed an assignment
within the meaning and provisions of this Section 17. For purposes hereof,
"control" shall be deemed to refer to any amount, in the aggregate, exceeding
25% of the voting power of such corporation, association or partnership.
Notwithstanding the foregoing, the immediately preceding sentence shall not
apply to any transfer of stock of Tenant if Tenant is a publicly-held
corporation and such stock is transferred publicly over a recognized security
exchange or over-the-counter market.
Tenant agrees that all advertising by Tenant to market the space in the
Premises to be sublet or assigned shall require Landlord's prior written
approval, which shall not be unreasonably withheld. Tenant further agrees that
it shall not,
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without Landlord's prior written consent, which may be granted or withheld in
Landlord's sole discretion, market any space in the Premises, assign the lease
or sublet any space in the Premises to existing tenants or occupants of the
Building, or to any entity controlling, controlled by, or under common control
with any existing tenant or occupant of the Building, except for any entity
controlling, controlled by or under common control with Tenant.
Tenant agrees that it shall not sublet, nor assign, nor advertise as
available for subletting or assignment, nor list with brokers for subletting or
assignment, all or any portion of the Premises for a consideration which is
equal to less than the fair market rental value, as determined by Landlord in
its reasonable discretion, for comparable space in the Building for a comparable
term commencing concurrently with the assignment or sublease term, with
comparable rent credits and tenant improvement allowances. Within 10 days after
Landlord receives any written request from Tenant for Landlord's estimate of the
fair market rental value for specified space (which request shall identify the
space in question, the proposed term and the proposed rent credits and
improvement allowances), Landlord shall notify Tenant in writing of the fair
market rental value for such space for a comparable term with comparable rent
credits and tenant improvement allowances.
17.2 In the event that Tenant desires to assign this Lease, or to enter
into a sublease, as to all or any portion of the Premises, except where the
subtenant or assignee is an entity controlling, controlled by or under common
control with Tenant, Tenant shall, prior to solicitation of offers therefor,
give Landlord notice of Tenant's desire to assign or sublet and of the portion
of the Premises to be affected by the proposed assignment or sublease. Landlord
shall have the right, exercisable by notice to Tenant within 60 days after
Landlord's receipt of Tenant's notice of desire to assign or sublet, to
terminate this Lease as to the portion of the Premises affected by the proposed
assignment or sublease, such termination to be effective as of the date 60 days
after notice by Landlord to Tenant of such termination.
In the event of a termination of this Lease as to a portion of the Premises
pursuant to this Section 17.2, effective as of such termination, the Premises
shall be deemed to no longer include the portion of the Premises subject to such
termination, Tenant shall surrender possession of that portion of the Premises
in accordance with the provisions of this Lease, and the rent payable hereunder
and Tenant's Percentage Share shall be appropriately adjusted based upon the
rentable area remaining within the Premises.
If Landlord does not elect to terminate pursuant to this Section 17.2, and
if Tenant does not enter into an assignment or sublease as specified in Tenant's
notice of desire to assign or sublet within 6 months after the expiration of
Landlord's 60-day period for election to terminate, then Tenant shall again
comply with the provisions of this Section 17.2 before assigning this Lease, or
entering into a sublease, as to all or any portion of the Premises.
17.3 In the event that Tenant has sought and received Landlord's consent
to assign this Lease, or to enter into a sublease as to all or any portion of
the Premises, the monthly rent payable by Tenant to Landlord, pursuant to
Section 3, shall be increased by the amount to be received by Tenant during each
month pursuant to the terms of the assignment or sublease, in excess of Tenant's
monthly rental payable to Landlord for the space subject to the assignment or
sublease. The amounts referred to in the previous sentence include rent,
additional rent, or any other payment in respect of use or occupancy, or in
reimbursement of costs of leasehold improvements installed by Tenant, and
whether paid in a lump sum or periodic payments. In no event shall the total
sums payable to the Landlord be less than the monthly rental Landlord would have
received but for such assignment or sublease.
The additional rent shall be due and payable to Landlord in accordance with
the schedule specified in the sublease or assignment instrument, and the failure
of any subtenant or assignee to make any payments in accordance with that
schedule shall not affect the obligation of Tenant to pay the additional rent to
Landlord.
The calculation of the amount of rentable space being sublet shall be made
by Landlord in accordance with its usual standards. Landlord may require
acknowledgment by Tenant of Tenant's concurrence on the Landlord's calculation
of the amount of rentable space being sublet as a condition to Landlord's
consent to any sublease.
The provisions of a sublease or assignment instrument consented to by
Landlord cannot be modified, nor the sublease or assignment terminated, other
than in accordance with its terms, without the prior written consent of the
Landlord, which consent shall not be unreasonably withheld. The terms of this
Section 17.3 shall apply to any subleasing or assignment by any subtenant or
assignee.
17.4 Tenant shall pay to Landlord, promptly upon receipt of a billing from
Landlord, the amount of Landlord's reasonable attorney fees incurred in
connection with Landlord's review or approval of any sublease or assignment
transaction requiring Landlord's consent hereunder.
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18. TRANSFER OF LANDLORD'S INTEREST. In the event of any transfer of
Landlord's interest in the Building or Premises, other than a transfer for
security purposes only, the transferor shall be automatically relieved of any
and all obligations and liabilities on the part of Landlord accruing from and
after the date of such transfer, including, without limitation, the obligation
of Landlord to return the Security Deposit as provided in this Lease: provided
that the transferor shall, within a reasonable time, transfer any Security
Deposit then held by Landlord, or any portion thereof remaining after proper
deductions therefrom, to the transferee and shall thereafter notify Tenant of
such transfer, of any claims made against the Security Deposit, and of the
transferee's name and address, by written notice delivered personally (in which
case Tenant shall acknowledge receipt of such notice by signing Landlords's copy
of such notice) or by registered or certified mail.
19. HOLDING OVER. If Tenant holds over after the term hereof, with or
without the express or implied consent of Landlord, such tenancy shall be from
month-to-month only, and shall not constitute a renewal hereof or an extension
for any further term, and in such case, Base Rent shall be payable at a monthly
rate equal to the greater of: (a) two hundred percent (200%) of the Base Rent
applicable to the Premises immediately prior to the date of such expiration or
earlier termination; or (b) one hundred fifty percent (150%) of the prevailing
market rate excluding any rental or other concessions (as reasonably determined
by Landlord) for the Premises in effect on the date of such expiration or
earlier termination. Such month-to-month tenancy shall be subject to every
other term, covenant and agreement contained herein. Nothing contained in this
Section 19 shall be construed as consent by Landlord to any holding over by
Tenant, and Landlord expressly reserves the right to require Tenant to surrender
possession of the Premises to Landlord as provided in this Lease upon the
expiration or other termination of this Lease.
20. NOTICES. In every case when, under the provisions of this Lease, it
shall be necessary or desirable for one party hereto to serve any notice,
request or demand on the other, such notice or demand shall be in writing and
shall be served personally or by deposit in the United States mail, postage and
fees fully prepaid, registered or certified mail, with return receipt requested,
addressed to the applicable address for notice set forth in Section A on page 1.
Landlord or Tenant may, from time to time, by notice in writing served upon the
other as aforesaid, designate a different mailing address or a different
person to whom all such notices or demands are thereafter to be addressed.
Service of any such notice or demand if given personally shall be deemed
complete upon delivery, and if made by mail shall be deemed complete on the day
of actual delivery as shown by the addressee's registry or certification receipt
or at the expiration of 2 business days after the date of mailing, whichever is
earlier.
Notwithstanding the provisions of this Section 20, any notice of default as
described in Section 13.2 and any pleadings or notices given by either party to
the other with respect to any judicial proceeding between the parties shall be
served in the manner prescribed by applicable California law without reference
to this paragraph, and shall be deemed served at such time as is provided by
such applicable law without reference to this paragraph.
21. QUIET ENJOYMENT. Landlord covenants that Tenant, upon paying the
rent and performing the covenants of this Lease on Tenant's part to be
performed, shall and may peaceably and quietly have, hold and enjoy the Premises
for the term of this Lease.
22. TENANT'S FURTHER OBLIGATIONS.
22.1 Except for ordinary wear and as otherwise provided in this Lease,
Tenant shall, at Tenant's expense, keep in good order, condition and repair the
interior of the Premises and shall promptly and adequately repair all damage to
the interior of the Premises and replace or repair all glass, fixtures,
equipment and appurtenances therein damaged or broken, under the supervision and
with the approval of Landlord and, if Tenant does not do so, Landlord may, but
need not, make such repairs and replacements. If Landlord does so, Tenant shall
pay Landlord the cost thereof promptly upon demand, as additional rent
hereunder.
22.2 Tenant shall comply with all laws, ordinances, rules, regulations,
orders and directives of governmental and quasi-governmental bodies and
authorities having jurisdiction over Tenant or the Premises from time to time
and shall obtain and keep in effect all licenses, permits (including but not
limited to conditional use permits) and other authorizations required with
respect to the business or businesses conducted by Tenant within or from the
Premises or with respect to any special equipment or facilities of Tenant
permitted under the other provisions of this Lease. Tenant and its employees,
agents, licensees and invitees shall also comply with all reasonable rules and
regulations which Landlord may adopt from time to time for the protection and
welfare of the Building and its tenants and occupants; provided that Tenant
shall not be responsible for compliance with any rule or regulation adopted by
Landlord unless or until Tenant is furnished with a copy thereof. The present
rules and regulations for the Building are attached hereto as Exhibit "B".
Landlord shall have no liability to Tenant for the failure of any other tenant
in the Building to observe the rules and regulations.
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23. ESTOPPEL CERTIFICATE BY TENANT. At any time and from time to time,
within 15 days after written request by Landlord, Tenant shall execute,
acknowledge and deliver to Landlord a statement in writing certifying that this
Lease is unmodified and in full force and effect (or if there have been
modifications, that this Lease is in full force and effect as modified and
stating the modifications), that Tenant knows of no default hereunder by
Landlord and has no right of offset or deduction against the rent or any other
charge payable to Landlord (or specifying any claimed), the amount of any
security posted by Tenant, the dates to which the rent and other charges have
been paid in advance, any increases or decreases of rent that are anticipated,
the commencement date of the Lease and such other matters as may be reasonably
requested by Landlord. It is intended that any statement delivered pursuant to
this Section 23 may be relied upon by any purchaser of the fee or mortgagee or
beneficiary or assignee of any mortgage or trust deed upon the fee of the
Building or Premises. Tenant's failure to deliver the statement within the
period specified above shall be conclusive and binding upon Tenant that the
Lease is in full force and effect without modification except as may be
represented by Landlord, that there are no uncured defaults in Landlord's
performance and that Tenant has no right of offset, counterclaim or deduction
against rental, and that no more than one month's rental has been paid in
advance.
24. SUBORDINATION AND ATTORNMENT. This Lease is and at all times shall
be subject and subordinate to any ground or underlying leases, mortgages, trust
deeds or like encumbrances, which may now or hereafter affect the Building or
Premises, and to all renewals, modifications, consolidations, replacements and
extensions of any such lease, mortgage, trust deed or like encumbrance. As a
condition precedent to the effectiveness of any such subordination of this Lease
to any future ground or underlying leases or the lien of any future mortgages,
deeds of trust, or like encumbrances, Landlord shall provide to Tenant a
commercially reasonable non-disturbance and attornment agreement in favor of
Tenant executed by such future ground lessor, master lessor, mortgagee or deed
of trust beneficiary, as the case may be, which shall provide that Tenant's
quiet possession of the Premises shall not be disturbed on account of such
subordination to such future lease or lien so long as Tenant is not in default
under any provisions of this Lease. Notwithstanding the foregoing, Landlord
shall have the right to subordinate or cause to be subordinated any or all
ground or underlying leases or the lien of any or all mortgages, deeds of trust
or like encumbrances to the Lease. In the event that any ground or underlying
lease terminates for any reason or any mortgage, deed of trust or like
encumbrance is foreclosed or a conveyance in lieu of foreclosure is made for any
reason, then at the election of Landlord's successor-in-interest, Tenant shall
attorn to and become the tenant of such successor. Tenant hereby waives its
rights under any current or future law which gives or purports to give Tenant
any right to terminate or otherwise adversely affect this Lease and the
obligations of Tenant hereunder in the event of any such foreclosure proceeding
or sale. Tenant covenants and agrees to execute and deliver to Landlord in the
form reasonably required by Landlord, within 10 days after receipt of written
demand by Landlord, any additional documents evidencing the priority or
subordination of this Lease with respect to any ground or underlying lease or
the lien of any mortgage, deed of trust, or like encumbrance. Should Tenant fail
to sign and return any such documents within said 10-day period, Tenant shall be
in default hereunder without the benefit of any additional notice or cure
periods, except as may be required by statute.
25. RIGHTS RESERVED TO LANDLORD.
25.1 All portions of the Building are reserved to Landlord, including
exterior building walls, core corridor walls and doors and any core corridor
entrance, but excluding the Premises and the inside surfaces of all walls,
windows and doors bounding the Premises. Landlord also reserves any space in or
adjacent to the Premises used for shafts, stacks, pipes, conduits, fan rooms,
ducts, electric or other utilities, sinks or other building facilities, and the
use thereof, as well as the right to access thereto through the Premises for the
purposes of operation, maintenance, decoration and repair.
25.2 Landlord shall have the following rights exercisable without notice
and without liability to Tenant for damage or injury to property, person or
business (all claims for damage being hereby released), and without effecting an
eviction or disturbance of Tenant's use or possession or giving rise to any
claim for setoffs or abatement of rent:
(a) To enter the Premises at all reasonable times during the
term of this Lease for the purpose of inspecting the same, supplying janitorial
service, posting notices of non-responsibility, exhibiting the Premises to
prospective tenants, purchasers or others, or making such repairs or
replacements therein as may be required by this Lease or as Landlord may deem
appropriate; provided that Landlord shall use all reasonable efforts not to
disturb Tenant's use and occupancy and shall, when practical, give Tenant prior
notice of such repairs. For each of the foregoing purposes, Tenant shall
provide to Landlord a key with which to unlock at any time all of the doors in,
upon and about the Premises, excluding Tenant's vaults and safes. Landlord may
use any other means which Landlord may deem proper to open such doors in an
emergency in order to obtain entry to the Premises. Any entry to the Premises
obtained by Landlord by any means shall not under any circumstances be construed
or deemed to be a forcible or unlawful entry into, or a detainer of, the
Premises, or an eviction of Tenant from the Premises or any portion thereof, or
grounds for any abatement or reduction of rent. Any damages or losses on
account of any such entry by Landlord shall be Tenant's sole responsibility
except as otherwise
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expressly provided herein. Nothing in this Section 25 shall be construed as
obligating Landlord to perform any repairs, alterations or decorations, except
as otherwise expressly required in this Lease.
(b) To change the name or street address of the Premises or
Building.
(c) To install and maintain signs on the exterior and interior of
the Building, except within the Premises.
(d) To have pass keys to the Premises.
(e) To decorate, remodel, repair, alter or otherwise prepare the
Premises for reoccupancy during the last 6 months of the term hereof if, during
or prior to such time, Tenant has vacated the Premises, or at any time after
Tenant abandons the Premises.
(f) To have access to all mail chutes according to the rules of the
United States Postal Service.
(g) To do or permit to be done any work in or about the exterior of
the Building or any adjacent or nearby building, land, street or alley.
(h) To grant to anyone the exclusive right to conduct any business
or render any service in the Building, provided such exclusive right shall not
operate to exclude Tenant from the use expressly permitted by this Lease.
26. FORCE MAJEURE. Whenever there is provided in this Lease a time
limitation for performance by Landlord or Tenant of any construction, repair,
maintenance or service, the time provided for shall be extended for as long as
and to the extent that delay in compliance with such limitation is due to an act
of God, governmental control or other factors beyond the reasonable control of
Landlord or Tenant, respectively.
27. WAIVER OF CLAIMS; INDEMNITY.
27.1 Tenant, as a material part of the consideration to Landlord, hereby
assumes all risk of, and waives all claims it may have against Landlord, its
agents, employees, affiliates and successors in interest for damage to or loss
of property or personal injury or loss of life resulting from the Building or
Premises or any part thereof becoming out of repair, by reason of any repair or
alteration thereof, or resulting from any accident within the Building or
Premises or on or about any space adjoining the Building or Premises, or
resulting directly or indirectly from any act or omission of any person, or due
to any condition, design or defect of the Building or Premises, or any space
adjoining the Building or Premises, or the mechanical systems of the Building or
Premises, which may exist or occur, whether such damage, loss or injury results
from conditions arising upon the Premises or upon other portions of the
Building, or from other sources or places, and regardless of whether the cause
of such damage, loss or injury or the means of repairing the same is accessible
to Tenant; provided such assumption and waiver shall not apply to claims caused
by the gross negligence or willful misconduct of Landlord or its agents.
27.2 Tenant hereby indemnifies and holds Landlord and Landlord's agents,
employees, affiliates and successors in interest harmless from and against any
and all claims, demands, suits, fines, losses and other liabilities for or
relating to injury or loss of life to persons or damage to or loss of property
arising from Tenant's use of the Building or the Premises or from the conduct of
Tenant's business or from any work done, permitted or suffered by Tenant in or
about the Premises or elsewhere, and further indemnifies and holds Landlord and
Landlord's agents, employees, affiliates and successors in interest harmless
from and against any and all claims arising from any breach or default in the
performance of any obligation on Tenant's part to be performed under the terms
of this Lease, or arising from any negligence or intentional conduct of Tenant
or Tenant's agents, employees, contractors, licensees, invitees, representatives
or successors in interest, and from and against all costs, attorneys' and other
professional fees, expenses and liabilities incurred by Landlord or Landlord's
agents, employees, affiliates and successors in interest in or in connection
with any such claim, demand, suit, fine or proceeding. In the event that any
action or proceeding be brought against Landlord or Landlord's agents,
employees, affiliates or successors in interest by reason of any such claim,
Tenant upon notice from Landlord shall defend such action or proceeding at
Tenant's cost and expense by counsel approved by Landlord, such approval not to
be unreasonably withheld.
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28. INSURANCE.
28.1 Tenant shall procure and shall maintain in effect, at Tenant's sole
cost and expense throughout the term of this Lease, including any extensions and
renewals thereof, public liability and property damage insurance against claims
for bodily injury, death or property damage occuring upon or about the Premises
or Building, in each case naming Landlord as additional insured and, upon
request by Landlord, naming the holder of any mortgage, deed of trust or like
encumbrance or the lessor under any underlying lease covering the Building as
additional insured, with a limit of liability of (a) not less than $1,000,000.00
single limit during the initial three-year period of the Lease term from the
Commencement Date to the third anniversary of the Lease term; and (b) not less
than $2,000,000.00 single limit during the balance of the Lease term from the
day after the third anniversary of the Lease term to the end of the Lease term.
If from time to time, the limits of liability set forth in Subsection 28.1(b)
above are, in the reasonable opinion of Landlord, inadequate, Tenant shall
increase such insurance coverage to an amount as shall be designated by
Landlord's notice to Tenant.
Tenant shall also procure and maintain, at Tenant's sole cost and expense
throughout the term of this Lease, casualty insurance on Tenant's personal
property in the Premises and any leasehold improvements which the Tenant
installed at its own cost in an amount at least equal to the full replacement
cost of such property, providing coverage against all perils insured against by
a "fire and extended coverage" policy, as well as sprinkler damage, vandalism
and malicious mischief.
Tenant shall also obtain the following insurance:
(a) Worker's compensation and employer's liability insurance in
form and amount satisfactory to Landlord.
(b) Loss of income and extra expense insurance in such amounts as
will reimburse Tenant for direct or indirect loss of earnings attributable to
all perils commonly insured against by prudent tenants or attributable to
prevention of access to or use of the Premises or the Building as a result of
such perils.
(c) Liquor liability insurance coverage in limits of not less than
Five Hundred Thousand Dollars ($500,000) if at any time during the term hereof
any alcoholic beverages of any nature are served on the Premises.
(d) Any other form or forms of insurance as Landlord or Landlord's
lender or ground or primary lessors may reasonably require from time to time in
form, in amounts, and for insurance risks against which a prudent tenant of a
comparable size and in a comparable business would protect itself.
Such policies of insurance shall be with insurance companies acceptable to
Landlord, shall not have a deductible amount exceeding $5,000.00 in the
aggregate, and shall specifically provide that the insurance afforded by such
policies for the benefit of Landlord and Landlord's mortgagees and ground
lessors shall be primary, and that any insurance carried by Landlord or
Landlord's, mortgagees and ground lessors shall be excess and non-contributing.
Such policies shall be evidenced by certificates of insurance delivered to
Landlord from time to time showing such insurance to be at all times prepaid and
in full force and effect and providing that such insurance cannot be cancelled
or modified upon less than 30 days' prior written notice to Landlord. If at any
time Tenant has not provided Landlord with a then currently effective
certificate of insurance acceptable to Landlord as to any insurance required to
be maintained by Tenant, Landlord may, without further inquiry as to whether
such insurance is actually in force, obtain such a policy and Tenant shall
reimburse Landlord, upon demand as additional rent hereunder, for the cost
thereof, together with Landlord's administrative fee equal to 25% of the
premium.
28.2 Tenant hereby waives its rights against Landlord and its managing
agent and their respective partners, officers, directors, shareholders,
employees, agents, representatives, contractors, affiliates, successors,
licensees, and invitees with respect to any claims or damages or losses
(including any claims for bodily injury to persons and/or damage to property)
which are caused by or result from (a) risks insured against under any insurance
policy carried by Tenant at the time of such claim, damage, loss or injury, or
(b) risks which would have been covered under any insurance required to be
obtained and maintained by Tenant under this Lease had such insurance been
obtained and maintained as required. The foregoing waivers shall be in addition
to, and not a limitation of, any other waivers or releases contained in this
Lease.
28.3 Tenant shall cause each insurance policy required to be obtained by
it pursuant to this Section 28 to provide that the insurer waives all rights of
recovery by way of subrogation against Landlord and its managing agent and their
respective partners, officers, directors, shareholders, employees, agents,
representatives, contractors, affiliates, successors, licensees, and invitees in
connection with any claims, losses and damages covered by such policy. If Tenant
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fails to maintain insurance required hereunder, Tenant shall be deemed to be
self-insured with a deemed full waiver of subrogation as set forth in the
immediately preceding sentence.
29. FIXTURES, TENANT IMPROVEMENTS AND ALTERATIONS.
29.1 Except as otherwise provided in any rider to this Lease, all
improvements, fixtures and/or equipment which Tenant may install or place in or
about the Premises, and all alterations, repairs or changes to the Premises, and
all signs installed in, on or about the Premises, from time to time shall be at
the sole cost of Tenant. Landlord shall be without any obligation in connection
therewith. Tenant hereby indemnifies and holds Landlord harmless from any
liability, cost, obligation, expense or claim of lien in any manner relating to
the installation, placement, removal or financing of any such alterations,
repairs, changes, improvements, fixtures and/or equipment in, on or about the
Premises.
29.2 Nothwithstanding any provision in this Section 29 to the contrary,
Tenant is absolutely prohibited from making any alterations, additions,
improvements or decorations which: (i) affect any area outside the Premises;
(ii) affect the Building's structure, equipment, services or systems, or the
proper functioning thereof, or Landlord's access thereto; (iii) affect the
outside appearance, character or use of the Building or the common areas; (iv)
weaken or impair the structural strength of the Building; (v) in the opinion of
Landlord, lessen the value of the Building; (vi) will violate or require a
change in any occupancy certificate applicable to the Premises; or (vii) in the
opinion of Landlord, will increase the Building's Operating Costs or Utility
Costs.
29.3 Before proceeding with any alteration, repair or change which is not
otherwise prohibited in Subsection 29.2 above, Tenant must first obtain
Landlord's written approval of(i) the plans and specifications for all such
work; (ii) with respect to any connecting lines that will be outside the
Premises (if such lines are permitted by Landlord in its sole discretion), a
description of the areas of the Building to which Tenant will require access
both for the initial work and for ongoing maintenance of the improvements or
installations; (iii) the names of all contractors and subcontractors who will
perform such work, all of whom shall be selected from Landlord's then-current
list of approved contractors, which Landlord may compile in Landlord's sole
discretion and will provide to Tenant within ten days following Landlord's
receipt of Tenant's written request; (iv) copies of all liability, casualty and
worker's compensation insurance applicable to the construction, maintenance and
ongoing operation of the improvements and installations; and (v) copies of all
governmental permits required for the work. Landlord's consent to such matters
shall not unreasonably be withheld; provided, however, that with regard to any
such matters which may affect the structural members, the heating, ventilation,
air conditioning or other building systems, exterior walls, windows and doors of
the Building, and with regard to the installation of any signs outside the
Premises, Landlord may grant or withhold its consent in its unlimited
discretion. Landlord may impose, as a condition of its consent to any
alterations, repairs or changes of the Premises, such requirements as Landlord
in its sole discretion may deem desirable, including, but not limited to, the
requirement that Tenant utilize for such purposes only contractors, materials,
mechanics and materialmen previously used and currently approved by Landlord for
work in the Building.
29.4 After Landlord has approved the change, repair or alteration and the
other items listed in Section 29.3, Tenants shall enter into an agreement for
the performance of such change, repair or alteration with the contractors and
subcontractors approved by Landlord, as provided in Section 29.3. Before
proceeding with any change, repair or alteration Tenant shall (i) provide
Landlord with 10 days' prior written notice thereof; and (ii) pay to Landlord,
within 10 days after written demand, the costs of any increased insurance
premiums incurred by Landlord as a result of such changes, repairs or
alterations. In additions, before proceeding with any change, repair or
alteration, Tenant's contractors shall obtain, on behalf of Tenant and at
Tenant's sole cost and expense: (A) all necessary governmental permits and
approvals for the commencement and completion of such change, repair or
alteration; and (B) a completion and lien indemnity bond, or other surety,
satisfactory to Landlord for such change, repair or alteration. Landlord's
approval of permits pursuant to Section 29.3 shall not relieve Tenant of the
obligation to obtain any other or supplemental permits required by the preceding
sentence.
29.5 Tenant shall pay to Landlord, as additional rent, the reasonable
costs of Landlord's engineers and other consultants (but not Landlord's on-site
management personnel) for review of all plans, specifications and working
drawings for the change, repair or alteration within 10 business days after
Tenant's receipt of invoices either from Landlord or such consultants. In
addition to such costs, Tenant shall pay to Landlord, within 10 business days
after completion of any change, repair or alteration, the actual, reasonable
costs incurred by Landlord for services rendered by Landlord's management
personnel and engineers to coordinate and/or supervise any of the change, repair
or alteration to the extent such services are provided in excess of or after the
normal on-site hours of such engineers and management personnel.
29.6 All changes, repairs and alterations shall be performed: (i) in
accordance with the approved plans, specifications and working drawings; (ii)
lien-fee and in a fist-class and workmanlike manner; (iii) in compliance with
all laws, rules, and regulations of all governmental agencies and authorities;
(iv) in such a manner so as to not interfere with
22
<PAGE>
the occupancy of any other tenant in the Building, nor impose any additional
expense or delay upon Landlord in the maintenance and operation of the Building;
and (v) at such times, in such manner and subject to rules and regulations as
Landlord may from time to time reasonably designate.
29.7 Throughout the performance of any such change, repair or alteration
Tenant shall obtain, or cause its contractors to obtain, worker's compensation
insurance and general liability insurance covering the work in compliance with
provisions of Section 28 of this Lease, and builder's risk insurance for the
work reasonably acceptable to Landlord.
29.8 In the event Tenant orders any construction, alteration, decorating or
repair work directly from Landlord, or from the contractor selected by Landlord,
the charges for such work, together with Landlord's administration fee equal to
15% of the contract price, shall be deemed additional rent under this Lease,
payable upon billing therefor, either in advance of the start of work, or
periodically during construction, or upon the substantial completion of such
work, at Landlord's option.
30. MECHANIC'S LIENS. Tenant agrees to give Landlord written notice of
the commencement date of any alterations, improvements or repairs to be made in,
to or upon the Premises not later than 15 days prior to the commencement of any
such work, in order to give Landlord time to post notices of nonresponsibility.
Tenant will not permit any mechanic's, materialman's or other lien to be placed
upon the Premises or Building or improvements therein during the term thereof;
and in the event that any mechanic's materialman's or other lien is filed
against the Premises or Building or improvements therein in connection with any
alteration, repair, improvement or change of, or installation of fixtures or
equipment in, the Premises, Tenant shall cause such lien to be released within
10 days after such filing, either by satisfaction of such claim or by posting of
a bond. Notwithstanding the foregoing, Landlord shall have the right and
privilege at Landlord's option of paying the amount of any such lien or claim,
or any portion thereof, without inquiry as to the validity thereof, and any
amounts so paid, including expenses and interest, shall be deemed additional
rent hereunder due from Tenant to Landlord upon demand.
31. ALTERNATE SPACE. If the Premises comprise less than a full floor
in the Building, Landlord shall have the privilege of moving Tenant to other
space in the Building comparable to the Premises, and all terms hereof shall
apply to the new space with equal force. In such event Landlord shall give
Tenant at least 60 days' prior notice in writing and shall move Tenant's effects
to the new space at Landlord's sole cost and expense at such time and in such
manner as to inconvenience Tenant as little as practicable.
32. HAZARDOUS MATERIALS.
32.1 In addition to its other obligations under this Lease, Tenant
covenants to comply with all laws relating to Hazardous Materials, as defined
below, with respect to the Premises and the Building. Except for general office
supplies typically used in an office area in the ordinary course of business
(such as copier toner, liquid paper, glue, ink and cleaning solvents), for use
in the manner for which they were designed and only in accordance with all
Hazardous Materials laws and the highest standards prevailing in the industry
for such use, and then only in such amounts as may be normal for the office
business operations conducted by Tenant on the Premises, neither Tenant nor any
of Tenant's agents, employees, contractors, subtenants, assignees, licensees or
invitees ("Tenant's Parties") shall use, handle store or dispose of any
Hazardous Materials in, on, under or about the Premises, the Building or the
site on which the Building is located. Tenant shall promptly take all actions,
as its sole cost and expense, as are necessary to return the Premises, Building
and site to the condition existing prior to the introduction of any such
Hazardous Materials by Tenant or any Tenant Parties, provided Landlord's
approval of such actions shall first be obtained. Furthermore, Tenant shall
immediately notify Landlord of any inquiry, test, investigation or enforcement
proceeding by or against Tenant or the Premises concerning the presence of any
Hazardous Material.
32.2 Tenant shall be solely responsible for and shall indemnify, defend
(with counsel reasonably approved by Landlord) and hold Landlord harmless from
and against any and all claims, demands, judgments, suits, causes of action,
damages, penalties, fines, liabilities, losses and expenses (including, without
limitation, investigation and clean-up costs, attorneys' fees, consultant fees
and court costs) which arise during or after the term of this Lease as a result
of the breach of any of the obligations and covenants set forth in this Section
33, and/or any contamination of the Premises, Building or site directly or
indirectly arising from the activities of Tenant or any Tenant Parties.
32.3 For purposes of this Lease, the term "Hazardous Materials" shall mean,
collectively, asbestos, any petroleum fuel, and any hazardous or toxic
substance, material or waste which is or becomes regulated or defined as
hazardous or toxic by any local governmental authority, the State of California
or the United States Government, including, but not limited to, any material or
substance defined as hazardous or toxic under the Comprehensive Environmental
Response, Compensation and Liability Act, 42 U.S.C. (S) 9601, et seq.; the
-- ---
Resource Conservation and Recovery Act,
23
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42 U.S.C. Sections 6901, et seq.; the Toxic Substances Control Act, 15 U.S.C.
------
Sections 2601, et seq.; the Federal Water Pollution Control Act, 33 U.S.C.
------
Sections 1251, et seq.; the California Hazardous Substance Account Act,
------
California Health and Safety Code Sections 25330, et seq.; the California
------
Hazardous Waste Control Act, California Health and Safety Code Sections 25100,
et seq.; the California Safe Drinking Water and Toxic Health Enforcement Act,
- ------
California Health and Safety Code Sections 25249.5, et seq.; California Health
------
and Safety Code Sections 25280, et seq. (Underground Storage of Hazardous
------
Substances); the California Hazardous Waste Treatment Reform Act, California
Health and Safety Code Sections 25179.1, et seq.; California Health and Safety
------
Code Sections 25501, et seq. (Hazardous Materials Release Response Plans and
------
Inventory); Petroleum Underground Storage Tank Cleanup, Health and Safety Code
Sections 25299.10, et seq.; and the Porter-Cologne Water Quality Control Act,
------
California Water Code Sections 13000, et seq., as such laws may be amended from
------
time to time.
32.4 The foregoing covenants and indemnities of Tenant shall survive the
expiration or earlier termination of the Lease.
33. MISCELLANEOUS.
33.1 No receipt of money by Landlord from Tenant after the termination of
this Lease, the service of any notice, the commencement of any suit or final
judgement for possession shall reinstate, continue or extend the term of this
Lease or affect any such notice, demand, suit or judgment. No payment by Tenant
or receipt by Landlord of a lesser amount than the rent payment herein
stipulated shall be deemed to be other than on account of the rent, nor shall
any endorsement or statement on any check or any letter accompanying any check
or payment as rent be deemed an accord and satisfaction, and Landlord may accept
such check or payment without prejudice to Landlord's right to recover the
balance of such rent or pursue any other remedy provided in this Lease. Tenant
agrees that each of the foregoing covenants and agreements shall be applicable
to all obligations of Tenant to Landlord, whether expressly contained in this
Lease or imposed by any statute or at common law.
33.2 If any provision of this Lease or its application to any party or
circumstances shall be determined by any court of competent jurisdiction to be
invalid or unenforceable to any extent, the remainder of this Lease or the
application of such provision to such person or circumstances, other than those
as to which it is so determined invalid or unenforceable to any extent, shall
not be affected thereby, and each provision hereof shall be valid and shall be
enforced to the fullest extent permitted by law; and it is the intention of the
parties to this Lease that in lieu of each clause or provision of this Lease
that is illegal, invalid or unenforceable, there be added as a part of this
Lease a clause or provision as similar in terms to such illegal, invalid or
unenforceable clause or provision as may be possible and be legal, valid and
enforceable.
33.3 The covenants and obligations of Tenant pursuant to this Lease shall
be independent of performance by Landlord of the covenants and obligations of
Landlord pursuant to this Lease, and performance by Tenant of each covenant and
obligation of Tenant pursuant to this Lease shall be a condition precedent to
the duty of Landlord to perform the covenants and obligations of Landlord
pursuant to this Lease.
33.4 The headings of Sections of this Lease are of convenience only and do
not define, limit or construe the contents thereof. References made in this
Lease to numbered Sections, Paragraphs and Subparagraphs shall refer to numbered
Sections, Paragraphs or Subparagraphs of this Lease unless otherwise indicated.
33.5 Where appropriate, words in the singular, including without limitation
the words "Landlord" and Tenant", include the plural, and vice versa. Words in
the neuter gender include the masculine and feminine genders, and vice versa,
and words in the masculine gender include the feminine gender, and vice versa.
33.6 If more than one person or entity executes this Lease as Tenant: (a)
each of them is and shall be jointly and severally liable for the covenants,
conditions, provisions and agreements of this Lease to be kept, observed and
performed by Tenant; and (b) the act or signature of, or notice from or to, any
one or more of them with respect to this Lease shall be binding upon each and
all of the persons and entities executing this Lease as Tenant with the same
force and effect as if each and all of them had so acted or signed, or given or
received such notice.
33.7 Time is of the essence of this Lease. Failure of either party to
perform any act strictly within the applicable period specified herein shall
entitle the other to exercise all remedies herein contemplated. All references
in this Lease to "days" shall mean calendar days unless specifically stated
herein to be "business" days.
33.8 This Lease shall be governed by and interpreted in accordance with
the laws of the State of California.
24
<PAGE>
33.9 All monetary obligations of either party hereunder to the other
remaining past due 10 days or more after the date specified herein for payment
shall bear interest until paid at the lesser of (i) the Bank of America prime
rate as of the due date plus 6%, or (ii) the maximum rate permitted by law.
33.10 This instrument, along with any riders, exhibits and attachments or
other documents referred to in Section M on page 2 (all of which riders,
exhibits, attachments and other documents are hereby incorporated into this
instrument by this reference), constitutes the entire and exclusive agreement
between Landlord and Tenant relating to the Premises, and this agreement and
said riders, exhibits and attachments and other documents may be altered,
amended or revoked only by an instrument in writing signed by the party to be
charged thereby. All prior or contemporaneous oral agreements, understandings
and/or practices relative to the leasing of the Premises are merged herein or
revoked hereby. References in this instrument to this "Lease" shall mean, refer
to and include this instrument as well as any riders, exhibits, attachments or
other documents referred to in Section M, and references to any covenant,
condition, obligation and/or undertaking "herein", "hereunder" or "pursuant
hereto" (or language of like import) shall mean, refer to and include the
covenants, conditions, obligations and undertakings existing pursuant to this
instrument and such riders, exhibits, attachments or other documents. All terms
defined in this instrument shall be deemed to have the same meanings in all
riders, exhibits, attachments or other documents referred to in Section M unless
the context thereof clearly requires the contrary.
33.11 Tenant hereby consents to amendment of this Lease as and to the
extent required by any lender which makes a loan to Landlord secured in whole or
in part by the Building, provided that no such change shall increase the rent
payable hereunder or impair Tenant's use of the Premises.
33.12 Unless otherwise agreed in writing, if Tenant has dealt with any
real estate broker or other person or firm with respect to leasing or renting
space in the Building, Tenant shall be solely responsible for the payment of any
fee due said broker, person or firm and Tenant hereby indemnifies and holds
Landlord harmless from and against any liability with respect thereto.
Notwithstanding the foregoing, Landlord agrees to pay, and to hold Tenant
harmless from, the commission owing to the brokers identified in Section L on
page 2, as provided in a separate agreement between Landlord and such brokers.
33.13 Tenant agrees to pay to Landlord as additional rent hereunder any
taxes required by law to be paid by Tenant and collected from Tenant by
Landlord.
33.14 Submission of this Lease for examination, even though executed by
Tenant, shall not bind Landlord in any manner, and no lease or other obligation
on the part of Landlord shall arise until this Lease is executed and delivered
by Landlord to Tenant. This Lease shall not be binding and in effect until a
counterpart hereof has been executed and delivered by the parties, each to the
other.
33.15 Tenant shall not cause the recordation of this Lease, a short form
memorandum of this Lease or any reference to this Lease.
33.16 Upon 10 days' prior written request from Landlord (which Landlord
may make at any time during the term but no more than two times in any calendar
year), Tenant shall deliver to Landlord (a) a current financial statement of
Tenant and any guarantor of this Lease, and (b) financial statements of Tenant
and such guarantor for the two years prior to the current financial statement
year. Such statements shall be prepared in accordance with generally acceptable
accounting principles, and certified as true in all material respects by Tenant
(if Tenant is an individual) or by an authorized officer or general partner of
Tenant (if Tenant is a corporation or partnership, respectively).
33.17 Notwithstanding anything contained in this Lease to the contrary,
the obligations of Landlord under this Lease (including any actual or alleged
breach or default of Landlord) do not constitute personal obligations of the
individual partners, directors, officers, shareholders, agents or employees of
Landlord or of Landlord's partners or agents, and Tenant shall not seek recourse
against any such persons or entities or any of their personal assets for
satisfaction of any liability with respect to this Lease. In addition, in
consideration of the benefits accruing hereunder to Tenant and notwithstanding
anything contained in this Lease to the contrary, Tenant hereby covenants and
agrees for itself and all of its successors and assigns that the liability of
Landlord for its obligations under this Lease (including any liability as a
result of any actual or alleged failure, breach or default hereunder by
Landlord) shall be limited solely to, and Tenant's and its successors' and
assigns' sole and exclusive remedy shall be against, Landlord's interest in the
Building and proceeds therefrom, and no other assets of Landlord.
33.18 If Tenant is identified herein as a corporation, then the persons
executing this Lease on behalf of Tenant hereby represent that they are duly
authorized to execute and deliver this Lease on behalf of Tenant pursuant to
Tenant's by-laws or a resolution of its board of directors.
25
<PAGE>
If Tenant is identified herein as a partnership, the undersigned represent
that they are all of the general partners of Tenant, that Tenant has been formed
under the laws of the State of California, and is duly qualified to do business
in the State of California, and that this Lease is being executed on behalf of
Tenant. Each of the partners of Tenant executing this Lease agrees that he or
she and Tenant are irrevocably bound by execution of any amendment to or
modification of this Lease by one or more of the partners of Tenant. Tenant
agrees that each new partner in Tenant shall be obligated under this Lease, in
the same fashion as the existing partners, and that each new partner shall
execute a copy of this Lease and deliver it to Landlord within 60 days after
that partner's admission to the partnership. In the event that such newly
admitted partner is a corporation, the principal or principals for whose benefit
the corporation has been organized shall execute and deliver to Landlord a lease
guaranty in form acceptable to Landlord. Each newly admitted partner in Tenant
shall be jointly and severally liable with the remaining partners for the
performance and satisfaction of all obligations of the Tenant under this Lease
accruing from and after the effective date of the admission of the new partner
to the Partnership. If the provisions of this paragraph are satisfied, the
admission of a new partner shall not be considered an assignment of the lease
for the purposes of Section 17 hereof.
33.19 Subject to the provisions of Section 17 above, and except as
otherwise provided in this Lease, all of the covenants, conditions and
provisions of this Lease shall be binding upon, and shall inure to the benefit
of the parties hereto and their respective heirs, personal representatives and
permitted successors and assigns; provided, however, that no rights shall inure
to the benefit of any transferee of Tenant unless the transfer to such
transferee is made in compliance with the provisions of Section 17, and no
options or other rights which are expressly made personal to the original Tenant
hereunder or in any rider attached hereto shall be assignable to or exercisable
by anyone other than the original Tenant under this Lease.
33.20 The voluntary or other surrender of this Lease by Tenant or a mutual
termination thereof shall not work as a merger and shall, at the option of
Landlord, either (a) terminate all and any existing subleases, or (b) operate as
an assignment to Landlord of Tenant's interest under any or all such subleases.
33.21 Except for Tenant's identity sign on the entry doors of the Premises
and Tenant's elevator lobby identity sign on any full floor of the Building
leased by Tenant (which signs shall be consistent with the Building's signage
program and otherwise subject to Landlord's prior written approval), Tenant
shall have no right to place any sign upon the Premises, the Building or the
site on which the Building is located or which can be seen from outside the
Premises.
33.22 The effectiveness of this Lease and Landlord's obligations hereunder
are subject to and conditional upon Tenant's delivery to Landlord of a lease
guaranty in the form prescribed by Landlord in its sole discretion, fully
executed by the guarantor or guarantors specified in Section N on page 2 of this
Lease.
34. "AS IS" CONDITION. Tenant is taking the Premises in its "as is"
shall condition existing as of the execution of this Lease. Landlord shall have
no obligation for the construction or modification of tenant improvements for
Tenant. In constructing its own tenant improvements to the Premises, Tenant
shall comply with the other applicable provisions of this Lease (including but
not limited to Section 29) and shall utilize only contractors, materials,
mechanics, materialmen, architects and engineers used and currently approved in
writing by Landlord for work in the Building.
26
<PAGE>
35. TENANT'S SUPPLEMENTAL AIR-CONDITIONING. Tenant shall have the right to
install in the Premises its own self-contained 24-hour heating, ventilating and
air-conditioning unit, subject to compliance with the other provisions of this
Lease, including but not limited to obtaining Landlord's prior written consent
to the plans and specifications for the work and electrical requirements of the
unit. Tenant shall in no event be permitted to exhaust such system out of the
west side of the Building. Tenant shall pay all costs of electricity for such
unit and, at Landlord's election, the electrical requirements for such unit
shall be separately metered to Tenant at Tenant's expense.
IN WITNESS WHEREOF, this instrument has been duly executed by the parties
hereto, as of the date first above written.
PRIMECELL, INC.,
a Washington corporation
By: /s/ Alan Chin
------------------------------------------
Its: Secretary
---------------------------------------
By:_________________________________________
Its:______________________________________
ONE WILSHIRE ARCADE IMPERIAL, LTD.,
a California limited partnership
By Paramount Group, Inc., Agent
By:____________________________________
Its:________________________________
By: [SIGNATURE ILLEGIBLE]
-----------------------------------
SENIOR VICE PRESIDENT
-------------------------
PROPERTY MANAGEMENT-OFFICE BUILDINGS
27
<PAGE>
Suite 2840
Approximate location.
Exact location on the
Floor subject to
change at any time
prior to delivery of
the premises.
[FLOOR PLAN APPEARS HERE]
Exhibit A
Primecall, Inc.
Suite 2840
Approximately 1,500
Rentable sq. ft.
28TH FLOOR
ONE WILSHIRE BUILDING
624 SOUTH GRAND AVE., LOS ANGELES, CA 90017
<PAGE>
[LOGO PARAMOUNT GROUP, INC. APPEARS HERE]
EXHIBIT B
RULES AND REGULATIONS
1. Tenant shall not obstruct or interfere with the rights or other
tenants of the Building, or of persons having business in the Building, or in
any way injure or annoy such tenants or persons. Tenant shall not obstruct any
sidewalks, halls, passages, corridors, exits, entrances, courts, lobby areas,
vestibules, garages, parking areas, elevators, escalators, or stairways in and
about the Building (collectively, the "Common Areas"). Such Common Areas are not
for the general public, and Landlord shall in all cases retain the right to
control and prevent access thereto of all persons whose presence in the judgment
of Landlord would be prejudicial to the safety, character, reputation and
interests of the Building and its tenants; provided that nothing herein
contained shall be construed to prevent such access to persons with whom any
tenant normally deals in the ordinary course of its business, unless such
persons are engaged in illegal activities.
2. Tenant shall not commit any act or permit any thing in or about the
Building which shall or might subject Landlord to any liability or
responsibility for injury to any person or property by reason of any business or
operation being carried on in or about the Building or for any other reason.
3. Tenant shall not use the Building for lodging, sleeping, cooking, or
for any immoral or illegal purpose or for any purpose that will damage the
Building, or the reputation thereof, or for any purposes other than those
specified in the Lease.
4. Canvassing, soliciting and peddling in the Building are prohibited,
and Tenant shall cooperate to prevent such activities.
5. Tenant shall not bring or keep within the Building any bicycle or
motorcycle.
6. Tenant shall not conduct mechanical or manufacturing operations, cook
or prepare food, or place or use any inflammable, combustible, explosive or
hazardous fluid, chemical, device, substance, or material in or about the
Building without the prior written consent of Landlord. Tenant shall comply with
all statutes, ordinances, rules, orders, regulations and requirements imposed by
governmental or quasi-governmental authorities or by Landlord from time to time
in connection with security, fire and panic safety and fire prevention and shall
not commit any act, or permit any object to be brought or kept in the Building,
which shall result in a change of the rating of the Building by the Insurance
Services Office or any similar person or entity. Tenant shall not commit any act
or permit any object to be brought or kept in the Building which shall increase
the rate of fire insurance on the Building or on property located therein.
Tenant shall provide Landlord with a name of a designated responsible employee
to represent Tenant on all matters pertaining to fire or security regulations.
Tenant shall cooperate fully in all matters concerning fire and other emergency
procedures.
7. Tenant shall not use the Building for manufacturing or for the storage
of goods, wares or merchandise, except as such storage may be incidental to the
use of the Premises for general office purposes and except in such portions of
the Premises as may be specifically designated by Landlord for such storage.
Tenant shall not occupy the Building or permit any portion of the Building to be
occupied for the manufacture or direct sale of liquor, narcotics, or tobacco in
any form, or as a medical office, barber shop, manicure shop, music or dance
studio or employment agency. Tenant shall not conduct in or about the Building
any auction, public or private, without the prior written approval of Landlord.
8. Tenant shall not install or use in the Building any air conditioning
unit, engine, boiler, generator, machinery, heating unit, stove, water cooler,
ventilator, radiator or any other similar apparatus without the express prior
written consent of Landlord, and then only as Landlord may direct.
9. Tenant shall not use in the Building any machines, other than standard
office machines such as typewriters, calculators, copying machines and similar
machines, without the express prior written consent of Landlord. If Tenant
requires telegraphic, telephonic, burglar alarm or similar services, it shall
first obtain, and comply with, Landlord's
B-1
<PAGE>
instructions in their installation. Tenant shall not install, maintain or
operate upon the Premises any vending machine without the consent of Landlord.
10. Tenant shall move all freight, supplies, furniture, fixtures and other
personal property into, within and out of the Building only at such times and
through such entrances as may be designated by Landlord, and such movement of
such items shall be under the supervision of Landlord. Landlord reserves the
right to inspect all such freight, supplies, furniture, fixtures and other
personal property to be brought into the Building and to exclude from the
Building all such objects which violate any of these rules and regulations or
the provisions of the Lease. Tenant shall not move or install such objects in or
about the Building in such a fashion as to unreasonably obstruct the activities
of other tenants, and all such moving shall be at the sole expense, risk and
responsibility of Tenant. Prior to permitting access into the Building of the
moving company or other persons performing such moving activities, Landlord may
require from such moving company or other persons evidence of insurance
reasonably acceptable to Landlord, from an insurer and with coverage and amounts
reasonably acceptable to Landlord, covering the moving activities and naming
Landlord and its managing agent as additional insureds. Tenant shall not use in
the delivery, receipt or other movement of freight, supplies, furniture,
fixtures and other personal property to, from or within the Building, any hand
trucks other than those equipped with rubber tires and side guards. Any freight
elevator shall be available for use by Tenant in common with other tenants in
the Building, subject to such reasonable scheduling as Landlord in its
discretion shall deem appropriate. No equipment, materials, furniture, packages,
supplies, merchandise or other property will be received in the Building or
carried in the elevators except between such hours and in such elevators as may
be designated by Landlord.
11. Tenant shall not place a load upon any floor of the Premises which
exceeds the load per square foot which such floor was designed to carry and
which is allowed by law. Landlord shall have the right to prescribe the weight,
size and position of all equipment, materials, furniture or other property
brought into the Building. Heavy objects, if such objects are considered
necessary by Tenant, and are permitted by Landlord, shall stand on such
platforms as determined by Landlord to be necessary to properly distribute the
weight. Business machines and mechanical equipment belonging to Tenant, which
cause noise or vibration that may be transmitted to the structure of the
Building or to any space therein to such a degree as to be objectionable to
Landlord or to any tenants in the Building, shall be placed and maintained by
Tenant, at Tenant's expense, on vibration eliminators or other devices
sufficient to eliminate noise or vibration. The persons employed to move such
equipment in or out of the Building must be acceptable to Landlord. Landlord
will not be responsible for loss of, or damage to, any such equipment or other
property from any cause, and all damage done to the Building by maintaining or
moving such equipment or other property shall be repaired at the expense of
Tenant.
12. Tenant shall not deposit any trash, refuse, cigarettes, or other
substances of any kind within or out of the Building, except in the refuse
containers provided therefor. Tenant shall not introduce into the Building any
substance which might add an undue burden to the cleaning or maintenance of the
Premises or the Building, and Tenant shall not place in any trash box or
receptacle any material which cannot be disposed of in the ordinary and
customary manner of trash and garbage disposal. All garbage and refuse disposal
shall be made in accordance with directions reasonably issued from time to time
by Landlord. Tenant shall exercise its best efforts to keep the Common Areas
clean and free from rubbish.
13. Tenant shall use the Common Areas only as a means of ingress and
egrees, and Tenant shall permit no loitering by any persons upon Common Areas or
elsewhere within the Building. The Common Areas and roof of the Building are not
for the use of the general public, and Landlord shall in all cases retain the
right to control or prevent access thereto by all persons whose presence, in the
judgment of Landlord, shall be prejudicial to the safety, character, reputation
or interests of the Building and its tenants. Neither Tenant nor any employee or
invitee of Tenant shall enter the mechanical rooms, air conditioning rooms,
electrical closets, janitorial closets, or similar areas or go upon the roof of
the Building without the express prior written consent of Landlord.
14. Landlord reserves the right to exclude or expel from the Building any
person who, in the judgment of Landlord, is intoxicated or under the influence
of liquor or drugs or who shall in any manner act in violation of the rules and
regulations of the Building.
15. Landlord shall have the right to designate the area or areas, if any,
in which Tenant and Tenant's servants, employees, contractors, jobbers, agents,
licensees, invitees, guests and visitors may park vehicles, and Tenant and its
servants, employees, contractors, jobbers, agents, licensees, invitees, guests,
and visitors shall observe and comply with all driving and parking signs and
markers within and about the Building. All parking ramps and areas and any
pedestrian walkways, plazes or other public areas forming a part of the Building
or the land upon which the Building is situated shall be under the sole and
absolute control of Landlord, who shall have the exclusive right to regulate and
control those areas.
B-2
<PAGE>
16. Tenant shall not use the washrooms, restrooms and plumbing fixtures
of the Building, and appurtenances thereto, for any other purpose than the
purpose for which they were constructed, and Tenant shall not deposit any
sweepings, rubbish, rags or other improper substances therein. Tenant shall not
waste water by interfering or tampering with the faucets or otherwise. If Tenant
or Tenant's servants, employees, contractors, jobbers, agents, licensees,
invitees, guests or visitors cause any damage to such washrooms, restrooms,
plumbing fixtures or appurtenances, such damage shall be repaired at Tenant's
expense, and Landlord shall not be responsible therefor.
17. Tenant shall not mark, paint, drill into, cut, string wires within,
or in any way deface any part of the Building, without the express prior written
consent of Landlord, and as Landlord may direct. Upon removal of any wall
decorations or installations or floor coverings by Tenant, any damage to the
walls or floors shall be repaired by Tenant at Tenant's sole cost and expense.
All cleaning and janitorial services for the Building and the Premises shall be
provided exclusively through Landlord, and except with the written consent of
Landlord, no person or persons other than those approved by Landlord shall be
employed by Tenant or permitted to enter the Building for the purpose of
cleaning the same. Tenant shall not cause any unnecessary labor by carelessness
or indifference to the good order and cleanliness of the Premises. Landlord
shall not in any way be responsible to Tenant for any loss of property on the
Premises, however occurring, or for any damage to any Tenant's property by the
janitor or any other employee or any other person. Without limitation upon any
of the provisions of the Lease, Tenant shall refer all contractors'
representatives, installation technicians, janitorial workers and other
mechanics, artisans and laborers rendering any service in connection with the
repair, maintenance or improvement of the Premises to Landlord for Landlord's
supervision, approval and control before performance of any such service. This
Paragraph 17 shall apply to all work performed in the Building, including
without limitation installation of telephones, telegraph equipment, electrical
devices and attachments and installations of any nature affecting floors, walls,
woodwork, trim, windows, ceilings, equipment or any other portion of the
Building. Plans and specifications for such work prepared at Tenant's sole
expense, shall be submitted to Landlord and shall be subject to Landlord's
express prior written approval in each instance before the commencement of work.
All installations, alterations and additions shall be constructed by Tenant in a
good and workmanlike manner and only good grades of material shall be used in
connection therewith. The means by which telephone, telegraph and similar wires
are to be introduced to the Premises and the location of telephones, call boxes
and other office equipment affixed to the Premises shall be subject to the
express prior written approval of Landlord. Tenant shall not lay linoleum or
similar floor coverings so that the same shall come into direct contact with the
floor of the Premises and, if linoleum or other similiar floor covering is to be
used, such use shall be subject to the prior written approval of Landlord, and
Landlord may require, among other things, that an interlining of builder's
deadening felt shall be first affixed to the floor, by a paste or other material
soluble in water. The use of cement or other similar adhesive material is
expressly prohibited.
18. No signs, awnings, showcases, advertising devices or other
projections or obstructions shall be attached to the outside walls of the
Building or attached or placed upon any Common Areas. No window shades, blinds,
drapes or other window coverings shall be installed in the Building without the
express prior written consent of Landlord. No sign, picture, advertisement,
window display or other public display or notice shall be inscribed, exhibited,
painted or affixed by Tenant upon or within any part of the Premises in such a
fashion as to be seen from the outside of the Premises or the Building without
the express prior written consent of Landlord. In the event of the violation of
any of the foregoing by Tenant, Landlord may remove the articles constituting
the violation without any liability and Tenant shall reimburse Landlord for the
expense incurred in such removal upon demand as additional rent under the Lease.
Interior signs on doors and upon the Building directory shall be subject to the
express prior written approval of Landlord and shall be inscribed, painted, or
affixed by Landlord at the expense of Tenant. Tenant shall not install any radio
or television antennas, loudspeaker, or other device on the roof or exterior
walls of the Building, unless explicitly permitted elsewhere in this Lease, and
Tenant shall not interfere with radio or television broadcasting or reception
from or in the Building or elsewhere.
19. Tenant shall not use the word "Paramount" or the name of the Building
or of the Landlord in its business name, trademarks, signs, advertisements,
descriptive material, letterhead, insignia or any other similar item without
Landlord's express prior written consent, except for the purpose of identifying
Tenant's address.
20. Tenant shall be entitled to have its name entered upon the directory
of the Building. In the event that Tenant wishes to have additional entries made
upon the Building directory for the names of employees of Tenant who occupy
office space within the Premises, such entries may be allowed by Landlord in its
reasonable discretion, and Landlord may require that Tenant pay a reasonable fee
for each such additional entry. However, the directory of the Building is
provided primarily for the display of the name and location of tenants only, and
Landlord reserves the right to exclude any other names therefrom at any time.
All entries upon the Building directory shall be in uniform print of a size,
style and format selected by Landlord.
B-3
<PAGE>
21. The sashes, sash doors, skylights, windows and doors that reflect or
admit light or air into the Common Areas shall not be covered or obstructed by
Tenant, through placement of objects upon window sills or otherwise. Tenant
shall cooperate with Landlord in obtaining maximum effectiveness of the cooling
and heating systems of the Building by keeping corridor doors closed and by
closing drapes and other window coverings when the sun's rays fall upon windows
of the Premises and at the end of the business day. Tenant shall not obstruct,
alter or in any way impair the efficient operation of Landlord's heating,
ventilating, air conditioning, electrical, fire, safety or lighting systems, nor
shall Tenant tamper with or change the setting of any thermostat or temperature
control valves in the Building. Tenant shall not waste electricity, water or air
conditioning and agrees to cooperate fully with Landlord to assure the most
effective operation of the Building's heating and air conditioning and to comply
with any governmental energy-saving rules, laws or regulations of which Tenant
has actual notice.
22. Subject to applicable fire or other safety regulations, all doors
opening onto Common Areas and all doors upon the perimeter of the Premises shall
be kept closed and, during non-business hours, locked, except when in use for
ingress or egress. If Tenant uses the Premises after regular business hours or
on non-business days Tenant shall lock any entrance doors to the Building or to
the Premises used by Tenant immediately after using such doors.
23. The requirements of Tenant will be attended to only upon appropriate
application to the office of the Building by an authorized individual. Tenant
shall not request employees of Landlord to perform any work or do anything
outside of their regular duties unless under special instructions from Landlord
or the project manager for the Building. Tenant shall not request any employee
of Landlord to admit any person (Tenant or otherwise) to any office without
specific instructions from Landlord or the project manager for the Building.
Employees of Landlord shall not receive or carry messages for or to Tenant or
any other person, nor contract with nor render free or paid services to Tenant
or Tenant's servants, employees, contractors, jobbers, agents, invitees,
licensees, guests or visitors. In the event that any of Landlord's employees
perform any such services, such employees shall be deemed to be the agents of
Tenant regardless of whether or how payment is arranged for such services, and
Tenant hereby indemnifies and holds Landlord harmless from any and all
liability in connection with any such services and any associated injury or
damage to property or injury or death to persons resulting therefrom.
24. All keys to the exterior doors of the Premises shall be obtained by
Tenant from Landlord, and Tenant shall pay to Landlord a reasonable deposit
determined by Landlord from time to time for such keys. Landlord will furnish
Tenant, free of charge except for the deposit, with two keys to each door lock
in the Premises. Landlord may make a reasonable charge for any additional keys.
Tenant shall not make or have made duplicate copies of such keys. Tenant shall
not install additional locks or bolts of any kind upon any of the doors or
windows of, or within, the Building, nor shall Tenant make any changes in
existing locks or the mechanisms thereof. Tenant shall, upon the termination of
its tenancy, provide Landlord with the combination locks on safes, safe cabinets
and vaults and deliver to Landlord all keys to the Building, the Premises and
all interior doors, cabinets, and other key-controlled mechanisms therein,
whether or not such keys were furnished to Tenant by Landlord. In the event of
the loss of any key furnished to Tenant by Landlord, Tenant shall pay to
Landlord the cost of replacing the same or of changing the lock or locks opened
by such lost key if Landlord shall deem it necessary to make such a change.
25. Access may be had by Tenant to the Common Areas and to the Premises at
any time between the hours of 8:00 A.M. and 6:00 P.M., Monday through Friday,
legal holidays excepted. At other times access to the Building may be refused
unless the person seeking admission is known to the watchman in charge, if any,
and/or has a pass or is properly identified. Tenant shall be responsible for all
persons for whom Tenant requests passes, and shall be liable to Landlord for all
acts of such persons. In the event Building has, or there is subsequently, a
card access system for using the elevators at other than normal operating hours
for the Building, Landlord may deny access to any area served by the elevators
by anyone not having the necessary elevator access card. Landlord shall in no
case be liable for damages for the admission or exclusion of any person from the
Building. In case of invasion, mob, riot, public excitement, or other commotion,
Landlord reserves the right to prevent access to the Building for the safety of
tenants and protection of property in the Building.
26. Landlord shall not be responsible for, and Tenant hereby indemnifies
and holds Landlord harmless from any liability in connection with, the loss,
theft, misappropriation or other disappearance of furniture, furnishings,
fixtures, machinery, equipment, money, jewelry or other items of personal
property from the Premises or other parts of the Building, regardless of whether
the Premises or Building are locked at the time of such loss.
27. Tenant shall not use or permit to be used in the Premises any foul or
noxious gas or substance, or permit or allow the Premises to be occupied or
used in a manner offensive or objectionable to Landlord or other occupants of
the
B-4
<PAGE>
[LOGO OF PARAMOUNT GROUP, INC. APPEARS HERE]
PARKING SPACE RIDER
-------------------
Provided Tenant is not in default under this Lease and pays the applicable
prevailing monthly parking rate in effect from time to time, and subject to such
rules and regulations as may be adopted from time to time by Landlord or the
operator of the parking facility serving the Building, Tenant and Tenant's
authorized employees designated by Tenant ("Authorized Users") shall have the
right to use in such parking facility up to the full Tenant's Parking Allotment
described in Paragraph K on page 2 of this Lease, on an unreserved monthly basis
until the expiration or termination of this Lease. However, if at any time
during the term of this Lease, Tenant does not choose to pay for the full number
of such parking spaces, Tenant shall not thereafter have the right to recommence
the use of the spaces not paid for if other commitments have been made for those
spaces in the interim.
Landlord reserves the right at any time to relocate any parking spaces and
to substitute an equivalent number of parking spaces in another parking
structure or subterranean parking facility or in a surface parking area within a
reasonable distance of the Premises.
Tenant agrees that it will use its best efforts to cooperate in programs
which may be undertaken by Landlord independently, or in cooperation with local
municipalities or governmental agencies or other property owners in the vicinity
of the Building, to reduce peak levels of commuter traffic. Such programs may
include, but shall not be limited to, car pools, van pools and other ride
sharing programs, public and private transit, and flexible work hours.
Tenant and Tenant's Authorized Users shall comply with the Parking Rules
and Regulations set forth in this Rider. Landlord reserves the right to modify,
add, or delete from time to time such Parking Rules and Regulations as it deems
reasonably necessary for the operation of such parking. Landlord may refuse to
permit any person who violates the Parking Rules and Regulations to park in the
Building parking facility, and any violation of the rules shall subject to the
car to removal, at the vehicle owner's expense. Tenant agrees to use its best
efforts to acquaint Tenant's Authorized Users and visitors with the Parking
Rules and Regulations set forth in this Rider.
PARKING RULES AND REGULATIONS
1. Neither Tenant nor Tenant's Authorized Users shall park vehicles in any
parking areas designated by Landlord, the parking operator or governmental
entities with jurisdiction for other uses, including use by visitors or
other tenants. Tenant and such Authorized Users shall not leave vehicles in
the Building parking areas overnight nor park any vehicles in the Building
parking areas other than automobiles, motorcycles, motor driven or non-
motor driven bicycles or four-wheeled trucks. Landlord may, in its sole
discretion, designate separate areas for bicycles and motorcycles.
2. Tenant shall not permit or allow any vehicles that belong to or are
controlled by Tenant or Tenant's employees or Authorized Users, suppliers,
shippers, customers, or invitees to be loaded, unloaded, or parked in areas
other than those designated by Landlord for such activities. If Tenant
permits or allows any of the prohibited activities described in this
Parking Rider, then Landlord shall have the right, without notice, in
addition to such other rights and remedies that it may have, to remove or
tow away the vehicle involved and charge the cost to Tenant, which cost
shall be immediately payable upon demand by Landlord.
3. Tenant shall submit a written notice in a form reasonably specified by
Landlord or the parking operator, containing the names, home and office
addresses and telephone numbers of those persons who are designated as
Authorized Users by Tenant to use the parking privileges on a monthly basis
and shall use its best efforts to identify each vehicle by make, model and
license number. Such notice, as amended from time to time, is hereafter
referred to as the "Parking Notice." No person whose name and address is
not contained in the Parking Notice shall have any right to park a vehicle
in the area of the Building parking facilities designated for monthly
parking, and no person whether or not his name is included in the Parking
Notice shall have any right to park in such facilities a
PR-1
<PAGE>
vehicle not identified in the Parking Notice without paying the parking
charge then applicable for daily parking and parking in the area designated
for daily parking.
4. Cars must be parked entirely within the stall lines painted on the floor.
5. All directional signs and arrows must be observed.
6. The speed limit within all parking areas shall be 5 miles per hour.
7. Parking is prohibited, unless a floor parking attendant approved by
Landlord directs otherwise:
a. In areas not striped for parking;
b. In aisles;
c. Where "No Parking" or "Handicap" signs are posted (except that
handicapped persons displaying on their vehicles the legalty
prescribed identification may park in such "Handicap" areas);
d. On ramps;
e. In crosshatched areas; or
f. In reserved spaces and in such other areas as may be designated
by Landlord or the parking operator.
8. Parking stickers or any other device or form of identification supplied by
Landlord or the parking operator shall remain the property of Landlord or
the parking operator, as the case may be. Such parking identification
device must be displayed as requested and may not be mutilated in any
manner. The serial number of the parking identification may not be
obliterated. Devices are not transferable, and any device not in the
possession of an Authorized User will be void. There will be a replacement
charge to the Tenant or Authorized User for loss of any magnetic parking
card or other parking identification device.
9. Every Authorized User is requested to park and lock his own car. All
responsibility for damage to or loss of cars is assumed by Authorized
Users, and Landlord shall not be responsible for any such damage or loss by
water, fire, defective brakes, the act or omission by others, theft, or by
any other cause. Tenant shall repair or cause to be repaired at its sole
cost and expense any and all damage to the Building parking facility or any
part thereof caused by Tenant or its Authorized Users or vehicles of Tenant
or such Authorized Users.
10. Loss or theft of parking identification devices from automobiles must be
reported to the garage manager immediately, and a lost or stolen report
must be filed by the Tenant or user of such parking identification device
at that time. Any parking identification devices found on any unauthorized
vehicle will be confiscated and the illegal holder will be subject to
prosecution. Lost or stolen devices previously reported and then found must
be reported found to the office of the garage immediately. Landlord has the
right to exclude any vehicle from the parking facilities that does not have
a parking identification device.
11. Spaces are for the express purpose of one automobile per space unless a
floor parking attendant approved by Landlord directs otherwise. Washing,
waxing, cleaning or servicing of any vehicle in the parking facility by
Tenant or by the Authorized User and/or his agents is prohibited.
PR-2
<PAGE>
[LOGO OF PARAMOUNT GROUP, INC. APPEARS HERE]
RENT ESCALATION RIDER
---------------------
In order to adjust the rent payable under the Lease in accordance with
changes in the cost of living from time to time, Tenant agrees to pay to
Landlord, with the installments of Base Rent, and as additional monthly rent
under the Lease, an amount representing rent escalation. For purposes of
calculating the rent escalation payable hereunder, the Consumer Price Index for
All Urban Consumers, U.S. City Average, All Items (1967=100), unadjusted (herein
the "Index") published by the Bureau of Labor Statistics of the United States
Department of Labor for the month of June, 1996 shall be the base Index figure
(the "Base index"). The Base Index shall be compared to the index figure for
December of each year during the term of the Lease, including the initial
partial calendar year if the Lease term commences other than during December. In
the event that the Index figure for December of any year during the term of the
Lease shall be greater than the Base Index, in addition to the Base Rent Tenant
shall pay rent escalation to Landlord in an amount equal to the same percentage
increase in the Base Rent as the percentage increase in the index for such
December over the Base Index. Such amount shall be payable monthly commencing
with the payment of Base Rent for the month following such December.
In the event that the Index for any December during the term of the Lease
is not yet available upon the date that any installment(s) of Base Rent is due,
Tenant shall continue paying the monthly installments of Base Rent and rent
escalation in the amount applicable for such December until the index for that
month is published, whereupon Tenant shall immediately pay Landlord the rent
escalation which would have been due in the months following such December had
the index for such December been available. In the event that publication of the
Index is discontinued, Landlord and Tenant agree that the index of consumer
prices which is most closely analogous to the index shall be used in place of
the index for calculation of the rent escalation payable hereunder. In the event
that the referents or techniques employed in the calculation of the index shall
be modified and such modification would have resulted in a different figure for
the Base Index, Landlord and Tenant agree that the Base Index shall be
appropriately adjusted and that the Index, as modified, shall be used as
provided hereunder.
The term "Base Rent" as used in this Rider shall be deemed to include the
additional monthly rent for conduit space pursuant to Section 2 of the
Telecommunications Conduit Rider (excluding the initial one-time payment of
$7,200) as well as the Base Rent described in Section E on page 2 and Section 3
on page 3 of the body of this Lease. Thus, the additional rent for the conduit
space shall be adjusted from time to time in the same fashion as the Base Rent.
RER-1
<PAGE>
[LOGO OF PARAMOUNT GROUP, INC. APPEARS HERE]
TELECOMMUNICATIONS CONDUIT RIDER
--------------------------------
1. Lease and Use of Conduit. Landlord hereby leases to Tenant, as part of
------------------------
the Premises for the Lease Term, the conduit space described below (the "Conduit
Space"). Tenant shall use the Conduit Space solely for telecommunications cable
to connect the Premises to the Premises of other telecommunications companies
that lease space on the floors of the Building through which the Conduit Space
passes. Any such connection shall require the mutual written agreement of Tenant
and the other affected telecommunications companies.
The Conduit Space is contained within one 1-inch interduct running from
floor 3 through floor 28.
The interduct from floor 3 through floor 18 runs through conduit closets in
the northwest corner of the corridor on each floor. Access to the conduit closet
on each floor shall, at Landlord's election, be restricted so that no entry to
the closet will be permitted unless Landlord's designated contractor or other
representative is present. The interduct from floor 19 to floor 28 is located in
the north stairwell of the Building. Landlord may require any installation of
cable in the Conduit Space or any connection of Tenant's cable to the Premises
or cable of other tenants in the Building to be performed by Landlord's approved
contractor. All costs of such installations and connections (including but not
limited to Landlord's administrative fee) and the ongoing use and maintenance of
such items shall be at Tenant's sole expense. Tenant shall pay Landlord any
costs incurred by Landlord, together with Landlord's administrative fee, within
ten days after Tenant's receipt of a bill for such items. Tenant's use of the
Conduit Space and such cable and connecting lines shall comply with all
applicable laws, the other provisions of the Lease, and such Building Rules as
are adopted by Landlord from time to time, and shall not interfere in any way
with the operation of the Building or with the use by any other tenant of the
Building of such tenant's premises or the common areas of the Building. All
required cabling and connecting lines shall be installed out of sight.
Prior to any installation of cable in the Conduit Space or connecting lines
to the Premises or the premises of other tenants, Tenant shall obtain Landlord's
written approval as set forth in Section 29.3 of the Lease, and in the case of
connecting lines to the Premises or cable systems of another tenant, obtain the
written consent of such other tenants to the work.
2. Conduit Rent. Tenant agrees to pay Landlord additional rent for the
------------
Conduit Space, which initially shall be a one-time payment of $7,200. Such
$7,200 shall be due and payable upon execution of this Lease. (No portion of
such payment shall be refundable if the Lease is terminated for any reason.)
Thereafter, the additional rent for the Conduit Space shall be $50 per month
during the remaining Lease Term, subject to adjustment as provided below. Such
additional rent shall be due and payable to Landlord on the first day of each
month or portion of a calendar month throughout the Lease Term, together with
Tenant's Base Rent and other monthly charges, with the first such installment of
additional rent due on the Commencement Date. The amount of such monthly conduit
rent shall be adjusted from time to time in accordance with the Rent Escalation
Rider to this Lease to reflect increases in the Consumer Price Index as
described in that Rider.
3. Indemnity and Waiver. Tenant hereby agrees to indemnify and hold
--------------------
harmless Landlord and its partners, its agent Paramount Group, Inc. and their
respective officers, directors, shareholders, agents and employees
(collectively, the "Landlord Group") from and against any and all claims
(including but not limited to claims for bodily injury or property damage),
actions, mechanic's liens, losses, liabilities, and expenses (including
reasonable attorney fees and costs of defense by Landlord's legal counsel)
(collectively, "Claims"), which may arise from the installation, operation, use,
maintenance or removal of the cable and connecting lines pursuant to this Rider
and the Lease. Similarly, Tenant shall pay upon demand by Landlord the costs to
repair any damage to the Building caused by such installation, operation, use,
maintenance or
TCR-1
<PAGE>
removal. Tenant hereby waives and releases the Landlord Group from any Claims
Tenant may have at any time (including but not limited to Claims relating to
interruptions in services) arising out of or relating in any way to the
installation, operation, use, maintenance, or removal of the cable and
connecting lines described in this Rider and the Lease, whether or not caused by
the negligence of any member of the Landlord Group or Landlord's contractors. In
no event shall Landlord or any member of the Landlord Group be liable to Tenant
for lost profits or consequential, incidental, or punitive damages of any kind.
4. Removal of Cable and Connecting lines. Tenant agrees that, upon the
-------------------------------------
expiration or termination of the Lease, Tenant (or, at Landlord's election, the
contractor designated by Landlord) shall promptly remove, at Tenant's sole cost
and expense, all cable, connecting lines, and other installations installed
under this Rider and the Lease (excepting the interduct and conduit themselves,
which shall remain the property of Landlord), and restore those portions of the
Building damaged by such removal to their condition immediately prior to the
installation of such items. If Tenant fails to promptly remove all such items
pursuant to this Section 4, or if Landlord elects to have such work performed by
Landlord's contractor, Landlord may remove such items installed hereunder, and
restore those portions of the Building damaged by such removal to their
condition immediately prior to the installation, in which case Tenant agrees
promptly to pay Landlord's reasonable costs of removal and restoration,
including Landlord's administrative fee.
5. Applicability of Other Provisions. Except as explicitly provided
---------------------------------
otherwise herein, Tenant's obligaitons under the Lease for the protection of the
Building, Landlord, the Landlord Group, and third parties, including but not
limited to Tenant's obligations regarding maintenance, repairs, mechanic's
liens, insurance, attorneys' fees and costs of suit, shall apply in the same
fashion with respect to Tenant's use of the Conduit Space and the cable and
connecting lines described in this Rider as they do with respect to Tenant's use
of the rest of the Premises.
6. Miscellaneous. This Rider supersedes all prior or contemporaneous
-------------
understandings, negotiations, or agreements between the parties, whether written
or oral, with respect to its subject matter.
TCR-2
<PAGE>
[LOGO PARAMOUNT GROUP, INC. APPEAR HERE]
PARAMOUNT
GROUP, INC.
EMERGENCY GENERATOR RIDER
-------------------------
1. The parties acknowledge that Landlord has installed a second Emergency
Generator in the Building which is in service as of the execution of this Lease.
Tenant is granted the right to use up to 20 kilowatts of emergency power from
such Emergency Generator in the event of an interruption of normal electrical
service to the Premises during the Lease Term, provided that: (a) Tenant
notifies Landlord in writing within thirty (30) days following the Commencement
Date of the number of kilowatts (not to exceed 20 kilowatts) of emergency power
which Tenant reserves the right to use; (b) Tenant pays Landlord, at the time of
notification in (a) above, a one-time installation fee in an amount equal to
$475 per kilowatt of emergency power so reserved; and (c) Tenant pays Landlord
as additional rent under the Lease a monthly sum in an amount reasonably
determined by Landlord in good faith based on the amount of emergency power
reserved by Tenant, and Landlord's costs of operation, use, maintenance, fuel,
oil, governmental permits, licenses and fees, insurance, Landlord's profit and
administration and other expenses relating to the Emergency Generator. The
monthly amount of the additional rent described in item (c) initially shall be
$75 per month.
2. Each such payment described in subparagraph 1(c) above shall be due on
the first day of each month with Tenant's other rent payments, with the first
such payment due on the Commencement Date. Such monthly amount may be adjusted
annually, in Landlord's discretion, during the term of the Lease and any
extensions thereto.
3. Tenant's use of such emergency power shall be in accordance with such
rules and regulations as may be established by Landlord from time to time.
4. Landlord shall repair and maintain the Emergency Generator, provided
that Tenant shall reimburse Landlord upon demand, as additional rent hereunder,
for the cost of any repairs or extraordinary maintenance for the Emergency
Generator necessitated by acts of Tenant or Tenant's employees, contractors,
assignees, sublessees, agents, licensees or invitees. In addition, any
installation of equipment or cabling in the Premises or the Building for the
purpose of enabling Tenant to access the Emergency Generator shall be performed
by Landlord in accordance with plans and specifications approved by the parties
in writing in advance, and Tenant shall reimburse Landlord for the costs of such
installation, including, but not limited to, design fees and costs of
demolition.
5. The provision of Emergency Generator service by Landlord to Tenant
shall be subject to Section 9.6 of the Lease.
6. This Emergency Generator Rider supersedes all prior or contemporaneous
understandings, negotiations, or agreements between the parties, whether written
or oral, with respect to its subject matter. This Emergency Generator Rider is
part of and shall be attached to the Lease.
7. All terms of the Lease which have not been expressly altered by this
Emergency Generator Rider shall remain in full force and effect.
EGR-1
<PAGE>
[LOGO OF PARAMOUNT GROUP, INC. APPEARS HERE]
EXTENSION OPTION RIDER
----------------------
Provided that Tenant is not in default under this Lease, Tenant shall have
the option to extend the term of this Lease for an additional five-year period
following the expiration of the initial term. Tenant may exercise such option
only by giving Landlord a written notice at least nine (9) months, but not more
than twelve (12) months, prior to the commencement of the five-year period, and
only if Tenant is not in default at the time Tenant gives such notice. If Tenant
has exercised such option, but is in default on the date the additional
five-year extended term is to commence, then at Landlord's election, the
extended term shall not commence until and unless the Tenant timely cures such
default.
With respect to the additional five-year term, the Lease shall be adjusted
to reflect the following: (a) a new Base Rent for the Premises at a rate equal
to the Base Rent rates being charged by Landlord for telecommunications space in
the Building of comparable size and quality in comparable renewal leases for a
comparable term entered into by Landlord within six months prior to the date
Tenant exercises this option (provided, however, that if no such comparable
renewal leases were entered into within such six month period, then the
valuation of comparable transactions shall be based on the Base Rent rate
Landlord would have been willing to accept at that time in such comparable
renewal leases, as reasonably calculated by Landlord in good faith); (b) a new
rental rate for the Conduit Space based on the then-prevailing rate being
charged by Landlord for similar conduits in the Building; and (c) a new rental
rate for use of the Emergency Generator as provided for in the Emergency
Generator Rider attached to the Lease, based on the then-prevailing rate charged
by Landlord for comparable usage.
Landlord shall advise Tenant of such rental adjustments within one month
after Landlord's receipt of Tenant's notice. Tenant shall have ten days
following Tenant's receipt of notice of the rental adjustment within which to
accept such terms by executing any appropriate documentation submitted by
Landlord to Tenant. If Tenant fails to so accept such terms, Tenant's rights to
extend the term pursuant to this Rider shall be cancelled.
In no event shall the terms offered by Landlord under this Rider bind
Landlord to offer such terms to Tenant or to any other person or entity at any
time except as explicitly set forth in this Rider, nor shall such terms prevent
Landlord from leasing the Premises to any person or entity on different terms if
Tenant does not timely accept the terms determined in accordance with this
Rider.
EOR-1
<PAGE>
[LETTERHEAD & LOGO OF PARAMOUNT GROUP, INC.]
August 26, 1996
Mr. Alan Chin
PRIMECALL, INC.
1520 Eastlake Avenue East
Suite 205
Seattle, Washington 98101
Dear Alan:
Enclosed are three (3) Lease Commencement Certificates confirming commencement
date of August 1, 1996 which require your signature. Please sign and return all
three (3) to my attention. An executed copy will be returned for your files.
If you have any questions, please do not hesitate to call me.
Sincerely,
/s/ Mark Messana
Mark Messana
Project Manager
MM:ie
Enclosures
<PAGE>
LEASE COMMENCEMENT CERTIFICATE
THIS CERTIFICATE, made as of this 26th day of August, 1996, by ONE WILSHIRE
ARCADE IMPERIAL, LTD., a limited corporation (hereinafter called "Landlord") and
Primecall, Inc. (hereinafter called "Tenant").
WITNESSETH:
WHEREAS, by agreement of lease dated June 10, 1996, (hereinafter called the
"Lease Agreement"), Landlord leased to Tenant and Tenant hired from Landlord
certain premises (hereinafter called the "Demised Premises") deemed to contain
1,500 rentable square feet (including common area factor) on the 28th floor(s)
of the building known as ONE WILSHIRE BUILDING, the address of which is 624
South Grand Avenue, Los Angeles, California 90017; and
WHEREAS, the Lease Agreement provides that immediately after the
Commencement Date and the expiration date shall be confirmed by Landlord and
Tenant in writing; and
WHEREAS, the Lease Agreement requires Tenant to certify various other
matters pertaining to the Lease Agreement when requested to do so by Landlord.
NOW, THEREFORE, in consideration of the mutual covenants contained in the
Lease Agreement:
1. Landlord and Tenant confirm that the Commencement Date of the Lease
Agreement is August 1, 1996, and that the expiration date of the Lease Agreement
is July 31, 2006, subject, however, to the provisions of the Lease Agreement;
2. Tenant certifies that all work required to be performed by Landlord in
preparation of the Demised Premises for Tenant's occupancy, if any, has been
satisfactorily completed by Landlord in
<PAGE>
accordance with the provisions of the Lease Agreement and accepted by Tenant;
3. Tenant certifies that the Demised Premises have been delivered to and
accepted by Tenant;
4. Landlord and Tenant certify that the Lease Agreement is in full force
and effect and has not been modified, altered or amended; and
5. Tenant certifies that as of the date hereof it has no offsets or
defenses against the enforcement of any provision of the Lease Agreement.
This Certificate shall be binding upon and inure to the benefit of the
parties hereto, their successors and assigns, and may be relied upon by a
prospective purchaser, lessor, mortgagee, or holder of a deed of trust, of or on
any real property including all or any portion of the Demised Premises.
IN WITNESS WHEREOF, and intending to be legally bound hereby, Landlord and
Tenant have caused this Certificate to be duly executed as of the date first
above written.
Landlord:
ONE WILSHIRE ARCADE IMPERIAL, LTD.
a California Limited Partnership
By: Paramount Group, Inc., Its Agent
Attest:
_____________________________ By:________________________________
Its:_______________________________
Tenant:
Attest: PRIMECALL, INC.
_____________________________ By: /s/ Alan Chin
-------------------------------
V.P./SECRETARY
Its:-------------------------------
<PAGE>
EXHIBIT 10.8
[*] Designates material for which confidential treatment has been requested,
which material has been separately filed with the Securities and Exchange
Commission.
[LOGO OF CABLE & WIRELESS, INC. APPEARS HERE]
CARRIER AGREEMENT
This Carrier Agreement ("Agreement") is entered into by and between Cable &
Wireless, Inc. ("CWI") and its carrier customer signing below ("Carrier"). The
General Terms and Conditions for Carrier Agreements CAR-96A (6/96) attached
hereto are part of this Agreement.
- --------------------------------------------------------------------------------
ORDER INFORMATION
- --------------------------------------------------------------------------------
1 Initial Term: 24 Months
------------ ----
2 Rates: (per minute except for Directory Assistance, T-1 Port Charges and
-----
Reporting Options)
Domestic Inbound, Domestic Outbound and International Outbound:
--------------------------------------------------------------
See attached schedule entitled Prime Call, Inc and dated 8/16/96
--------------------- ------------
Intrastate rates are applicable within: CA
---------------------------------
Directory Assistance: CWI's then-standard per-call rates
--------------------
T-1 Port Charges: Monthly Charge per T-1 Port............. $ [*]
---------------- -------
Non-Recurring Installation Charge per
T-1 Port................................ $
-------
Initial Quantity of T-1 Ports........... 1
-------
Reporting Options: (insert "X" in box for the required option)
-----------------
[_] Second copy of call detail: Monthly Charge $
-------
E-BIS(R) Options:
----------------
[_] On-line [_] Magnetic Tape [_] CD-ROM
[_] Floppy Disk (3.5") [_] Floppy Disk (5.25")
Charges for selected E-BIS(R) option: Set-up............ $
-------
Monthly........... $
-------
3 Payment/Security Deposits (insert "Yes" or "No" where applicable)
-------------------------
Payment Period: 10 days after invoice date
-------------- ------
Payment by Wire Transfer Required yes
--------------------------------- -----
Financial Reports Required....... yes
-------------------------- -----
Security Deposits Required....... no
-------------------------- -----
Initial Security Deposit Amount:...... $ n/a
---------
Continuing Security Deposit Amount:..... n/a times the amount of
---------
usage charges incurred over any n/a period
-------
Deposit Release Period:................. n/a Months
---------
Estimated Payments Required:.............. no
--------------------------- ---------
Estimated Usage Period:............first n/a days of each Month
---------
Estimated Payment Due Date:............. n/a business days after
---------
CWI notifies the Customer of the Estimated Payment Amount
4 Minimum Monthly Payment Obligations:
-----------------------------------
<TABLE>
<CAPTION>
Month after Service Initiation Minimum Amount each Month* Month after Service Initiation Minimum Amount each Month*
------------------------------ -------------------------- ------------------------------ --------------------------
<S> <C> <C> <C>
0-1 $ [*] 2-3 $ [*]
------- -------- -------- -------
4-5 $ [*] 6-24 [*]
------- -------- -------- -------
------- -------- -------- -------
------- -------- -------- -------
</TABLE>
*Minimums apply to international usage only; domestic usage shall not contribute
towards meeting minimum monthly payment obligations
<TABLE>
<CAPTION>
Prime Call Inc Cable & Wireless,Inc
-------------- ---------------------
<S> <C>
Signature: /s/ Alan Chin Signature: /s/ Elaine M. Beiseigel
---------------- -------------------
Printed Name: Alan Chin Printed Name: Elaine M. Beiseigel
---------------- -------------------
Title:V.P Title: Contract Manager
---------------- ------------------
Date: 8/20/96 Date: 9/10/96
---------------- ------------------
</TABLE>
<PAGE>
General Terms and Conditions for Carrier Agreements
[LOGO OF CABLE & WIRELESS, INC.
APPEARS HERE]
1. Service to be Provided by CWI: CWI will provide the following long-distance
-----------------------------
services: Domestic Outbound, Domestic Inbound, International Outbound and
Directory Assistance (hereinafter collectively, "Services").
The Carrier will access CWI's network as soon as is reasonably possible, via
dedicated T-1 lines ("Access Lines") ordered from local exchange carriers or
alternate access carriers (collectively, "Local Carriers") and paid for by
the Carrier. If the Carrier orders an Access Line from a Local Carrier, the
Carrier will pay the Local Carrier directly for the Access Line. If the
Carrier requests CWI to order the Access Line and if permitted by the Local
Carrier, CWI will order the Access Line on behalf of the Carrier and will
have the Local Carrier bill the Carrier directly for the Access Line.
2. Term and Termination: The initial term of this Agreement will end the number
--------------------
of full CWI monthly billing periods ("Month(s)") after service is initiated
as set forth in the "Initial Term" portion of the Order Information section
of this Agreement ("Initial Term"). Either party may terminate this Agreement
at the end of the Initial Term, by providing thirty (30) days' prior written
notice. If no such notice is given, this Agreement will continue after the
Initial Term, until terminated by either party providing the other with
thirty (30) days' prior written notice. The term "Term" as used herein will
mean the Initial Term plus any subsequent period of time during which this
Agreement continues beyond the end of the Initial Term. If CWI shall have
undertaken efforts to provide Services prior to the date of full execution of
this Agreement, the provisions of this Agreement shall apply retroactively
with respect to such efforts and such Services.
At any time prior to the end of the Initial Term, the Carrier may, for its
convenience, terminate this Agreement in its entirety by providing CWI with
thirty (30) days' prior written notice. In such event, in addition to paying
for all charges incurred through the date service is discontinued, including
any applicable shortfall charges, the Carrier will pay (as a contract
discontinuance fee and not as a penalty) an amount equal to the sum of the
minimum monthly payment obligations for each of the remaining Months in the
Initial Term.
If CWI has not received any traffic from Carrier hereunder within sixty (60)
days after full execution of this Agreement, CWI shall have the right to
terminate this Agreement upon written notice to Carrier.
If the Carrier fails to do any of the following when due and then does not
cure such failure within two (2) days after receiving notice thereof from
CWI, CWI may, in addition to any other remedies available to it and without
any further written notice to the Carrier, immediately terminate this
Agreement in its entirety and discontinue providing Services: (i) make a
payment in full; (ii) provide any required security deposit amount; or (iii)
provide any required financial report. In addition to any other remedies
available to it, CWI may immediately terminate this Agreement in its entirety
if Carrier fails to comply with the terms of any license accompanying any
software relating to E-BIS(R) reporting options.
3. Rates and Taxes: The Carrier will pay the monthly, non-recurring and usage
---------------
charges set forth in this Agreement. Each call will be billed in 6-second
increments and will be subject to a 30-second minimum charge except that
domestic outbound calls (both interstate and intrastate) will be subject to a
6-second minimum charge. The Carrier will pay any applicable federal, state,
or local taxes, surcharges, or similar fees for the Services.
CWI may, upon fifteen (15) days written notice to Carrier, increase any of
the rates for any of the countries set forth in this Agreement. If Carrier
subsequently discontinues routing traffic to CWI for a country for which such
increased rate applies and providing traffic to such country would have
contributed to the Carrier's minimum monthly payment obligations set forth in
the Order Information section of the Agreement, then, for so long as Carrier
discontinues routing traffic to such country to CWI, the amount of such
minimum monthly payment obligations will be reduced by a percentage that is
equivalent to the average total charges incurred by the Carrier for calls
placed to that country in each of the three (3) Months immediately preceding
the date the Carrier discontinues routing such traffic to CWI, divided by the
average of the Carrier's total charges for Services in each such month.
Any software which CWI supplies for use in connection with the E-BIS(R)
reporting options shall be provided subject to the software license agreement
that accompanies such software. Carrier agrees to comply with all terms and
conditions set forth in such software license agreement. Title to, all rights
to and all interest in, such software shall at all times remain with CWI or
its third-party suppliers.
4. Payment: CWI will provide monthly invoices covering CWI-designated periods
-------
which will be due and payable within the number of days after the invoice
date as set forth in the "Payment Period" section of the Order Information
section of this Agreement. The "invoice date" for a particular monthly
billing period will be the day immediately following the last day of such
monthly billing period. For example, if the monthly billing period runs from
January 24th to February 23rd, the invoice date for such billing period will
be February 24th, and, if the "Payment Period" set forth in the Order
Information section of the Agreement is "10 days after invoice date", then
payment for such monthly billing period is due no later than the tenth
(10th) day after February 24th.
If the Order Information section of this Agreement indicates that estimated
payments are required, CWI will notify the Carrier on the last day of the
"Estimated Usage Period," or if such day is not a business day, on the next
business day, as to CWI's estimate of the charges incurred by the Carrier
during such period. The Carrier will pay CWI such estimated amount
("Estimated Payment") no later than the "Estimated Payment Due Date". At the
end of a Month, CWI will provide an invoice for the usage charges actually
incurred that Month less that Month's Estimated Payment; provided, however,
that if a minium monthly payment obligation applies for that Month and such
minimum has not been met, then the invoice amount will be that Month's
minimum payment obligation less that Month's Estimated Payment. The Carrier
will pay the invoiced amount within the Payment Period.
A late payment charge will be applied on balances that remain unpaid after
the Payment Period in the amount of the lesser of (a) 1 1/2% per month of the
amount of the late payment starting from the day following the Payment
Period, or (b) maximum amount allowed under applicable law. The Carrier must
pay all invoices when due; any questions which the Carrier may have
concerning an invoice must be brought to CWI's attention within forty-five
(45) days of the invoice date. The Carrier shall reimburse CWI for any
expenses, including, without limitation, reasonable attorney's fees, CWI may
incur in collecting amounts due hereunder.
If so indicated in the Order Information section of this Agreement, all
payments by the Carrier will be made via wire transfer (in immediately
available funds) to Mellon Bank, 3 Mellon Bank Center, Room 153-2718,
Pittsburgh, PA 15259-0001, ABA #0430-00261/Account #1705643.
5. Financial Reports: If the Order Information section of this Agreement
-----------------
indicates that financial reports are required, within thirty (30) days after
the end of each calendar quarter, the Carrier will provide CWI with a written
report updating the Carrier's financial status ("Quarterly Report"), and
within ninety (90) days after the end of each calendar year, the Carrier will
provide CWI with an audited annual report. Each Quarterly Report will
contain, as a minimum, an updated balance sheet and income statement. The
Carrier represents and warrants that no Quarterly Report will contain any
material misstatement or omission.
6. Security Deposits: If the Order Information section of this Agreement
-----------------
indicates that security deposits are required, each required security deposit
will be either in cash (paid by check or via wire transfer) on an irrevocable
stand-by letter of credit in a form and from a financial institution
reasonably acceptable to CWI. The "Initial Security Deposit" amount will be
provided prior to the initiation of service. Thereafter, if requested in
writing by CWI, the Carrier will add additional amounts to the Initial
Security Deposit such that the total amount of security deposit being held by
CWI at all times is at least equal to the "Continuing Security Deposit". The
Carrier will provide any such required additional amounts within five (5)
business days after receiving CWI's written request. CWI will refund or
release, as applicable, any security deposit it is holding (plus, if the
security deposit is in the form of cash, accrued interest at the applicable
rate set by regulation of the state in which CWI invoices the Carrier, or if
no such rate is set by regulation, CWI's then-prevailing interest rate for
security deposit refunds) if the following conditions are met by the Carrier:
(i) for the entire "Deposit Release Period", the Carrier pays CWI in full
when each payment is due; and (ii) CWI determines that the Carrier's
Quarterly Reports covering the Deposit Release Period indicate that the
Carrier's financial condition has had no materially adverse change as
compared to the equivalent period of time immediately prior to the start of
the Deposit Release Period. If CWI does not refund or release the security
deposit during the Term as set forth above, the security deposit will be
refunded or released, as applicable, at the end of the Term. If, at any time
during the term of the Agreement, CWI determines that there has been a
materially adverse change in the Carrier's financial condition as compared
with the equivalent period of time immediately prior to the Effective Date,
CWI may require Carrier to provide a security deposit or an additional
security deposit in an amount to be determined by CWI. The Carrier shall
provide any such required amounts within five (5) business days after
receiving CWI's written request therefor.
7. Minimum Payment Obligations: If the total amount of usage charges incurred by
---------------------------
the Carrier for international service in any Month is less than the amount of
the then-applicable minimum monthly payment obligation set forth in the Order
Information section of this Agreement, then in addition to paying for its
actual usage that Month, the Carrier will pay (as an underutilization fee and
not as a penalty) a shortfall charge equal to the difference between (i) the
actual usage charges incurred for international service that Month, and (ii)
the amount of the then-applicable minimum monthly payment obligation. If this
Agreement remains in effect after the Initial Term, the minimum monthly
payment obligation for each subsequent Month, shall be equal to the amount of
the minimum monthly payment obligation for the last Month of the Initial
Term.
8. Additional Terms: This is a carrier-to-carrier agreement subject to (S)211 of
----------------
the Communications Act of 1934, as amended. The Carrier is responsible for
and shall comply with any and all legal and regulatory requirements with
respect to the Carrier's use and resale of the Services, including those of
the Federal Communications Commission and state public utility commissions.
The Services are governed by this Agreement and all Carrier obligations and
CWI rights as set forth in the "General Rules and Regulations" section of
CWI's interestate tariff, as may be amended by CWI in accordance with
applicable laws and regulations. The Carrier shall defend, indemnify and hold
CWI harmless from and against all claims, demands, actions, causes of action,
judgments, costs and reasonable attorneys' fees and expenses of any kind
arising from or related to any use of the Service or otherwise arising under
this Agreement. In no
<PAGE>
General Terms and Conditions for Carrier Agreements
[LOGO OF CABLE & WIRELESS, INC.
APPEARS HERE]
event shall CWI be liable for any loss of profits, or for any indirect,
incidental, special, exemplary or consequential damages.
This Agreement is effective as of the date of signature of the last party to
sign and it is governed by and subject to the laws and the jurisdiction of the
courts of the Commonwealth of Virginia. The Carrier shall not disclose any of
the terms of this Agreement. This Agreement is the sole and exclusive
understanding between the parties with respect to the Services. CWI and Carrier
expressly agree that this Agreement shall not give rise to any third party being
entitled to any right whatsoever.
[INITIALS
Carrier's Representative's Initials APPEAR HERE] Date 8/20/96
------------ -------
<PAGE>
FINANCIAL SECURITY ADDENDUM
TO CARRIER AGREEMENT
[LOGO OF CABLE & WIRELESS, INC. APPEARS HERE]
Cable & Wireless, Inc. ("CWI") and its carrier customer signing this Financial
Security Terms and Conditions Addendum ("Carrier") agree that their Carrier
Agreement ("Agreement") is modified as set forth below. Any capitalized terms
not defined herein shall have the meaning defined in the General Terms and
Conditions for Carrier Agreements.
===============================================================================
When Carrier's usage in any month exceeds the amount set forth below, CWI may,
upon written notice to Carrier, change any or all of the payment and security
deposit requirements, set forth in the Payment/Security Deposit section of the
------------------------
Order Information section of the Agreement. Such changes will be effective
immediately upon Carrier's receipt of such notice.
$ 50,000 per month
==========
Prime Call, Inc Cable & Wireless, Inc.
-------------------------- ------------------------------
Signature: /s/ Alan Chin Signature: /s/ Elaine M. Beiseigel
--------------------- --------------------------
Printed Name: ALAN CHIN Printed Name: Elaine M. Beiseigel
--------------------- --------------------------
Title: V.P. Title: Contract Manager
--------------------- -------------------------
Date: 8/20/96 Date: 9/10/96
--------------------- -------------------------
<PAGE>
Prime Call, Inc
Country Code Rate
- --------------------------------------------------------------------------
DOMESTIC OUTBOUND (US
MAINLAND ORIGINATED)
- --------------------------------------------------------------------------
OUTBOUND - INTERSTATE
TERMINATED IN US MAINLAND [*]
- --------------------------------------------------------------------------
OUTBOUND - INTRASTATE -
WITHIN (state) [*]
--------------------------------------------------------------------------
OUTBOUND - INTERSTATE
TERMINATED IN ALASKA,
HAWAII, PUERTO RICO & US
VIRGIN ISLANDS [*]
- --------------------------------------------------------------------------
DOMESTIC INBOUND (US
MAINLAND ORIGINATED) [*]
- --------------------------------------------------------------------------
INBOUND - INTERSTATE
TERMINATED IN US MAINLAND [*]
- --------------------------------------------------------------------------
INBOUND - INTRASTATE -
WITHIN [state] [*]
- --------------------------------------------------------------------------
INBOUND - INTERSTATE
TERMINATED IN ALASKA,
HAWAII, PUERTO RICO, & US
VIRGIN ISLANDS [*]
- --------------------------------------------------------------------------
CANADA INBOUND 1 [*]
- --------------------------------------------------------------------------
CANADA (416,905,514,604)
OUTBOUND 1 [*]
- --------------------------------------------------------------------------
CANADA OUTBOUND (Other
NPAs) 1 [*]
- --------------------------------------------------------------------------
AFGHANISTAN 93 [*]
- --------------------------------------------------------------------------
ALBANIA 355 [*]
- --------------------------------------------------------------------------
ALGERIA 213 [*]
- --------------------------------------------------------------------------
AMER SAMOA 684 [*]
- --------------------------------------------------------------------------
ANDORRA 376 [*]
- --------------------------------------------------------------------------
ANGOLA 244
- --------------------------------------------------------------------------
ANGUILLA 809 [*]
- --------------------------------------------------------------------------
ANTIGUA 809 [*]
- --------------------------------------------------------------------------
ARGENTINA 54 [*]
- --------------------------------------------------------------------------
ARMENIA 374 [*]
- --------------------------------------------------------------------------
ARUBA 297 [*]
- --------------------------------------------------------------------------
ASCENSION 247 [*]
- --------------------------------------------------------------------------
ATLOCEANEAST 871 [*]
- --------------------------------------------------------------------------
ATLOCEANWEST 874 [*]
[*] CONFIDENTIAL TREATMENT REQUESTED
- --------------------------------------------------------------------------
AUST EXT TER 672 [*]
- --------------------------------------------------------------------------
AUSTRALIA 61 [*]
- --------------------------------------------------------------------------
AUSTRIA 43 [*]
- --------------------------------------------------------------------------
AZERBAIJAN 994 [*]
- --------------------------------------------------------------------------
BAHAMAS 809 [*]
- --------------------------------------------------------------------------
BAHRAIN 973 [*]
- --------------------------------------------------------------------------
BANGLADESH 880 [*]
- --------------------------------------------------------------------------
[*] CONFIDENTIAL TREATMENT REQUESTED
8/16/96 CWI Confidential
Proposal Expires Sept. 1, 1996 Page 1
<PAGE>
Prime Call, Inc
<TABLE>
<CAPTION>
Country Code Rate
<S> <C> <C>
- --------------------------------------------------------------------------------
BARBADOS 809 [*]
- --------------------------------------------------------------------------------
BELARUS 375 [*]
- --------------------------------------------------------------------------------
BELGIUM 32 [*]
- --------------------------------------------------------------------------------
BELIZE 501 [*]
- --------------------------------------------------------------------------------
BENIN 229 [*]
- --------------------------------------------------------------------------------
BERMUDA 809 [*]
- --------------------------------------------------------------------------------
BHUTAN 975 [*]
- --------------------------------------------------------------------------------
BOLIVIA 591 [*]
- --------------------------------------------------------------------------------
BOSNIA&HERZE 387 [*]
- --------------------------------------------------------------------------------
BOTSWANA 267 [*]
- --------------------------------------------------------------------------------
BR VIRGIN IS 809 [*]
- --------------------------------------------------------------------------------
BRAZIL 55 [*]
- --------------------------------------------------------------------------------
BRUNEI 673 [*]
- --------------------------------------------------------------------------------
BULGARIA 359 [*]
- --------------------------------------------------------------------------------
BURKINA FASO 226 [*]
- --------------------------------------------------------------------------------
BURUNDI 257 [*]
- --------------------------------------------------------------------------------
CAMBODIA 855 [*]
- --------------------------------------------------------------------------------
CAMEROON 237 [*]
- --------------------------------------------------------------------------------
CAPE VERDE 238 [*]
- --------------------------------------------------------------------------------
CAYMAN IS 809 [*]
- --------------------------------------------------------------------------------
CEN AFR REP 236 [*]
- --------------------------------------------------------------------------------
CHAD REP 235 [*]
- --------------------------------------------------------------------------------
CHILE 56 [*]
- --------------------------------------------------------------------------------
CHINA 86 [*]
- --------------------------------------------------------------------------------
COLOMBIA 57 [*]
- --------------------------------------------------------------------------------
CONGO 242 [*]
- --------------------------------------------------------------------------------
COOK ISLANDS 682 [*]
- --------------------------------------------------------------------------------
COSTA RICA 506 [*]
- --------------------------------------------------------------------------------
CROATIA 385 [*]
- --------------------------------------------------------------------------------
CUBA 530 [*]
- --------------------------------------------------------------------------------
CYPRUS 357 [*]
[*] CONFIDENTIAL TREATMENT REQUESTED
- --------------------------------------------------------------------------------
CZECH/SLOVAK 42 [*]
- --------------------------------------------------------------------------------
DENMARK 45 [*]
- --------------------------------------------------------------------------------
DIEGO GARCIA 246 [*]
- --------------------------------------------------------------------------------
DIJIBOUTI 253 [*]
- --------------------------------------------------------------------------------
DOMINICA 809 [*]
- --------------------------------------------------------------------------------
DOMINICAN RP 809 [*]
- --------------------------------------------------------------------------------
ECUADOR 593 [*]
- --------------------------------------------------------------------------------
EGYPT 20 [*]
- --------------------------------------------------------------------------------
</TABLE>
CWI Confidential
Proposal Expires Sept 1, 1996
[*] CONFIDENTIAL TREATMENT REQUESTED
8/16/96 Page 2
<PAGE>
Prime Call, Inc
Country Code Rate
- --------------------------------------------------------------------------
EL SALVADOR 503 [*]
- --------------------------------------------------------------------------
EQUAT GUINEA 240 [*]
- --------------------------------------------------------------------------
ERITREA 291 [*]
- --------------------------------------------------------------------------
ESTONIA 372 [*]
- --------------------------------------------------------------------------
ETHIOPIA 251 [*]
- --------------------------------------------------------------------------
FAEROE IS 298 [*]
- --------------------------------------------------------------------------
FALKLAND IS 500 [*]
- --------------------------------------------------------------------------
FIJI 679 [*]
- --------------------------------------------------------------------------
FINLAND 358 [*]
- --------------------------------------------------------------------------
FRANCE 33 [*]
- --------------------------------------------------------------------------
FRENCH GUIAN 594 [*]
- --------------------------------------------------------------------------
FRENCHPOLYNS 689 [*]
- --------------------------------------------------------------------------
GABON REPUBL 241 [*]
- --------------------------------------------------------------------------
GAMBIA 220 [*]
- --------------------------------------------------------------------------
GEORGIA 995 [*]
- --------------------------------------------------------------------------
GERMANY 49 [*]
- --------------------------------------------------------------------------
GHANA 233 [*]
- --------------------------------------------------------------------------
GIBRALTAR 350 [*]
- --------------------------------------------------------------------------
GREECE 30 [*]
- --------------------------------------------------------------------------
GREENLAND 299 [*]
- --------------------------------------------------------------------------
GRENADA 809 [*]
- --------------------------------------------------------------------------
GUADELOUPE 590 [*]
- --------------------------------------------------------------------------
GUAM 671 [*]
- --------------------------------------------------------------------------
GUANTANAMO 53 [*]
- --------------------------------------------------------------------------
GUATEMALA 502 [*]
- --------------------------------------------------------------------------
GUINEA REP 224 [*]
- --------------------------------------------------------------------------
GUINEABISSAU 245 [*]
- --------------------------------------------------------------------------
GUYANA 592 [*]
- --------------------------------------------------------------------------
HAITI 509 [*]
- --------------------------------------------------------------------------
HONDURAS 504 [*]
- --------------------------------------------------------------------------
HONG KONG 852 [*]
- --------------------------------------------------------------------------
HUNGARY 36 [*]
[*] CONFIDENTIAL TREATMENT REQUESTED
- --------------------------------------------------------------------------
ICELAND 354 [*]
- --------------------------------------------------------------------------
INDIA 91 [*]
- --------------------------------------------------------------------------
INDIAN OCEAN 873 [*]
- --------------------------------------------------------------------------
INDONESIA 62 [*]
- --------------------------------------------------------------------------
IRAN 98 [*]
- --------------------------------------------------------------------------
IRAQ 964 [*]
- --------------------------------------------------------------------------
IRELAND 353
- --------------------------------------------------------------------------
[*] CONFIDENTIAL TREATMENT REQUESTED
8/16/96 CWI Confidential
Proposal Expires Sept. 1, 1996 Page 3
<PAGE>
Prime Call, Inc
Country Code Rate
- --------------------------------------------------------------------------------
ISRAEL 972 [*]
- --------------------------------------------------------------------------------
ITALY 39 [*]
- --------------------------------------------------------------------------------
IVORY COAST 225 [*]
- --------------------------------------------------------------------------------
JAMAICA 809 [*]
- --------------------------------------------------------------------------------
JAPAN 81 [*]
- --------------------------------------------------------------------------------
JORDAN 962 [*]
- --------------------------------------------------------------------------------
KENYA 254 [*]
- --------------------------------------------------------------------------------
KIRIBATI 686 [*]
- --------------------------------------------------------------------------------
KUWAIT 965 [*]
- --------------------------------------------------------------------------------
LAOS 856 [*]
- --------------------------------------------------------------------------------
LATVIA 371 [*]
- --------------------------------------------------------------------------------
LEBANON 961 [*]
- --------------------------------------------------------------------------------
LESOTHO 266 [*]
- --------------------------------------------------------------------------------
LIBERIA 231 [*]
- --------------------------------------------------------------------------------
LIBYA 218 [*]
- --------------------------------------------------------------------------------
LITHUANIA 370 [*]
- --------------------------------------------------------------------------------
LUXEMBOURG 352 [*]
- --------------------------------------------------------------------------------
MACAO 853 [*]
- --------------------------------------------------------------------------------
MACEDONIA 389 [*]
- --------------------------------------------------------------------------------
MADAGASCAR 261 [*]
- --------------------------------------------------------------------------------
MALAWI 265 [*]
- --------------------------------------------------------------------------------
MALAYSIA 60 [*]
- --------------------------------------------------------------------------------
MALDIVES 960 [*]
- --------------------------------------------------------------------------------
MALI REP 223 [*]
- --------------------------------------------------------------------------------
MALTA 356 [*]
- --------------------------------------------------------------------------------
MARSHALL IS 692 [*]
- --------------------------------------------------------------------------------
MARTINIQUE 596 [*]
- --------------------------------------------------------------------------------
MAURITANIA 222 [*]
- --------------------------------------------------------------------------------
MAURITIUS 230 [*]
- --------------------------------------------------------------------------------
MAYOTTECOMOR 269 [*]
- --------------------------------------------------------------------------------
MICRONESIA 691 [*]
- --------------------------------------------------------------------------------
[*] CONFIDENTIAL TREATMENT REQUESTED
MOLDOVA 373 [*]
- --------------------------------------------------------------------------------
MONACO 377 [*]
- --------------------------------------------------------------------------------
MONGOLIA 976 [*]
- --------------------------------------------------------------------------------
MONTSERRAT 809 [*]
- --------------------------------------------------------------------------------
MOROCCO 212 [*]
- --------------------------------------------------------------------------------
MOZAMBIQUE 258 [*]
- --------------------------------------------------------------------------------
MYANMAR 95 [*]
- --------------------------------------------------------------------------------
N MARIANA IS 670 [*]
- --------------------------------------------------------------------------------
[*] CONFIDENTIAL TREATMENT REQUESTED
CWI Confidential
8/16/96 Prosposal Expires Sept 1, 1996 Page 4
<PAGE>
Prime Call, Inc
<TABLE>
<CAPTION>
Country Code Rate
---------------------------------------
<S> <C> <C>
NAMIBIA 264 [*]
---------------------------------------
NAURU 674 [*]
---------------------------------------
NEPAL 977 [*]
---------------------------------------
NETH ANTILLE 599 [*]
---------------------------------------
NETHERLANDS 31 [*]
---------------------------------------
NEVIS 809 [*]
---------------------------------------
NEW CALEDONI 687 [*]
---------------------------------------
NEW ZEALAND 64
---------------------------------------
NICARAGUA 505 [*]
---------------------------------------
NIGER REP 227 [*]
---------------------------------------
NIGERIA 234
---------------------------------------
NIUE ISLAND 683 [*]
---------------------------------------
NORTH KOREA 850 [*]
---------------------------------------
NORWAY 47
---------------------------------------
OMAN 968 [*]
---------------------------------------
PACIFIC OCEAN 872 [*]
---------------------------------------
PAKISTAN 92 [*]
---------------------------------------
PALAU 680 [*]
---------------------------------------
PANAMA 507 [*]
---------------------------------------
PAPUA NEWGUI 675 [*]
---------------------------------------
PARAGUAY 595 [*]
---------------------------------------
PERU 51 [*]
---------------------------------------
PHILIPPINES 63 [*]
---------------------------------------
POLAND 48 [*]
---------------------------------------
PORTUGAL 351 [*]
---------------------------------------
QATAR 974 [*]
---------------------------------------
REUNION ISL 262 [*]
---------------------------------------
ROMANIA 40 [*]
---------------------------------------
RUSSIA & NIS 7 [*]
---------------------------------------
[*] CONFIDENTIAL TREATMENT REQUESTED
RWANDESE REP 250 [*]
---------------------------------------
SAN MARINO 378 [*]
---------------------------------------
SAO TOME&PRI 239 [*]
---------------------------------------
SAUDI ARABIA 966 [*]
---------------------------------------
SENEGAL 221 [*]
---------------------------------------
SEYCHELLES 248 [*]
---------------------------------------
SIERRA LEONE 232 [*]
---------------------------------------
SINGAPORE 65
---------------------------------------
SLOVENIA 386 [*]
---------------------------------------
SOLOMON IS 677 [*]
---------------------------------------
</TABLE>
[*] CONFIDENTIAL TREATMENT REQUESTED
CWI Confidential
8/16/96 Proposal Expires September 1, 1996
<PAGE>
Prime Call, Inc
Country Code Rate
- --------------------------------------------------------------------------
SOMALI DEM R 252 [*]
- --------------------------------------------------------------------------
SOUTH AFRICA 27 [*]
- --------------------------------------------------------------------------
SOUTH KOREA 82
- --------------------------------------------------------------------------
SPAIN 34 [*]
- --------------------------------------------------------------------------
SRI LANKA 94 [*]
- --------------------------------------------------------------------------
ST KITTS 809 [*]
- --------------------------------------------------------------------------
ST LUCIA 809 [*]
- --------------------------------------------------------------------------
ST VINCENT 809 [*]
- --------------------------------------------------------------------------
ST. HELENA 290 [*]
- --------------------------------------------------------------------------
STPIER&MIQ 508 [*]
- --------------------------------------------------------------------------
SUDAN 249 [*]
- --------------------------------------------------------------------------
SURINAME 597 [*]
- --------------------------------------------------------------------------
SWAZILAND 268 [*]
- --------------------------------------------------------------------------
SWEDEN 46
- --------------------------------------------------------------------------
SWITZERLAND 41
- --------------------------------------------------------------------------
SYRIA 963 [*]
- --------------------------------------------------------------------------
TAIWAN 886
- --------------------------------------------------------------------------
TANZANIA 255 [*]
- --------------------------------------------------------------------------
THAILAND 66 [*]
- --------------------------------------------------------------------------
TOGOLESE REP 228 [*]
- --------------------------------------------------------------------------
TONGA 676 [*]
- --------------------------------------------------------------------------
TRINIDAD 809 [*]
- --------------------------------------------------------------------------
TUNISIA 216 [*]
- --------------------------------------------------------------------------
TURKEY 90 [*]
- --------------------------------------------------------------------------
TURKS CAICOS 809 [*]
- --------------------------------------------------------------------------
TUVALU 688 [*]
- --------------------------------------------------------------------------
U A EMIRATES 971 [*]
- --------------------------------------------------------------------------
UGANDA 256 [*]
- --------------------------------------------------------------------------
UK G BRITAIN 44 [*]
- --------------------------------------------------------------------------
UKRAINE 380 [*]
- --------------------------------------------------------------------------
URUGUAY 598 [*]
- --------------------------------------------------------------------------
[*] CONFIDENTIAL TREATMENT REQUESTED
VANUATU 678 [*]
- --------------------------------------------------------------------------
VENEZUELA 58 [*]
- --------------------------------------------------------------------------
VIETNAM 84 [*]
- --------------------------------------------------------------------------
WALLIA&FUTUN 681 [*]
- --------------------------------------------------------------------------
WESTNSAMOA 685 [*]
- --------------------------------------------------------------------------
YEMEN REP 967 [*]
- --------------------------------------------------------------------------
YUGOSLAVIA 381 [*]
- --------------------------------------------------------------------------
ZAIRE REP 243 [*]
- --------------------------------------------------------------------------
[*] CONFIDENTIAL TREATMENT REQUESTED
CWI Confidential
8/16/96 Proposal Expires Sept. 1, 1996 Page 6
<PAGE>
Prime Call, Inc
Country Code Rate
- --------------------------------------------------------------------------
ZAMBIA 260 [*]
- --------------------------------------------------------------------------
ZIMBABWE 263 [*]
- --------------------------------------------------------------------------
MEXICO OUTBOUND ONLY [*]
- --------------------------------------------------------------------------
MEXICO 1 DISCOUNT 52 [*]
- --------------------------------------------------------------------------
MEXICO 1 STANDARD 52 [*]
- --------------------------------------------------------------------------
MEXICO 2 DISCOUNT 52 [*]
- --------------------------------------------------------------------------
MEXICO 2 STANDARD 52 [*]
- --------------------------------------------------------------------------
MEXICO 3 DISCOUNT 52 [*]
- --------------------------------------------------------------------------
MEXICO 3 STANDARD 52 [*]
- --------------------------------------------------------------------------
MEXICO 4 DISCOUNT 52 [*]
- --------------------------------------------------------------------------
MEXICO 4 STANDARD 52 [*]
- --------------------------------------------------------------------------
MEXICO 5 DISCOUNT 52 [*]
- --------------------------------------------------------------------------
MEXICO 5 STANDARD 52 [*]
- --------------------------------------------------------------------------
MEXICO 6 DISCOUNT 52 [*]
- --------------------------------------------------------------------------
MEXICO 6 STANDARD 52 [*]
- --------------------------------------------------------------------------
MEXICO 7 DISCOUNT 52 [*]
- --------------------------------------------------------------------------
MEXICO 7 STANDARD 52 [*]
- --------------------------------------------------------------------------
MEXICO 8 DISCOUNT 52 [*]
- --------------------------------------------------------------------------
MEXICO 8 STANDARD 52 [*]
- --------------------------------------------------------------------------
[*] CONFIDENTIAL TREATMENT REQUESTED
CWI Confidential
8/16/96 Proposal Expires Sept. 1, 1996 Page 7
<PAGE>
Exhibit 10.9
[*] Designates material for which confidential treatment has been requested,
which material has been separately filed with the Securities and Exchange
Commission.
RECIPROCAL TELECOMMUNICATIONS AGREEMENT
AGREEMENT made this 3rd day of December 1996, by and between STAR Vending,
Inc. d/b/a STAR Telecommunications (hereinafter "STAR"), located at 223 East De
La Guerra Street, Santa Barbara, California 93101, a Nevada Corporation, and
PRIMECALL, INC. (hereinafter "CUSTOMER"), a Washington corporation, located at
1520 Eastlake Avenue East, Suite 205, Seattle, Washington 98102.
WITNESSETH
WHEREAS, STAR and CUSTOMER are in the business of providing
telecommunications services; and
WHEREAS, STAR desires to purchase telecommunications services from CUSTOMER
and CUSTOMER desires to purchase telecommunications services from STAR;
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, and for good and valuable consideration, the parties agree as
follows:
1. Services
--------
(A) STAR agrees to furnish CUSTOMER and CUSTOMER agrees to purchase from
STAR, the telecommunications services set forth in Exhibit A attached hereto.
(B) CUSTOMER agrees to furnish STAR and STAR agrees to purchase from
CUSTOMER, the telecommunications services as set forth in Exhibit B attached
hereto.
(C) It is understood that all Services provided by the parties hereunder
are provided for resale by the other party to end users, customers or
subscribers.
2. Terms
-----
This Agreement shall commence on or about the 30th day of November 1996
(the "Commencement Date") and continue for a period of six (6) months from such
date. After the expiration of the initial term or any subsequent term, this
Agreement shall thereafter continue, on the same terms and conditions, on a
month-to-month basis unless either party notifies the other party, in writing,
not less than thirty (30) days prior to the termination date of its desire to
terminate this Agreement. This Agreement shall continue and remain in full force
and effect until canceled by either party upon notice as provided herein.
3. Rates
-----
(A) During the term of this Agreement, STAR shall charge for the
telecommunications services, and CUSTOMER shall pay for such services, that
amount as determined by using the rates set out in Exhibit A.
[INITIALS APPEAR HERE] Initials
----------------------
[INITIALS APPEAR HERE] Initials
----------------------
1
<PAGE>
(B) During the term of this Agreement, CUSTOMER shall charge for the
telecommunications services, and STAR shall pay for such services, that amount
as determined by using the rates set out in Exhibit B.
(C) STAR and CUSTOMER shall have the right to modify the rates and
conditions set forth in Exhibits A and B at any time during this Agreement but
shall give the other party at least five (5) days' prior written notice.
4. Charges and Payment Terms
-------------------------
(A) STAR and CUSTOMER hereby acknowledge the charges for the provision
of Services will be billed as provided herein and that payment for such Service
shall be payable in U.S. dollars. For each month during the term of this
Agreement, STAR and CUSTOMER will provide the other party with an invoice for
Service provided during the previous month. The invoice amounts will be due and
payable from both parties within twenty (20) days after the invoice date (the
"Due Date"), which shall be the last date of the previous month's billing cycle.
Late payments will be assessed a late payment penalty of one and one-half
percent (1.5%) per month on the delinquent balance of any undisputed Service
usage not paid by the Due Date. Payments shall be made by wire transfer or such
other methods as may be agreed by the parties. Nothing herein shall be construed
to constitute a waiver of either parties rights to declare a default by the
other party under this Agreement on account of delinquency, to terminate this
Agreement and to exercise any other rights under this Agreement or at law or in
equity.
(B) Should either STAR or CUSTOMER dispute any of the monthly charges
on the monthly invoice, it shall notify the other party of the disputed charges
not later than sixty (60) days from the date of invoice. Said dispute shall set
forth all details concerning the disputed charges in writing. In the event of a
dispute, the entire invoice shall nevertheless by paid in accordance with
payment terms set forth herein. After resolution of the disputed portion of the
invoice, the adjustments, if any shall be immediately credited to the other
party's account.
(C) All calls will be billed in six (6) second increments utilizing
Hardware Answer Supervision where available. All international calls, with the
exception of Mexico, will be billed in six (6) second increments subject to a
thirty (30) second minimum charge. Mexico calls will be billed in one (1) minute
increments.
(D) CUSTOMER and STAR shall at all times comply with the other party's
initial and continuing credit approval procedures and policies. Each party
reserves the right to withhold initiation and full implementation of services
under this Agreement pending initial satisfactory credit review and approval
thereof, which may be conditioned upon terms specified, including, but not
limited to, security for payments due hereunder in the form of a cash deposit,
guarantee, irrevocable letter of credit or other means. Upon request by either
party, at any time, the other party agrees to provide financial statements or
other indications of financial circumstances. As may be determined by either
party, in its sole discretion, at any time, if the financial circumstances or
payment history of the other party is or becomes unacceptable, the party
furnishing Services may require a new or increased deposit, guarantee or
irrevocable letter of credit, at such party's option, to secure the other
party's payments for the term of the Agreement. Failure of a party to provide
requested security shall permit the other party to immediately suspend Services,
without further notice or demand, until such time as requested security is
provided.
2
<PAGE>
5. Warranty
--------
STAR and CUSTOMER will use reasonable efforts under the circumstances
to maintain overall network quality. The quality of Service provided hereunder
shall be consistent with other common carrier industry standards, government
regulations and sound business practices. STAR AND CUSTOMER MAKE NO OTHER
WARRANTIES ABOUT THE SERVICE PROVIDED HEREUNDER, EXPRESS OR IMPLIED, INCLUDING,
BUT NOT LIMITED, TO ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE OR USE.
6. Continuing Relationship and Termination
---------------------------------------
This Agreement and the relationship of the parties may be terminated
by the non-defaulting party in accordance with applicable provision hereof
and/or the occurrence of any of the following events, which shall constitute a
default:
(A) Material breach of this Agreement, after notice thereof, and
failure of the breaching party to cure such breach: (i) within five (5) days of
receipt of such notice, where breach involves a failure to make payments when
due, and (ii) within twenty (20) days of receipt of such notice for all other
breaches;
(B) The adjudication of bankruptcy of either party under federal,
state or municipal bankruptcy or insolvency act, or the appointment of a
received or any act or action constituting a general assignment by a party of
its properties and interest for the benefit of creditors;
(C) The determination by any governmental entity having jurisdiction
over the Service provided under this Agreement that the relationship of the
parties and/or Services provided hereunder are contrary to then existing laws.
7. Taxes
-----
The parties acknowledge and understand that all charges stated in the
attached Service Schedules are computed exclusive of any applicable use, excise,
gross receipts, sales and privilege taxes, duties, fees and other taxes or
similar liabilities (other than general income or property taxes). Such
Additional Charges shall be paid by the party receiving services in addition to
all other charges provided for herein. Each party is solely liable for and
hereby indemnifies and holds the other party harmless from filing all
applications, forms, reports, returns, statements and other documents and
information with any payment of all taxes and/or assessments to all local,
county, state, federal and other taxing authorities having jurisdiction with
respect to any and all charges to each party's end users or customer for the
services, including, without limitation, any governmental agency or authority in
any foreign country.
8. Suspension of Services
----------------------
In the event payment in full is not received from either party when
due, the other party shall have the right, after giving the defaulting party
five (5) days prior written notice after the Due Date, to suspend all or any
portion of the Service to the defaulting party until such time as such party has
paid in full all charges then due, including any late fees.
3
<PAGE>
9. Liability; General Indemnity
----------------------------
(A) Limited Liability. IN NO EVENT, WILL EITHER PARTY 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.
THE LIABILITY OF STAR AND CUSTOMER, WITH RESPECT TO THE INSTALLATION (INCLUDING
DELAYS THEREOF), PROVISION, TERMINATION, MAINTENANCE, REPAIR, INTERRUPTION OR
RESTORATION OF ANY SERVICES OR FACILITIES OFFERED UNDER THIS AGREEMENT, SHALL
NOT EXCEED AN AMOUNT EQUAL TO THE CHARGE APPLICABLE UNDER THIS AGREEMENT TO THE
PERIOD DURING WHICH SERVICES WERE AFFECTED FOR THOSE SERVICES WITH MONTHLY
RECURRING CHARGES. THE LIABILITY OF EITHER PARTY IS LIMITED TO AN AMOUNT EQUAL
TO THE PROPORTIONATE MONTHLY RECURRING CHARGES FOR THE PERIOD DURING WHICH
SERVICE WAS AFFECTED.
(B) General Indemnity. In the event parties other than STAR and
CUSTOMER shall have use of the Services, then STAR and CUSTOMER agree to forever
indemnify and hold each other harmless from and against any and all claims,
demands, suits, actions, losses, damages, assessments or payments which may be
asserted by said parties arising out of or relating to any defect in the
Services.
10. Force Majeure
-------------
If either party's performance of this Agreement, or any obligations
hereunder, is prevented, restricted or interfered with by 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 or more said governments, or
any civil or military authority, or by national emergency, insurrection, riot,
war, strike, lockout or work stoppage or other labor difficulties, supplier
failure, shortage, breach or delay, then such party shall be excused from such
performance on a day-to-day basis to the extent of such restrictions or
interference. Such party shall notify the other and 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. This provision shall not, however, relieve either party from making
payment when due.
1. Notices
-------
All notices, demands, requests and other communications require or
permitted hereunder shall be in writing and shall be deemed to be delivered when
actually received, or, if earlier and regardless of whether actually received on
the day following the date of mailing via first-class U.S. mail or overnight
courier or facsimile, charges prepaid, to the last known place of business of
either party. Notices will be delivered as follows:
4
<PAGE>
To STAR: Attention: Contracts Manager To CUSTOMER: Attention: Lisa Jenchel
STAR Vending, Inc. Company: PrimeCall, Inc.
223 East De La Guerra Street Address: 1520 Eastlake Ave. East,
Santa Barbara, CA 93101 Suite 205
Telephone: (805) 899-1962 Seattle WA 98102
Facsimile: (805) 899-2792 Telephone: (206) 328-1109 X201
Facsimile: (206) 328-7580
Billing Contact: Lisa Dobson, Director Billing Contact: Eric McKibben
Phone: (805) 899-1962 Address (if different):
Facsimile: (805) 899-2972 -------------
Same as above
------------------------------------
Phone & Facsimile:(206) 328-1109 X204
(206) 328-7580
12. No Waiver
---------
No term or provision of this Agreement shall be deemed waived and no
breach or defaults shall be deemed excused unless such waiver or consent shall
be in writing and signed by the party claimed to have waived or consented. No
consent by any party to, or waiver of, a breach or default by the other, whether
express or implied, shall constitute a consent to, waiver of, or excuse for any
different or subsequent breach or default.
13. Partial Invalidity
------------------
If any term or provision of this Agreement shall be found to be
illegal or unenforceable, then notwithstanding such illegality or
unenforceability, this Agreement shall remain in full force and effect and such
terms or provisions shall be deemed to be deleted.
14. 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.
15. Use of Service
--------------
STAR and CUSTOMER agree to provide the Service specified hereunder
upon condition that the Services shall not be used for any unlawful purposes.
The provision of Service will not create a partnership or joint venture between
the parties or result in a joint communication service offering to any third
party.
16. 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 Santa Barbara, State of California. Both parties
hereby consent to the jurisdiction of such court and wave any objections to such
jurisdiction. In any action or proceeding arising out of this Agreement, the
party prevailing in such action shall be entitled to recover reasonable
attorneys' fees and costs.
17. Proprietary Information
-----------------------
5
<PAGE>
(A) Confidential Information. The parties understand and agree that
------------------------
the terms and conditions of this Agreement, and documents referred herein
(including invoices to STAR for Services provided hereunder), communications
between the parties regarding this Agreement or the Service to be provided
hereunder (including price quote to STAR or CUSTOMER for any Service proposed to
be provided or actually provided hereunder) and all information regarding the
customers of STAR or CUSTOMER, as well as such information relevant to any other
agreements between the parties (collectively "Confidential Information"), are
confidential as between STAR and CUSTOMER.
(B) Limited Disclosure. A party shall not disclose Confidential
------------------
information unless subject to discovery or disclosure pursuant to legal process,
or to any other party other than the directors, officers and employees of a
party or agents of a party, including their respective brokers, lenders,
insurance carriers or prospective purchasers of the party's business, who have
specifically 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 party or its agents of the foregoing provision shall entitle the
non-disclosing party, at its option, to obtain inductive relief without a
showing of irreparable harm or injury and without bond.
(C) Press Release. The parties further agree that any press release,
-------------
advertisements or publication generated by a party regarding this Agreement, the
Service provided hereunder or in which the party desires to mention the name of
the other party's parent or affiliated company(ies), will be submitted to the
non-publishing party for its written approval prior to publication.
(D) Survival and Confidentiality. The provision of this Paragraph will
----------------------------
be effective as of this Agreement and remain in full force and effect for a
period equal to the longer of: (i) five (5) years following the effective date
of this Agreement; or (ii) five (5) years following the termination of all
Service hereunder.
18. Binding Effect
--------------
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective heirs, successors and assigns. 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 interest in
this Agreement or the proceeds thereof (collectively "Assignment") without the
other party's written consent, which consent shall not be unreasonable withheld
or delayed. Any attempt to make an Assignment in violation of this provision
shall be null and void. Each party shall provide written notice to the other
party of any material change in ownership of either party. Should either party
fail to comply with the Assignment provisions, as contained in this paragraph,
then the party who failed to meet the terms of Assignment shall, at its sole
discretion, give the other party the option to either accept a party's assignee
or terminate this Agreement. No Assignment shall release either party of its
obligations hereunder.
19. 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,
provision for indemnification and the making of any and all payments hereunder.
6
<PAGE>
(B) 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 drafter this Agreement.
(C) Third Party Beneficiaries/Parties in Interest. This Agreement has
---------------------------------------------
been made and is made solely for the benefit of the Provider 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.
(D) Representation of Authority. Each party represents and warrants to
---------------------------
the other that the execution and delivery of this Agreement and the performance
of such party's obligations hereunder have been duly authorized and that the
Agreement is a valid and legal agreement binding on such parties and enforceable
in accordance with its terms.
(E) 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.
(F) 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.
20. Entire Agreement
----------------
This Agreement consists of all of the terms and conditions contained
herein, in executed Service Schedules that are identified herewith and in
documents incorporated herein, specifically by reference. This Agreement
constitutes the complete and exclusive statement of understanding between the
parties and supersedes all proposals and prior agreements (oral or written)
between the parties relating to Service provided hereunder. No subsequent
agreement between the parties, concerning the Service, shall be effective or
binding unless it is made in writing and subscribed to by authorized
representatives of STAR and CUSTOMER.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first written above.
STAR VENDING, INC. d/b/a/ CUSTOMER: PRIMECALL, INC.
STAR TELECOMMUNICATIONS
By: [SIGNATURE APPEARS HERE] By: /s/ Alan Chin
---------------------------------- ----------------------------------
Printed Name: [NAME APPEARS HERE] Printed Name: ALAN CHIN
------------------------ ------------------------
Title: PRESIDENT Title: VP
------------------------------- -------------------------------
7
<PAGE>
S T A R TELECOM INTERNATIONAL TERMINATIONS
EXHIBIT A
<TABLE>
<CAPTION>
C O U N T R Y code S T A N D A R D D I S C O U N T E C O N O M Y MIN. OF USE
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
AMERICAN SAMOA 684 [*] [*] [*]
-------------
AUSTRALIA 61 [*] [*] [*]
-------------
AUSTRIA 61 [*] [*] [*]
-------------
BELGIUM 32 [*] [*] [*]
-------------
BRAZIL 55 [*] [*] [*]
-------------
CENTRAL AFRICAN REP. 236 [*] [*] [*]
-------------
CHINA 86 [*] [*] [*]
-------------
COLOMBIA 57 [*] [*] [*]
-------------
DENMARK 45 [*] [*] [*]
-------------
FINLAND 358 [*] [*] [*]
-------------
FRANCE 33 [*] [*] [*]
-------------
FRANCE (MONACO) 377 [*] [*] [*]
-------------
GERMANY 49 [*] [*] [*]
-------------
GREECE 30 [*] [*] [*]
-------------
INDIA 91 [*] [*] [*]
-------------
ISRAEL 972 [*] [*] [*]
-------------
ITALY 39 [*] [*] [*]
-------------
KOREA 82 [*] [*] [*]
-------------
KUWAIT 965 [*] [*] [*]
-------------
MALAYSIA 60 [*] [*] [*]
-------------
NETHERLANDS 31 [*] [*] [*]
-------------
NEW ZEALAND 64 [*] [*] [*]
-------------
NIGERIA 234 [*] [*] [*]
-------------
NORWAY 47 [*] [*] [*]
-------------
PHILIPPINES 63 [*] [*] [*]
-------------
PHILIPPINES (MANILA) [*] [*] [*]
-------------
POLAND 48 [*] [*] [*]
-------------
SINGAPORE 65 [*] [*] [*]
-------------
SOUTH AFRICA 27 [*] [*] [*]
-------------
[*] CONFIDENTIAL TREATMENT REQUESTED
SPAIN 34 [*] [*] [*]
-------------
BALEARIC IS. 34 [*] [*] [*]
-------------
CANARY ISLANDS 34 [*] [*] [*]
-------------
CUETA 34 [*] [*] [*]
-------------
MELILLA 34 [*] [*] [*]
-------------
SWEDEN 46 [*] [*] [*]
-------------
SWITZERLAND 41 [*] [*] [*]
-------------
TURKEY 90 [*] [*] [*]
-------------
ZAIRE 243 [*] [*] [*]
-------------
ZIMBABWE 263 [*] [*] [*]
-------------
AZERBAIJAN 994 [*] [*] [*]
-----------------------------------------------------------------------
</TABLE>
*** Billed in 30 seconds minimum, 06 seconds thereafter
PrimeCall, Inc.
FOB: Los Angeles, CA
[*] CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
<TABLE>
<CAPTION>
PEAK OFF-PEAK
---------- ---------- ----------
<S> <C> <C> <C>
MEXICO band 1 [*] [*]
----------
band 2 [*] [*]
----------
band 3 [*] [*]
----------
band 4 [*] [*]
----------
band 5 [*] [*]
----------
band 6 [*] [*]
----------
band 7 [*] [*]
----------
band 8 [*] [*]
---------- ---------- ----------
</TABLE>
* * * Billed in one minute increments
All calls are rated on Pacific Standard Time.
The rates listed herein are subject to NON-DISCLOSURE. Disclosure of these
rates, or any information pertaining to said rates, to any party or parties
outside the employment of Purchaser will result in the withdrawal by Provider of
the disclosed rates.
Rates are subject to change with five (5) days' notice.
Rate decreases are effective as stated in Provider's written notice AND upon
receipt by Provider of Purchaser's signature on said notice. Without a duly
signed amendment notice, no credit will be issued for the differential between
decreased rates and Purchaser's current contract rates.
[*] CONFIDENTIAL TREATMENT REQUESTED
9
<PAGE>
EXHIBIT B
CUSTOMER'S CUSTOM PRICING TO STAR
---------------------------------
<TABLE>
<CAPTION>
Country Price
------------------------------
<S> <C>
BELIZE [*]
EGYPT [*]
GABON REPUBLIC [*]
GEORGIA [*]
GHANA [*]
IRAN [*]
IVORY COAST [*]
MARSHALL ISLANDS [*]
PAKISTAN [*]
PANAMA [*]
ST. HELENA [*]
SURINAME [*]
TOGO [*]
</TABLE>
FOB: Los Angeles, CA
[*] CONFIDENTIAL TREATMENT REQUESTED
10
<PAGE>
Exhibit 10.10
[*] Designates material for which confidential treatment has been requested,
which material has been separately filed with the Securities and Exchange
Commission.
SWITCH PORT LEASE AND SERVICE AGREEMENT
This Switch Port Lease and Service Agreement ("Agreement") is hereby
entered into as of this 7th [handwritten] day of August [handwritten], 1996 and
----------------- --------------------
is between World Touch, Inc., a Washington Corporation (hereinafter "Lessor"),
having its principal offices at 300 120th Ave., NE, Building One, Suite 204,
Bellevue, Washington 98005 and PrimeCall, Inc., a Washington corporation
(hereinafter "Lessee") having its principal offices at 1520 Eastlake Ave., E,
Suite 205, Seattle, Washington 98102 (collectively "Parties").
The Parties agree as follows:
1. Lease of Ports. Subject to the terms and conditions contained herein,
--------------
Lessor hereby leases to Lessee, and Lessee hereby leases from Lessor the
quantity of DS-1 ports (set forth in Exhibit "A") on a Northern Telecom DMS-250
Switch (the "Switch"), located at 625 So. Grand Avenue, 7th Floor #711, (1
Wilshire Bldg.), Los Angeles, California 90017 to receive, process, and output
voice grade telephone message traffic.
2. Term. This Agreement and the services contemplated hereunder shall not
----
become effective until Lessee pays to Lessor $[*] representing first months
rental payment. Unless sooner terminated as provided herein, this Agreement
shall have a initial term of six (6) months (the "Initial Service Term")
commencing on the date set forth above. After the initial Service Term, service
shall automatically continue on a month-to-month basis (each month period is
referred to as an "Extended Term"), unless terminated by either party at the end
of the Initial Service Term or an extended Term, by giving at least 60 days
written notice of intent to terminate prior to the end of such Term. All terms
set forth herein shall apply to any 'Extended Term' of this Agreement.
3. Charges, Payment and Billing.
----------------------------
a. Lessee will pay Lessor monthly for the lease of ports and services
provided pursuant to this Agreement. As of the execution date of this Port
Agreement, the charges which apply are set forth in Exhibit "A" attached hereto.
Charges for ports will be paid in advance each month. In-use port charges
commence when the ports are activated in accordance with Section 6. Ports placed
in In-Use during a partial calendar month shall still be charged at a rate equal
to the full monthly In-Use port rate.
b. Payment. Lessee agrees to remit any payment due to Lessor pursuant
to this Agreement on the first of each month (the "Due Date") . Any payment
[*] CONFIDENTIAL TREATMENT REQUESTED
1
<PAGE>
received more than thirty (30) days after the first of the month shall
constitute a late payment resulting in a late payment charge of 1.5% of the
total invoice amount per month of the maximum legal rate, whichever is less. If
the total amount due on any invoice is not received by Lessor within fifteen
(15) days of the Due Date, Lessor may send Lessee written notice that all
services may be temporarily suspended due to non-payment. Lessor shall have the
right after ten (10) days following such notice to discontinue services pursuant
to this Agreement unless or until the total amount due including late payment
charges is paid in full by Lessee.
c. Disputes. In the event of any billing disputes, Lessee will provide
to Lessor, prior to Due Date, a detailed presentation in writing of any disputed
charges. Notwithstanding such dispute Lessee shall pay any undisputed portion of
the disputed invoice. Any dispute by Lessee must be raised within sixty (60)
days of the Due Date, or such disputed claim is hereby waived. Disputes will be
resolved in accordance with the procedures outlined in paragraph 14(j).
d. Additional Charges. Any applicable federal, state, or local use,
excise, sales, or privilege taxes, duties, or similar liabilities, chargeable to
or against Lessor because of the services provided to Lessee pursuant to this
Agreement shall be charged and payable by Lessee in addition to the other charge
specified in this Section 3. Any extra services provided by Lessor to Lessee
shall be billed to Lessee and paid within ten (10) days of invoice provided that
Lessee has agreed to any such extra services in advance.
4. Lessor's Responsibilities. Lessor shall be responsible only for the
-------------------------
following:
a. Operating the Switch and performing all maintenance and procedures
related thereto in a timely manner;
b. Maintaining a Switch Operator on duty at the Switch location during
normal business hours, Monday through Friday. Lessor will have technicians on
call on a twenty-four (24) hour basis.
c. Providing Lessee with telephone numbers and an escalation list for
use in reporting troubles. Lessor shall monitor the Switch on a twenty-four (24)
hour basis, such monitoring having capability to respond to alarms which alert
the need for immediate maintenance attention.
d. Coordination of the resolution of trouble calls received from the
Lessee by using the Lessor's best effort to respond, identify, and repair each
problem reasonably and promptly (generally within 4 hours) or such longer time
as is reasonable
2
<PAGE>
under the circumstances and to thereafter notify Lessee of the nature of the
problem, following completion of such problem resolution.
e. Scheduling any pre-planned major preventative Switch maintenance
during Lessee's off business hours, coordinate with and notifying Lessee of such
planned outages at least forty-eight (48) hours prior to their occurrence.
Lessor acknowledges that Lessee's business hours may vary significantly from
"normal business hours."
f. Provide Call Detail Records (CDR) in a format and mutually
acceptable media, as required to allow proper billing, tracking, and Lessee
fraud control.
g. Lessor shall also be responsible for the duties detailed in Exhibit
C attached hereto and made a part hereof.
h. Joint coordination of ASR's, however, Lessee will be order
originator, designer and technical point of contact. Lessee will also establish
its own CLLI with each carrier.
5. Lessee's Responsibilities. Lessee shall be responsible for the
-------------------------
following:
a. Payment of all charges and fees due Lessor hereunder in a timely
manner.
b. Any disputed charges must be paid in full as per Section 3c. A
resolution of such disputed charges mutually agreed upon shall be provided in
the form of a credit against existing or future post/use charges.
c. Using the ports and services provided by Lessor under this Agreement
for tandem switching of voice grade telephone message traffic.
d. Complying with all applicable laws.
e. Observing all conditions contained herein.
f. Be responsible for the duties detailed in Exhibit C, attached hereto
and made a part hereof.
6. Port Availability.
-----------------
a. In-Use Ports. Lessor agrees to lease twenty (20) DS-1 (24 ports) on
the Switch to Lessee. In the event Lessee desires additional ports, Lessor shall
make
3
<PAGE>
them available upon the same terms and conditions set forth herein in blocks
of 480 ports upon 90 days notice.
b. Disconnecting Ports. Lessee may disconnect ports by giving Sixty
(60) days written notice to Lessor. Ports may not be disconnected in increments
of less than Four hundred and Eighty (480) ports (20 DS-1). Charges for ports
being disconnected will continue until the actual disconnect date.
7. Routing.
-------
a. Initial Routing. Lessor shall set-up software table (the "Initial
Routing Tables") in the Switch which directs the flow of traffic to Lessee's
ports. Such routing procedure is to be implemented after a mutually acceptable
initial routing procedure has been approved by both parties. Lessee shall
provide Lessor with a written listing of all the output NPA-NXX's and country
codes to be entered into the Initial Routing Tables and shall specify the output
port(s) to which each NPA-NXX or country code, Lessee agrees that traffic bound
for that NPA-NXX or country code will be intercepted by the Switch and treated
with an announcement, or routed to a trunk group designated by Lessee. When
input to the Initial Routing Tables has been completed, Lessor shall provide
Lessee with a paper printout of the Initial Routing Tables. Lessee agrees:
i. to review the Initial Routing Tables to verify their
accuracy;
ii. to notify Lessor in writing with five (5) business days
of receipt of the printout of any error; and
iii. to specify changes needed to the Initial Routing Tables
to Lessor in writing.
Input to all tables will be considered correct and accepted by Lessee
unless Lessor is notified within five (5) business days otherwise.
b. Routing Changes. Lessee may request changes to the Initial Routing
Tables resulting in revised routing tables (the "Revised Routing Tables"), which
may also be changed at the request of the Lessee.
Lessor agrees to make requested changes at an extra charge to be paid in
advance by Lessee in accordance with the procedures and time-lines specified in
Exhibit "B,"
4
<PAGE>
attached hereto and made a part hereof. Lessee agrees to comply with the
routing procedures specified in Exhibit B.
8. Service Outage Recovery. Lessor agrees to work with Lessee to develop a
-----------------------
mutually acceptable plan for alternative routing of Lessee traffic to mitigate
the outage in the event of a disaster or major Switch outage.
9. Defaults and Remedies. It shall be a default under this Port Agreement,
---------------------
entitling lessor or lessee, as the case may be, to terminate this agreement and
to pursue all remedies available under applicable law if:
a. Any party shall be in material breach of the terms and conditions of
this Agreement: or
b. Any party shall file a voluntary petition in bankruptcy, fail to
deny an involuntary petition in bankruptcy with 30 days of filing, or is
adjudicated to be bankrupt, or shall appoint or suffer the appointment of a
receiver or trustee for all or a port of it property, or shall make an
assignment for the benefit of its creditors.
c. In the event either party defaults under the terms of this
agreement, the non-defaulting party shall have the right to immediately
terminate this agreement. In the event the Lessor is in breach of its duties as
set forth in paragraph 5 and of Exhibit "C" attached hereto and incorporated
herein, Lessee shall give Lessor written notice of the breach. If such
deficiency or breach is not cured in five (5) days, Lessee shall have the right
to cancel this Agreement effectively immediately.
10. Required Termination. Either party shall also have the right, whether
--------------------
or not a default shall have occurred, to terminate this Agreement prior to the
expiration of the Initial Service Term or any Extended Term, upon no less than
thirty (30) days prior written notice to the other party if either party is
prohibited from furnishing any service related solely to this Agreement by order
of any court, the Federal Communications Commissions, or any other government
authority having jurisdiction as a result of any change in circumstance
occurring after creation of this Agreement; and in the event of early
termination under the paragraph, neither party shall have any continuing
obligation or liability to the other, except for such obligations or liabilities
for payment which existed at, or in respect of, services rendered through the
termination date.
11. Indemnification.
---------------
a. Each party (the "Indemnifying Party") will indemnify and hold
harmless the other party, ("Indemnified Party") from and against any loss, cost,
claim, liability, damage expense (including reasonable attorney fees) to third
parties, relating to
5
<PAGE>
or arising out of any acts by the Indemnifying Party under this Agreement or its
negligent or willful misconduct and defend any action or suit brought by a third
Party against the Indemnified Party for any loss, claim, liability, damage, or
expense relating to or arising out of actions of the Indemnifying party under
this Agreement or its negligence or willful misconduct.
b. The Indemnified Party will notify the Indemnifying Party promptly in
writing of any written claims, lawsuits, or demands by third parties for which
the Indemnified Party alleges that the Indemnifying party is responsible under
this section and tender such claim, lawsuit, or demand to the Indemnifying Party
for defense and the Indemnifying Party agrees to so defend. The Indemnified
Party also will cooperate in every reasonable manner with the defense or
settlement of such claim, demand, or lawsuit.
c. The Indemnifying Party will not be liable under this section for
settlements by the Indemnified Party of any claim, demand, or lawsuit unless the
Indemnifying Party has approved the settlement in advance or unless the defense
of the claim, demand, or lawsuit has been tendered to the Indemnifying Party in
writing and the Indemnifying Party has failed promptly to undertake the defense.
d. Indemnified party is defined to include directors, officers,
employees, agents, successors or assigns. Indemnifying party is defined to
include successors or assigns.
12. Waiver of Warranties.
--------------------
SUBJECT TO THE TERMS OF PARAGRAPH 11 AND 13 CONTAINED HEREIN, AND EXCEPT
FOR THE GROSS NEGLIGENCE OR INTENTIONAL MISCONDUCT OF LESSOR, LESSOR SHALL IN NO
EVENT BE LIABLE TO LESSEE OR ANY OTHER PERSON, FIRM, OR ENTITY IN ANY RESPECT,
INCLUDING WITHOUT LIMITATION, FOR ANY DAMAGES, EITHER DIRECT, INDIRECT
CONSEQUENTIAL, SPECIAL INCIDENTAL, ACTUAL, PUNITIVE OR FOR ANY OTHER DAMAGES OR
FOR ANY LOST PROFITS OF ANY KIND OR NATURE WHATSOEVER, ARISING OUT OF MISTAKES,
ACCIDENTS, ERROR, OMISSIONS, INTERRUPTIONS, TERMINATION OR DEFECTS IN
TRANSMISSION, INCLUDING THOSE WHICH MAY BE CAUSED BY REGULATORY OR JUDICIAL
AUTHORITIES, ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE OBLIGATIONS OF
LESSOR PURSUANT TO THIS AGREEMENT. NOTWITHSTANDING ANYTHING CONTAINED HEREIN TO
THE CONTRARY, LESSOR MAKES NO WARRANTY WHETHER EXPRESSED, IMPLIED, OR STATUTORY,
AS TO THE DESCRIPTION, QUALITY,
6
<PAGE>
MERCHANTABILITY, COMPLETENESS OR FITNESS FOR ANY PURPOSES, ALL OF WHICH
WARRANTIES BY LESSOR ARE HEREBY EXCLUDED OR DISCLAIMED. THIS PROVISION MAY NOT
BE WAIVED EXCEPT BY THE PRIOR WRITTEN CONSENT OF GENE ELMORE, PRESIDENT, FIVE
STAR TELECOM, INC.
13. Warranties.
----------
Lessor warrants that all work product, materials and services furnished by
Lessor hereunder to Lessee shall be delivered or performed free of any claim of
any person by way of trade secret, copyright, trademark infringement or any
other proprietary right. Lessor represents and warrants that Lessor has title to
and is the lawful owner of all materials and supplies provided hereunder or, if
not the owner, has the right to use, license and provide same to Lessee.
Lessee warrants that all work product, materials and services furnished by
Lessee hereunder to Lessor shall be delivered or performed free of any claim of
any person by way of trade secret, copyright, trademark infringement or any
other proprietary right. Lessee represents and warrants that Lessee has title to
and is the lawful owner of all materials supplies provided hereunder or, if not
the owner, has the right to use license and provide same to Lessor and that such
materials and supplies are free of any security interests claims, liens or any
other encumbrances whatsoever; that Lessee has the right to assign, transfer and
convey them.
14. Miscellaneous.
-------------
a. Authority. Each party warrants that it has the full legal right,
power, and authority to perform its obligations under this Agreement and that
the person executing this Agreement has the authority to bind such respective
party.
b. Assignment. Lessee shall not assign or transfer this Agreement or
any rights hereunder without first obtaining the written consent of the Lessor,
which consent shall not be unreasonably withheld. Lessor shall notify Lessee of
any assignment of its rights and obligations under this Agreement.
c. Relationship. This Agreement does not and will not create a
partnership, agency, or joint venture between the parties and does not result in
a joint communications service offering.
d. Governing Law; Venue. This Port Agreement and the rights and
obligations of the Parties shall be governed by the laws of the State of
Washington. All
7
<PAGE>
parties consent that venue for the filing of any lawsuits brought hereunder
shall be in the City of Bellevue, County of King, Washington.
e. Severability. If any provision or portion of this Agreement shall
be held invalid under any applicable laws, such invalidity shall not affect any
other provision of this Agreement that can be given effect without the invalid
provision or portion and without materially altering the terms of this agreement
or the intent of the parties, and, to this end, the provisions or portions
hereof are severable.
f. Entire Agreement. This Agreement constitutes the entire agreement
between the parties and supersedes all prior agreements, whether written or oral
with respect to the services being provided under the terms of the Agreement,
and the terms hereof may be changed or waived only by an agreement in writing
signed by both parties hereto.
g. Compliance with Laws. The parties hereto agree to comply with all
federal, state, and local laws with respect to the service and this Agreement.
h. Force Majeure. Neither party shall be liable to the other for its
failure to perform its obligations hereunder if prevented or interfered with by
reason of fire, flood, epidemic, earthquake, or any other act of God, explosion,
power failure, economic impossibility or hardship, utility curtailment, labor or
other dispute, riot or civil disturbance, war, armed conflict, municipal
ordinance, state, or federal law, order of any court of competent jurisdiction,
governmental regulation or acts or omissions of third parties or other causes
beyond the reasonable control of Party.
i. Notices. Notices required under this Port Agreement shall be in
writing and personally delivered, telecopied, or sent by Certified Mail, Return
Receipt Requested, or overnight courier service to the Parties at the address
indicated below:
If To Lessor:
World Touch, Inc.
Attn: Richard H. Hunich
300 120th Ave., NE
Building One, Suite 204
Bellevue, Washington 98005
If to Lessee:
8
<PAGE>
PrimeCall, Inc.
Attn: Allan Chin
1520 Eastlake Ave., E
Suite 205
Seattle, Washington 98102
j. Arbitration. All disputes, including but not limited to billing
disputes, collection, contract interpretation and damages shall be resolved by
mandatory binding arbitration. Such arbitration shall be commenced upon the
filing of a notice requesting arbitration by either party. The cost of the
arbitration shall be initially borne equally by both parties. The prevailing
party shall be awarded its arbitration costs, and all of its actual attorney's
fees incurred in dispute resolution. The arbitration shall be held in the County
of King. The arbitrator's award may be converted into a judgment in accordance
with Washington state law.
k. Joint Procedures. Both parties agree to implement and adhere to the
procedures and duties in Exhibit "C" attached hereto and made a part thereof.
l. Interpretation and Construction. The parties agree that no
presumption shall be applied in favor or against any purported draftor.
m. Attorneys Fees. If any action of law or in equity is necessary to
enforce or interpret the terms of this Agreement, or any part thereof, the
prevailing party shall be entitled to reasonable attorney's fees and costs.
n. Reference. The paragraph headings contained within this Agreement
are for reference and convenience purposes only, and shall under no
circumstances affect the meaning or interpretation of this Agreement.
o. Performance. The failure of either party at any time, or from time
to time to require performance of any of the obligations of the other party
under this Agreement shall in no manner affect the right of either party to
enforce any provision of this Agreement at a subsequent time; and shall not be
construed as a waiver of any subsequent breach of that same provision.
p. Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed an original, but all of which taken together shall
constitute one and the same Agreement. All signed fax copies of this Agreement
shall be deemed as valid as an original.
9
<PAGE>
q. NO THIRD PARTY BENEFICIARIES. Nothing contained herein shall confer
any right to claim or enforce any right or obligation as third party beneficiary
upon any third party.
15. Circuit Costs. Lessor will accept no responsibility for any long-haul
-------------
transport cost or LEC billing. Lessor provides switch ports to the Lessee as
described above. It is the responsibility of the Lessee for all recurring and
non-recurring charges from local exchange carriers and any other carrier for
switched ports. Lessee will provide Lessor with a letter of agency and any other
required information allowing Lessor to order circuits into the switch office of
the Lessor. All billing for the circuits ordered by the Lessee will be paid
directly by Lessee.
IN WITNESS WHEREOF, the parties hereto have cause this Agreement to be
executed as of 8/7/96.
-------
LESSOR: LESSEE:
WORLD TOUCH, INC. PrimeCall, Inc.
By: /s/ R. H. Hunich By: /s/ Alan Chin
----------------------------- -------------------------------
R. H. Hunich Alan Chin
- -------------------------------- -----------------------------------
Name (printed) Name (printed)
Its: President Its: Vice President
---------------------------- -------------------------------
10
<PAGE>
EXHIBIT A
Fee and Term Schedule
Lessor hereby leases to Lessee DS-1 Ports (2 4 ports per DS-1) under the
following terms and conditions to be incorporated in and made a part thereof the
Switch Port Lease and Service Agreement dated June 1, 1996.
1. Lessee shall lease from Lessor 480 ports on a DMS-250C switch located
in Los Angeles, beginning with the execution date of this Agreement.
2. The commencement date of the Initial Service Term shall be the
execution date of this agreement.
3. The price per Voice and Data Digital channel (1/24 of DS-1 or T-1)
shall be [*] per port, payable 30 days in advance. Total price shall be [*] 480
ports x [*] = [*] per month.
4. Rack space and power to accommodate Lessee's equipment and Circuits
shall be provided by Lessor, within reason.
[*] CONFIDENTIAL TREATMENT REQUESTED
11
<PAGE>
EXHIBIT B
Routing Table Change Request Procedure
Both parties to this Port Agreement dated 8/7, 1996,
---
understand that procedures should be established and followed to assure that
required routing changes are executed accurately and in a timely and cost
efficient manner. Lessor agrees to work with Lessee to customize the basic
procedures set forth below in ways which are mutually acceptable for achieving
these goals.
1. Submitting Requests. Change requests must be made in writing and must
-------------------
indicate exactly how the Routing Table data is to appear after the change.
Lessee may submit changes to Lessor via first-class mail, recognized courier or
facsimile transmission. In order to expedite processing, Lessor may request that
changes be sent to the attention of a particular individual or department and/or
that a particular form or format be used. Lessee shall pay for all changes
within 10 days of receipt of an invoice from Lessor.
2. Acknowledging Receipt. Lessor shall acknowledge receipt of change
---------------------
requests by facsimile transmission on the next business day after receipt of
Lessee's written request. If Lessor fails to acknowledge receipt of a change
request within one business day, Lessee should call Lessor to confirm receipt or
resubmit the request. Change requests will not be deemed received unless
acknowledged by Lessor.
3. Timing of Input. Lessor shall review all change requests and contact
---------------
Lessee for clarification of the request, if applicable, within a reasonable
period of time after acknowledging receipt. A reasonable period of time for
reviewing the request generally will not exceed the next business day after the
receipt of the request. The change request will generally be completed within
the next business day following acknowledgment of Lessor's receipt of written
clarifications, if any from Lessee. Should Lessee request that any routing
change be completed by Lessor in less than the time interval specified above,
Lessor will use its best efforts to comply with Lessee's requests at an extra
charge. Lessee will always attempt to limit expedited changes to emergency
situations.
4. Acknowledging Input. Within 1 business day following completion of
-------------------
input, Lessor will send Lessee, via first-class mail, recognized courier or
facsimile transmission, a hard copy of print out of the changed routing tables
showing the contents before and after changes were made. Lessee shall review the
input to verify its accuracy. Completed changes will be considered correct and
accepted by Lessee unless Lessor is
12
<PAGE>
notified otherwise within the next business day after the information was
received or five (5) days after it is sent, whichever is less.
5. Data Base Management. Lessee shall be allowed direct input control via
--------------------
password protected software of the routing, management, and authorization code
data base on the switch under a mutually acceptable procedure for security and
implementation. Any other user of the switch shall coordinate their input
process in conjunction with the Lessor procedures. However, such input control
and access does not allow Lessee to make changes to any data base or routing
other than that associated with Lessee.
13
<PAGE>
EXHIBIT C
Lessee's Responsibilities
Lessee shall be responsible for the following:
1. ANI/Subscriber Maintenance of Class of Service, line/trunk
restrictions, adds, changes and deletions.
2. Trunk configuration, turn-up testing/acceptance, disconnects, moves or
changes will be done as scheduled with Lessor.
3. Trunk, switch and billing link maintenance will be tested, monitored
and trouble reported, pro-actively and re-actively during 8:30 a.m. to 5:30
p.m., Pacific Coast Time and by alarm during non-business hours.
4. Trunk ordering - as an agent when needed, Lessor personnel will respond
as facility point of contact, and test , install on coordinator with carriers
and Lessor's personnel.
5. Joint coordination of ASR's, however, Lessee will be order originator,
designer and technical point of contact. Lessee will also establish its own CLLI
with each carrier.
6. All costs, expenses whatsoever related to the operation of Lessee's
business through the DMS-250 switch.
Lessor's Responsibilities
Lessor shall be responsible for the following:
1. Identify the Switch Trunk Number for installation.
2. Installation wiring, joint testing acceptance of connecting carrier
facilities.
3. Initial installation support will be provided upon demand by Lessor
personnel between the hours of 8:30 a.m. and 5:30 p.m. Pacific Coast Time.
14
<PAGE>
4. If required by Lessee, due to billing link failure, Lessor will send a
billing tape of lost raw detail call records to Lessee. Lessee will be
responsible for shipping cost.
5. Lessor shall maintain the Switch in good working order so that it
operates up to normal carrier standards and up to Northern Telcom DMS standards,
whichever shall be higher standards. Lessor shall also provide least cost
routing on an efficient basis and make changes promptly and accurately. Lessor
shall retain all data and reports in a secure backed up mode at the prevailing
industry standards. Lessor's failure of any of the provisions herein and failure
to remedy such deficiency within five days of notice shall constitute a material
breach of the terms and conditions of the Agreement for purposes of Paragraph 9.
15
<PAGE>
Attachment 1
This Attachment is to amend Exhibit A to increase the number of lease ports from
480 to 960. This increase is to be effective October 1, 1996.
In WITNESS WHEREOF, the parties hereto have cause this Attachment to be executed
as of October 1, 1996. Both parties agree that Attachment 1 is a part of the
original Agreement executed on August 7, 1996.
LESSOR: LESSEE:
WORLD TOUCH, INC. Primecall, Inc.
By: /s/ R. R. Hunich By: /s/ Alan Chin
-------------------------- ---------------------------
R. R. Hunich Alan Chin
- ----------------------------- ------------------------------
Name (printed) Name (printed)
Its: President Its: Vice President
------------------------- --------------------------
16
<PAGE>
Attachment 2
This addendum extends the existing term of the Port Rental Agreement from
February 7, 1997 to January 31, 1998 for 960 Ports on the Los Angeles Switch.
In WITNESS WHEREOF, The parties hereto have cause this Attachment to be executed
as of February 28, 1997. Both parties agree that Attachment 2 is a part of the
original Agreement executed on August 7, 1996.
In addition WTI agrees to lease 20 more T's (480 Ports) at the same prices
starting on March 15, 1997 and terminates on January 31, 1998.
Lessor: Lessee:
World Touch, Inc. Prime Call, Inc.
By: /s/ R. H. Hunich By: /s/ Alan Chin
--------------------------- ------------------------
Name: R. H. Hunich Name: Alan Chin
------------------------- ----------------------
(Printed) (Printed)
Its: President Its: Vice President
-------------------------- ----------------------
17
<PAGE>
EXHIBIT 10.11
[*] Designates material for which confidential treatment has been requested,
which material has been separately filed with the Securities and Exchange
Commission.
TRILOGY TELEMANAGEMENT SERVICE AGREEMENT:
----------------------------------------
WHEREAS: Trilogy Telemanagement, L.L.C. ("Trilogy"), a Delaware limited
liability company, in the business of providing and marketing platform enhanced
telecommunication services, including but not limited to, long distance
telephone services, telephone calling cards, fax services, and debit cards. To
effectuate its services, Trilogy, among other things, designs and develops
computer software, hardware, and services for operation and management of
digital switch services and other products for the deployment of digital switch
application and the management of telecommunications business functions.
WHEREAS: The undersigned "Customer" desires to purchase Trilogy's
services, as specifically defined in Exhibit "1" attached to this Agreement.
WHEREFORE, in consideration for the mutual covenants and promises
contained herein, the parties agree as follows (Trilogy and Customer may also be
referred to as "Party" or "Parties"):
1. SERVICES TO BE PROVIDED TO CUSTOMER: Trilogy agrees to provide the
-----------------------------------
services described in Exhibit "1" attached to this Agreement to the Customer in
consideration for the payment(s) to be provided by the Customer as set forth in
Exhibit "1" to this Agreement.
Trilogy Telemanagement Service Agreement
Page 1
<PAGE>
2. PAYMENT TO BE MADE BY CUSTOMER: Customer agrees, in consideration
------------------------------
for the Services to be provided by Trilogy, to pay the consideration upon the
terms and conditions set forth on Exhibit "1" attached to this Agreement.
Nonpayment of Services shall constitute a material breach of this Agreement.
3. PROPRIETARY INFORMATION: The parties stipulate and agree that
-----------------------
Trilogy possesses certain proprietary information, including but not limited to
patent, trademark, copyright, and trade secret information that may be disclosed
to the Customer to effectuate this Agreement. Proprietary and trade secret
information includes but is not limited to any and all technical information,
financial data, customer lists, user lists, business plans, business
relationships, marketing plans, technical specifications, trade secrets,
discoveries, ideas, concepts, and know-how furnished or disclosed by Trilogy to
the Customer. Customer agrees to diligently keep all proprietary information of
Trilogy's as a trade secret, and not to disclose, sell, sublicense, assign, or
in any other way alienate same without the prior written consent of Trilogy.
Customer agrees that all right, title and interest in and to, and ownership of,
all intellectual property rights in and to such software, to the extent that
such intellectual property rights are not in the public domain, including but
not limited to all rights in patents, trademarks, copyrights and trade secrets
relating thereto, any enhancements and modifications thereto and copies thereof,
and any user documentation related thereto (collectively, the "Trilogy
Software"), shall at all times reside exclusively in Trilogy or such third
parties as Trilogy may in its sole
Trilogy Telemanagement Service Agreement
Page 2
<PAGE>
discretion determine, notwithstanding the fact that any enhancements or
modifications may have been conceived, developed or made by or on behalf of the
Customer. For purposes of this Agreement, (i) the term "enhancements" shall mean
all updates and improvements to the Software in question which, if such Software
were then being licensed or sold, would be generally offered to a purchaser or
licensee as part of such Software and which would not be separately priced
options, and (ii) the term "modifications" shall mean all changes made to the
Software in question in an attempt to repair or correct any defect therein in
order to cause such Software to conform to the specifications related thereto or
any other warranty related thereto as specified in this Agreement. Customer
shall be entitled only to such licensee rights with respect to the Trilogy
Software as are specifically granted in this Agreement and its Exhibits and to
no other rights; said licensee rights shall only be coextensive with the terms
of this Agreement, and shall terminate with the termination of this Agreement.
Upon termination of this Agreement, Customer shall promptly return all
proprietary information of Trilogy's to Trilogy.
4. RELATIONSHIP OF PARTIES: The parties have entered into an
-----------------------
independent contractor relationship. This Agreement is not a partnership, joint
venture, or other noncontractual arrangement.
5. WARRANTEES AND LIMITATIONS OF LIABILITY: (a) Trilogy warrants that
---------------------------------------
all Software, goods, and services (hereinafter "Services") provided in this
Trilogy Telemanagement Service Agreement
Page 3
<PAGE>
Agreement will comply with prevailing telecommunications industry standards
(hereinafter "Technical Standards"). If Trilogy determines that the Services are
not being provided in accordance with the Technical Standards (hereinafter , a
"Defect" or "Defects"), Trilogy shall use reasonable efforts under the
circumstances to conform the Services to the Technical Standards.
(b) THIS EXCLUSIVE WARRANTY IS IN LIEU OF ALL OTHER WARRANTIES, AND
CUSTOMER HEREBY WAIVES ALL OTHER WARRANTIES, EXPRESS, IMPLIED OR STATUTORY,
INCLUDING, BUT NOT LIMITED TO, ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR
USE FOR A PARTICULAR PURPOSE. TRILOGY HEREBY SPECIFICALLY DISCLAIMS ANY
LIABILITY TO CUSTOMER FOR INTERRUPTIONS AFFECTING THE SERVICES FURNISHED
HEREUNDER WHICH ARE ATTRIBUTABLE TO CUSTOMER'S SERVICE INTERCONNECTIONS OR TO
CUSTOMER'S EQUIPMENT FAILURES, OR TO CUSTOMER'S BREACH OF THIS AGREEMENT.
(c) IN NO EVENT SHALL TRILOGY OR ANY OF ITS AFFILIATES BE LIABLE TO
CUSTOMER OR ANY OF ITS AFFILIATES OR EMPLOYEES OR TO ANY THIRD PARTY FOR: (i)
ANY LOSS OF PROFIT OR REVENUE, OR FOR ANY INDIRECT CONSEQUENTIAL, INCIDENTAL,
PUNITIVE OR SIMILAR OR ADDITIONAL DAMAGES, WHETHER INCURRED OR
Trilogy Telemanagement Service Agreement
Page 4
<PAGE>
SUFFERED AS A RESULT OF UNAVAILABILITY OF SERVICES PERFORMANCE, NON-PERFORMANCE
TERMINATION, BREACH, OR OTHER ACTION OR INACTION UNDER THIS AGREEMENT, OR FOR
ANY OTHER REASON, EVEN IF CUSTOMER ADVISES TRILOGY OF THE POSSIBILITY OF SUCH
LOSS OR DAMAGE; OR (ii) FOR OUTAGE, OR INCORRECT OR DEFECTIVE TRANSMISSIONS, OR
ANY DIRECT OR INDIRECT CONSEQUENCES THEREOF.
(d) NOT WITHSTANDING ANYTHING IN THIS AGREEMENT TO THE CONTRARY, IN NO
EVENT SHALL THE CUMULATIVE LIABILITY OF TRILOGY UNDER THIS AGREEMENT EXCEED THE
TOTAL PAYMENTS PAID BY CUSTOMER TO TRILOGY HEREUNDER.
6. TAXES AND REGULATORY MATTERS: The parties shall be responsible for
----------------------------
paying their individual federal, state, local, and franchise taxes, if any. The
parties agree to cooperate to comply with all federal, state, and local laws,
rules and regulations applicable to this Agreement, and maintain in force all
licenses and permits required for their respective activities and obligations
hereunder. Trilogy hereby represents and warrants that it is authorized to
undertake the activities contemplated under this Agreement in each jurisdiction
in which it will provide services hereunder.
7. TERM AND TERMINATION: This Agreement shall commence with the signing
--------------------
of the Agreement, and continue until March 31, 1999. This Agreement shall be
Trilogy Telemanagement Service Agreement
Page 5
<PAGE>
immediately terminable by either party upon written notice to the other party of
a material breach of this Agreement. In the event that either party has
reasonable suspicion to believe that the other party cannot or will not comply
with the material terms of this Agreement at any time through the end of the
then current term, the suspecting party shall set forth in writing its
suspicions, the basis thereof, and request reasonable assurances under the
circumstances from the other party that the Agreement will be performed. If such
assurances are not received within thirty (30) days of receipt of the written
request for assurances when the request of said assurances is reasonable under
the circumstances, the Agreement shall be terminated.
8. NOTICES: All notices or demands shall be delivered in person against
-------
a written receipt, sent via telecopier or facsimile transmission to the
telecopier or facsimile transmission number listed above, sent by registered or
certified mail of the United States Postal Service, return receipt requested, or
sent by overnight courier service guaranteeing next business day delivery. Each
such notice, demand or request shall be deemed to have been given upon actual
receipt or refusal by the addressee. All notices, demands or requests provided
for or permitted to be given pursuant to this Agreement must be in writing and
shall be sent to the parties at the following addresses:
To Trilogy: Trilogy Telemanagement LLC
210 S. 16th Street, Suite 116
Omaha, N-E 68102
Fax Number: (402) 346-1500
Trilogy Telemanagement Service Agreement
Page 6
<PAGE>
To Customer: Primecall, Inc.
1520 Eastlake Avenue East, Suite 205
Seattle, Washington 98102
9. DISPUTES: Should there exist any error or confusion the Parties
--------
agree to attempt to resolve the matter by bringing it to the attention of the
appropriate party, in writing, within a reasonable time after the dispute arises
and allow a reasonable time from receipt of the notice of dispute to respond to
the matter or otherwise resolve the dispute. The Parties agree to negotiate in
good faith. In the event that a dispute cannot be resolved, the Parties agree
that the dispute will be revolved through arbitration, in the city of Omaha,
Douglas County, Nebraska, in accordance with the Rules of the American
Arbitration Association.
10. AMENDMENTS: All Amendments to this Agreement shall be in writing,
----------
and signed by both parties. Amendments do not need to be supported by additional
consideration outside of this foundational Agreement.
11. SEVERABILITY: If any provision of this Agreement or the application
------------
thereof to any person or circumstance shall be invalid or unenforceable to any
extent, the remainder of this Agreement and the application of such provisions
to other persons or circumstances shall not be affected thereby and shall be
enforced to the greatest extent permissible by law.
Trilogy Telemanagement Service Agreement
Page 7
<PAGE>
12. RESTRICTION ON ASSIGNMENT: Customer may not assign this Agreement
-------------------------
without the consent of Trilogy. Trilogy shall not unreasonably withhold its
consent to any assignment of this Agreement by the Customer.
13. AUTHORITY: The individuals below and their respective parties
---------
represent that they are authorized to enter into this Agreement and that the
undersigned signatories are authorized to bind the parties to this Agreement.
14. LEGAL FEES: If any action is necessary in order to enforce the
----------
terms of this Agreement, the prevailing party shall be entitled to recover its
attorney's fees and costs incurred in addition to any other relief to which it
may be entitled.
15. ENTIRE AGREEMENT: This Agreement constitutes the entire Agreement
----------------
between the Parties and supersedes all prior understandings with respect to the
subject matter of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
31st day of March, 1997. The parties agree that the signing and exchange of this
document may be performed via telecopier or facsimile transmission.
TRILOGY TELEMANAGEMENT, L.L.C.
By: /s/ Robert G. Barben
--------------------------------
Name: ROBERT G. BARBEN
Title: Vice President Sales and Marketing
Date: March 31, 1997
Trilogy Telemanagement Service Agreement
Page 8
<PAGE>
PRIMECALL INCORPORATED
Jurisdiction of Formation: State of Washington
----------------------
Taxpayer ID #: 91-173-8735
----------------------------------
By: /s/ Michael S. Sims
---------------------------------------------
Name: Michael S. Sims
-------------------------------------------
Title: Chief Operating Officer
------------------------------------------
Date: 4/2/97
-------------------------------------------
Trilogy Telemanagement Service Agreement
Page 9
<PAGE>
EXHIBIT 1
---------
of
--
TRILOGY TELEMANAGEMENT SERVICE AGREEMENT
----------------------------------------
This Exhibit 1 of Trilogy Telemanagement Service Agreement describes the
Services offered by Trilogy Telemanagement, LLC (hereinafter "Trilogy") and the
responsibilities accepted by both Trilogy and Primecall, Inc. , (hereinafter
"Primecall") to effectuate such services (Trilogy and Primecall may be referred
to as "Party" or "Parties").
A. Whereas, Primecall is involved in the telecommunications
industry and provides long distance telephone services; and
B. Whereas, Trilogy develops software for providers of long
distance telephone services and further provides technical
expertise and support for long distance providers; and
C. Whereas, Primecall wishes to lease with option to buy,
Trilogy's proprietary software, TeleScript, to operate
Primecall's Summa Four SDS 1000 installation and TeleDesq 2.0
Primecall, to manage Primecall's data entry, customer service
and billing requirements through March 31, 1999. Also
Primecall wishes to lease a license to use Trilogy's
proprietary software Web-Call with no option to buy for the
same period of time. Should the license for Web-Call become
available for sale during these twenty four (24) months,
Trilogy will negotiate the sale of this license to Primecall
at that time. Trilogy also gives Primecall the option to
continue to lease Web-Call after the twenty four month period.
Terms of this option will be negotiated and agreed to no later
than sixty days (60) prior to the end of the current lease
agreement. Trilogy and Primecall agrees that lease will remain
at a fair and nominal price for both parties.
1. Description of Services
-----------------------
1.1 TeleScript: TeleScript is a proprietary software of Trilogy.
TeleScript is a fourth generation language designed to command
the Summa Four SDS family of switches to perform complex
callflows and resource management. TeleScript further provides
real time call timing, rating and CDR output. The TeleScript
features and applications contracted for under this service
agreement are listed in Attachment 1 to Exhibit 1.
1.2 TeleDesq 2.0 Primecall: TeleDesq 2.0 Primecall is a
proprietary software of Trilogy. TeleDesq 2.0 Primecall is a
data management software designed specifically for the
telecommunications industry to provide and perform data entry
functionality, customer service support and retail billing
Exhibit 1 of Trilogy Telemanagement Service Agreement
Page 1
<PAGE>
functionality. The TeleDesq 2.0 Primecall capabilities
contracted for under this agreement are listed in Attachment 1
to Exhibit 1.
1.3 Web-Call: Web-Call is a proprietary software of Trilogy.
Web-Call is visual automation software for use of
International Call-Back and Domestic Call-Back via use of the
world wide web network.
1.4 Installation: Trilogy shall use its best efforts to activate
and make operational TeleScript and TeleDesq 2.0 Primecall on
or before April 15th, 1997. TeleScript runtime and TeleDesq
2.0 Primecall shall be activated with Primecall's capabilities
for modifications.
1.5 Support: Trilogy offers ten (10) hours per month Technical
Support without additional charge. Trilogy extends Level II
support without additional charge. Level II Support shall be
defined as support of Trilogy Software and is available 24
hours per day, 7 days a week, 365 days a year. Primecall's
customer training, customer support, data entry and data
manipulation is not included in Level II support All
additional support provided by Trilogy shall be prepaid by
Primecall. It shall be understood that support offered
remotely is billed at Trilogy's prevailing commercial rate.
On-site support shall be offered in accordance with section 4
below plus a 15% surcharge to Trilogy's prevailing commercial
rate.
1.6 Training: Trilogy shall provide "hands-on" training of
Trilogy's TeleDesq 2.0 to Primecall Incorporated personnel in
Trilogy's office. Training on Trilogy TeleScript will be
provided for Primecall technicians at Trilogy's offices if
needed and requested by Primecall.
2. Compensation
------------
2.1 Compensation for Services: Primecall shall compensate Trilogy,
per Summa Four switch, for the lease of a non-exclusive,
non-transferable, with option to purchase at end of twenty
four (24) month lease license of Telescript and Teledesq 2.0
to Primecall as described in section 1 above, and for the
lease of a non-exclusive, non-transferable and non-purchasable
license to use Web-Call in the following manner: (A) To
-
effectuate this agreement and receive Service from April 15th,
1997, through April 14th, 1999, Primecall shall remit payment
of US $[*] in certified funds on or before March 31, 1997.
This payment represents $[*] Installation Fee and $[*]
first months lease with option to buy for Trilogy's TeleScript
and TeleDesq 2.0 Primecall. (B) Effective May 01, 1997
-
Primecall shall remit monthly payments of US$[*], ($[*],
monthly lease with option to buy Trilogy's TeleScript and
TeleDesq 2.0 Primecall and $[*] monthly lease for Trilogy's
Web-Call with no option to buy). (C) Final purchase price at
-
end of twenty four
[*] CONFIDENTIAL TREATMENT REQUESTED
Exhibit 1 of Trilogy Telemanagement Service Agreement
Page 2
<PAGE>
month lease, effective March 31, 1999 US$[*] for purchase
of license of Trilogy's TeleScript and TeleDesq 2.0 Primecall.
2.2 LICENSE AND ASSIGNMENT: Trilogy hereby grants to Customer a
----------------------
nonexclusive, license to use TeleScript, TeleDesq 2.0
Primecall and Web-Call, as defined in Exhibit 1 of the
Agreement for One (1) Summa Four Switch (collectively, the
"Trilogy Software") in Customers business in any manner in
Customer's sole discretion, for the term of this agreement or
until termination hereof. At the end of the term of this
Agreement, or at termination hereof by Trilogy, Customer shall
have the sole and exclusive option to purchase the Trilogy
Software, TeleScript and TeleDesq 2.0 Primecall, upon the
terms set forth in Exhibit 1. Web-Call may not be purchased at
this time.
2.3 Nonpayment of Services: Nonpayment of Services shall
constitute a material breach of this Agreement. Nonpayment of
Services as contemplated by section 2.1 A. B. and C. of this
----- --
Exhibit shall cause the immediate termination of this
Agreement and simultaneously the immediate termination of all
Services.
3. Responsibilities of the Parties
-------------------------------
3.1 Hardware: Primecall shall ensure that all Hardware is in good
and serviceable condition. Hardware may include, but is not
limited to: host computers, Summa Four switches, modems,
cables and wiring. Trilogy shall assume no responsibility or
liability and shall be held harmless for any and all Hardware
malfunctions regardless of cause.
3.2 Data Integrity: Primecall shall ensure the safety, security
and accuracy of its Data. Data may include but is not limited
to: customer records, billing records, rating records, routing
records, traffic records. Primecall shall establish and
perform adequate backup procedures. Primecall shall establish
and perform adequate error checking. Trilogy shall assume no
responsibility or liability and shall be held harmless for any
and all loss or inaccuracy of Data regardless of cause.
3.3 Environment: Primecall shall provide an appropriate operating
environment, that meets with telecommunications industry
standards, to operate its equipment and Trilogy's proprietary
software. Trilogy shall assume no responsibility or liability
and shall be held harmless for any and all failures of the
Environment regardless of cause.
3.4 Upgrades and Fixes: Trilogy shall provide regular and
necessary bug fixes and technical adjustments to the Trilogy
Software licensed under this agreement. Customer is entitled
to all upgrades and will be supplied integration code, service
and support as necessary for Primecall to use the
[*] CONFIDENTIAL TREATMENT REQUESTED
Exhibit 1 of Trilogy Telemanagement Service Agreement
Page 3
<PAGE>
Trilogy Software as contemplated by the Agreement and this
Exhibit 1. Trilogy shall license such fixes, upgrades and
integration code to Primecall with an option to purchase as
set forth in Section 3 of the Agreement.
4. Travel/Per Diem Expenses
------------------------
4.1 Travel and Per Diem Expenses: Any travel necessitated by
Primecall and actual expenses related thereto shall be paid by
Primecall.
TRILOGY TELEMANAGEMENT, L.L.C.
By: /s/ Robert G. Barben
----------------------------------
Name: ROBERT G. BARBEN
Title: Vice President Sales and Marketing
Date: March 31, 1997
PRIMECALL INCORPORATED
Jurisdiction of Formation: State of Washington
---------------------
Taxpayer ID #: 91-173-8735
---------------------------------
By: /s/ Michael S. Sims
--------------------------------------------
Name: Michael S. Sims
------------------------------------------
Title: Chief Operating Officer
-----------------------------------------
Date: 4/2/97
------------------------------------------
Exhibit 1 of Trilogy Telemanagement Service Agreement
Page 4
<PAGE>
Attachment 1 to Exhibit 1 of Trilogy Telemanagement Service Agreement
This attachment defines the first set of features and applications contracted
for under Trilogy Telemanagement's Service Agreement and Exhibit 1.
Trilogy Software Features
- -------------------------
Trilogy TeleDesq 2.0 Primecall
-------------------------------
. Account Management
. 800# Management
. Country/Rating Code Management
. Rate Management
. Agent Management
. Customer Management
. Traffic Detail/Export Management
. Payments Module
. Multiple Billing Entity Support Module
. Order Entry Module
. Management Reports
. Account Code Billing Module
. Dynamic Invoicing Module
. Credit Card Payment Module
. Speed Dial Management
Trilogy TeleScript Features
---------------------------
. TeleScript Development Compiler
. On-line Rating Module
. On-line Credit Card Clearing Module
Trilogy TeleScript Applications
-------------------------------
. Call-Back
. Travel Card/Debit Card
All applications may be tailored to specific requirements (Additional charges
may be required).
<PAGE>
Exhibit 10.12
[*] Designates material for which confidential treatment has been requested,
which material has been separately filed with the Securities and Exchange
Commission.
Scitor International Telecommunications Services, INC.
A SITA Group Company
Agreement for managed Scitor ITS
data network services
- ------------------------------------------------------
- --------------------------------------------------------------------------------
Customer Name: Date:
NetStar International Telecommunications, Inc. April 28, 1995
- --------------------------------------------------------------------------------
Customer Address: Agreement No:
5820 Stoneridge Mall Road, Suite 214 MDNS/US/NC/95-99
Pleasanton, CA 94588
- --------------------------------------------------------------------------------
Customer Contact: Telephone No:
Peter Gust (T) 510-734-5100
(F) 510-734-5100
- --------------------------------------------------------------------------------
In accordance with the terms of this Agreement, Scitor International
Telecommunications Services, Inc. ("Scitor ITS") agrees to make available to the
above Customer ("Customer") certain managed data network services as more fully
described in this Agreement or as may be ordered from time to time by Customer
and accepted by Scitor ITS. All accepted orders shall become a part of this
Agreement.
THE PARTIES HAVE READ THIS AGREEMENT AND AGREE TO BE BOUND BY ALL OF ITS TERMS.
THE PARTIES FURTHER AGREE THAT IT CONSTITUTES THE COMPLETE AGREEMENT BETWEEN
THEM AND SUPERSEDES ALL PROPOSALS, ORAL OR WRITTEN, AND ALL OTHER COMMUNICATION
BETWEEN THEM RELATING TO THE SUBJECT HEREOF. NO AGREEMENT OR DOCUMENT HAVING AS
ITS PURPOSE OR EFFECT THE VARIATION, ADDITION OR DELETION OF ANY OF THE TERMS
AND CONDITIONS INDICATED IN THIS AGREEMENT WILL BE BINDING UNLESS SIGNED FOR AND
ON THE BEHALF OF SCITOR, ITS BY AN AUTHORIZED SIGNATORY.
Scitor ITS Customer /s/ German Burtscher
- ------------------------------- ----------------------------------------
Authorized Signatory Authorized Signatory
Name /s/ Bruce D. Jones Name German Burtscher
- ------------------------------- ----------------------------------------
Title Title Vice President
Bruce D. Jones
EXECUTIVE V.P & GENERAL MGR. MAY 15, 1995
- ------------------------------- ----------------------------------------
Date 5/26/95 Date
- --------------------------------------------------------------------------------
<PAGE>
withhold such confirmation of acceptability. Any Equipment connected by
Scitor ITS shall be deemed to comply with this Clause 2.4
2.5 Customer hereby authorizes Scitor ITS to make reasonable use of any user
codes, numbers or passwords allocated to Customer for the purpose of
providing network management and support to Customer.
2.6 Customer shall be responsible for obtaining and maintaining all such
equipment and communications lines, magnetic media, programs, software and
other facilities, including the provision of personnel, as are reasonably
necessary and acceptable to Scitor ITS for communications with the Service
(collectively the "Customer Facilities"). Neither Scitor ITS nor its agents
or sub-contractors shall have any responsibility for or liability with
respect to the use, operation or performance of such Customer Facilities.
3. SUPPORT SERVICES
3.1 Scitor ITS shall provide access by voice and/or data link, if available, to
help desk facilities at locations of Scitor ITS' choice in order for
Customer to obtain technical advice and guidance on the operation and use
of the Service.
3.2 Scitor ITS shall provide [*] management services comprising: (a) the [*]
and [*] of the [*] of [*] and [*] from the relevant [*] as applicable; (b)
the testing and acceptance of [*]; (c) [*] fault restoration upon becoming
aware of a fault: and (d) [*] to [*] providers of [*], [*] or other
telecommunications equipment in local currency on Customer's behalf, where
applicable.
4. EQUIPMENT
4.1 Scitor ITS shall connect the Equipment at the Locations, or such other
locations agreed to by the Parties (if requested by Customer) on dates to
be agreed by the Parties. Scitor ITS shall provide reasonable notification
of the date of connection and shall connect at times to be agreed by the
Parties. Should connection require the removal or disconnection of any
existing equipment of Customer, Customer shall permit, and obtain all
necessary consents for, such removal or disconnection and shall give Scitor
ITS all necessary assistance to enable such work to be carried out.
4.2 On the date of connection of the Equipment, Scitor ITS shall commission the
Equipment, which on successful commissioning shall be deemed to be accepted
by Customer. For the purpose of this Clause 4.2,"successful commissioning
shall mean that Scitor ITS shall have checked powered up, and then carried
out the manufacturer' initialisation tests on the Equipment, save that
should Customer require additional commissioning tests, Scitor ITS shall
carry out such alternative tests provided that such tests are reasonably
necessary to establish the operability of the Equipment and provided,
further, that Customer has given Scitor ITS at least 30 days notice prior
to the date of delivery of the Equipment to the Location.
4.3 The lease term shall commence on the date of acceptance of the Service
pursuant to Clause 11.2 at the Location to which the Equipment relates and
shall thereafter continue in accordance with the term of this Agreement,
subject to Clause 5.1 of Attachment 1 and Clause 1.7 of Attachment 2 .
4.4 The lease and any other charges shall be as specified in Attachment 1.
4.5 Except as set forth in Clause 1.7 of Attachment 2, the Equipment shall at
all times remain the sole and exclusive property of Scitor ITS or its sub-
contractors and Customer shall have no rights or interest in the Equipment
except for quiet possession and the right to use the Equipment under the
terms and conditions of this Agreement.
4.6 Customer shall have the following additional obligations with respect to
the Equipment: (a) not to sell, assign, sub-let, pledge or part with
possession or control of or otherwise deal with the Equipment or any
interest therein: (b) not to change, remove or obscure any labels, plates,
insignia, lettering or other markings which are on the Equipment at the
[*] CONFIDENTIAL TREATMENT REQUESTED
time of connection thereof or which may thereafter be placed on the
Equipment by Scitor ITS or by any person authorized by Scitor ITS; (c) to
keep the Equipment free from distress, execution or any other legal
process; (d) not to move the Equipment from the Location (or other
Location) to which it was delivered and connected without Scitor ITS' prior
written consent; and (e) not to use the Equipment or permit the same to be
used contrary to any law or any regulation for the time being in force.
4.7 Customer shall have full responsibility for the upkeep of the Equipment.
For the purpose of this Clause 4.7, "responsibility for upkeep" shall mean
that Customer shall: (a) ensure that proper environmental conditions as
recommended by the manufacturers are maintained for the Equipment and that
the exterior surfaces are kept clean and in good condition; (b) not make
any modifications to the Equipment: and (c) not use in conjuction with the
Equipment any accessory, attachment or additional equipment other than that
which has been supplied by or approved in writing by Scitor ITS.
4.8 Upon termination or expiry of this Agreement. Customer shall surrender
possession of the Equipment in good order, repair and condition, to Scitor
ITS, fair wear and tear excepted.
4.9 Scitor ITS shall ensure that the Equipment is at the time of commissioning,
and remains during the term of this Agreement, in good working order. If a
Service fault occurs which has been caused by a failure in the Equipment,
Scitor ITS shall restore or repair the Service to the affected Location as
soon as practicably.
<PAGE>
1. DEFINITIONS
1.1 In this Agreement, unless the context otherwise requires, the following
expressions shall have the following meanings:
1.2 "Agreement" shall mean this managed data network services agreement and the
Attachments and Schedules attached hereto and made a part hereof.
1.3 "Dollars" or "S" shall mean United States dollars.
1.4 "DTE" shall mean Data Terminating Equipment.
1.5 "Effective Date" shall mean the date this Agreement is signed by an
authorized signatory of Scitor ITS.
1.6 "Equipment" shall mean the communications equipment, servers, modems,
cables and connectors supplied under lease by Scitor ITS to Customer under
this Agreement.
1.7 "Initial Term" shall mean a period commencing on the Effective Date and
ending 5 (five) years after the date of acceptance of the Service by
Customer (pursuant to Clause 12.2) at the last Location to be connected
under this Agreement.
1.8 "Locations" shall mean the locations specified in Attachment 2.
1.9 "Network" shall mean the communications processors, related equipment, and
circuits used by Scitor ITS for the provision of the Service, excluding
Tail Circuits to the Locations and any communications equipment (including
the Equipment) sited at the Locations.
1.10 "Network Path Availability" shall mean the availability of two way
communication of the virtual communication link (expressed as a percentage)
between the access entry port on which the DTE originator is connected and
the Network access exit port on which the DTE destination is connected,
excluding maintenance windows, host links and Tail Circuits.
1.11 "Network Transit Time" shall mean the elapsed time taken for the one way
transmission of a 128 character length packet (a "Packet") between the
entry point on the Network Node to which Customer's transmitter of the
Packet it connected, and the exit point on the Network Node to which the
receiver of the Packet is connected.
1.12 "Node" shall mean a node of the Network to which a Tail Circuit is to be
connected for the purposes of rendering the Service to Customer such Nodes
being deployed at such times and places as determined by Scitor ITS.
1.13 "Parties" shall mean Scitor ITS and the Customer, "Party" shall mean either
Scitor ITS or the Customer as the context requires.
1.14 "Service" shall mean managed data network services based on X.25 protocol
and all related and ancillary services thereto, or any of same, including
the provision of Equipment and Software all as more fully described in
Attachment 1, or such other managed data network services agreed to by the
Parties from time to time; the Service expressly excludes any PSTN dial-up
lines or modems.
1.15 "Software" shall mean the software programs and each and every component
thereof, as amended from time to time, including all developments, versions
or releases thereof whether existing now or becoming available in the
future, and all related documentation, which may be supplied by Scitor ITS
in connection with the provision of the Service, whether integral to the
Equipment or otherwise.
1.16 "Support Services" shall mean the services as described in Clause 3.
1.17 "Tail Circuit" shall mean a telecommunications circuit or other capacity
leased from the relevant telecommunications authorities (PTTs) and which
permits the connection of a Location to the nearest Scitor Network node.
2. PROVISION OF SERVICE
2.1 Scitor ITS agrees to provide (subject to Clause 2.3), and Customer agrees
to obtain from Scitor ITS, the Service subject to the terms and conditions
of this Agreement and subject to payment of the charges set out in
Attachment 1. Customer understands and agrees that Scitor ITS provides the
Service for the benefit of Customer only and nothing in this Agreement
shall entitle customer to resail the Service to any third party.
2.2 Scitor ITS reserves the right to control, direct and establish procedures
for the use of the Service and Customer agrees to follow the instructions
and procedures of Scitor ITS with respect to the use of the Service. Scitor
ITS also reserves the right to make operational changes in the Service. In
exercising any such rights under this Clause 2.2, Scitor ITS shall not
adversely affect the Service or increase the charges payable by Customer
under this Agreement.
2.3 Customer shall ensure at all times that its use of the Service (including
its connection of any apparatus to any network used to deliver the Service)
is in accordance with all applicable telecommunications, data protection
and other laws, licenses or regulations.
2.4 Any terminal equipment used to gain access to the Service must be approved
by Scitor ITS prior to its connection to the Network. Scitor ITS reserves
the right to disconnect (or require the disconnection of) any terminal
equipment in breach of this provision. Customer shall notify Scitor ITS of
any terminal equipment it wishes to connect to the Network and Scitor ITS
shall promptly confirm its acceptability under this Clause 2.4. Scitor ITS
shall not unreasonably
<PAGE>
possible following such notification. Scitor ITS further agrees that a
Scitor ITS sub-contractor will, if necessary as determined by Scitor ITS,
arrive at the affected Location and commence any remedial activities within
4 working hours of notification, provided the notification is received, and
the call-out can be made during the normal business day of the Scitor ITS
sub-contractor nearest to the affected Location, and provided, also that
the affected Location is within a 50 kilometer radius of said centre
("Normal Service"). Remedial service on Equipment other than Normal Service
shall be carried out by Scitor ITS through its sub-contractors as soon as
is practicably possible, taking into account availability of service
personnel, the time and date of Customer's notification and the country
concerned.
4.10 Scitor ITS shall not be responsible for Service faults, nor shall Scitor
ITS be obliged to comply with its obligations under Clause 4.9, if such
faults occur as a result of: (a) damage to the Equipment during transport
activity or connection carried out by Customer or any third party other
than as authorised by Scitor ITS; (b) interventions other than normal
interventions carried out by non Scitor ITS personnel; (c) modifications to
the Equipment which have not been approved by the Equipment manufacturer or
carried out by personnel unapproved by Scitor ITS; (d) improper treatment
to the Equipment, failure to meet the Equipment manufacturer's
specifications, or environmental conditions by non-Scitor personnel; or (e)
accident or negligence on the part of Customer or any force majeure event.
Any site visits or repairs made necessary by the events specified in this
Clause 4.10 shall be subject to prior agreement by Scitor ITS and may cause
Customer to incur increased charges for the Service at the affected
Location, such charges to be commensurate with the cost to Scitor ITS of
restoring or repairing the Service. Nothing in this Clause 4.10 shall
affect Customer's obligations in respect of Equipment under the other
provisions of this Clause 4.
4.11 In this Clause 4. and notwithstanding definition 1.8. 'Locations' means
Locations as such term is defined in 1.8 and other locations where the
Equipment may be situated and connected, as agreed by the Parties from time
to time.
5. SOFTWARE
Customer is hereby granted non-exclusive and non-transferrable licenses to
use Software strictly in performing this Agreement. The Software and any
intellectual property rights of whatever nature in the Software are and
shall remain vested in Scitor ITS or an associated company of Scitor ITS
and nothing contained in this Agreement shall convey any ownership interest
in the Software to Customer. Customer acknowledges that the provision of
Software is made by Scitor ITS strictly for use in conjunction with the
Service and Customer agrees not to produce, copy, alter, modify, or add to
the Software or any part thereof, nor to attempt or to allow a third party
to attempt to reverse engineer, translate or convert the Software from
machine readable to human readable form, except as permitted by applicable
law.
6. INTELLECTUAL PROPERTY RIGHTS AND CONFIDENTIALITY
6.1 It is understood and agreed by Customer that all intellectual property
rights in the Service including, all specifications, manuals and other
documents provided by Scitor ITS to Customer as part of or in relation to
the Service are either licensed to or the property of Scitor ITS and
nothing contained in this Agreement shall be deemed to convey any title or
ownership interest to Customer. Customer shall use its best efforts not to
disclose such proprietary information to third parties without Scitor ITS'
prior approval.
6.2 Customer and Scitor ITS acknowledge that they will receive confidential
information and trade secrets ("Confidential Information") from each other
in connection with the Agreement. Confidential Information shall be deemed
to include all information each Party receives from the other Party, except
anything designated as not confidential. Customer and Scitor ITS agree to
maintain the secrecy of Confidential Information and agree neither to use
it (except for the purposes of performing the Agreement) nor to disclose it
to anyone outside Customer or Scitor ITS or to anyone within Customer or
Scitor ITS who does not have a need to know it in order to perform under
the Agreement, except with the consent of the other Party or in accordance
with the order of a court of competent jurisdiction. Confidential
Information shall not include any information which is publicly available
at the time of disclosure or subsequently becomes publicly available
through no breach of this provision by Customer or Scitor ITS or is
rightfully acquired from a third party who is not in breach of an agreement
to keep such information confidential.
7. CHARGES AND PAYMENT
7.1 All charges shall be as specified in Attachment 1 shall be invoiced by
Scitor ITS to Customer, monthly in arrears unless otherwise provided in
Attachment 1, and shall be payable without deductions or set-off within 30
days of receipt of invoice by Customer.
7.2 All charges stated are exclusive of any value added tax, sales tax, excise
tax, gross receipts tax and any similar tax which may be applicable thereto
and Customer agrees to pay all such applicable taxes.
7.3 Scitor ITS reserves the right to make a reasonable charge for any work done
by Scitor ITS which is attributable to Customer's failure to perform its
obligations or not specified by Scitor ITS as part of any Service provided.
7.4 Charges for components and materials and for magnetic media, stationery and
other supplies and for travel and subsistence (when not specifically
included in the Service) are separately payable by Customer.
<PAGE>
7.5 Failure by Customer to pay any charge according to the terms of this
Agreement shall entitle Scitor ITS without prejudice to its other rights
and remedies under the Agreement to (a) suspend the provision of the
Service following 30 days written notice, provided that Customers has not
remedied its default within that time and /or (b) charge interest on a
daily basis from the original due date at the rate of 2 percentage points
above the Chase Manhattan Bank's prime rate in force from time to time.
8. EXCLUSIONS AND LIMITATIONS OF LIABILITY
8.1 Scitor ITS is not liable for any delay in performing its obligations or for
any failure to perform its obligations under the Agreement if the delay or
failure results from circumstances beyond Scitor ITS' reasonable control.
Scitor ITS will notify the customer in a reasonable timeframe of any delay
in performing its obligations or of any failure to perform its obligations
under this Agreement.
8.2 EXCEPT AS EXPRESSLY CONTAINED IN THIS AGREEMENT, SCITOR ITS GIVES NO
WARRANTIES AND HEREBY DISCLAIMS ANY WARRANTIES, EXPRESS OR IMPLIED,
INCLUDING ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE WITH RESPECT TO THE SERVICE OR ANY EQUIPMENT OR SOFTWARE PROVIDED
UNDER OR IN RELATION TO THIS AGREEMENT.
8.3 NOTWITHSTANDING ANYTHING TO THE CONTRARY IN THIS AGREEMENT, SCITOR ITS
SHALL NOT BE LIABLE FOR ANY INDIRECT, CONSEQUENTIAL, SPECIAL, INCIDENTAL OR
PUNITIVE DAMAGES HOWSOEVER ARISING INCLUDING, BUT NOT LIMITED TO, SUCH
DAMAGES ARISING FROM THE USE OF THE SERVICE BY CUSTOMER OR BY ITS OFFICERS,
EMPLOYEES, OR AGENTS OR BY ANY THIRD PARTY, WHETHER OR NOT AUTHORIZED BY
CUSTOMER, EVEN IF SCITOR ITS WAS MADE AWARE OF THE POSSIBILITY OF SUCH
DAMAGES IN ADVANCE.
8.4 In the event that data furnished by Customers, whether transmitted via the
Network or otherwise, is lost, destroyed or damaged due to the negligence
of Scitor ITS, its agents or employees, Customer's sole remedy shall be the
repair or replacement by Scitor ITS of such lost, destroyed or damaged
data, provided however that such repair or restoration can reasonably be
performed by Scitor ITS and provided, further, that Customer furnishes
Scitor ITS with all source data, in machine readable form, necessary for
such repair or restoration.
5 SUBJECT TO THE EXCLUSIONS AND LIMITATIONS OF LIABILITY SET OUT IN CLAUSES
8.1, 8.2, 8.3 AND 8.4 ABOVE. SCITOR ITS' LIABILITY TO CUSTOMER UNDER THIS
AGREEMENT, WHETHER IN CONTRACT, TORT OR OTHERWISE, AND INCLUDING LIABILITY
FOR NEGLIGENCE, IS LIMITED IN RESPECT OF EACH EVENT OR SERIES OF CONNECTED
EVENTS TO $100,000.
8.6 Scitor ITS' sole obligations and liabilities are as stated herein and all
other representations, conditions, warranties and terms express or implied
whether by statute law or otherwise are hereby excluded to the full extent
permitted by law.
9. NETWORK PATH AVAILABILITY
9.1 Subject to Clause 9.2, Scitor ITS shall warrant Network Path Availability
(NPA) for each Location as set out in Attachment 4 (as updated from time to
time to incorporate additional Locations).
9.2 If Scitor ITS breaches any NPA warranty for 2 consecutive months or for any
4 months in any 12 month period, such breach to be clearly substantiated by
Customer, then Customer's sole remedy for such breach under this Agreement
shall be an entitlement to cancel the Service at the Location directly
affected by such breach, without financial liability, on giving Scitor ITS
30 days written notice. Nothing contained in this Clause 9.2 shall affect
Customer's liability to pay for Service rendered prior to the effective
date of such cancellation. A breach of the NPA warranty at any Location
shall not constitute a material breach of this Agreement.
10. NETWORK TRANSIT TIME
10.1 Subject to Clause 10.2. Scitor ITS shall warrant the Network Transit Times
(NTT) set out in Attachment 4 (as updated from time to time to incorporate
additional Locations).
10.2 If Scitor ITS breaches any NTT warranty for 3 consecutive months, such
breach to be clearly substantiated by Customer, then Customer's sole remedy
under this Agreement for such breach shall be an entitlement to cancel the
Service at the Location directly affected by such breach without financial
liability on giving Scitor ITS 30 days written notice. Nothing contained in
this Clause 10.2 shall affect Customer's liability to pay for Service
rendered prior to the effective date of such cancellation. A breach of the
NTT warranty at any Location shall not constitute a material breach of this
Agreement.
11. DURATION AND TERMINATION
11.1 This Agreement shall come into force on the Effective Date and shall then,
subject to Clause 11.2 below remain in force for the duration of the
initial Term. It will be renewed automatically for additional terms of 12
months unless either Party gives to the other notice of its intention to
terminate at least 60 prior days to the expiration of the initial Term or
any renewal term.
<PAGE>
11.2 Either Party may terminate this Agreement by notice in writing to the other
forthwith in any of the following events: (a) if the other Party is guilty
of any material breach, non-observance or non-performance of its
obligations hereunder or any of them and does not remedy the same (if it is
capable of remedy) within 30 days of notice of such failure or breach being
given by the non-defaulting Party; (b) if an order is made or an effective
resolution is passed for the dissolution or winding up the other Party
except for the purposes of an amalgamation, merger or reconstruction; (c)
if an encumbrancer takes possession or a receiver is appointed over the
whole or any part of the undertaking or assets of the other, or the other
fails to provide adequate assurance of its ability to render due
performance upon demand; or (d) if the other becomes insolvent or makes any
special arrangements or any special assignment for the benefit of its
creditors or is the subject of a voluntary or involuntary filing under the
bankruptcy laws of any jurisdiction.
11.3 Termination of this Agreement for any cause shall not affect any rights or
obligations of the Parties in relation to anything done prior to such
termination and the provisions of this Agreement shall continue to bind the
Parties insofar and so long as may be necessary to give effect to such
rights and obligations.
12. COMMISSIONING/ACCEPTANCE
12.1 Scitor ITS shall connect the Service at the Locations according to
procedures set out in Attachment 3.
12.2 Customer shall be deemed to have accepted the Service at each of the
Locations on completion of the commissioning tests specified in Attachment
3.
13. NOTICES
All notices under this Agreement shall be in writing addressed to the
Parties at their respective addresses stated in the cover page of this
Agreement, or as may be otherwise notified under this Clause 13. If sent
by first class mail, notices shall be deemed to have been given 2 days
after the date of mailing. Notices may also be sent by fax provided that
the sending Party obtains confirmation of the receipt of such notices from
the recipient. If so sent, such fax notices shall be deemed to have been
given on the first business day (in the country of receipt) after the date
of transmission.
14. ASSIGNMENT
Customer may not assign, sub-contract or otherwise, dispose of this
Agreement or any part hereof or any benefit hereunder without the prior
written consent of Scitor ITS.
15. GENERAL
15.1 No Waivers:- No failure or delay of either Party in exercising any right,
power, or privilege under this Agreement (and no course of dealing between
the Parties) shall operate as a waiver of any such right, power or
privilege. No waiver of any default on any one occasion shall constitute a
waiver of any subsequent default. No single or partial exercise of any
such right, power or privilege shall preclude the further or full exercise
thereof.
15.2 No Third Party Beneficiaries, Agency or Partnership:- The provisions of
this Agreement are solely for the benefit of the Parties. No other party,
including invitees, members of the general public and other third parties
are intended to have nor shall have any rights whatsoever under this
Agreement, whether for injury, loss or damage to persons or property, or
for economic loss, damage or injury otherwise. This Agreement is not
intended to create a joint venture or partnership between the Parties and
neither Party is authorized to act as the agent of the other.
15.3 Invalidity:- If any term, provision or clause of this Agreement or any
portion of such term, provision, or clause is held invalid or
unenforceable, the remainder of this Agreement will not be affected thereby
and each remaining term, provision or clause or portion thereof will be
valid and enforceable to the full extent permitted by law.
15.4 Entire Agreement:- This Agreement; including the Attachment, together with
any supplement hereto duly signed on behalf of Scitor ITS by an authorized
signatory, represents the entire agreements between the Parties and
supersedes all other agreements, oral or written, and all other
communications between the Parties relating to the subject matter hereof.
15.5 Supplements:- Each Party agrees to execute such additional documents as
may be reasonably necessary or appropriate to accomplish the purposes of
this Agreement.
15.6 Interpretation:- In this Agreement (a) the headings used are included for
convenience only and are not to be used in construing or interpreting this
Agreement (b) any reference to the plural includes the singular and any
reference to the singular includes the plural; and (c) any reference to a
clause, an attachment or to a schedule is to a clause, attachment or
schedule of this Agreement.
16. APPLICABLE LAW AND ARBITRATION
16.1 This Agreement and all matters regarding the interpretation and / or
enforcement hereof, shall be governed exclusively by the law of the State
of Delaware except insofar as the federal law of the United States of
America may control any aspect of this Agreement in which case federal law
shall govern such aspect.
<PAGE>
16.2 All disputes, controversies or claims arising out of, or relating to this
agreement shall be settled exclusively by arbitration before a single
arbitrator in District of Colombia in accordance with the Commercial
Arbitration Rules of the American Arbitration Association. Each Party
irrevocably consents to personal jurisdiction and to ex parte action
should any Party refuse to participate in such proceedings. The
arbitrator's award shall be final and binding on all Parties and judgement
on the award may be entered and the award enforced in any court having
jurisdiction thereof.
<PAGE>
ATTACHMENT 1. CHARGES
Scitor ITS shall provide Customer with the Service in the Locations and in
accordance with the charges all as specified herein or in the schedule to
this Attachment 1 ("Schedule 1").
1. PORT CHARGES
The port charges applicable to the Locations shall be as specified in
Schedule 1. Except as set forth in Clause 8 of this Attachment 1, all port
charges are fixed for the Initial Term. Scitor ITS shall commence its port
charges 30 days after the date of acceptance of the Service at a Location
and the first invoice shall be for the first 2 months charges.
Notwithstanding the above, no port charges shall be charged for the San
Francisco and Mexico City Locations for the first 90 days following
acceptance of the Service at such Locations.
2. CONNECTION/PROJECT MANAGEMENT/DISCONNECTION CHARGES
The charges applicable for connections shall be as specified in Schedule 1
and for disconnections shall be [*] per disconnected Location. All such
charges are one time charges payable in the case of connections on the date
of acceptance of the Service at a Location; in the case of disconnections,
such charges are payable on the date disconnection of the Location from the
Network. Connection charges for additional ports in the same Location shall
be [*].
3. [*] CHARGES
[*] charges shall be as notified to Customer by Scitor ITS. [*] charges are
monthly charges fixed for the Initial Term and then adjusted in line with
actual charges from [*] at that time. Any revised [*] charges shall be
fixed for the duration of any renewal term.
4. [*] MANAGEMENT CHARGES
For the management of each [*], Scitor ITS shall charge monthly [*] or [*]
of the monthly [*] charge, whichever is the greater.
5. EQUIPMENT LEASE CHARGES
5.1 Equipment lease charges applicable to this Agreement shall be as specified
in Schedule 1 or as otherwise notified by Scitor ITS (subject to precise
specification). Equipment lease charges shall be fixed for the first 3
years of the lease term. Thereafter the following shall apply: (a) Customer
may terminate the lease by paying Scitor ITS a lease buyout fee equal to
[*] of the original price paid by Scitor ITS or its subcontractors for the
Equipment: or (b) the lease term will continue for a further 2 years at a
reduced lease charge equal to [*] of the charge prevailing during the first
3 year period. At the end of 5 years from the commencement of the lease
term all lease charges shall cease and Scitor ITS will transfer ownership
of the relevant Equipment to Customer. Equipment lease charges shall
commence on the date of acceptance of the Service at a Location.
5.2 In addition to the charges set out in Clause 5.1 above (and Schedule 1),
Scitor ITS shall charge Customer a fee for Equipment connected in a
Location controlled by Scitor ITS or an affiliated company of Scitor ITS.
Such charge shall be as notified by Scitor ITS and Scitor ITS shall have no
obligation to connect Equipment at any such Location unless and until
Customer has agreed said charges.
6. SOFTWARE LICENSE FEES
Any Software license fees shall be as notified by Scitor ITS from time to
time unless the Software is integral to the Equipment, in which case no
separate charges shall apply.
[*] CONFIDENTIAL TREATMENT REQUESTED
7. UPGRADES
With reference to Clause 1 of Attachment 3 of the Agreement, subject to
this Clause 7, Scitor ITS agrees that Customer will be entitled to upgrade
the Service at any Location without penalty. Scitor ITS will, however,
charge Customer for any difference in charges resulting therefrom and in
addition its reasonable connection, disconnection and project management
charges relating to such upgrades. Any changes to the Service which reduce
service capacity or function, result in lower charges and are not
compensated by equivalent increases in service capacity or function and
charges, are excluded from this provision and the Parties shall agree such
changes and the financial effects resulting therefrom on a case by case
basis.
8. DISCOUNTS
8.1 Additional port connections either at the same Location, or in additional
Locations within a country, will be charged at the then prevailing Scitor
ITS list prices less a [*] discount.
8.2 Customer shall also receive the following discounts against port charges
for each Location to be provided with X.25 Service in the 4th and 5th year
following acceptance of the Service at the Location:
4th year [*]
5th year [*]
Final Attachment 1 Page 1
[*] CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
ATTACHMENT 2 - LOCATIONS
1.1 The Locations covered by this Agreement are as listed in the schedule to
this Attachment 2 ("Schedule 2"). Locations shall be added in phases and
Customer shall be entitled to modify which Locations are to be connected in
a phase. Notwithstanding the foregoing or anything else contained in this
Agreement. Scitor ITS shall be [*] for all Locations listed in Schedule 2.
1.2 Customer may connect additional Locations not identified on Schedule 2 on
receiving written consent from Scitor ITS. Customer understands and agree
that Scitor ITS obligation to provide Service to any Location not
identified on Schedule 2 is subject to Scitor ITS ability to operate in any
country.
1.3 Customer agrees that subject only to the following exceptions, all Location
shall remain connected to the Network for the term of this Agreement from
the date of acceptance of the Service. The exceptions are as follows:
(a) Customer terminates this Agreement pursuant to Clause 11.2 or cancels
the Services at a Location pursuant to Clause 9.2 or 10.2;
(b) Customer may substitute any Location with a new Location provided
Scitor ITS is able to provide Service at the new Location. Scitor ITS
shall be entitled to charge Customer for connection and project
management for the new Location at prices agreed by the Parties;
(c) Customer may disconnect a Location due to force majeure. This right
may only be invoked by Customer after 30 continuous days of force
majeure;
(d) Customer may cancel the Service for convenience at the San Francisco
and Mexico City Locations within the first 90 days after the date of
acceptance of the Service and, at any other Location, within the
first 60 days after the date of acceptance of the Service.
1.4 Any cancellation of Service at a Location other than under Clauses 9.2,
10.2 or 11.2 of this Agreement shall be conditional on the Following:
1.5 Customer must give Scitor ITS at least 30 days prior written notice.
1.6 Customer shall remain responsible for any Tail Circuit charges relevant to
the cancellation Location, but Scitor ITS shall, on a best efforts basis,
mitigate such costs by terminating any rental contracts with PTTs as soon
as practically possible, following notification by Customer.
1.7 Customer shall remain responsible for the duration of the term of this
Agreement for payment of the monthly lease charges for the Equipment.
Customer may discharge this responsibility at any time by paying Scitor ITS
a lump sum equal to the depreciated value of the Equipment based on the
original price paid by Scitor ITS or its subcontractors for the Equipment
plus 15% of such original price as a fee for administration and
disconnection. On payment of the resulting sum, Scitor ITS will transfer
title in the relevant Equipment to Customer. Customer understands that
Scitor ITS depreciates the Equipment over 3 years. Scitor ITS will transfer
the Equipment to a substitute Location on payment of a reconnection charge
agreed by the Parties and in addition Scitor ITS' travel and out of pocket
expenses.
[*] CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
ATTACHMENT 3- COMMISSIONING
1. CONNECTIONS
1.1 Scitor ITS shall use all reasonable efforts to connect the Service at the
Locations as soon as possible after the date the Tail Circuits are made
available by PTTs for Customer's use and in accordance with Customer's
requirements. Scitor ITS shall have no responsibility, nor liability for
delays caused by Customer or any third party. In the event of any such
delays Scitor ITS shall use all reasonable efforts to provide the Service
as set out in this Agreement at the earliest opportunity.
1.2 Should the Customer request to delay any connection date as agreed by the
Parties after Scitor ITS has ordered any Tail Circuit or Equipment, such
request shall be agreed by Scitor ITS but any delays in connection shall
not affect Customer's obligations to reimburse scitor ITS for all Tail
Circuit and Equipment charges incurred from the date of any contract
between Scitor ITS and any PTT or other supplier. Customer also understands
that should Scitor ITS or its agents or sub-contractors carry out a visit
to a Location in order to connect the Service, and be then unable to do so
as a result of any act or omission by the Customer, Scitor ITS reserves the
right to charge Customer for such visit at its then current rates for such
time and its reasonable travel expenses.
2. COMMISSIONING/ACCEPTANCE
2.1 Commissioning shall mean that Scitor ITS or its subcontractors shall carry
out the following Commissioning Tests at each Location as appropriate from
Scitor ITS sites remote to the Locations:
TAIL CIRCUIT
------------
To run three 15 minute Bit Error Rate Tests to ensure that no moe than one
error in 10/5/ data bits occur on the Tail Circuit.
X .25 FUNCTIONALITY TESTING
---------------------------
(a) An X.25 DTE attached via Tail Circuit to a Node is able to establish
link level communications with the Node local to the Location.
(b) An X.25 DTE attached via Tail Circuit to a Note is able to place an
X.25 call to pre-designated address, transfer data and then clear the
virtual connection than has been established.
ALTERNATIVE TESTING
-------------------
Where local PTT operating conditions are such that the above commissioning
tests are not appropriate, Scitor ITS shall be entitled to carry out
alternative commissioning tests as agreed by Customer. In this event Scitor
shall provide to the Customer a description of these alternative
commissioning tests.
FINAL ATTACHMENT 3. PAGE 1 NETSTAR
<PAGE>
ATTACHMENT 4 - NETWORK PATH AVAILABILITY / NETWORK TRANSIT TIME WARRANTIES
The following Service warranties shall apply:
<TABLE>
<CAPTION>
NTT NPA
From To (milliseconds) (%)
- ---- -- ------------ ---
<S> <C> <C> <C>
San Francisco Mexico City 375 98.81
</TABLE>
Service warranties for additional Locations shall be as specified in
supplements.
FINAL ATTACHMENT 4, PAGE 1 NETSTAR
<PAGE>
AMENDMENT NO. 1
TO THE MANAGED DATA NETWORK SERVICES
AGREEMENT NO. MDNS/US/NC/95-99
DATED APRIL 28, 1995
BETWEEN SCITOR INTERNATIONAL TELECOMMUNICATIONS
SERVICES INC. (SCITOR ITS)
AND
NETSTAR INTERNATIONAL TELECOMMUNICATIONS, INC.
( CUSTOMER )
This Amendment is made by and between Scitor ITS having its principal place of
business located at 3100 Cumberland Circle, Suite 1200, Atlanta, Georgia 30339,
Ratsten, Inc., d/b/a Netstar International Telecommunications, having its
principal place of doing business located at 5280 Stoneridge Mall Road,
Pleasanton, California 94588 ("Netstar") and GFP Group, Inc., having its
principal place of business at 1520 Eastlake Ave. E., Suite 210, Seattle,
Washington 98102 ("GFP Group").
In consideration of the convenants, premises and agreements set forth below, and
in consideration of those set forth in the Agreement which this Amendment
supplements, the parties do hereby agree as follows:
For the purpose of the Agreement referenced in the title of this Amendment (the
"Agreement"), and pursuant to Clause 14 of the Agreement, Customer has assigned
the Agreement to GFP Group, Inc., a company incorporated under the laws of the
State of Washington, having its principal place of business located at 1520
Eastlake Avenue East, Suite 210, Seattle , WA 98102, and with the Effective Date
of this Amendment No.1, is validly assigned with the consent of Scitor ITS, and
hereby assumes, the responsibilities, duties, rights, liabilities and
obligations, including but not limited to the requirements of Confidential
Information and Proprietary Rights, of the Customer as set forth in the
Agreement, and as hereinafter provided will be the Customer under said Agreement
and will be bound by all the terms and conditions relative to termination as set
forth in Clause 11 Duration and Termination of the Agreement. The parties agree
that the Agreement is valid and enforceable and in full force and effect between
Scitor ITS and Netstar. All capitalized terms not otherwise defined herein shall
have the meaning given to them in the Agreement.
2. Clause 1. Definitions, Clause 1.7 "Initial Term"
2.1. Amend the definition of by deleting "ten (10)" and substituting "five
(5)".
2.2 Add new sentence to the definition as follows:
<PAGE>
"In no event will the Initial Term exceed fifteen (15) years
regardless of the last Location to be connected under this
Agreement."
3. Clause 1 Definitions, Clause 1.14 "Service", after the words "shall mean"
add "but not be limited to" and after the words "X.25 protocol add "X.28 dial,
Frame Relay, LAN Access, and Voice Services."
4. Clause 1: Definitions, add the following new definitions:
"Frame Relay" shall mean a high speed switched data service accessing
the Network supporting the transfer of bi-directional Frame Relay
frames between terminating equipment at Locations and Scitor ITS'
Frame Relay service port on the Network.
"Public X.28" shall mean Scitor ITS' shared public rotary X.28 dial
up service.
5. Clause 7.
The prices for the Service are set forth in the schedules to
Attachment 1. New schedules mutually agreed to by the parties will be
added as the Service is enhanced or extended. Both parties agree to
review and renegotiate pricing after the fifth year of the Agreement.
6. New schedules 1, 2 and 3 to Attachment 1 and Schedule 1 to
Attachment 2 attached hereto, are made a part of this Amendment No. 1
and the Agreement, and replace and supersede the existing Schedules
to Attachments 1 and 2 in the Agreement in their entirety.
7. Attachment 4, delete the reference to the Network Path Availability
and Network Transit Times on future supplements and insert a
sentence, "Scitor ITS shall provide the Customer with Network Path
Availability and Network Transit Times for any particular Location
only when requested in writing by the Customer."
<PAGE>
All other terms and conditions are as set forth in the Agreement [and]
shall remain in full force and effect.
Customer, GFP Group, Inc. and Scitor ITS each represent to the other that it
has due and proper authority to enter into this Amendment to this Agreement and
to make and perform all duties and obligations set forth and contemplated by
this Amendment.
IN WITNESS WHEREOF, this Agreement No.1 was entered into as of the day and year
as of the date of final signature of the parties below.
Scitor International Ratsten, Inc. d/b/a
Telecommunications Netstar International
Services, Inc. Telecommunications
By: /s/ William Bangert By: /s/ Ronald P. Erickson
------------------- ----------------------
Printed Name: WILLIAM BANGERT Printed Name: RONALD P.ERICKS0N
------------------- -----------------
Title: Vice President & General Mngr. Title: CHAIRMAN & CEO
------------------------------ --------------
Dated: 21 February 1996 Dated: 19 February 1996
---------------- ----------------
OFF Group, Inc.
By: Ronald P.Erickson
-----------------
Printed Name: RONALD P.ERICKSON
-----------------
Title: CHAIRMAN & CEO
--------------
Date: 19 February 1996
----------------
<PAGE>
SCHEDULE 1
- ----------
--------------------------------------------
MONTHLY CHARGES ($) ONE TIME CHARGES ($)
--------------------------------------------
PORT
LINE EQUIPMENT CONNECTION EQUIPMENT
LOCATION SPEED PORT LEASE & PROF MGT CONNECTION
- -------------------------------------------------------------------------------
AMSTERDAN 64K [*] [*] [*] [*]
- -------------------------------------------------------------------------------
ATHENS 64K [*] [*] [*] [*]
- -------------------------------------------------------------------------------
AUCKLAND 64K [*] [*] [*] [*]
- -------------------------------------------------------------------------------
BANGKOK 64K [*] [*] [*] [*]
- -------------------------------------------------------------------------------
BARCELONA 64K [*] [*] [*] [*]
- -------------------------------------------------------------------------------
BELJING 64K [*] [*] [*] [*]
- -------------------------------------------------------------------------------
BERLIN 64K [*] [*] [*] [*]
- -------------------------------------------------------------------------------
BOMBAY 64K [*] [*] [*] [*]
- -------------------------------------------------------------------------------
BRUSSELS 64K [*] [*] [*] [*]
- -------------------------------------------------------------------------------
BUDAPEST 64K [*] [*] [*] [*]
- -------------------------------------------------------------------------------
BUENOS AIRES 64K [*] [*] [*] [*]
- -------------------------------------------------------------------------------
CAIRO 64K [*] [*] [*] [*]
- -------------------------------------------------------------------------------
CAPE TOWN 64K [*] [*] [*] [*]
- -------------------------------------------------------------------------------
CARACAS 64K [*] [*] [*] [*]
- -------------------------------------------------------------------------------
COPENHAGEN 64K [*] [*] [*] [*]
- -------------------------------------------------------------------------------
DELHI 64K [*] [*] [*] [*]
- -------------------------------------------------------------------------------
DUBLIN 64K [*] [*] [*] [*]
- -------------------------------------------------------------------------------
DURBAN 64K [*] [*] [*] [*]
- -------------------------------------------------------------------------------
FRANKFURT 64K [*] [*] [*] [*]
- -------------------------------------------------------------------------------
GENEVA 64K [*] [*] [*] [*]
- -------------------------------------------------------------------------------
GUAM 64K [*] [*] [*] [*]
- -------------------------------------------------------------------------------
GUANGHOU 64K [*] [*] [*] [*]
- -------------------------------------------------------------------------------
HAMBURG 64K [*] [*] [*] [*]
- -------------------------------------------------------------------------------
HELSINKI 64K [*] [*] [*] [*]
- -------------------------------------------------------------------------------
HONG KONG 64K [*] [*] [*] [*]
- -------------------------------------------------------------------------------
ISTANBUL 64K [*] [*] [*] [*]
- -------------------------------------------------------------------------------
JAKARTA 64K [*] [*] [*] [*]
- -------------------------------------------------------------------------------
JOHANNESBURG 64K [*] [*] [*] [*]
- -------------------------------------------------------------------------------
KIEV 64K [*] [*] [*] [*]
- -------------------------------------------------------------------------------
KUALA LUMPUR 64K [*] [*] [*] [*]
- -------------------------------------------------------------------------------
[*] CONFIDENTIAL TREATMENT REQUESTED
LISBON 64K [*] [*] [*] [*]
- -------------------------------------------------------------------------------
LONDON 64K [*] [*] [*] [*]
- -------------------------------------------------------------------------------
LOS ANGELES 64K [*] [*] [*] [*]
- -------------------------------------------------------------------------------
MADRID 64K [*] [*] [*] [*]
- -------------------------------------------------------------------------------
MANILA 64K [*] [*] [*] [*]
- -------------------------------------------------------------------------------
MELBOURNE 64K [*] [*] [*] [*]
- -------------------------------------------------------------------------------
MEXICO 64K [*] [*] [*] [*]
- -------------------------------------------------------------------------------
MIAMI 64K [*] [*] [*] [*]
- -------------------------------------------------------------------------------
MILAN 64K [*] [*] [*] [*]
- -------------------------------------------------------------------------------
MONTREAL 64K [*] [*] [*] [*]
- -------------------------------------------------------------------------------
MOSCOW 64K [*] [*] [*] [*]
- -------------------------------------------------------------------------------
MUNICH 64K [*] [*] [*] [*]
- -------------------------------------------------------------------------------
NEW YORK 64K [*] [*] [*] [*]
- -------------------------------------------------------------------------------
OSAKA 64K [*] [*] [*] [*]
- -------------------------------------------------------------------------------
[*] CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
SCHEDULE 1
- ----------
<TABLE>
<CAPTION>
-----------------------------------------------------
MONTHLY CHARGES ($) ONE TIME CHARGES($)
- --------------------------------------------------------------------------------
PORT
LINE EQUIPMENT CONNECTION EQUIPMENT
LOCATION SPEED PORT LEASE & PORT MGT CONNECTION
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OSLO [*] [*] [*] [*] [*]
- --------------------------------------------------------------------------------
PARIS [*] [*] [*] [*] [*]
- --------------------------------------------------------------------------------
RIO DE JANEIRO [*] [*] [*] [*] [*]
- --------------------------------------------------------------------------------
ROME [*] [*] [*] [*] [*]
- --------------------------------------------------------------------------------
ROTTERDAM [*] [*] [*] [*] [*]
- --------------------------------------------------------------------------------
SAIPAN [*] [*] [*] [*] [*]
- --------------------------------------------------------------------------------
SAN JOSE, CR [*] [*] [*] [*] [*]
- --------------------------------------------------------------------------------
SAN JUAN [*] [*] [*] [*] [*]
- --------------------------------------------------------------------------------
SANTIAGO [*] [*] [*] [*] [*]
- --------------------------------------------------------------------------------
SAO PAULO [*] [*] [*] [*] [*]
- --------------------------------------------------------------------------------
SEATTLE [*] [*] [*] [*] [*]
- --------------------------------------------------------------------------------
SEOUL [*] [*] [*] [*] [*]
- --------------------------------------------------------------------------------
SHAGHAI [*] [*] [*] [*] [*]
- --------------------------------------------------------------------------------
SHANNON [*] [*] [*] [*] [*]
- --------------------------------------------------------------------------------
SHINGZEN [*] [*] [*] [*] [*]
- --------------------------------------------------------------------------------
SINGAPORE [*] [*] [*] [*] [*]
- --------------------------------------------------------------------------------
SOPHIA [*] [*] [*] [*] [*]
- --------------------------------------------------------------------------------
STOCKHOLM [*] [*] [*] [*] [*]
- --------------------------------------------------------------------------------
SYDNEY [*] [*] [*] [*] [*]
- --------------------------------------------------------------------------------
TAIPEL [*] [*] [*] [*] [*]
- --------------------------------------------------------------------------------
TEI AVIV [*] [*] [*] [*] [*]
- --------------------------------------------------------------------------------
TOKYO [*] [*] [*] [*] [*]
- --------------------------------------------------------------------------------
TORONTO [*] [*] [*] [*] [*]
- --------------------------------------------------------------------------------
VANCOUVER [*] [*] [*] [*] [*]
- --------------------------------------------------------------------------------
VIENNA [*] [*] [*] [*] [*]
- --------------------------------------------------------------------------------
WARSAW [*] [*] [*] [*] [*]
- --------------------------------------------------------------------------------
ZURICH [*] [*] [*] [*] [*]
- --------------------------------------------------------------------------------
[*] CONFIDENTIAL TREATMENT REQUESTED
TOTALS [*] [*] [*] [*] [*]
- --------------------------------------------------------------------------------
</TABLE>
- - Port changes are for a ten year term contract and are exclusive of any taxes.
- - Equipment Lease charges are for a minimum configuration of four faxboards for
GMAXs, eight faxboards for GM-16s.
Consequently, Equipment lease charges may vary according to precise
specification.
- - Sydney, Santiago, and London will be provided with Customer purchased
equipment, Scitor may provide Equipment Installation pricing if requested by
Customer.
- - All connections are subject to local regulatory approval.
- - Local PSTN dial-up, telephone numbers, modem, and facilities and management
costs are not included and are the responsibility of Customer.
[*] CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
SCHEDULE 2
- ----------
----------------------------------------------
MONTHLY CHARGES ($) ONE TIME CHARGES ($)
- --------------------------------------------------------------------------------
LINE PORT CONNECTION &
LOCATION SPEED PORT PROJ MGT
- --------------------------------------------------------------------------------
BRISBANE 64K [*] [*]
- --------------------------------------------------------------------------------
PERTH 64K [*] [*]
- --------------------------------------------------------------------------------
DENPASER BALL 64K [*] [*]
- --------------------------------------------------------------------------------
SURABAYA 64K [*] [*]
- --------------------------------------------------------------------------------
FUKUOKA 64K [*] [*]
- --------------------------------------------------------------------------------
SAPPORO 64K [*] [*]
- --------------------------------------------------------------------------------
NAGOYA 64K [*] [*]
- --------------------------------------------------------------------------------
KUOHING 64K [*] [*]
- --------------------------------------------------------------------------------
PENANG 64K [*] [*]
- --------------------------------------------------------------------------------
WELLINGTON 64K [*] [*]
- --------------------------------------------------------------------------------
HANOI 64K [*] [*]
- --------------------------------------------------------------------------------
BAKU 64K [*] [*]
- --------------------------------------------------------------------------------
MINSK BELARUE 64K [*] [*]
- --------------------------------------------------------------------------------
ST. PETERSBURG 64K [*] [*]
- --------------------------------------------------------------------------------
TASHKENT, UZBEK 64K [*] [*]
- --------------------------------------------------------------------------------
DHAKA 64K [*] [*]
- --------------------------------------------------------------------------------
COLOMBO 64K [*] [*]
- --------------------------------------------------------------------------------
KARACHI 64K [*] [*]
- --------------------------------------------------------------------------------
ANCHORAGE 64K [*] [*]
- --------------------------------------------------------------------------------
ATLANTA 64K [*] [*]
- --------------------------------------------------------------------------------
CHICAGO 64K [*] [*]
- --------------------------------------------------------------------------------
DALLAS 64K [*] [*]
- --------------------------------------------------------------------------------
HONOLULU 64K [*] [*]
- --------------------------------------------------------------------------------
HOUSTON 64K [*] [*]
- --------------------------------------------------------------------------------
LAS VEGAS 64K [*] [*]
- --------------------------------------------------------------------------------
LA PAZ 64K [*] [*]
- --------------------------------------------------------------------------------
ARUBA 64K [*] [*]
- --------------------------------------------------------------------------------
BRASILLA 64K [*] [*]
- --------------------------------------------------------------------------------
GUADELAJARA 64K [*] [*]
- --------------------------------------------------------------------------------
MONTERREY 64K [*] [*]
- --------------------------------------------------------------------------------
[*] CONFIDENTIAL TREATMENT REQUESTED
LIMA 64K [*] [*]
- --------------------------------------------------------------------------------
CURACAO 64K [*] [*]
- --------------------------------------------------------------------------------
GRAZ 64K [*] [*]
- --------------------------------------------------------------------------------
SALZBURG 64K [*] [*]
- --------------------------------------------------------------------------------
ANTWERP 64K [*] [*]
- --------------------------------------------------------------------------------
MARSEILLE 64K [*] [*]
- --------------------------------------------------------------------------------
NICE 64K [*] [*]
- --------------------------------------------------------------------------------
LUXEMBOURG 64K [*] [*]
- --------------------------------------------------------------------------------
BRISTOL 64K [*] [*]
- --------------------------------------------------------------------------------
MANCHESTER 64K [*] [*]
- --------------------------------------------------------------------------------
TOTALS [*] [*]
- --------------------------------------------------------------------------------
.Port charges are for a ten year term contract and are exclusive of any taxes.
.All connections are subject to local regulatory approval.
[*] CONFIDENTIAL TREATMENT REQUESTED
6
<PAGE>
SCHEDULE 1
Africa/Middle East Asia Pacific Europe Switzerland
- ------------------ ------------ ------ -Geneva
South Africa Australia Austria -Zurich
- -Johannesburg -Melbourne -Vienna Ukraine
- -Cape Town -Sydney -Graz -Kiev
- -Durban -Brisbane -Salzburg UK
Bangladesh -Perth Azerbaijan -Bristol
- -Dhaka -Boku -London
Egypt China Belgium -Manchester
- -Cairo -Beijing -Brussels Uzbekiston
Israel -Shanghai -Antwerp -Tashikant
- -Tel Aviv -Guanghou Belorussia
Pakistan -Shingzen -Minka Bejarus
- -Karachi Hong Kong Bulgaria
Turkey -Hong Kong -Sophia
- -Istanbul Denmark
Sri Lanka India -Copenhagen
- -Colombo -Bombay Finland
-Delhi -Helsinki
Indonesia France
-Jekarta -Paris
South America -Denpaeor Ball -Marseille
- ------------- -Surabaya -Nice
Argentina Malaysia Germany
- -Buenos Aires -Kuaia Lumpur -Frankfurt
Brazil -Kuching -Hamburg
- -Brasilia -Penong -Berlin
- -Rio de Janeiro North Mariana Islands -Munich
- -Sao Paulo -Saipan Luxembourg
Bolivia Philippines -Luxembourg
- -La Paz -Manila
Singapore Greece
Chile -Singapore -Athens
- -Santiago Korea
Peru -Seoul
- -Lima Thailand Hungary
Venezuela -Bangkok -Budapest
- -Caracas Japan Ireland
-Nagoya -Dublin
Central America & Carib -Sapporo -Shannon
Aruba -Tokyoro
- -Aruba -Osaka Italy
Costa Rica -Fukoska -Milan
- -San Jose -Rome
Mexico Taiwan Netherlands
- -Mexico City -Taipei -Amsterdam
- -Guadelajara New Zealand -Rotterdam
- -Monterrey -Auckland
Netherland Antilles -Wellington Norway
- -Curacao Vietnam -Oslo
-Hanoi Poland
North America -Warsaw
- ------------- Portugal
Canada -Lisbon
- -Vancouver Russia
- -Toronto -Moscow
- -Montreal -St. Petersburg
USA
- -Anchorage Spain
- -Atlanta -Barcelona
- -Chicago -Madrid
- -Dallas Sweden
- -Honolulu -Stockholm
- -Houston -Miami
- -Las Vegas -Seattle
- -Los Angeles -San Juan Puerto Rico
- -New York -Guam
FINAL V.2
<PAGE>
EXHIBIT 10.13
[*] DESIGNATES MATERIAL FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED,
WHICH MATERIAL HAS BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION.
GLOBALTEL RESOURCES, INC.
EXCLUSIVE SERVICES AND MARKETING AGREEMENT
THIS GlobalTel Resources, Inc. Exclusive Services And Marketing Agreement (the
"Agreement") is made as of April 15, 1997 (the "Effective Date"), by and among
GlobalTel Resources, Inc., a Washington corporation ("GTR"), and International
Business Network for World Commerce & Industry, Ltd., a company doing business
in New York and Bermuda ("IBNet").
RECITALS
WHEREAS, GTR plans to market and sell a package of telecommunications services
as it exists from time to time to international chambers of commerce, chamber
members and consortia of the same; and
WHEREAS, IBNet desires to market telecommunications services established by GTR
to international chambers of commerce, chamber members and consortia of the
same; and
NOW, THEREFORE, in consideration of the mutual promises and covenants contained
herein, the parties agree as follows:
AGREEMENT
1. Definitions. The following terms, whenever initially capitalized, shall
-----------
have the following meanings for purposes of this Agreement:
1.1 "Chambers of Commerce" shall mean all international and local chambers
of commerce, and all consortia and groups of same.
1.2 "Customer" shall mean an individual or legal entity that enters into
an agreement with GTR for the Telecommunications Services offered hereunder.
1.3 "Offering" shall mean the various offering(s) by GTR of any
combination of Telecommunications Services.
1.4 "Fee" shall mean the fee payable to IBNet from GTR for each Customer
that enters into an agreement with GTR for Telecommunications Services, as
further described in paragraph 4 and Exhibit A.
1.5 "Telecommunications Services" shall mean the international services
offered by GTR to Customers, including but not limited to the following or any
combination of the following: voice services; facsimile services; virtual
private networks;
1
<PAGE>
Internet service; intranets service; local dial-up for global travelers;
wireless communications (satellite, cellular, paging); cable; messaging services
(voice, fax, electronic mail, voice mail), multimedia services (audio, video,
video conferencing); domestic and international long-distance; and system
integration services.
2. Exclusive Marketing of Telecommunications Services.
---------------------------------------------------
2.1 As of the Effective Date, and subject to the other terms and
conditions set forth herein, IBNet hereby agrees to market and promote the
Telecommunications Services to Chambers of Commerce. IBNet shall not market or
promote the telecommunications services of any party other than GTR for the term
of this Agreement.
2.2 IBNet agrees to allow GTR to use the Chambers of Commerce trademarks
as the exist today, or as they may be developed to represent the Chambers of
Commerce and IBNet in the future, in the marketing of GTR's Offerings to the
Chambers of Commerce as well as non-chamber members on an exclusive basis,
subject to the provisions of Section 7 to this Agreement.
2.3 IBNet agrees to do the following, at a minimum, to market and promote
the Telecommunications Services to Chambers of Commerce: (a) list the Offerings
in its database available to the Chambers of Commerce and their members; (b)
promote the Offerings in IBNet's literature that it provides to the Chambers of
Commerce; and (c) promote GTR and its Offerings at trade shows, in speaking
engagements and to the press.
2.4 IBNet shall market and promote the particular Offerings of GTR, which
GTR shall communicate to IBNet from time to time in its sole discretion. IBNet
shall not alter, change or modify the Offerings of GTR without GTR's prior
approval.
3. GTR's Responsibilities.
-----------------------
3.1 GTR shall develop its own telecommunications services and enter into
agreements with third parties offering \telecommunications services which shall
constitute the Offerings.
3.2 GTR grants to IBNet during the term of this Agreement the exclusive
right to market and promote the Offerings to Chambers of Commerce.
3.3 GTR shall enter into agreements directly with its Customers for the
Telecommunications Services. GTR or its agent shall be solely responsible for
billing its Customers, product packaging, training and Customer service.
2
<PAGE>
3.4 GTR shall be entitled to offer and provide the Telecommunications
Services to Chambers of Commerce on such terms and conditions (including without
limitation as to the Offering, the specific services provided and pricing and
billing procedures) as GTR may determine in its sole discretion.
3.5 GTR will offer Telecommunications Services to the Chambers of Commerce
exclusively in partnership with IBNet as authorized under this agreement. Any
customer lead generated and actively being pursued by IBNet along with the
Chambers of Commerce, IBNet will have the first right to pursue and receive
compensation on said customer as outline in this agreement. Customer
opportunities that are generated outside of IBNet and the Chambers of Commerce
are not covered under this agreement, and IBNet and the Chambers of Commerce
will not receive compensation from said customers.
4. Fees and Payments.
------------------
4.1 As long as IBNet complies with its obligations under this agreement,
GTR shall pay IBNet Fees as set forth in Exhibit A, which shall be amended from
time to time, for Chambers of Commerce that become Customers of GTR for
Telecommunications Services.
4.2 Payments of Fees shall be made in accordance with the schedule and in
the manner set forth in Exhibit A.
5. Joint Marketing.
----------------
5.1 The parties will carry out mutually agreed joint marketing activities
from time to time, including without limitation the following activities:
advertising, press releases, conferences and special events.
5.2 GTR and IBNet will supply from time to time copy for use in marketing
collateral for the Offerings, for distribution pursuant to Section 2.2 and in
other marketing and promotional activities. GTR and IBNet shall be entitled to
review and approve in writing all marketing collateral that will be used in the
marketing of the Offerings to the Chambers of Commerce prior to distribution.
GTR and IBNet shall not unreasonably withhold or delay their approval of such
marketing collateral.
6. Equity Options and Internet Services.
-------------------------------------
6.1 In consideration for the exclusive marketing of GTR's
Telecommunications Services, GTR grants to IBNet an option to purchase from ten
thousand (10,000) shares of GTR common stock at $1.10 (U.S.) per share.
Additional options shall be granted to IBNet based on the schedule and
conditions set forth in Exhibit B.
3
<PAGE>
6.2 GTR and IBNet shall negotiate in good faith the terms and pricing of
a GTR-provided Internet for IBNet to link the Chambers of Commerce
electronically (the "Internet Services"). GTR shall provide IBNet with
information regarding the terms and pricing of extending such Intranet Services
to IBNet's member companies.
7. Trademarks.
-----------
7.1. IBNet acknowledges that "GlobalTel Resources, Inc." and the
trademarks, service marks and logos of GTR and third parties associated with the
Telecommunications Services (collectively, the "GTR Trademarks") are owned by
GTR and/or its affiliated parties. GTR acknowledges that "IBNet," and the
trademarks, service marks and logos of the Chambers of Commerce (the "Chambers
of Commerce Trademarks") are owned by IBNet or the Chambers of Commerce, and
that IBNet is authorized to allow third parties' uses of such trademarks as they
exist today or may be created in the future. (Collectively or individually, the
parties' trademarks are hereinafter referred to as "Trademarks.") Each party
hereby authorizes the other to use such party's Trademarks on a nonexclusive
basis during the term of this Agreement to promote the Offerings and to carry
out its respective or joint marketing obligations in accordance with Sections
2, 5 and all other terms of this Agreement. Each party agrees not to challenge
or contest the ownership of the Trademarks; validity of the Trademarks; or
validity of the licenses granted under this Agreement. Each party agrees that it
will do nothing inconsistent with such ownership and that all use of the
Trademarks shall inure to the benefit of and be on behalf of owner of the
Trademarks. Each party agrees it will not set up any adverse claim against the
party owning the Trademarks based upon its use of the Trademarks. Each party
shall employ best efforts to use the Trademarks in a manner that does not
derogate from the owner's rights in the Trademarks and will take no action that
will interfere with or diminish its rights in the Trademarks, either during the
term of this Agreement or afterwards. Each party agrees not to adopt, use or
register any corporate name, trade name, trademark, service mark or
certification mark, or other designation similar to, or containing in whole or
in part, the Trademarks not owned by it.
7.2. Each party shall use the Trademarks in a form and manner consistent
with proper trademark usage and any guidelines on such usage which the owner of
the Trademarks may prescribe from time to time.
7.3. All rights not expressly granted herein relating to the Trademarks
are reserved by the party owning the Trademarks. Each party acknowledges that
nothing in this Agreement shall give it any right, title or interest in the
Trademarks not owned by it. No party may use the Trademarks in any manner
whatsoever other than as expressly described in this Agreement. All rights a
party has acquired or may acquire in the Trademarks, including all associated
goodwill, shall be the property of the owner of the Trademarks solely and are
hereby assigned to such owner. Except as otherwise expressly
4
<PAGE>
provided herein, neither party shall assign, transfer or sublicense its rights
under this Section 7 in any manner without the prior written consent of the
other party. Any attempted assignment or transfer in violation of the provisions
hereof, by operation of law or otherwise, shall be void.
7.4. Each party acknowledges that a breach by it of this Agreement may
cause the other party irreparable damage which cannot be remedied in monetary
damages in an action at law, and may also constitute infringement of the
Trademarks. In event of any breach that could cause irreparable harm to the
owner of the Trademarks, or cause some impairment or dilution of its reputation
or Trademarks, such owner shall be entitled to an immediate injunction, in
addition to any other legal or equitable remedies.
8. Confidentiality.
---------------
8.1. For purposes of this Agreement, "Confidential Information" shall mean
nonpublic information that the disclosing party designates as being confidential
or that, under the circumstances surrounding disclosure, ought to be treated as
confidential. "Confidential Information" includes, without limitation,
information relating to released or unreleased disclosing party products, the
marketing or promotion of any disclosing party product, disclosing party's
business policies or practices, information received from others that disclosing
party is obligated to treat as confidential, and the terms and conditions of
this Agreement. Confidential Information disclosed to the receiving party by any
disclosing party subsidiary and/or agents is covered by this Agreement.
8.2. Confidential Information shall not include any information that: (i)
is or subsequently becomes publicly available without the receiving party's
breach of any obligation owed the disclosing party; (ii) became known to the
receiving party prior to the disclosing party's disclosure of such information
to the receiving party; (iii) became known to the receiving party from a source
other than the disclosing party other than by the breach of an obligation of
confidentiality owed to the disclosing party; or (iv) is independently developed
by the receiving party.
8.3 The receiving party shall not disclose any Confidential Information to
third parties for three (3) years following the date of its disclosure by the
disclosing party to the receiving party, except on a need-to-know basis to the
receiving party's employees and consultants (including without limitation third
party legal and financial advisors). However, the receiving party may disclose
Confidential Information in accordance with judicial or other governmental
order, provided the receiving party shall give the disclosing party reasonable
notice prior to such disclosure and shall comply with any applicable protective
order or equivalent.
5
<PAGE>
8.4. The receiving party shall return all originals, copies, reproductions
and summaries of Confidential Information and/or materials containing
Confidential Information at the disclosing party's request, or at the disclosing
party's option, certify destruction of the same.
9. Term and Termination.
--------------------
9.1. This Agreement shall become effective as of the Effective Date and
shall continue in effect for a period of ten (10) years. This Agreement shall be
automatically renewed for additional one (1) year term(s) upon the expiration of
the initial or any succeeding term unless either party notifies the other in
writing not later than sixty (60) days before expiration of the then-current
term that such party elects not to renew this Agreement, in which event it will
expire at the end of such then-current term.
9.2. Notwithstanding the provisions of Section 9.1, this Agreement may be
terminated prior to its natural expiration under any of the following
provisions:
(a) Either party may terminate this Agreement if the other party
materially fails to perform or comply with this Agreement or any provision
hereof and does not remedy such failure within sixty (60) days of receiving
notice thereof from the other party. If this Agreement is so terminated, the
effective date of such termination will be the last day of the calendar month
following the month in which such sixty (60)-day cure period expires.
(b) In addition, in the event either party: becomes insolvent or
makes any assignment for the benefit of creditors or similar transfer evidencing
insolvency; or suffers or permits the commencement of any form of insolvency or
receivership proceeding; or has any petition under any bankruptcy law filed
against it, which petition is not dismissed within sixty (60) days of such
filing; or has a trustee or receiver appointed for its business or assets or any
part thereof, then the other party may terminate this Agreement immediately,
without prior written notice.
9.3. Upon the expiration or termination of this Agreement for any reason,
each party shall deliver and surrender up to the other party each and every
Trademark of the other party, any Confidential Information of the other party,
and the possession of any physical objects bearing or containing any of the
same, and the delivering party shall not thereafter use any of the same, and
delivering party hereby acknowledges and agrees that ownership of all such
items, as and between the parties, is and shall at all times remain vested in
the owner of the Trademark and/or Confidential Information.
10. Representations and Covenants.
------------------------------
10.1. IBNet represents, warrants and covenants to GTR that:
6
<PAGE>
(a) IBNet shall market and promote the Telecommunications
Services in a professional manner and in conformance with the terms of this
Agreement.
(b) IBNet has the power and authority on behalf of the
Chambers of Commerce and other consortium members to enter into this Agreement
and to fully perform its obligations hereunder.
(c) IBNet will notify GTR promptly and in reasonable detail,
in accordance with all procedures communicated from time to time to IBNet by
GTR, of any complaints or other notices received by IBNet with respect to
content or services within the Offerings and any potential liability of GTR
therefor, and will provide reasonable cooperation to GTR in investigating any
such complaints and notices.
(d) IBNet will not represent itself as the legal
representative of GTR for any purpose whatsoever, and shall not create or assume
for GTR any obligation of any kind.
(e) IBNet will not make any representations or warranties
concerning the Offerings except as may be specifically authorized in writing by
GTR.
10.2. GTR represents and warrants to IBNet that:
(a) GTR shall conduct business with IBNet and the Chambers of
Commerce in a professional manner and in conformance with the terms of this
Agreement.
(b) GTR has the power and authority to enter into Agreement
and to fully perform its obligations hereunder.
(c) GTR will notify IBNet promptly and in reasonable detail,
in accordance with all procedures communicated from time to time to GTR by
IBNet, of any complaints or other notices received by GTR with respect to the
Offerings or business relationship with IBNet and the Chambers of Commerce, and
will provide reasonable cooperation to IBNet in investigating any such
complaints and notices.
(d) GTR will not represent itself as the legal representative
of GTR for any purpose whatsoever, and shall not create or assume for IBNet any
obligation of any kind.
THIS SECTION CONTAINS THE ONLY WARRANTIES MADE BY THE PARTIES. TO THE MAXIMUM
EXTENT PERMITTED BY LAW, EACH PARTY DISCLAIMS ALL OTHER WARRANTIES OF ANY KIND,
EITHER EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, IMPLIED WARRANTIES OF
7
<PAGE>
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, WITH RESPECT TO THE
MATTERS COVERED HEREIN.
11. Indemnification. Limitation of Liability.
-----------------------------------------
11.1. Each party (the "indemnifying party") agrees to indemnify, defend,
and hold harmless the other party, its officers, directors, employees, and
agents, from any and all third party causes of action, claims, demands, damages,
liabilities, costs, and expenses (including without limitation reasonable
attorneys' fees and costs) (hereinafter referred to as "Claims") arising out of
or in connection with any claim which, if true, would be a breach of the
indemnifying party's warranties, representations, or obligations under this
Agreement. If any action shall be brought against a party under this Agreement
in respect to which indemnity may be sought hereunder, the party claiming such
indemnity shall promptly notify the other party in writing, specifying the
nature of the Claim and the total monetary amount sought or other such relief as
is sought therein. The indemnified party shall cooperate with the indemnifying
party in all reasonable respects in connection with the defense of any Claim.
Except as otherwise provided herein, the indemnifying party may upon written
notice to the indemnified party undertake to conduct all proceedings or
negotiations in connection with a Claim, and assume the defense thereof, and, if
it so undertakes, it shall also undertake all other required steps or
proceedings to settle or defend any such Claim at its own expense. Each party
shall have the right to employ separate counsel and participate in the defense
of any Claim hereunder. The indemnifying party shall reimburse the indemnified
party hereunder upon demand for any payment made by such indemnified party that
is based upon the judgment of any court of competent jurisdiction or pursuant to
a bona fide compromise or settlement of any Claim; provided, however, that the
indemnifying party shall not be responsible for any settlement made by the
indemnified party without the indemnifying party's written approval, which shall
not be unreasonably withheld.
11.2. IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER FOR ANY
INDIRECT, CONSEQUENTIAL, INCIDENTAL, SPECIAL, OR PUNITIVE DAMAGES (INCLUDING
WITHOUT LIMITATION DAMAGES FOR LOSS OF BUSINESS PROFITS, BUSINESS INTERRUPTION,
LOSS OF BUSINESS INFORMATION, OR OTHER PECUNIARY LOSS) ARISING OUT OF THIS
AGREEMENT.
12. Miscellaneous.
--------------
12.1. Neither party shall represent itself as the agent or legal
representative of the other for any purpose whatsoever, and neither party shall
have the right to create or assume for the other any obligation of any kind.
This Agreement shall not create or be deemed to create an agency, partnership,
franchise, employment relationship or joint
8
<PAGE>
venture between the parties. Each party's employees who perform services related
to this Agreement shall remain under the exclusive-direction and control of
their respective employer and shall receive such salaries, compensation and
benefits as their respective employer may from time to time determine. Each
party shall have full and sole responsibility for its employees who perform any
service related to this Agreement with regard to compliance with all applicable
laws, rules and regulations governing such party relating to employment, labor,
wages, benefits, taxes and other matters affecting its employees.
12.2. Any notice required or permitted to be given under this Agreement
shall be made in writing and shall be deemed to have been given or made if it is
in writing and is: (i) delivered in person, (ii) sent by same day or overnight
courier, (iii) mailed by certified or registered mail, return receipt requested,
postage prepaid, addressed to the party at its address set forth below or at
such other address as such party may subsequently furnish to the other party by
notice hereunder, or (iv) delivered by facsimile, the transmittal of which shall
be confirmed by a telephone call to the other party and by dispatch of a
confirming copy of the transmittal by registered or certified mail, postage
prepaid. Notices will be deemed effective on the date of delivery in the case of
personal delivery, or three (3) business days after mailing, or on the date of
dispatch in the case of notification by facsimile (assuming confirmation of
transmission). The parties' addresses for purposes of notice shall be as
follows:
GTR: GlobalTel Resources, Inc.
1520 Eastlake Avenue East, Ste. 210
Seattle, Washington 98102
Attn: Mr. Ronald Erickson
(206) 720-7250 (voice)
(206) 720-7251 (fax)
IBNet: International Business Network
115 Lantern Park Lane South
Southbury, CT 06488-2331 USA
Attn: Mr. John A. Monteleone
(203) 264-0359 (voice)
(203) 264-7293 (fax)
12.3. The failure of any party to enforce its rights, remedies or any
condition of this Agreement, shall not be deemed a waiver thereof, nor shall it
affect such party's right to subsequently enforce the same.
12.4. This Agreement shall be construed, enforced, performed and in all
respects governed by and in accordance with the laws in the State of Washington
as they apply to
9
<PAGE>
contracts entered into and performed entirely within such State. Each of the
parties hereby irrevocably consents to jurisdiction and venue in the state and
federal courts sitting in King County, Washington. In any action or suit to
enforce any right or remedy under this Agreement, the prevailing party shall be
entitled to recover its reasonable attorneys' fees and costs.
12.5. The invalidity or unenforceability of any provision of this
Agreement shall not affect the other provisions of this Agreement and this
Agreement shall be construed in all respects as if such invalid or unenforceable
provision were replaced with a valid and enforceable provision as similar as
possible to the one replaced.
12.6. Either party may voluntarily or by operation of law assign,
sublicense, transfer, encumber or otherwise dispose of all or any part of its
interest in this Agreement, in the event of a reorganization, consolidation or
merger involving another entity which results in a change of control of the
assigning party, with the prior written consent of the other party, which
consent shall not be unreasonably withheld. For purposes of this Agreement, a
"change in control" shall mean the acquisition of more than fifty percent (50%)
of any class of either party's voting stock by another entity, or the sale of
more than fifty percent (50%) of such party's assets. Subject to the provisions
of this Section, this Agreement shall be binding upon and inure to the benefit
of each party and their respective successors and assigns.
12.7. Except as otherwise specifically stated herein, this Agreement is
not intended to benefit, nor shall it be deemed to give rise to, any rights in
any third party.
12.8. This Agreement, including all exhibits and agreements referenced and
made effective herein, represents the entire understanding of the parties with
respect to the subject matter hereof. Except as provided for elsewhere in this
Agreement, no conditions, usage of trade, course of dealing or performance,
understanding or agreement purporting to modify, vary, explain or supplement the
terms or conditions of this Agreement shall be binding unless hereafter made in
writing and signed by both parties. No modification shall be effected by the
acknowledgment or acceptance of a purchase order, by invoice or otherwise,
containing terms or conditions at variance with or in addition to those set
forth herein.
10
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
GTR IBNet
By /s/ Ronald P. Erickson By /s/ John A. Moteleone
---------------------- ----------------------
Name Ronald P. Erickson Name John A. Moteleone
--------------------------- --------------------------
Title Chairmain & CEO Title Exec. VP & COO
--------------------------- --------------------------
11
<PAGE>
Exhibit A
---------
Fees and Payments
-----------------
GTR agrees to pay IBNet fees for the referral of business to GTR by IBNet with a
customer agreement that has been initiated by IBNet or the Chambers of Commerce.
The fees will be paid for the term of the agreement. Fees may vary by product
and will be paid on gross margin dollars which shall be calculated by taking the
gross revenue and subtracting the cost of goods sold (the network cost excluding
G & A).
Fees apply beginning with the contract signing by a customer.
<TABLE>
<CAPTION>
Fee Fee Fee
Product Year 1 Year 2 Year 3 + option
- ------- -------------------------- --------------------- ---------------------
<S> <C> <C> <C>
International Voice [*] of Gross Margin [*] of GM [*] of GM
International Fax [*] of Gross Margin [*] of GM [*] of GM
Calling Card Services To Be Determined (TBD)
Intranet Services TBD
Internet Access TBD
Domestic Voice TBD
Virtual Private Networks TBD
Wireless Communications TBD
Messaging Services TBD
Multimedia Services TBD
System Integrations Services TBD
Cable Services TBD
Other Telecommunications Services TBD
</TABLE>
[*] CONFIDENTIAL TREATMENT REQUESTED
A-1
<PAGE>
Exhibit B
---------
Options
-------
GTR will grant options to IBNet based on reaching certain milestones based on
performance as measured by monthly revenue of the services sold to Chambers of
Commerce. The options will be granted at the then current price at the time of
grant. The option schedule is as follows:
Existing options based on section 6 of the contract: 10,000 options
Monthly Revenue Milestones Options Granted
- -------------------------- ---------------
$1,000,000 per month 25,000 options
$2,000,000 per month 25,000 options
$3,000,000 per month 25,000 options
$4,000,000 per month 25,000 options
$5,000,000 per month 25,000 options
$7,500,000 per month 25,000 options
$10,000,000 per month 25,000 options
Any option for revenue per month in excess of $10,000,000 per month will be
negotiated at that time.
B-1
<PAGE>
EXHIBIT 10.16
SHARE EXCHANGE AGREEMENT
THIS AGREEMENT is made and entered into this day of December, by
----
and between the undersigned Sellers (hereinafter collectively referred to as
"Sellers"), the undersigned persons, and GLOBALTEL RESOURCES, INC. (hereinafter
referred to as "Purchaser"), who agree to the following, including the Recitals.
RECITALS
A. Sellers directly or indirectly own 1,080,000 shares of the voting common
stock of GFP GROUP, INC., a Washington corporation (the "Stock"), which are
all the issued and outstanding shares of the capital stock of GFP GROUP,
INC. (the "Company"). The Company is the sole shareholder of Ratsten
International Telecommunications, Inc. ("Ratsten").
B. Purchaser desires to purchase, and the Sellers desire to sell, all of the
Stock, subject to the terms and conditions of this Agreement.
AGREEMENT
1. SALE AND PURCHASE OF STOCK.
--------------------------
Sellers agree to sell, and Purchaser agrees to buy, the Stock.
2. STOCK EXCHANGE.
--------------
Purchaser shall purchase the Stock by exchanging one (1) share of
Purchaser's voting common stock for each share of Sellers' Stock.
3. CLOSING.
-------
"Closing" shall occur at a time convenient to the parties, provided
that all conditions to Closing set forth in this Agreement will have been
satisfied, and further provided that Closing will occur not later than December
29, 1995, unless the parties agree in writing to an extension of that date.
Closing will take place at the offices of Vandeberg Johnson & Gandara, 3200
Columbia Seafirst Center, Seattle, Washington, or at such other time and place
as is mutually agreeable to Purchaser and Sellers. Closing shall be effective
as of 12:01 a.m., December 29, 1995 (the "Effective Date"). At Closing,
Purchaser shall be entitled to take possession of all assets of the Company.
Sellers covenant to take all action reasonably necessary to put Purchaser in
such position at the time of Closing, including without limiting the same:
(a) Endorsing and delivering to Purchaser certificates or assignments
separate from certificates, in form acceptable to Purchaser, representing the
Stock. of the Company;
1
<PAGE>
(b) Delivery of the corporate minute books and stock record books of
the Company and Ratsten, financial records, and such other books, papers arid
records of the Company and Ratsten as relate to its assets and operations;
(c) A general release of all claims which the Sellers and Ronald P.
Erickson, German Burtscher, and Frank Krentzman may have through the Closing
Date against the Company and Ratsten, except those obligations set forth in
those agreements described on Exhibit A attached hereto and incorporated herein
by this reference.
At Closing, Purchaser shall deliver to the Sellers stock certificates
representing the proper shares of Purchaser's common stock that are due under
the terms of paragraph 2 hereof.
4. REPRESENTATIONS, WARRANTIES AND COVENANTS OF SELLERS.
----------------------------------------------------
Sellers hereby represent and warrant to Purchaser and covenant and
agree as follows:
(a) Organization of Company; Documents. The Company, is a corporation
----------------------------------
duly organized, validly existing and in good standing under the laws of the
State of Washington. The Company has full power and lawful authority to own, or
to hold under lease, all of its assets. True copies of the Articles of
Incorporation, Bylaws, minutes of all directors' and shareholders' meetings, and
consent resolutions of the directors and shareholders of the Company, as
amended, have been provided to Purchaser.
(b) Organization of Ratsten; Documents. Ratsten is a corporation duly
----------------------------------
organized, validly existing and in good standing under the laws of the State of
California. Ratsten has full power and lawful authority to own, or to hold
under lease, all of its assets. True copies of the Articles of Incorporation,
Bylaws, minutes of all directors' and shareholders' meetings, and consent
resolutions of the directors and shareholders of Ratsten, as amended, have been
provided to Purchaser.
(c) Authorization of Agreement. This Agreement constitutes a valid
--------------------------
obligation, legally binding upon Sellers in accordance with its terms. The
execution and delivery of this Agreement and the consummation of the transaction
do not and will not result in any breach of, or default under, or require the
consent of any third party under, any agreement, license or instrument,
undertaking, or obligation of Sellers, the Company, or Ratsten, or under any
judgment, order, or decree to which they are subject. Neither the execution of
this Agreement nor the consummation of the transactions provided for hereunder
requires the consent or approval of governmental authority having jurisdiction
over the business of the Company or Ratsten, or of any party to party to any
agreement with the Company or Ratsten, or with any Seller, as a condition to the
continuance of the Company's or Ratsten's conduct of its business after the
Closing or with that party.
(d) Stock Ownership. The Company's entire authorized and issued or to
---------------
be issued capital stock consists of 1,250,007 shares of common stock. There
are not now, and will not be at the Closing date, any outstanding subscriptions,
options, rights, warrants,
2
<PAGE>
convertible shares, debts or other agreements or commitments obligating the
Company to issue any other shares of its capital stock, except as may be set
forth on EXHIBIT A, and including 62,500 shares to be issued to Purchaser.
Except as may be set forth on EXHIBIT A, now and at Closing, the lawful,
beneficial and record owners of each share of the Stock are and will be:
<TABLE>
<CAPTION>
<S> <C>
Laura Street Family L.P......................... 270,000 shares
North Willow Family L.P......................... 270,000 shares
Sirius International Telecommunications......... 500,000 shares
a California General Partnership
[or German Burtscher and Frank Krentzman, individually as former general
partners]
Peter Gust...................................... 25,000 shares
Donald Kovaks................................... 15,000 shares
</TABLE>
Sellers own the Stock free and clear of all restrictions, liens, Security
interests, hypothecations, pledges and encumbrances of every kind and nature
whatsoever. Sellers have and will have full legal power and authority to
transfer and to deliver to Purchaser the Stock such that Purchaser will be the
absolute owner of the Stock, free and clear. There are no restrictions in the
Articles of Incorporation, Bylaws or other corporate documents against the free
transferability of the Stock, except for (1) shareholder agreements, agreements
to sign shareholder agreements for the Company's shares, or (2) shareholder
preemptive rights given to Ratsten's shareholders in Section 6.7 of Ratsten's
Bylaws. The Company does not own any capital stock of any other corporation or
any interest in any partnership or joint venture other than Ratsten.
The Company owns the stock of Ratsten free and clear of all restrictions,
liens, security interests, hypothecations, pledges and encumbrances of every
kind and nature whatsoever. GFP Group, Inc. has and will have full legal power
and authority to transfer and to deliver the Company's shares in Ratsten so that
the transferee will be the absolute owner of the Ratsten shares, free and clear.
There are no restrictions in the Articles of Incorporation, Bylaws, or other
corporate documents against the free transferability of the. stock. Ratsten
does not own any capital stock of any other corporation or interest in any
partnership or joint venture.
(e) Financial Information. Sellers certify that they have provided
---------------------
Purchaser with such unaudited balance sheets, income statements, corporate
records and documents material to the operation of the Company's business and
the business of Ratsten (hereinafter collectively referred to as the "Financial
Information") as necessary to accurately show the Company's and Ratsten's
financial condition. All of the Financial Information is true and accurate, has
been taken from the Company's books of account, was prepared in accordance with
generally accepted accounting principles applied on a consistent basis, and to
the best of Seller's knowledge does not omit any information which would make
the Financial Information materially misleading.
(f) Liabilities. All Company and Ratsten liabilities arise under the
-----------
agreements shown on EXHIBIT A. Neither the Company nor Ratsten has yet filed
tax returns.
3
<PAGE>
(g) Title to Assets. The Company and Ratsten have good and marketable
---------------
title to all of the assets disclosed in the Financial Information, free and
clear of all mortgages, liens, pledges, security interests, charges and
leasehold interests, except for general liens for property taxes and
encumbrances disclosed in the Financial Information.
(h) Compliance with Law. The Company and Ratsten and the business which
-------------------
they operate now comply and will, as of the Closing date, comply in all material
respects with all applicable federal and state law, and all rules, regulations
and orders of local governing authorities. Neither Sellers, the Company, nor
Ratsten have received any notice with which they have not complied from any
governmental authority or agency or from any insurance or inspection body
stating that the Company, Ratsten, or their business, or any of their
properties, facilities or the assets, fail or may fail to comply with any
applicable law, ordinance, regulation, building or zoning law, or requirements
of any public authority or body, including but not limited to environmental laws
and regulations.
The conduct of the Company's and Ratsten's business is not dependent on any
governmental or private license, permit, or other authorization that has not
been obtained and furnished to Purchaser, and the consummation of the
transaction contemplated by this Agreement will not terminate or adversely
affect any such license, permit, or authorization.
The Company (GFP Group, Inc.) and its Ratsten subsidiary will be relying on
Purchaser's existing FCC 214 license to operate the MFS and GM-AX switches as
contemplated by the parties.
(i) Litigation and Claims. There is no pending or threatened suit, action
---------------------
or litigation, administrative, arbitration or other proceeding or governmental
investigation or inquiry to which the Company, Ratsten, or their assets, the
business of the Company, or Ratsten, or Sellers are a party or subject. Neither
the Company nor Ratsten nor the Sellers are in default with respect to any
decree, order, judgment, or injunction of any court or governmental or quasi-
governmental board, agency, or instrumentality. The. Company and Ratsten have
complied with and at Closing will be in compliance in all material respects with
all laws, regulations, and orders applicable to its business and property. No
stockholder, officer, or employee of the Company has any claim of any nature
against the Company, or Ratsten, except as described on EXHIBIT A.
(j) Employees. The Company and Craig R. Palmer, Ronald P. Erickson, German
---------
Burtscher and Frank Krentzman are not now and at Closing will not be in default
of their obligations under the employment agreements, and those agreements shall
be freely assignable to and enforceable by Purchaser for its own account at
Closing, or enforceable by the Company if no such assignment is made. Those
agreements will not be amended, modified, or terminated in any respect prior to
the Closing Date except with the prior written consent of Purchaser. After
Closing, the Purchaser shall fulfill all of the Company's obligations under the
employment agreements as required by Section 6.(d) below.
4
<PAGE>
There are no other employees of the Company or Ratsten. The Company and
Ratsten have no other obligation, contractual or otherwise, to their employees,
except for compensation required by the agreements shown on EXHIBIT A. Neither
Sellers, the Company, nor Ratsten have taken any actions with respect to any
employee which would give rise to any claims of discrimination on the basis of
age, sex, race, disability or any other status protected by federal or local
law, any violation of the Fair Labor Standards Act, or any other state or
federal law related to the rights of employees.
(k) Assets in Good Operating Condition. To Sellers' knowledge all of the
----------------------------------
operating assets of the Company, and Ratsten are in good operating condition and
repair. Through the Effective Date, the Company shall maintain adequate
insurance with respect to all risks normally insured against by it in the past
or by companies similarly situated.
(l) Scitor ITS License Agreement. A true copy of the agreement dated April
----------------------------
28, 1995 between Scitor International Telecommunications Services, Inc.
("Scitor") and Ratsten International Telecommunications, Inc. d/b/a/ Netstar
International Telecommunications, Inc., a wholly owned subsidiary of the Company
(the "Scitor Agreement") is attached as EXHIBIT B. Sellers expressly warrant and
represent to Purchaser that under the Scitor Agreement, the Company and Ratsten
have, and after Closing will continue to have, the right to purchase, lease,
install, operate, and maintain IT Group MFS-400 and GMAX switches to provide fax
and various data services to third parties, as defined in the Scitor Agreement,
and that the prohibition against resale of the "Service" in paragraph 2.1
thereof only prohibits the Company and Ratsten from reselling its wholesale
rights to use the Service in specific "Locations" (as defined in the Scitor
Agreement) to third parties.
To the best of Sellers' knowledge, the Scitor Agreement is now and at
Closing will be in full force and effect and enforceable by Ratsten in
accordance with its terms. To the best of Sellers' knowledge, Scitor is not now
in default of its obligations to Ratsten under the Scitor Agreement.
Ratsten is required between December 14, 1995 and December 31, 1995, to pay
Scitor ITS an additional estimated $32,000 in relation to the GMAX nodes leased
in Mexico City, Hong Kong, and Los Angeles, and for related installation,
maintenance, and leased line port charges. Purchaser agrees to advance to or
through the Company funds prior to Closing to make these payments to maintain
the Scitor contract.
The Company and Ratsten are not now and at Closing will not be in default
of any of its obligations under the Scitor Agreement other than to make the
$32,000 in payments required between December 14, 1995 and December 31, 1995.
There is not now and at Closing will not be any basis in fact or at law for
amendment, modification, or termination of the Scitor Agreement by any party,
other than voluntary amendments or termination resulting from expiration of the
term stated in the Scitor Agreement. The execution of this Agreement and the
consummation of the transactions contemplated by this Agreement will not
terminate, invalidate, amend, or otherwise affect the Scitor Agreement in any
respect, and the Scitor Agreement will remain in full force and effect following
Closing. Purchaser acknowledges that the Company is negotiating amendments and
supplements
5
<PAGE>
to the Scitor Agreement which may, among other changes (1) substitute the
Company for Ratsten International Telecommunications, Inc. d/b/a Netstar
International Telecommunications, Inc. as the Customer, (2) provide that
financing for MFS-400 switches will be provided by third parties, and that
Scitor may no longer be providing financing for additional GM-AX switches as
such financing will also be provided by third parties, (3) add an additional 41
cities for initial MFS/GMAX switch roll-out; and (4) change the base agreement
term from five years to ten years prior to "tail" add-on of five years.
(m) Conduct Pending Closing. The Company's and Ratsten's business will be
-----------------------
conducted in the ordinary course from the date of this Agreement to Closing.
(n) Environmental Liability. Neither the Company, Ratsten, nor Sellers have
-----------------------
caused or permitted the Company Ratsten to generate, manufacture, store, handle,
dispose, transfer, produce, or process "hazardous substances" or other dangerous
or toxic substances, except in compliance with all federal, state or local
regulations. To the best of Sellers' knowledge, there is no presence of, nor
has there been any release of, any "hazardous substances" in the Company's or
Ratsten's premises or off-site of the premises which might affect said premises.
Sellers have no knowledge or reason to know of any prior ownership or use of the
Company's or Ratsten's premises which would indicate that "hazardous substances"
may have been generated, manufactured, transported, stored, handled, released or
disposed of upon the Company's or Ratsten's premises or off-site of the
Company's or Ratsten's premises which might affect said premises, except in full
compliance with all federal, state and local law. For purposes hereof,
"hazardous substances" shall have the meaning specified in RCW 70.105D and the
Model Toxics Control Act.
(o) Investigation and Access. During the period from the date hereof to
------------------------
Closing, Sellers shall cause Purchaser and its agents to have free access to the
Company's and Ratsten's premises, offices, records, files, books of account,
copies of tax returns and retirement plan returns of the Company and Ratsten.
Sellers shall cause the Company's. and Ratsten's personnel to aid and assist
Purchaser in reviewing the operations and records of the Company and Ratsten.
(p) Contracts. Except for the Scitor Agreement and the agreements described
---------
in EXHIBIT A, the Company and Ratsten are not parties to any other agreements,
contracts, undertakings, or leases of real or personal property. Those
agreements described in EXHIBIT A are now and at Closing will be in full force
and effect, and none of the parties to those agreements are now in default of
their obligations under that agreement. None of the parties hereto has waived
any rights under those agreements, and none of the parties hereto shall be in
default thereof at Closing.
(q) Restrictions on Purchaser's Stock. Sellers acknowledge and agree that
---------------------------------
the shares of Purchaser's common stock to be conveyed to them under this
Agreement ("Shares") have not been registered under the federal Securities Act
of 1933, as amended, or under the Washington State Securities Act or under any
other applicable securities acts (the "Acts"), and that Sellers must therefore
hold the Shares indefinitely unless they are
6
<PAGE>
subsequently registered under the Acts or an exemption from such registration is
available. Sellers agree that Purchaser is under no obligation to register the
Shares or to take any other action which would make an exemption from
registration available; and Purchaser is under no obligation to cause or permit
the Shares to be transferred in the absence of such registration or an opinion
satisfactory to Purchaser's counsel that an exemption is available. Sellers
acknowledge and agree that the Shares will also be subject to a shareholders'
agreement or bylaw restrictions which will impose further restrictions upon the
transferability of the Shares. The certificates representing the Shares will
have a legend similar to the following placed on them:
This stock has not been registered under the Securities Act of 1933, as
amended, or any state securities law. It may not be sold or otherwise
transferred unless registered under applicable federal or state securities
laws or the Company issuing the stock is furnished with an opinion of
counsel acceptable to it that an exemption from registration is available.
This stock is also subject to certain restrictions set forth in a
shareholders' agreement or the bylaws of GlobalTel Resources, Inc., and may
not be sold or transferred except in compliance therewith.
After Closing, transfer of shares in Purchaser shall be restricted by a
provision in Purchaser's Bylaws or Articles of Incorporation consistent with the
provisions set forth on EXHIBIT C. The Bylaws or Articles shall provide that the
restriction may not be changed except by vote of the holders of at least two-
thirds of the issued and outstanding shares of the Purchaser.
(r) Broker. The Purchaser is entitled at closing to 62,500 shares of the
------
Company as a finder's fee for the Company's acquisition of Ratsten. The Sellers
have not employed any other broker, finder, or agent, nor otherwise become in
any way obligated for any broker's, finder's or agent's, or similar fee with
respect to the transaction contemplated by this Agreement.
(s) Absence of Certain Events, Circumstances, Etc. Since September 1,
----------------------------------------------
1995, the Company and Ratsten have not (1) incurred any obligation or liability,
whether absolute or contingent, except obligations and liabilities incurred in
the ordinary course of the Company's or Ratsten's business; (2) discharged or
satisfied any lien or encumbrances or paid any obligation or liability whether
absolute or contingent, other than current liabilities having become due and
payable since that date in the ordinary course of the Company's or Ratsten's
business and obligations and liabilities under contracts referred to in the
exhibits annexed hereto; (3) made or agreed to make any wage, salary, or
employee benefit increases for full-time employees (4) sold or transferred any
of its tangible or intangible assets or canceled any debts or claims, except, in
each case, in the ordinary course of business; (5) sold, assigned, or
transferred any trademark or trade name; (6) suffered any losses that would have
a materially adverse effect on the business or financial condition of the
Company or waived any rights of substantial value; (i) suffered any loss,
damage, or destruction to any of its properties due to fire or other casualty
whether or not insured, which loss, damage, or destruction materially and
adversely affects its business, properties or operations; (8) issued or sold or
agreed to issue
7
<PAGE>
or sell any shares of its capital stock or any other securities or reclassified
or agreed to reclassify its capital stock except as shown on EXHIBIT A; (9)
mortgaged, pledged, or subjected to lien, charge or other encumbrance any of its
tangible or intangible assets, except the lien of current real and personal
property taxes not yet due and payable or purchase money or similar liens
incurred in the ordinary course of business; (10) made or agreed to make capital
expenditures, except as shown on the financial statements plus additional
corporate expenditures not to exceed $5,000; (11) declared or paid a dividend or
transferred property or loaned any money or agreed to loan money to any of its
directors or officers; (12) amended its Articles of Incorporation or Bylaws;
(13) conducted its business otherwise than in its ordinary and usual manner; or
(14) become aware of any event, transaction, or circumstance which does or could
materially adversely affect is condition (financial or otherwise), assets,
liabilities, earnings, business, or operations.
(+) Disclosure. This Agreement does not contain any untrue statement of
----------
any material fact or omits to state any material fact required to be stated in
order to make the statements contained in this Agreement not misleading. To the
best knowledge of Sellers, there is no fact which materially adversely affects,
or in the future may (so far as Sellers can now reasonably foresee) materially
adversely affect, the business or prospects or condition (financial or
otherwise) of the Company or Ratsten or any of their properties or assets, which
fact has not been disclosed in writing to Purchaser prior to the effective date
of this Agreement.
Alan H. Chin and Curt Lew have fully participated in many of the meetings
with Scitor ITS and are fully aware of the Scitor ITS relationship with the
Company and its Ratsten subsidiary.
All representations and warranties of Sellers contained in this Agreement
shall be true as of the date of Closing. All of the above representations,
warranties, and covenants survive the Closing of this transaction for the
benefit of Purchaser.
5. INDEMNIFICATION BY SELLERS.
--------------------------
Sellers, their successors and assigns, jointly and severally, shall
indemnify, defend and hold Purchaser harmless from any and all losses, claims,
damages or liabilities suffered by Purchaser as a result of:
(a) The failure of any representation or warranty of Sellers contained in
this Agreement to be true and accurate when made on and as of Closing;
(b) The failure of Sellers to comply with any obligations, agreements or
covenants contained in this Agreement;
(c) The conduct of the business of the Company and Ratsten prior to the
Effective Date; and
(d) Any accounts payable, liabilities, debts, taxes, leases or other
obligations arising with respect to any period prior to the Effective Date or
with respect to the
8
<PAGE>
Equipment which are not disclosed in the Financial Information or otherwise
disclosed in this Agreement.
Sellers, their successors and assigns, shall reimburse Purchaser for any
legal or other expense reasonably incurred by Purchaser in connection with any
loss, claim, damage or liability indemnified hereby. This indemnification shall
benefit and inure to the successors and assigns of Purchaser, including the
Company, and shall survive the Closing. In the event Purchaser, its successors
or assigns, believes it is entitled to indemnification hereunder, it shall give
Sellers written notice of the basis for the claim for indemnification. If
Sellers have not discharged or satisfied the claim raised by Purchaser within
thirty (30) days from Purchaser's mailing of such notice, then Purchaser may
proceed to collect the amount of the claim through any manner it chooses.
6. REPRESENTATIONS, WARRANTIES AND COVENANTS OF PURCHASER.
------------------------------------------------------
Purchaser hereby represents and warrants to Sellers, and covenants and
agrees as follows:
(a) Organization of Purchaser. Purchaser is a corporation duly organized,
-------------------------
validly existing and in good standing under the laws of the State of Washington.
Purchaser has full power and lawful authority to purchase the Stock.
(b) Authorization of Agreement. This Agreement constitutes a valid 1
--------------------------
obligation, legally binding upon Purchaser in accordance with its terms, and the
execution and delivery of this Agreement and the consummation of this
transaction (1) are permissible under the Purchaser's Articles of Incorporation
and Bylaws; (2) have been or will have been validly authorized by the directors
and shareholders of Purchaser by Closing; (3) does not and will not result in
any breach of or default under any agreement, license or other obligation of
Purchaser; and (4) will not violate any law, rule or regulation of any agency or
governmental body.
(c) Purchaser's Stock. Purchaser certifies that it owns sufficient numbers
-----------------
of common shares of its stock to exchange with Sellers for their shares of the
Company's Stock on a one-for-one basis. Purchaser owns this stock free and
clear of all restrictions, liens, security interests, hypothecations, pledges
and encumbrances of every kind and nature whatsoever. Purchaser has and will
have full legal power and authority to transfer and deliver to Sellers the stock
such that Sellers will be the absolute owner of the stock, free and clear.
There are no restrictions in the Articles of Incorporation, Bylaws or other
corporate documents against the free transferability of Purchaser's stock.
(d) Assumption of Rights and Performance of Liabilities. After Closing,
---------------------------------------------------
Purchaser shall have the rights and shall perform, or cause the Company to
perform, the obligations of Purchaser set forth in the documents described in
EXHIBIT A attached hereto, including but not limited to, the following:
(1) The obligations of the Company under each of the employment or
management agreements with the following individuals as listed on the EXHIBIT A:
9
<PAGE>
German Burtscher, Frank Krentzman, Ronald P. Erickson, and Craig R. Palmer.
Where these employment agreements call for the employees to be officers of the
Company, the Purchaser agrees that they shall have the same office in the
Purchaser with the same salary and benefits paid by the Purchaser. To the
extent that the employment agreements require the issuance of shares to the
employees, Purchaser agrees to issue shares to the employee in lieu of shares in
the Company on a one-for-one basis.
(2) The Purchaser agrees to perform all obligations of the Company to
Krentzman and Burtscher as set forth in the Acquisition and Management Agreement
for GFP Group, Inc., Frank Krentzman and German Burtscher signed on October 10,
1995, a copy of which is attached hereto as EXHIBIT D ("Acquisition and
Management Agreement"). Where the agreement calls for Krentzman and Burtscher
to be officers of the Company, the Purchaser agrees that each shall have the
same office in the Purchaser with the same salary and benefits paid by the
Purchaser. To the extent that the agreement requires the issuance of shares to
the employees, Purchaser agrees to issue shares to Krentzman and Burtscher in
lieu of shares in the Company on a one-for-one basis. The Purchaser agrees that
Krentzman and Burtscher shall be vice presidents of Purchaser of equal rank, and
with the same pay packages, benefits, and stock ownership as Alan Chin and Curt
Lew at Closing, except as noted in Section 6.(d)(9).
(3) As required by the Acquisition and Management Agreement described
in Section 6.(d)(2) above, Purchaser shall at Closing have a seven-member Board
of Directors. Krentzman and Burtscher shall have the right to serve as director
in alternate years and to nominate one additional director. For 1995, Frank
Krentzman shall be the director. During 1996, German Burtscher shall be the
director. The alternate director to be nominated by Krentzman and Burtscher for
the first year shall be Donald Sledge. Purchaser reserved the right to require
a different alternate director to be nominated by Krentzman and Burtscher in the
event that Purchaser deems it in the best interest of Purchaser's business.
(4) Purchaser shall issue 1,250,007 shares to the group of
individuals. comprised of the former shareholders in GFP Group, Purchaser, and
those individuals who provided bridge financing to the Company as shown on
EXHIBIT A. Purchaser agrees that, as of Closing, there shall be only one class
of stock in Purchaser which shall be voting common. Purchaser shall issue
shares in Purchaser to the holders of the bridge loans as shown on Exhibit A
even if no corresponding shares in the Company have been issued to the bridge
loan holders. The issuance of the shares in Purchaser shall be in full
satisfaction of the obligation of the Company to issue shares in the Company to
the bridge loan holders. Purchaser may issue the shares to the bridge loan
holders after closing.
(5) Purchaser shall loan Krentzman $35,500 and Burtscher $14,500 to
repay personal loans, upon presentation of documents evidencing such loans and
the outstanding balance of each, as required by the Acquisition and Management
Agreement.
(6) Purchaser shall pay up to $30,000 to repay persons who advanced
funds to Krentzman and Burtscher for Ratsten operations as shown on EXHIBIT D to
the Acquisition and Management Agreement.
10
<PAGE>
(7) Purchaser shall make cash payments to GFP Group or any lender to
GFP Group sufficient to repay working capital provided to and by GFP as part of
its acquisition and operation of Ratsten. Purchaser shall also pay all of GFP's
and Ratsten's costs and expenses in negotiating and obtaining GFP's acquisition
of the Ratsten contract and the acquisition of the GFP Group, Inc.'s shares by
Purchaser.
(8) Purchaser agrees that as of Closing, all existing shareholder
agreements, voting trusts, stock options, or similar agreements among Purchaser
and its current shareholders shall be terminated and of no further force and
effect. Instead, Purchaser's Bylaws shall be amended as of closing as set forth
on Exhibit C to restrict transfer of shares in Purchaser. The restriction may
not be changed without the affirmative vote of the holders of at least two-
thirds of the issued and outstanding shares in Purchaser.
(9) Purchaser agrees at Closing to escrow 184,000 shares of the shares
reserved for the Purchaser's ISOP until confirmation of the ownership by Alan
Chin's family and by Curt Lew's family of all or a portion of the 184,000 shares
of Purchaser held in Chin's or Lew's name alone. Upon confirmation of the
number of shares actually held by Alan Chin and Curt Lew individually,
sufficient numbers of the shares held in escrow pursuant to this section shall
be made available to Frank Krentzman and German Burtscher so that each may
purchase through Purchaser's ISOP a number of additional shares of Purchaser so
that Krentzman, Burtscher, Chin and Lew have an equal number of shares in
Purchaser.
(e) Financial Information. Purchaser certifies that Purchaser has provided
---------------------
Sellers with such balance sheets, income statements, corporate records and
documents material to the operation of the Purchaser's business (hereinafter
collectively referred to as the "Financial Information") as necessary to
accurately show the Purchaser's financial condition. All of the Financial
Information is true and accurate, has been taken from the Purchaser's books of
account, was prepared in accordance with generally accepted accounting
principles applied on a consistent basis, and to the best of Purchaser's
knowledge does not omit any information which would make the Financial
Information. materially misleading.
(f) Liabilities. The Financial Information, when delivered to Sellers
-----------
accurately discloses, reserves against, or accrues all liabilities of the
Purchaser, including but not limited to accounts payable, taxes, debts,
obligations, leases, employment related obligations, fringe benefits, employment
taxes and contributions to industrial or unemployment insurance funds, or any
other indebtedness or leasehold interest of any nature associated with the
assets, the Purchaser, or the business of the Purchaser. The amounts set forth
as liabilities for taxes on the Purchaser's financial statements will be
sufficient for the payment of all federal, state, county, local or foreign taxes
of the Purchaser which are or may become payable by the Purchaser. Any other
liabilities of the Purchaser not set forth in the Financial Information are set
forth on EXHIBIT E attached hereto. The Purchaser has filed all federal, state,
county, local and foreign income, excise, corporate license or franchise,
property, sales or retail occupation taxes and other tax returns required to be
filed by it, and such returns are true and correct.
11
<PAGE>
(g) Title to Assets. The Purchaser has good and marketable title to all of
---------------
the assets disclosed in the Financial Information, free and clear of all
mortgages, liens, pledges, security interests, charges and leasehold interests,
except for general liens for property taxes and encumbrances disclosed in the
Financial Information.
(h) Compliance With Law. The Purchaser and the business which the
-------------------
Purchaser operates now comply and will, as of the Closing date, comply in all
material respects with all applicable federal and state law, and all rules,
regulations and orders of local governing authorities. Neither Purchaser nor
the Purchaser have received any notice with which they have not complied from
any governmental authority or agency or from any insurance or inspection body
stating that the Purchaser or its business, or any of its properties, facilities
or the assets, fail or may fail to comply with any applicable law, ordinance,
regulation, building or zoning law, or requirements of any public authority or
body, including but not limited to environmental laws and regulations. The
conduct of the Purchaser's business is not dependent on any governmental or
private license, permit, or other authorization that has not been obtained and
furnished to Purchaser, and the consummation of the transaction contemplated by
this Agreement will not terminate or adversely affect any such license, permit,
or authorization.
(i) Litigation and Claims. There is no pending or threatened suit, action
---------------------
or litigation, administrative, arbitration or other proceeding or governmental
investigation or inquiry to which the Purchaser or its assets, the business of
the Purchaser or Purchaser are a party or subject. Neither the Purchaser nor
the Purchaser are in default with respect to any decree, order, judgment, or
injunction of any court or governmental or quasi-governmental board, agency, or
instrumentality. The Purchaser has complied with and at Closing will be in
compliance in all material respects with all laws, regulations, and orders
applicable to its business and property. No stockholder, officer, or employee
of the Purchaser has any claim of any nature against the Purchaser.
(j) Employees. The Purchaser has disclosed and provided Sellers with
---------
copies of the written employment contracts entered into by Purchaser with Alan
Chin and Curt Lew, which as of the date of this Agreement are the only written
employment contracts Purchaser has entered into with any of its employees.
Purchaser and the other parties to the employment agreements are not now and at
Closing will not be in default of their obligations under the employment
agreements. Those agreements shall be amended as necessary for Purchaser to
comply with its obligations under this agreement, including as necessary to give
Krentzman, Burtscher, Erickson, and Palmer the required positions, shares and
compensation with and from Purchaser. Except as required by the previous
sentence, those agreements will not be amended, modified, or terminated in any
respect prior to the Closing Date except with the prior written consent of
Purchaser.
All other employees of the Purchaser are at-will employees. The Purchaser
has no other obligation, contractual or otherwise, to its employees, except for
compensation due in the ordinary course of business. Neither Purchaser nor its
officers, directors, or shareholders have taken any actions with respect to any
employee which would give rise to any claims of discrimination on the basis of
age, sex, race, disability or any other status protected by federal or local
law, any violation of the Fair Labor Standards Act, or any
12
<PAGE>
other state or federal law related to the rights of employees. Purchaser has
represented to Sellers that all employees are at-will employees and, therefore,
as part of the indemnification contained herein, Purchaser shall be liable to
Sellers and the Company for any claims by any employee that he or she may not be
terminated by Purchaser because of any actions by the Purchaser prior to
Closing.
(k) Assets in Good Operating Condition. To Purchaser's knowledge all of
----------------------------------
the operating assets of the Purchaser are in good operating condition and
repair. Through the Effective Date, the Purchaser shall maintain adequate
insurance with respect to all risks normally insured against by it in the past
or by companies similarly situated.
(l) Scitor ITS License Agreement. A true copy of the agreement dated April
----------------------------
28, 1995 between Scitor International Telecommunications Services, Inc.
("Scitor") and Ratsten International Telecommunications, Inc. d/b/a/ Netstar
International Telecommunications, Inc., a wholly owned subsidiary of the Company
(the "Scitor Agreement") is attached as EXHIBIT B. Purchaser shall fulfill all
of Ratsten's and the Company's obligations under the Scitor Agreement.
(m) Conduct Pending Closing. The Purchaser's business will be conducted in
-----------------------
the ordinary course from the date of this Agreement to Closing.
(n) Environmental Liability. Purchaser has not generated, manufactured,
-----------------------
stored, handled, disposed, transferred, produced, or processed "hazardous
substances" or other dangerous or toxic substances, except in compliance with
all federal, state or local regulations. To the best of Purchaser's knowledge,
there is no presence of, nor has there been any release of, any "hazardous
substances" in the Purchaser's premises or off-site of the premises which might
affect said premises. Purchaser have no knowledge or reason to know of any
prior ownership or use of the Purchaser's premises which would indicate that
"hazardous substances" may have been generated, manufactured, transported,
stored, handled, released or disposed of upon the Purchaser's premises or off-
site of the Purchaser's premises which might affect said premises, except in
full compliance with all. federal, state and local law. For purposes hereof,
"hazardous substances" shall have the meaning specified in RCW 70.105D and the
Model Toxics Control Act.
(o) Investigation and Access. During the period from the date hereof to
------------------------
Closing, Purchaser shall cause Sellers and its agents to have free access to the
Purchaser is premises, off-ices, records, files, books of account, copies of tax
returns and retirement plan returns of the Purchaser. Purchaser shall cause the
Purchaser's personnel to aid and assist Sellers in reviewing the operations and
records of the Purchaser.
(p) Contracts. Except for the agreements described in EXHIBIT E, the
---------
Purchaser is not a party to any other agreements, contracts, undertakings, or
leases of real or personal property. Those agreements described in EXHIBIT E
are now and at Closing will be in full force and effect, and none of the parties
to those agreements are now in default of their obligations under that
agreement. None of the parties hereto has waived any rights under those
agreements, and none of the parties hereto shall be in default thereof at
Closing.
13
<PAGE>
(q) No Broker. The Purchaser has not employed any broker, finder, or
---------
agent, nor otherwise become in any way obligated for any broker's, finder's or
agent's, or similar fee with respect to the transaction contemplated by this
Agreement.
(r) Absence of Certain Events, Circumstances, Etc. Except as disclosed to
---------------------------------------------
Sellers in writing prior to Closing, since January 1, 1995, the Purchaser has
not (1) incurred any obligation or liability, whether absolute or contingent,
except obligations and liabilities incurred in the ordinary course of the
Purchaser's business; (2) discharged or satisfied any lien or encumbrances or
paid any obligation or liability whether absolute or contingent, other than
current liabilities having become due and payable since that date in the
ordinary course of the Purchaser's business and obligations and liabilities
under contracts referred to in the exhibits annexed hereto; (3) made or agreed
to make any wage, salary, or employee benefit increases for full-time employees
(4) sold or transferred any of its tangible or intangible assets or canceled any
debts or claims, except, in each case, in the ordinary course of business; (5)
sold, assigned, or transferred any trademark or trade name; (6) suffered any
losses that would have a materially adverse effect on the business or financial
condition of the Purchaser or waived any rights of substantial value; (7)
suffered any loss, damage, or destruction to any of its properties due to fire
or other casualty whether or not insured, which loss, damage, or destruction
materially and adversely affects its business, properties or operations; (8)
issued or sold or agreed to issue or sell any shares of its capital stock or any
other securities or reclassified or agreed to reclassify its capital stock; (9)
mortgaged, pledged, or subjected to lien, charge or other encumbrance any of its
tangible or intangible assets, except the lien of current real and personal
property taxes not yet due and payable or purchase money or similar liens
incurred in the ordinary course of business; (10) made or agreed to make capital
expenditures in excess of $25,000; (11) declared or paid a dividend or
transferred property or loaned any money or agreed to loan money to any of its
directors or officers; (12) amended its Articles of Incorporation or Bylaws;
(13) conducted its business otherwise than in its ordinary and usual manner; or
(14) become aware of any event, transaction, or circumstance which does or could
materially adversely affect its condition (financial or otherwise), assets,
liabilities, earnings, business, or operations.
(s) Disclosure. This Agreement does not contain any untrue statement of
----------
any material fact or omits to state any material fact required to be stated in
order to make the statements contained in this Agreement not misleading. To the
best knowledge of Purchaser, there is no fact which materially adversely
affects, or in the future may (so far as Purchaser can now reasonably foresee)
materially adversely affect, the business or prospects or condition (financial
or otherwise) of the Purchaser or any of its properties or assets, which fact
has not been disclosed in writing to Purchaser prior to the effective date of
this Agreement.
All representations and warranties of Purchaser contained in this Agreement
shall be true as of the date of Closing. All of the above representations,
warranties, and covenants survive the Closing of this transaction for the
benefit of Purchaser.
(t) Compliance with Funder Requests. Purchaser acknowledges that the
-------------------------------
Company, through Palmer and Erickson, is arranging financing for Ratsten's
obligations
14
<PAGE>
under the Scita/Scitor Agreement, as may be amended and supplemented, in the
approximate amount of $50 million to $100 million U.S. Dollars through Quoin
Financial Corporation or other lenders/investors (collectively the "Lender").
Purchaser agrees to take all steps required by the Lender to obtain the funding,
including, but not limited to: (1) changing the size or the composition of
Purchaser's or the Company's board of directors to include directors desired by
the Lender; (2) making such personnel changes as Lender desires in the Company
or Purchaser subject to rights under existing employment agreements (3)
permitting the Lender to acquire an equity interest in the Company or Purchaser;
and (4) to execute all documents which the Purchaser's board after the share
exchange deems necessary for the Lender and/or investor financing.
(u) Addition of John Cox. Purchaser and Purchaser's Directors shall, upon
--------------------
recommendation of Ronald Erickson and Craig R. Palmer, make John Cox Vice
President of Network Services for Purchaser at a salary of $150,000 per year,
plus benefits of similar rank officers, contingent upon receipt of financing
from Quoin Financial Corporation or other institutional lender.
7. INDEMNIFICATION BY PURCHASER.
----------------------------
Purchaser, its successors and assigns, shall indemnify, defend and hold
Sellers harmless from any and all losses, claims, damages or liabilities
suffered or incurred by Sellers as a result of:
(a) The failure of any representation or warranty of Purchaser contained in
this Agreement to be true and accurate when made on and as of the date of
Closing;
(b) The failure of Purchaser to comply with any obligations, agreements or
covenants contained in this Agreement;
(c) The conduct of the Company's business; and
(d) Any accounts payable, liabilities, debts, taxes, leases or other
obligations of the Company except for those exceeding $ 1,000 arising with
respect to any period prior to Closing and which were not disclosed by Sellers
or the Company prior to Closing.
Purchaser, its successor or assigns, shall reimburse Sellers for any legal
or other expense reasonably incurred by them in connection with any loss, claim,
damage or liability indemnified hereby. This indemnification obligation will
survive the Closing.
8. CONDITIONS TO PURCHASER'S OBLIGATIONS.
-------------------------------------
The obligations of Purchaser under this Agreement are subject to
satisfaction of each of the following conditions, unless waived in writing by
Purchaser, at or prior to Closing:
(a) Representations True; Compliance with Covenants. The representations
-----------------------------------------------
and warranties of Sellers contained in this Agreement shall be true in all
15
<PAGE>
material respects on and as of Closing with the same force and effect as though
made on and as of said date. Sellers shall have performed and complied in all
material respects with all covenants contained herein required to be performed
or complied with by Sellers at or prior to Closing.
(b) No Litigation. There shall not be pending or threatened any claim,
-------------
suit, action, proceeding, investigation or inquiry by any person, governmental
body or authority or other entity seeking to restrain or prohibit this
transaction, to obtain damages in connection with this Agreement, or any claim
of any nature filed or commenced against the Company.
(c) No Material Adverse Change. There shall have been no material adverse
--------------------------
change in the Company or Ratsten, the business of the Company or the assets
since the date of the last financial statement presented to Purchaser.
(d) Additional Documents. Sellers shall have delivered or caused to be
--------------------
delivered to Purchaser all instruments and copies of instruments required to
complete the Closing.
(e) Approval of Directors and Shareholders. The Directors and Shareholders
--------------------------------------
of Purchaser have ratified, confirmed, and approved the execution of this
Agreement and the execution of the other documents and consummation of the
transactions which are provided for herein or which are required to consummate
the transactions contemplated herein.
9. CONDITIONS TO SELLERS' OBLIGATIONS.
----------------------------------
The obligations of Sellers under this Agreement are subject to satisfaction
of each of the following conditions, unless waived in writing by Sellers, at or
prior to Closing:
(a) Representations True; Compliance with Covenants. The representations
-----------------------------------------------
and warranties of Purchaser contained in this Agreement shall be true in' all
material respects on and as of Closing with the same force and effect as though
made on and as of said date. Purchaser shall have performed and complied in all
material respects with all covenants contained herein required to be performed
or complied with by Purchaser at or prior to Closing.
(b) No Litigation. There shall not be pending or threatened any claim,
-------------
suit, action, proceeding, investigation or inquiry by any person, governmental
body or authority or other entity seeking to restrain or prohibit this
transaction, or to obtain damages in connection with this Agreement, nor any
claim of any nature filed or commenced against the Purchaser.
(c) No Material Adverse Change. There shall have been no material adverse
--------------------------
change in the Purchaser, the business of the Purchaser or the assets of
Purchaser since the date of the last Purchaser's financial statement presented
to Sellers.
16
<PAGE>
(d) Additional Documents. Purchaser shall have delivered or caused to be
--------------------
delivered to Sellers all instruments and copies of instruments required to
complete the Closing.
(e) Approval of Directors and Shareholders. The Directors and Shareholders
--------------------------------------
of Purchaser have ratified, confirmed, and approved the execution of this
Agreement and the execution of the other documents and consummation of the
transactions which are provided for herein or which are required to consummate
the transactions contemplated herein.
10. TERMINATION AND REMEDIES.
------------------------
(a) Termination. This Agreement may be terminated at any time prior to
-----------
Closing by mutual consent of all the parties hereto or unilaterally by Sellers
and Purchaser if (1) any party has defaulted in a material respect in the
performance of any covenant hereunder, (2) any representation or warranty made
by any other party is untrue in any material respect, or (3) a condition
precedent to the terminating party's obligation to close has not been satisfied
by the Closing Date. Termination shall be effective on the date mutually agreed
by the parties, or on the date of termination notice if terminated unilaterally.
(b) Remedies. If a Seller refuses to close as provided herein, Purchaser,
--------
in addition to any other remedies it may have, may enforce this Agreement by
specific performance.
11. MISCELLANEOUS
-------------
(a) Notice. All notices and other communications required to be given by
------
the parties shall be in writing and sent to the respective parties at the
following addresses:
SELLERS: Frank Kreatzman
------------------------
2917 Pearl Street
------------------------
Santa Monica, CA 90405
------------------------
WITH COPY TO: John W. Hathaway, Esq.
Edwards, Sieh, Hathaway, Smith & Goodfriend, P.S.
701 - 5th Avenue, Suite 6501
Seattle, WA 98104
PURCHASER: GlobalTel Resources, Inc.
1520 Eastlake Ave. E., Suite 205
Seattle, WA 98102
WITH COPY TO: Daniel Gandara, Esq.
701 - 5th Avenue, Suite 3200
Seattle, WA 98104-7026
17
<PAGE>
(b) Washington Law. This Agreement shall be construed in accordance with
--------------
the laws of the State of Washington.
(c) Expenses. In any action brought to enforce this Agreement, or to seek
--------
damages for breach thereof, the prevailing party shall be entitled to recover a
reasonable attorney's fee (including a reasonable attorney's fee on any appeal
thereof) and reasonable costs of litigation in addition to any other award or
decree granted or given by the court.
(c) Entire Agreement. This Agreement, together with the exhibits attached
----------------
hereto, supersedes all prior agreements of the parties, constitutes the entire
agreement and understanding between the parties and may only be modified or
amended by a subsequent written agreement executed by both parties.
(e) Assignment. No Seller, or Purchaser, may assign his or its rights or
----------
delegate his or its obligations hereunder without the prior written consent of
the other party hereto, such consent not to be unreasonably withheld. This
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors and assigns.
(f) No Waiver. No failure on the part of either party to exercise and no
---------
delay in exercising any rights hereunder shall operate as a waiver thereof; nor
shall any waiver or acceptance of a partial, single or delayed performance of
any term or condition of this Agreement operate as a continuing waiver or a
waiver of any subsequent breach thereof.
(g) Severability. If any provision of this Agreement is held to be illegal,
------------
invalid or unenforceable, such provision shall be fully severable and this
Agreement shall be continued and enforced if such illegal, invalid or
unenforceable provision were never a part hereof; and in lieu of such provision,
there shall be added automatically as part of this Agreement a provision as
similar in terms to such illegal, invalid or unenforceable provision as may be
possible to make such provision legal, valid and enforceable.
(h) Arbitration of Disputes. Any disputes arising under this Agreement that
-----------------------
remains unresolved three months after it arose shall be determined by
arbitration in Seattle, Washington before a single arbitrator of the Judicial
Arbitration and Mediation Service, unless otherwise agreed by the parties to the
dispute. If the parties cannot agree on the arbitrator, then either party may
apply to have the arbitrator appointed by the King County Superior Court
Presiding Judge. The then existing Washington and King County Civil Rules shall
apply to such arbitration. Any party may invoke arbitration by mailing a
written demand to the other parties, stating the matter in controversy. The
decision of the arbitrator shall be binding on the parties and may be entered as
a judgment in any court of competent Jurisdiction. The substantially prevailing
party in any such dispute shall be entitled to an award of that party's actual
attorney fees and costs relating to the dispute. The actual amount charged the
party shall be presumed reasonable, which presumption may be rebutted by a
specific showing of duplication, waste, or charges for collateral or unnecessary
matters. Arbitration pursuant to this section is a condition precedent to any
legal or equitable action.
18
<PAGE>
(i) Authority and Spousal Consent. Each signatory on behalf of a
-----------------------------
corporation or partnership warrants that he or she has authority to bind that
entity to this Agreement. Each married signatory shall obtain the written
consent of the signatory's spouse to this Agreement.
DATED as of the date set forth above.
SELLERS:
LAURA STREET FAMILY L.P. NORTH WILLOW FAMILY L.P.
By: LSLP, Inc., General Partner By: /s/ NORTH WILLOW CORPORATION
------------------------------
General Partner
By: /s/ CRAIG R. PALMER by By: /s/ RONALD P. ERICKSON
RONALD P. ERICKSON ATTORNEY ------------------------------
IN FACT RONALD P. ERICKSON
-------------------------- Its PRESIDENT
---------
CRAIG R. PALMER
/s/ FRANK K. KRENTZMAN
- ------------------------------- -----------------------------------
Frank Krentzman Spouse
/s/ GERMAN BURTSCHER /s/
- ------------------------------- -----------------------------------
German Burtscher Spouse
/s/ PETER GUST /s/
- ------------------------------- -----------------------------------
Peter Gust Spouse
/s/ DONALD KOVAKS /s/ CARAL M. KOVAKS
- ------------------------------- -----------------------------------
Donald Kovaks Spouse
19
<PAGE>
THE FOLLOWING PERSONS, AS TO
THEIR INDIVIDUAL UNDERTAKINGS
SET FORTH IN THIS AGREEMENT:
/s/ RONALD P. ERICKSON
- ----------------------------------- -----------------------------------
Ronald P. Erickson, a Single Person Spouse
/s/ GERMAN BURTSCHER /s/
- ----------------------------------- -----------------------------------
German Burtscher Spouse
/s/ FRANK KRENTZMAN
- ----------------------------------- -----------------------------------
Frank Krentzman Spouse
/s/ CRAIG R. PALMER by RONALD P.
ERICKSON HIS ATTORNEY IN FACT
- -----------------------------------
Craig R. Palmer
PURCHASER:
GLOBALTEL RESOURCES, INC., A
Washington Corporation
By: /s/ CURTIS LEW
-------------------------
Its: VICE PRESIDENT
-------------------------
20
<PAGE>
EXHIBIT A
CONTINUING OBLIGATIONS OF GFP GROUP, INC.
1. The obligations between the Company's wholly owned subsidiary,
Ratsten, and Scitor ITS under the Scitor Agreement. These obligations include,
but are not limited to, installing switches in 1996 with a list price of
$46,000,000 and during the period from 1997 through 2000, an additional
$300,000,000 to $400,000,000 in switches must be installed. In addition, between
December 14, 1995 and December 31, 1995, an estimated $32,000 must also be paid
as set forth in Section 4(k) of the parties' agreement. A copy of the current
roll-out list is attached.
2. Acquisition and Management Agreement for GFP Group, Inc., Frank
Krentzman and German Burtscher signed on October 10, 1995.
3. Employment Agreement between GFP Group, Inc. and Ronald P. Erickson of
September 23, 1995, as amended December 15, 1995, copy attached.
4. Employment Agreement between GFP Group, Inc. and Craig R. Palmer of
September 23, 1995, as amended December 15, 1995, copy attached.
5. Employment Agreement between German Burtscher and GFP Group, Inc.
dated October 20, 1995, copy attached .
6. Employment Agreement between Frank Krentzman and GFP Group, Inc. dated
October 20, 1995, copy attached.
7. Obligations under the bridge loans from the following individuals to
Ratsten International Telecommunications, Inc. or GFP Group, Inc, including the
issuance of the shares shown to be converted at Closing to shares in Purchaser
on a one-to-one basis:
<TABLE>
<CAPTION>
NO. OF STOCK
AMOUNT OPTION OPTION
NOTE HOLDER LOANED DUE DATE SHARES COMPANY
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Michael Brownfield $50,000 01/17/96 20,284 GFP
William Gordon III $20,000 02/10/96 8,114 GFP
Michael Brownfield
David Kenyon $70,000 01/31/95 28,398 GFP
Wing Li $50,000 12/31/95 20,284 GFP
Robert Randolph $25,000 01/10/96 10,142 GFP
$14,000 3/__/96 5,680
Daniel Robinson $16,000 01/31/96 6,491 GFP
Robert Staudacher $20,000 01/31/96 8,114 GFP
- --------------------------------------------------------------------------------
</TABLE>
A-1
<PAGE>
8. Any outstanding amounts to Mitchell Hymowitz under a consulting
contract under which he is being paid on a per hour basis.
9. Any outstanding amounts to John Cox under a consulting contract under
which he is being paid on a per hour basis.
10. Any amounts due Robert Staudacher for professional accounting
services.
11. Logo design contract with Ken Widmeyer in the approximate amount of
$4,000 to $5,000, of which $900 has been paid.
12. Unpaid salaries, expenses, and balances for Krentzman, Burtscher,
Palmer, and Erickson for periods after December 16, 1995 on their employment
agreements, plus $5,000 each to Krentzman and Burtscher for deferred signing
bonus under the Acquisition and Management Agreement.
13. Legal fees to Morse Taylor, counsel for Burtscher. Of the $7,000
amount due, approximately $3,000 has been paid.
14. Continuing legal services for John W. Hathaway, and other attorneys at
Edwards, Sieh, Hathaway, Smith, & Goodfriend, P.S. Nine thousand dollars has
been paid and additional fees in connection with this transaction are being
accrued.
15. Approximately $5,000 for Ratsten obligations as shown on the Ratsten
October 31, 1995 financial statements.
16. Sublease from Purchaser of space at 1520 Eastlake, Seattle,
Washington.
A-2
<PAGE>
EMPLOYMENT AGREEMENT BETWEEN GFP GROUP, INC. AND RONALD P. ERICKSON OF SEP. 23,
1995
This Employment Agreement between GFP Group, Inc. ("GFP") and Ronald P. Erickson
("Employee") is dated and entered into as of the 23rd day of Sep., 1995, and
amended on Dec. 15, 1995.
1. EMPLOYMENT. Subject to the terms and conditions of this Employment
Agreement, GFP and Employee agree to contract for all of Erickson's time and
efforts as an employee of GFP, performing such duties, tasks and
responsibilities and exercise such powers as may be requested of Employee by the
Company's Board of Directors.
2. SCOPE AND DUTIES. Employee will serve as a Chairman, President and Chief
Executive Officer in the operation of GFP with respect to development, quality
control, sale and operations of various products (fax, E-mail, voice messaging,
Internet, EFTS, video, VPN, etc.), customers and vendors entailed in developing
the business of GFP, as directed by the Board of Directors.
3. TERMS. Subject to this Agreement, the term of this Employment Agreement
shall begin Sep. 23, 1995 and continue on a rolling three year term, renewing
daily. The parties acknowledge the Corporation's intention to be acquired by
GlobalTel Resources, Inc. ("GlobalTel" or "GTR") in a manner that will require
that GlobalTel assume the Corporation's obligations pursuant to this Agreement,
in which case GlobalTel will automatically assume GFP Group's rights and
obligations and the term of this Agreement shall continue without requiring any
action by either party, or GlobalTel. The Employee shall automatically become
Chairman, President and CEO of GlobalTel as a condition of any acquisition of
GFP by GlobalTel.
4. COMPENSATION. For all services rendered by the Employee under this
Agreement, the Corporation shall compensate the Employee as determined by the
Board of Directors.
a. Monthly Salary. The Employee shall initially be compensated at a
--------------------
salary level of $5,000/month following the attainment of working capital in
excess of $200,000 (retroactive to inception) to increase to $10,000/month upon
any acquisition of GFP by GlobalTel. Thereafter, the employee shall receive
$30,000/month upon GFP's and/or GlobalTel's achievement of significant funding
to adequately capitalize the business. Annual performance reviews shall
establish merit raises in salary in relation to performance as measured against
annual objectives and other responsibilities assigned the Employee.
Notwithstanding the impact of such annual performance evaluation merit-raises,
the Employee's compensation shall be not less than $40,000/month at the
beginning of the second year of employment and not less than $50,000/month at
the beginning of the third year of employment, establishing new base salary
levels to which any merit raises shall be added, provided that continued
employment has been satisfactory as determined by the Board.
b. Bonus. The Employee shall participate in a key management incentive
-----------
performance-based bonus plan approved by the Company's Board of Directors,
providing an opportunity to achieve up to 100% of base salary in bonus, based
upon the Company's review of Employee's contribution to its business, operations
and financial success on an annual basis (paid each January, following calendar
year-end, starting with calendar 1996).
c. Employee Benefits. The Employee shall participate in the normal
-----------------------
employee benefits provided the Senior Management Group, including health and
dental group plans (employee contributory plan through preferred providers),
group life insurance, group disability insurance, key man life insurance in an
amount of not less than $3,000,000 (with $1,000,000 paid to the Employee's
estate/beneficiaries), 401-k and such other benefits as may be provided by GFP
and/or GTR in its normal course of business.
1
<PAGE>
d. Expense Account. The Employee shall participate in a bi-weekly
---------------------
accounting of reimbursable expenses, and shall in addition be provided with two
corporate credit cards for business use (travel, entertainment and incidental
business expenses only) by Dec. 31, 1995.
e. Stock Program. The Employee shall be provided with his current equity
-------------------
holdings in the new GFP Group, Inc., which upon sale of the Company to a third
party ("New Co.", presumably GTR) shall equal not less than 270,000 shares of
the New Co. (up to 10,000,000 shares authorized, up to 5,000,000 shares issued).
f. ISOP Participation. The Employee shall be provided with participation
------------------------
in the Company's ISOP program (to be developed at GFP, and assumed by GTR upon
any sale or acquisition by GTR) to be developed prior to Jan. 31, 1995. The
level of participation in the ISOP shall be consistent with the senior level of
the position, to be determined annually by the Compensation Committee of the
Company. Notwithstanding such level to be determined by the Compensation
Committee, the Employee shall receive the right to acquire not less than 150,000
shares of GTR, to be deemed fully vested as of the merger in terms of ability to
exercise such ISOP shares. The cost per share shall be $1.10/share for exercise
of such initial ISOP options, whether in GFP or GTR.
g. Stock Option Grants for Performance in Certain Affiliates. In addition
--------------------------------------------------------------
to the ISOP provisions specified in "f" above, the Employee shall have a right
to additional ISOP equity ownership as determined by the Board in relation to
performance in establishing the Company's ownership in various joint ventures,
strategic alliances or affiliates contributing to the Company's successful roll-
out, where the Employee had a direct or indirect role in introducing,
negotiating or structuring such joint venture, strategic alliance or affiliate
operation parties, even should any such successful partnering arrangements
culminate substantially after the merger of the combined entities (sic.-
GFP/GTR). At the time of this agreement's execution, a significant potential
such joint venture, strategic alliance or affiliate operation known by the
Employee relates to certain relationships introduced on behalf of GFP in Japan.
h. Corporate Car. The Employee shall have the right to have the Company
-------------------
make car lease/purchase payments for business use up to $850/month, such right
starting 1/1/96.
i. Corporate Cellular Phone. The Employee shall have the right to a
------------------------------
corporate cellular phone (or combination car/mobile phone) paid at the Company's
expense, including equipment purchase, start-up and monthly fees and air time
costs.
j. Corporate Office at Home. The Employee shall have the right to be
------------------------------
reimbursed for the expense of maintaining a corporate office at home for after-
hours work on behalf of the company, including payment for the home office
telephone, fax, computer/printer (including purchase of an appropriate portable
computer) and on-line services, as well as monthly rent of $1,000/month.
k. Vacations. The Employee shall be entitled each calendar year to a
---------------
vacation consisting of four weeks, which may be increased by the Board of
Directors, during which time the Employee's salary and benefits shall be paid in
full. The Employee may carry over no more than two-weeks to the next calendar
year (for a total of six weeks). The Employee shall take the vacation as such
time or times as shall be appropriate for the Corporation. The Corporation
shall pay the Employee for any vacation days lost.
5. BOARD OF DIRECTORS REPRESENTATION. For the term of employment, the
Employee shall have the right to serve as Chairman of the Company's Board of
Directors (to eventually be at least seven Directors), and shall have the right
to suggest to the Board other outside Directors for the Company to consider as
candidates for its Board. This right to Board representation shall survive any
initial sale of the Company to GTR, with the right extending to New Co.'s Board.
2
<PAGE>
6. OWNERSHIP OF WORKS CREATED BY EMPLOYEE. The Employee acknowledges that the
Corporation shall have exclusive ownership of all inventions, technology and
know-how that the Employee creates or modifies during the term of this Agreement
and any subsequent agreement. The Corporation shall have the exclusive
copyright rights in such works and related materials and shall be considered the
author and owner of any such copyrightable work created by the Employee during
the term of this Agreement, as authorship is defined in the Copyright Act, 17
U.S.C. (S) 102. All such work shall be considered "work made for hire" under 17
U.S.C. 201(b). To the extent that any such work does not qualify as a "work
made for Hire" under applicable law, the Employee hereby irrevocably and
exclusively assigns to the Corporation, its successors and assigns all right,
title and interest in and to such work, including the right to copyright,
patent, trade secret, and other proprietary rights protection. To the extent
that any of the Employee's rights in such a work are not, or may not be, subject
to assignment or transfer, or the Employee may have a right of avoidance as to
any such assignment or transfer, the Employee hereby irrevocably and
unconditionally waives enforcement of all such rights, including moral rights.
The Employee acknowledges that the transfer, assignment and waiver of the
foregoing rights and interests are complete and effective as of the date of this
Agreement in consideration of the Corporation's employment of the Employee and
execution of this Agreement and without regard to the time or circumstances
under which the Agreement may be terminated. The Employee agrees to execute any
assignments or other documents and take such other actions as may be necessary
or desirable to assure or verify that ownership of the rights addressed in this
section resides exclusively with the Corporation.
7. TERMINATION. This Agreement may be terminated by either party upon 30 days
written notice, if for cause, and upon 180 days advance written notice, if
without cause. The term "cause" means any material breach of the Employee's
duty of loyalty to the Corporation; material failure to perform his Corporate
duties for a period of 30 days on a consistent basis after written notice of
such failure, regardless of the cause; any failure to carry out a lawful order
of the Board, or for any fact of documented material corporate misconduct,
fraud, or criminal malfeasance.
Termination of this Agreement for cause shall automatically terminate for
cause all other agreements between the Corporation or its subsidiary and the
Employee. In the event of "for-cause" termination, the employee would forfeit
any right to additional stock grants or ISOP awards not yet vested or exercised,
or the payment of salary or benefits beyond the effective contract three year
date, together with any continuing Board representation.
The Company shall retain the right to terminate the Employee without cause,
so long as the Company honors the balance of the compensation (cash, benefits,
stock or other compensation elements specified in the Employee's contract) under
the full term of this Agreement as provided for under this agreement. The scope
and enforceability of this section shall be determined in accordance with
Washington law.
In the event that the Corporation establishes the Employee's breach or
threatened breach of this section's provisions, the Corporation shall be
entitled to any injunction restraining the Employee from disclosing any
Proprietary Trade Secrets or Customer Confidences and/or restraining the
Employee from rendering any services to any person, firm, corporation,
association or other entity to whom any Proprietary Trade Secret or Customer
Confidence, in whole or in part, either has been disclosed or is threatened to
be disclosed.
Nothing contained in this section shall be construed as prohibiting the
Corporation from pursuing any other remedies available to the Corporation for
breach or threatened breach of this provision, including the recovery of damages
from the Employee, as well as reasonable attorneys fees and costs.
3
<PAGE>
8. CHANGE OF CONTROL EVENT. Should the Company (or its successor GTR) undergo
a change of control event, including acquisition of a 50% or larger controlling
interest, sale of the Company (excluding an initial acquisition of GFP by GTR)
or its principal assets, the Employee shall, as an obligation of the acquirer,
have the right to receive an additional three years cash compensation and
continuation of benefits beyond the stated contract period (including a bonus
which represents the sum of the prior two years bonus, or an equivalent amount
if less than two years of employment in service has been gained).
9. DISPUTES/ARBITRATION. Any controversy or claim arising out of or relating
to this Agreement, or a breach hereof, shall be settled by binding arbitration
under the Judicial Arbitration Management Services ("JAMS") conducted in
accordance with the then existing Washington Civil Court rules and judgment upon
the award rendered by the arbitrator may be entered in any court having
jurisdiction thereof. The losing or substantially non-prevailing party shall
pay the JAMS arbitration and private counsel attorney fees and reasonable costs
to the winning or substantially prevailing party in the event of such
arbitration.
10. ASSIGNMENT. This Agreement shall not be transferred or assigned whether
voluntarily or by operation of law without the written consent of the other
party, with the exception of an acquisition of the Company or its principal
assets by GTR under any sale/purchase agreement, wherein the assignment of the
contractual obligations to GTR becomes automatic.
11. WAIVER. No waiver of any of the provisions hereof shall be valid unless in
writing, signed by the party against whom such claim or waiver is sought be
enforced, nor shall failure to enforce any right hereunder constitute a
continuing waiver of the same or a waiver of any other right hereunder.
12. NON-COMPETITION. Employee agrees not to compete with the Company (or its
successor, following its acquisition by GTR) for a period of two years from the
date of termination in the same or similar business, including the attempt to
develop other telecom business from SCITOR/SITA, should the employee be
terminated for cause.
Such non-competition covenant shall include a restriction on the Employee
as of the termination date preventing the Employee from: soliciting business
from any customer of the Company of a similar type; or soliciting business from
any customer of management-level employees of the Company to leave the
Corporation's employment or hire any management employee of the Company. Should
the employee be terminated not for cause or leave employment voluntarily, this
non-competition covenant shall survive for twelve months from the date of
termination, with the ability of the Employee to conduct any business with
customers of the Company based upon a written request approved in writing by the
Board of Directors detailing how the business arrangement does not conflict with
the Company's business. The Company shall be entitled to an injunction
restraining the Employee from any action which represents a breach or threatened
breach of this provision. Nothing in this section shall be construed as
prohibiting the Corporation from pursuing any other available remedies for the
breach or threatened breach, including the recovery of damages from the
Employee, as well as reasonable attorneys fees and costs.
13. AMENDMENT. No modification of any of the provisions hereof shall be
binding upon either Employee or Company, unless in writing, signed by the party
against whom such modification is sought to be enforced. Amendments upon merger
with GTR shall not be binding unless agreed to in writing by the Employee.
14. APPLICABLE LAW. This agreement shall be governed by the laws of the State
of Washington.
4
<PAGE>
15. NOTICE. Any notice required or desired to be given under this Agreement
shall be sufficient if in writing and sent by certified mail, return receipt
requested, to the Employee's residence or to the principal office of the
Corporation, as the case may be.
16. COMPLETE AGREEMENT. The parties understand and agree that this Agreement
fully sets forth their entire agreement concerning terms and conditions of the
employment agreement between them.
IN WITNESS WHEREOF, the parties have agreed to the content of this
Agreement, and have executed and entered into this Agreement on the date set
forth above.
EMPLOYEE: /s/ Ronald P. Erickson
----------------------
Ronald P. Erickson
GFP GROUP, INC. By /s/
---------------------
Its /s/ EVP
---------------------
Witnessed: /s/ Michael Brownfield
----------------------
Michael Brownfield
<PAGE>
EMPLOYMENT AGREEMENT BETWEEN GFP GROUP, INC. AND CRAIG R. PALMER OF SEP. 23,
1995
This Employment Agreement between GFP Group, Inc. ("GFP") and Craig R. Palmer
("Employee") is dated and entered into as of the 23rd day of Sep., 1995 and
amended on Dec. 15, 1995.
1. EMPLOYMENT. Subject to the terms and conditions of this Employment Agreement,
GFP and Employee agree to contract for all of Palmer's time and efforts as an
employee of GFP, performing such duties, tasks and responsibilities and exercise
such powers as may be requested of Employee by the Company's Chairman/CEO,
except that Employee shall have up to six months to conclude his normal business
activities in process at the time of this Agreement (National Xpress and
Heartsmart).
2. SCOPE AND DUTIES. Employee will serve as a "Executive Vice President," with
special emphasis upon Strategic Planning/Relationships, Corporate Finance and
Acquisitions in the operation of GFP with respect to development, quality
control, sale and operations of various products (fax, E-mail, voice messaging,
Internet, EFTS, video, VPN, etc.), customers and vendors entailed in developing
the business of GFP, as directed by the CEO.
3. TERM. Subject to this Agreement, the term of this Employment Agreement shall
begin Sep. 23, 1995 and continue on a rolling three year terms, renewing daily.
The parties acknowledge the Corporation's intention to be acquired by GlobalTel
Resources, Inc. ("GlobalTel" or "GTR") in a manner that will require that
GlobalTel assume the Corporation's obligations pursuant to this Agreement, in
which case GlobalTel will automatically assume GFP Group's rights and
obligations and the term of this Agreement shall continue without requiring any
action by either party, or GlobalTel. The Employee shall automatically become
EVP of GlobalTel with the same scope of duties as a condition of any acquisition
of GFP by GlobalTel.
4. COMPENSATION. For all services rendered by the Employee under this Agreement,
the Corporation shall compensate the Employee as determined by the Board of
Directors.
a. Monthly Salary. The Employee shall initially be compensated at a
--------------
salary level of $5,000/month following the attainment of working capital in
excess of $200,000 (retroactive to inception), to increase to $7,500/month upon
any acquisition of GFP by GlobalTel. Thereafter, the employee shall receive
$25,000/month upon GFP's and/or GlobalTel's achievement of significant funding
to adequately capitalize the business. Annual performance reviews shall
establish merit raises in salary in relation to performance as measured against
annual objectives and other responsibilities assigned the Employee.
Notwithstanding the impact of such annual performance evaluation merit-raises,
the Employee's compensation shall be not less than $35,000/month at the
beginning of the second year of employment and not less than $45,000/month at
the beginning of the third year of employment, establishing new base salary
levels to which any merit raises shall be added, provided that continued
employment has been satisfactory as determined by the CEO.
b. Bonus. The Employee shall participate in a key management
-----
incentive performance-based bonus plan approved by the Company's Board of
Directors, providing an opportunity to achieve up to 100% of base salary in
bonus, based upon the Company's review of Employee's contribution to its
business, operations and financial success on an annual basis (paid each
January, following calendar year-end, starting with calendar 1996). Assuming
successful institutional funding of the Company (either GFP and/or GTR, once it
has acquired GFP).
1
<PAGE>
c. Employee Benefits. The Employee shall participate in the normal
-----------------
employee benefits provided by the Senior Management Group, including health and
dental group plans (employee contributory plan through preferred providers),
group life insurance, group disability insurance, key man life insurance in an
amount of not less than $2,000,000 (with $750,000 paid to the Employee's
estate/beneficiaries), 401-K and such other benefits as may be provided by GFP
and/or GTR in its normal course of business.
d. Expense Account. The Employee shall participate in a bi-weekly
---------------
accounting of reimbursable expenses, and shall in addition be provided with two
corporate credit cards for business use (travel, entertainment and incidental
business expenses only) by Dec. 31, 1995.
e. Stock Program. The Employee shall be provided with his current
-------------
equity holdings in the new GFP Group, Inc., which upon sale of the Company to a
third party ("New Co.," presumable GTR) shall equal not less than 270,000 shares
of the New Co. (up to 10,000,000 shares authorized, up to 5,000,000 shares
issued).
f. ISOP participation. The Employee shall be provided with
------------------
participation in the Company's ISOP program (to be developed at GFP, and assumed
by GTR upon any sale or acquisition by GTR) to be developed prior to Jan. 31,
1995. The level of participation in the ISOP shall be consistent with the
senior level of the position, to be determined annually by the Compensation
Committee of the Company. Notwithstanding such level to be determined by the
Compensation Committee, the Employee shall receive the right to acquire not less
than 150,000 shares of GTR, to be deemed fully vested as of the merger in terms
of ability to exercise such ISOP shares. The cost per share shall be
$1.10/share for exercise of initial ISOP options, whether in GFP or GTR.
g. Stock Option Grants for Performance in Certain Affiliates. In
---------------------------------------------------------
addition to the ISOP provisions specified in 'f' above, the Employee shall have
a right to additional ISOP equity ownership as determined by the Board in
relation to performance in establishing the Company's ownership in various joint
ventures, strategic alliances or affiliates contributing to the Company's
successful roll-out, where the Employee had a direct or indirect role in
introducing or bringing to the table or structuring such joint venture, even
should any such successful partnering arrangements culminate substantially after
the merger of the combined entities (sic.-GFP/GTR). At the time of this
agreement's execution, a significant potential such joint venture, strategic
alliance or affiliate operation known by the Employee relates to certain
relationships promulgated on behalf of GFP in Japan.
h. Corporate car. The Employee shall have the right to have the
-------------
Company make car lease/purchase payments for business use up to $850/month, such
right starting 1/1/96.
i. Corporate cellular phone. The Employee shall have the right to a
------------------------
corporate cellular phone (or combination car/mobile phone) paid at the Company's
expense, including equipment purchase, start-up and monthly fees and air time
costs.
j. Corporate Office at home. The Employee shall have the right to be
------------------------
reimbursed for the expense of maintaining a corporate office at home for after-
hours work on behalf of the company, including payment for the home office
telephone, fax, computer/printer (including purchase of an appropriate portable
computer) and on-line service, as well as monthly rent of $1,000/month.
k. Vacations. The Employee shall be entitled each calendar year to a
---------
vacation consisting of four weeks, which may be increased by the Board of
Directors, during which time the Employee's salary and benefits shall be paid in
full. The Employee may carry over no more than two weeks to the next calendar
year (for a total of six weeks). The Employee shall take the vacation at such
time or times as shall be appropriate for the Corporation. The Corporation
shall pay the Employee for any vacation days lost.
2
<PAGE>
5. BOARD OF DIRECTORS REPRESENTATION. For the term of employment, the Employee
shall have the right to serve as a Director on the Company's Board of Directors
(to eventually be at least seven Directors). This right to Board representation
shall survive any initial sale of the Company to GTR, with the right extending
to GTR's Board.
6. OWNERSHIP OF WORKS CREATED BY EMPLOYEE. The Employee acknowledges that the
Corporation shall have exclusive ownership of all inventions, technology and
know-how that the Employee creates or modifies during the term of this Agreement
and any subsequent agreement. The Corporation shall have the exclusive copyright
rights in such works and related materials and shall be considered the author
and owner of any such copyrightable work created by the Employee during the term
of this Agreement, as authorship is defined in the Copyright Act, 17 U.S.C. (S)
102. All such work shall be considered "work made for hire" under 17 U.S.C. (S)
201(b). To the extent that any such work does not qualify as a "work made for
Hire" under applicable law, the Employee hereby irrevocably and unconditionally
waives enforcement of all such rights, including moral rights. The Employee
acknowledges that the transfer, assignment and waiver of the foregoing rights
and interests are complete and effective as of the date of this Agreement in
consideration of the Corporation's employment of the Employee and execution of
this Agreement and without regard to the time or circumstances under which the
Agreement may be terminated. The Employee agrees to execute any assignments or
other documents and take such other actions as may be necessary or desirable to
assure or verify that ownership of the rights addressed in this section resides
exclusively with the Corporation.
7. TERMINATION. This Agreement may be terminated by either party upon 30 days
written notice, if for cause, and upon 180 days advance written notice, if
without cause. The term "cause" means any material breach of the Employee's duty
of loyalty to the Corporation; material failure to perform his corporate duties
for a period of 30 days on a consistent basis after written notice of such
failure, regardless of the cause; any failure to carry out a lawful order of the
CEO, or for any fact of documented material corporate misconduct, fraud, or
criminal malfeasance. Termination of this Agreement for cause shall
automatically terminate for cause all other agreements between the Corporation
or its subsidiary and the Employee. In the event of "for-cause" termination, the
employee would forfeit any right to additional stock grants or ISOP stock awards
not yet vested or exercised, or the payment of salary or benefits beyond the
effective contract three year date, together with any continuing Board
representation.
The Company shall retain the right to terminate the Employee without
cause, so long as the Company honors the balance of the compensation (cash,
benefits, stock or other compensation elements specified in the Employee's
contract) under the full term of this Agreement as provided for under this
agreement. The scope and enforceability of this section shall be determined in
accordance with Washington law.
In the event that the Corporation establishes the Employee's breach or
threatened breach of this section's provisions, the Corporation shall be
entitled to an injunction restraining the Employee for disclosing any
Proprietary Trade Secrets or Customer Confidences and/or restraining the
Employee from rendering any services to any person, firm, corporation,
association or other entity to whom any Proprietary Trade Secret or Customer
Confidence, in whole or in part, either has been disclosed or is threatened to
be disclosed.
3
<PAGE>
Nothing contained in this section shall be construed as prohibiting
the Corporation from pursuing any other remedies available to the Corporation
for breach or threatened breach of this provision, including the recovery of
damages from the Employee, as well as reasonable attorneys fees and costs.
8. CHANGE OF CONTROL EVENT. Should the Company (or its successor GTR) undergo a
change of control event, including acquisition of a 50% or larger controlling
interest, sale of the Company (excluding an initial acquisition by GTR) or its
principal assets, the Employee shall, as an obligation of the acquirer, have the
right to receive an additional three years cash compensation and benefits beyond
the stated contract period (including a bonus which represents the sum of the
prior two years bonus, or an equivalent amount if less than two years of
employment in service has been gained).
9. DISPUTES/ARBITRATION. Any controversy or claim arising out of or relating to
this Agreement, or a breach hereof, shall be settled by binding arbitration
under the Judicial Arbitration Management Service ("JAMS") conducted in
accordance with the then existing Washington Civil Court rules and judgment upon
the award rendered by the arbitrator may be entered in any court having
jurisdiction thereof. The losing or substantially non-prevailing party shall pay
the JAMS arbitration and private counsel attorney fees and reasonable costs to
the winning or substantially prevailing party in the event of such arbitration.
10. ASSIGNMENT. This Agreement shall not be transferred or assigned whether
voluntarily or by operation of law without the written consent of the other
party, with the exception of an acquisition of the Company or its principal
assets by GTR under any sale/purchase agreement, wherein the assignment of the
contractual obligations to GTR becomes automatic.
11. WAIVER. No waiver of any of the provisions hereof shall be valid unless in
writing, signed by the party against whom such claim or waiver is sought to be
enforced, nor shall failure to enforce any right hereunder constitute a
continuing waiver of the same or a waiver of any other right hereunder.
12. NON-COMPETITION. Employee agrees not to compete with the Company (or its
successor, following its acquisition by GTR) for a period of two years from the
date of termination in the same or similar business, including the attempt to
develop other telecom business from SCITOR/SITA, should the employee be
terminated for cause. Such non-competition covenant shall include a restriction
on the Employee as of the termination date preventing the Employee from:
soliciting business from any customer of the Company of a similar type; or
soliciting, recruiting or attempting to induce any management-level employees of
the Company to leave the Corporation's employment or hire any management
employee of the Company.
Should the employee be terminated not for cause or leave employment
voluntarily, this non-competition covenant shall survive for twelve months from
the date of termination, with the ability of the Employee to conduct any
business with customers of the Company based upon a written request approved in
writing by the Board of Directors detailing how the business arrangement does
not conflict with the Company's business.
The Company shall be entitled to an injunction restraining the
Employee from any action which represents a breach or a threatened breach of
this provision. Nothing in this section shall be construed as prohibiting the
Corporation from pursuing any other available remedies for the breach or
threatened breach, including the recovery of damages from the Employee, as well
as reasonable attorneys fees and costs.
4
<PAGE>
13. AMENDMENT. No modification of any of the provisions hereof shall be binding
upon either Employee or Company, unless in writing, signed by the party against
whom such modification is sought to be enforced. Amendments upon merger with GTR
shall not be binding unless agreed to in writing by the Employee.
14. APPLICABLE LAW. This agreement shall be governed by the laws of the State of
Washington.
15. NOTICE. Any notice required or desired to be given under this Agreement
shall be sufficient if in writing and sent by certified mail, return receipt
requested, to the Employee's residence or to the principal office of the
Corporation, as the case may be.
16. COMPLETE AGREEMENT. The parties understand and agree that this Agreement
fully sets forth their entire agreement concerning terms and conditions of the
employment agreement between them.
IN WITNESS WHEREOF, the parties have agreed to the content of this
Agreement, and have executed and entered into this Agreement on the date set
forth above.
EMPLOYEE: /s/ Craig R. Palmer
-----------------------
Craig R. Palmer
GFP GROUP, INC. by /s/ Ronald P. Erickson
-----------------------
Ronald P. Erickson
Its /s/ CEO
-----------------------
Witnessed: /s/ Michael Brownfield
-----------------------
Michael Brownfield
<PAGE>
EMPLOYMENT AGREEMENT
Effective as of the 10th day of October, 1995, GERMAN BURTSCHER
(the "Employee") and GFP GROUP, INC., a Washington corporation (the
"Corporation"), in consideration of the mutual covenants and conditions
contained in this Agreement, agree as follows:
1. Employment. The Corporation hereby employs the Employee and the
----------
Employee hereby accepts employment upon the terms and conditions set forth in
this Agreement.
2. Term. The term of this Agreement shall begin on the effective
----
date set forth above and shall continue on a rolling three year term, renewing
daily. The parties acknowledge the Corporation's intention to be acquired by
GlobalTel Resources, Inc. ("GlobalTel") in a manner that will require that
GlobalTel assume the Corporation's obligations pursuant to this Agreement, in
which case GlobalTel will automatically assume GFP Group's rights and
obligations and the term of this Agreement shall continue without requiring any
action by either party, or GlobalTel.
3. Compensation. For all services rendered by the Employee. under
------------
this Agreement, the Corporation shall compensate the Employee as determined by
the Board of Directors. The Employee shall receive a one-time payment of
$10,000, half on execution of this Agreement and half on completion of
GlobalTel's Acquisition of GFP Group. Starting compensation of $5,000 per
month. Compensation still be increased to $10,000 per month on the earlier of
March 1, 1996 or receipt of significant institutional funding for operations.
Compensation shall be increased to a minimum of $12,500 per month at the
beginning of the second year of employment and to $15,000 per month at the
beginning of the third year of employment. The Corporation and the Employee
contemplate significant increases in salary and benefits if target goals for
corporate financing and expansion are met. Employee shall receive increases in
compensation equal to any increases in the compensation of the Corporation's
other comparable officers, currently Curtis Lew and Alan Chin. Compensation may
also be increased in the discretion of the Board of Directors and additional
bonuses may be paid to the Employee at the discretion of the Board of Directors.
4. Duties. The Corporation employs the Employee as Vice President to
------
perform work in connection with marketing, sales, network operations or such
other projects or products that are being undertaken by the Corporation, as
directed by the President of the Corporation. The Employee shall also continue
duties as an officer of the Corporation's GFP Group subsidiary, including
administration of the SITA/SCITOR Agreement. The employee shall report directly
to the Chief Executive Officer of the Corporation. Any duties of the Employee
as a director or an officer of the Corporation shall be without further
compensation.
5. Extent of Service. The Employee shall devote his or her time,
-----------------
attention and energies to the Corporation's business on a full time basis,
unless a different basis is
1
<PAGE>
provided in an addendum to this Agreement, and shall not become involved in any
other business activity that would in any way detract from, limit, or impair the
Employee's performance of his work for the Corporation or may adversely impact
the Corporation's business interests, whether or not such outside business
activity is pursued for gain, profit, or other pecuniary advantage. The Employee
must request written consent of the Corporation's Board of Directors to engage
in any such outside business activity which writing shall specify the outside
business activity in detail, and shall be attached to this Agreement. As to any
request for consent, the Board of Directors shall not unreasonably withhold
consent, taking into account the nature of the outside business activity, its
relationship to the Corporation's business, the relative time that the Employee
would be required to devote to the Corporation's business and to the outside
business activity, and whether the effect on the Employee's work performance
would have an adverse impact on the Corporation's business. The Corporation has
no obligation to consent to an outside business activity that, in its sole
opinion, could adversely impact conduct of the Corporation's business. The
Corporation may condition consent upon a reasonable compensation adjustment
reflecting the impact on the Corporation. The Corporation acknowledges that the
Employee operated a consulting business prior to becoming an employee and agrees
that the Employee may continue to service existing customers described in
Exhibit A for a transition period of six months. The Employee represents that
time devoted to such consulting work shall not prevent him from working full
time for the Corporation and that such work shall not be in competition with any
service or product of the Corporation. The Employee may invest the Employee's
assets without restriction so long as the investment does not require the
Employee to devote his or her services to operation of the companies in which
the investments are made and so long as the subject of the investment is not
inconsistent with the Corporation's business interests.
6. Ownership Of Works Created By Employee. The Employee acknowledges
--------------------------------------
that the Corporation shall have exclusive ownership of all inventions,
technology, and know-how that the Employee creates or modifies during the term
of this Agreement and any precious agreement. The Corporation shall have the
exclusive copyright rights in such works and related materials and shall be
considered the author and owner of any such copyrightable work created by the
Employee during the term of this Agreement, as authorship is defined in the
Copyright Act, 17 U.S.C. (S) 102. All such work shall be considered "work made
for hire" under 17 U.S.C. (S) 201(b). To the extent that any such work does not
qualify as a "work made for hire" under applicable law, the Employee hereby
irrevocably and exclusively assigns to the Corporation, its successors and
assigns all right, title and interest in and to such work, including the right
to copyright, patent, trade secret, and other proprietary rights protection. To
the e extent that any of the Employee's rights in such work are not, or may not
be, subject to assignment or transfer, or the Employee may have a right of
avoidance as to any such assignment or transfer, the Employee hereby irrevocably
and unconditionally waives enforcement of all such rights, including moral
rights. The Employee acknowledges that the transfer, assignment, and waiver of
the foregoing rights and interests are complete and effective as of the date of
this Agreement in consideration of the Corporation's employment of the Employee
and execution of this Agreement and without regard to the time or circumstances
under which the Agreement may be terminated. The Employee agrees to execute any
assignments or other documents and take such other actions as may be necessary
or desirable to assure
2
<PAGE>
or verify that ownership of the rights addressed in this section resides
exclusively with the Corporation.
7. Ownership Of Unrelated Works. The Corporation's ownership of
-----------------------------
works created by the Employee during the term of this Agreement shall not apply
to Unrelated Works, which is defined as a work that is not created through the
use of any of the Corporation's equipment, supplies, facilities, or trade secret
information, which was developed entirely on the Employee's own time and which
does not relate directly to the Corporation's business or the Corporation's
actual or demonstrably anticipated research or development at the time the
software is created and does not result from any work performed by the Employee
for the Corporation. The Employee's development of Unrelated Works shall not
limit the Corporation's business or prohibit the Corporation from developing
similar or related works. Should all or part of the Employee's Unrelated Work
be incorporated into the Corporation's inventions or other works, the
Corporation shall have a royalty-free license to copy, use, and sell such. works
without restriction, unless the Employee and the Corporation have executed a
written agreement providing otherwise in advance of such incorporation, or the
Employee establishes that the Corporation wrongfully obtained the Unrelated
Works through no fault of the Employee.
8. Fringe Benefits. The relationship between the Corporation and the
----------------
Employee is that of an employer and employee. The parties acknowledge that the
nature of the Employee's work requires substantial technological expertise and
the consistent exercise of substantial discretion and judgment. The Employee is
a professional, salaried, full-time employee who shall be entitled to
participate in the Senior Management Benefit Package "Senior Management Benefit
Package" means the retirement, ISOP, bonus expense allowance, profit sharing,
vacation, and similar plans adopted by the Corporate for the President and Vice-
Presidents having the same full-time status and length of service as the
Employee. The Corporation anticipates having the package in place within six
months after execution of this Agreement.
9. Income From Services; Accounting And Disclosure Of Income And.
--------------------------------------------------------------
Unrelated Software. Income generated by the Employee from the creation,
- ------------------
maintenance, or modification, use, license, sale, or any other transfer of
Unrelated Works, and from outside business activities permitted by this
Agreement shall belong to the Employee. While employed by the Corporation and
for three years thereafter, the Employee agrees upon request of the Corporation
to render a true account of all transactions concerning Unrelated Works and/or
outside business activities should the Corporation receive information
reasonably suggesting that the such Works or outside business activity violates
the terms of this Agreement. The Corporation shall require that those employees
and agents of the Corporation having access to this Information shall keep
confidential all information disclosed pursuant to this section and the
Corporation shall limit access to such information to the members of the Board
of Directors and the management-level employee conducting the accounts.
10. Working Facilities. The Corporation will furnish the Employee
------------------
with working space, hardware, technical and secretarial assistance, and other
facilities and services suitable to the Employee's position and adequate for the
performance of the
3
<PAGE>
Employee's duties. Any automobile allowance or payment of relocation expenses
shall be as provided in the Senior Management Benefit Package. The Employee
shall work at the Corporation's Seattle, Washington office. The Corporation
shall pay reasonable travel and lodging expenses that the Employee incurs
commuting from San Antonio, Texas to Seattle, Washington, until the Employee is
able to relocate to Seattle, Washington, not to exceed 180 days from the
effective date of this Agreement.
11. Expenses. The Corporation shall pay for or reimburse the
--------
Employee for travel, lodging, and all reasonable and necessary expenses for the
promotion of the business of the Corporation, including expenses for
entertainment, dues, and other expenses that the Employee reasonably and
necessarily incurs in the performance of the duties for the Corporation covered
by this Agreement.
12. Vacations. The Employee shall be entitled each calendar year to
---------
a vacation consisting of two two-week periods, which may be increased by the
Corporation's business and subject to any policies adopted prospectively by the
Board of Directors, during which time the Employee's salary shall be paid in
full. The Employee may carry over no more than one two-week period to the next
calendar year (for a total of six weeks). The Employee shall take the vacation
at such time or times as shall be approved by the Corporation. Vacation time
may not be accrued from year to year without the advance written consent of the
Corporation, but the Corporation shall pay the Employee for any vacation days
lost.
13. Leave Of Absence. Leaves of absence with full payment of salary
----------------
may be granted to the Employee for attendance at professional conventions,
seminars, and other professional or business activities approved by the
Corporation. All expenses reasonably and necessarily incurred by the employee
in these activities shall be paid for or reimbursed by the Corporation. The
Corporation may from time to time approve leaves of absence with full or partial
payment, of salary and other expenses for other reasons in its sole discretion.
14. Termination. This Agreement may be terminated by either party
-----------
upon 3O days written notice, if for cause, and upon 60 days advance written
notice, if without cause. The term "cause" means any material breach of the
employee's duty of loyalty to the Corporation; material failure to perform his
corporate duties for a period of 30 days on a consistent basis after written
notice of such failure, regardless of the cause; any act of criminal fraud,
whether or not involving the Corporation; or any material breach of the terms of
this Agreement, the Acquisition and Management Agreement, Shareholder Agreement,
or any other written agreement between the Employee and the Corporation or its
subsidiary, GFP Group, Inc. Termination of this Agreement for cause shall
automatically terminate for cause all other agreements between the Corporation
or its subsidiary and the Employee. In the case of termination for cause,
unless the Employee contests the grounds stated in the notice and demands
arbitration, all rights of the Employee under such agreements and all rights
under this Agreement, including salary, benefits, and Board representation shall
automatically be extinguished as of the terminate date stated in the notice and
the Employee's stock, including vested options, shall be redeemed by the
Corporation at 75 per cent of the value calculated pursuant to
4
<PAGE>
the method stated in the shareholder agreement, so long as the Corporation's
stock is not then publicly traded, in which case there shall be no redemption.
If the Employee demands arbitration of the termination grounds, the parties will
immediately proceed to arbitration and all compensation, benefits, and stock
voting rights of the Employee shall be suspended pending the decision of the
arbitrator, which shall take place within six months from the commencement of
arbitration unless delay is caused by the Employee. If the Corporation
terminates this Agreement without cause, the Corporation shall be obligated to
continue to provide the Employee with the full salary and compensation benefits
required by this Agreement until the expiration of the rolling three-year term.
Unless the Corporation's stock is then publicly traded, the Corporation shall
redeem the Employee's stock, including vested options, at market value
determined by the method stated in the Shareholder Agreement. All stock
acquisition rights shall cease as of the termination date stated in the written
notice of termination, whether the stock is publicly traded or not. Unless
otherwise agreed, the redemption amount shall be paid as follows: in 12 equal
monthly installments if the amount is less than $500,000; in 24 equal monthly
installments if the redemption amount is between $500,000 and $1,000,000; and in
equal quarterly installments over a five-year period if the redemption amount is
$1,000,000 or more. Each installment shall include interest on the declining
balance at 6% per annum, compounded monthly.
15. Conflict of Interest. Except as provided in Section 5 above, the
--------------------
Employee warrants and represents that: (1) the Employee has no conflict of
interest in performing the duties for which the Corporation is hiring the
Employee; (2) that the Employee is not under any legal disability regarding
these duties and is not prohibited by any employment agreement or covenant not
to compete from performing these duties; (3) that the work the Employee is
performing and will perform for the Corporation does not to the knowledge of the
Employee, breach any contract,. or infringe upon any existing patent or
copyright or contain any proprietary information or trade secrets of any former
employer or other person or entity.
16. Proprietary Information. The Employee acknowledges that the list
-----------------------
of the Corporation's contracts, suppliers, customers, material information on
the business of those customers, and the Corporation's telecommunication
technology, work in progress, know-how, techniques, and current and anticipated
research and development activities, as well as the related printed and tangible
materials, as these may exist from time to time, constitute Proprietary Trade
Secrets of the Corporation that are valuable, special and unique assets of the
Corporation's business and which the Corporation takes reasonable steps to
safeguard from disclosure to persons that do not owe a duty of confidentiality
to the Corporation. The Employee also acknowledges that conducting the
Employee's duties for Corporation's business may require that the Employee come
into contact with information belonging to the Corporation's customers which
information is disclosed to the Employee pursuant to the Corporation's agreement
to keep the information confidential ("Customer Confidences"). The employee
will not, during or after the term of employment, disclose any Proprietary Trade
Secrets or Customer Confidences, directly or indirectly, in whole or in part, to
any person, firm, corporation, association, or other entity for any reason or
purpose whatsoever. Nor shall the Employee include any know-how, or techniques
that constitute Proprietary Trade Secrets of the Corporation or Customer
5
<PAGE>
Confidences in any invention or work unless it is owned by the Corporation.
Information shall cease being Proprietary Trade Secrets or Customer Confidences
if the Corporation or the Customer has permitted the information to enter the
public domain without any involvement of the Employee. The scope and
enforceability of this section shall be determined in accordance with Washington
law. In the event that the Corporation establishes the Employee's breach or
threatened breach of this section's provisions, the Corporation shall be
entitled to an injunction restraining the Employee from disclosing any
Proprietary Trade Secrets or Customer Confidences and/or restraining the
Employee from rendering any services to any person, firm, corporation,
association or other entity to whom any Proprietary Trade Secret or Customer
Confidence, in whole or in part, either has been disclosed or is threatened to
be disclosed. Nothing contained in this section shall be construed as
prohibiting the Corporation from pursuing any other remedies available to the
Corporation for breach or threatened breach of this provision, including the
recovery of damages from the Employee, as well as reasonable attorneys fees and
costs.
17. Restrictive Covenant. During the term of this Agreement and for
--------------------
a period of 12 months after termination or expiration of this Agreement, the
Employee will not (a) directly or indirectly, own, manage, operate, control, be
employed by, participate in, or be connected in any manner with any business
that derives income from providing the same or similar services or products as
those of the Corporation, or is in competition with any business that the
Corporation is conducting or demonstrably anticipated conducting as of the
Employee's termination date; (b) solicit business or perform work for any
customer of the Corporation, which work is similar to the type of work performed
by the Corporation for its customers, regardless of whether the Employee would
be performing the work on his or her own behalf or on behalf of some other
business; (c) solicit, recruit, or attempt to induce any employee to leave the
Corporation's employment or hire any employee whose employment with the
Corporation was terminated less than six months before the date of hire. If, at
any time during the term of this Agreement, the Employee's outside business
activity or Unrelated Work business conflicts with or competes with the
Corporation's then existing business, the Employee agrees either to merge the
competing or conflicting part of the outside business into the Corporation for
its fair market value on mutually agreed terms, permit the Corporation to
acquire the competing or conflicting portion of the employee's business for its
fair market value on mutually agreed terms, or terminate employment with the
Corporation. After termination of this Agreement for any reason, the Employee-
may request written consent from the Corporation's Board of Directors to permit
the Employee to become associated with a competitor prior to expiration of the
12-month period stated above. The Board of Directors shall not unreasonably
withhold consent and shall base any denial of consent upon its determination
that the former Employee's requested business activity would significantly
impair the Corporation's operations, market position, proposals in progress, or
relationship with existing customer(s). In the event that the Corporation
establishes the Employee's actual or threatened breach of this section's
provisions, the Corporation shall be entitled to an injunction restraining the
Employee from the action or threatened action. Nothing in this section shall be
construed as prohibiting the Corporation from pursuing any other available
remedies for the breach or threatened breach, including the recovery of damages
from the Employee, as well as reasonable attorneys fees and costs.
6
<PAGE>
18. Arbitration. Any controversy or claim arising out of, or
-----------
relating to, the meaning or enforceability of any provision of this Agreement,
the terms of employment, the work performed by the Employee, or ownership of any
product or right created during or after the terms of this Agreement, shall be
settled by binding arbitration before a single arbitrator of the Judicial
Arbitration and Mediation Service in the city of Seattle, Washington, or as
agreed-upon by the parties or selected by the King County Presiding Judge. The
arbitration shall be conducted in accordance with the then existing Washington
Civil Court Rules and judgment upon the award shall be rendered within six
months of commencement of arbitration, if practicable, and shall be final and
enforceable in any court of competent jurisdiction.
19. Attorneys Fees. In the event of any dispute arising out of this
--------------
Agreement or the employment relationship, the substantially prevailing party in
such dispute shall be entitled, in addition to any other relief, to an award of
attorneys fees and actual costs, including expert fees and arbitration fees.
The award shall include fees and costs incurred before any proceeding or
arbitration is commenced. If a proceeding is commenced and neither party wholly
prevails, the party receiving substantially greater relief shall be considered
the prevailing party as to all fees and costs relating to the dispute. The
actual attorneys fees and costs incurred by the substantially prevailing- party
shall be presumptively reasonable, which presumption is rebuttable.
20. Notices. Any notice required or desired to be given under this
-------
Agreement shall be sufficient if in writing and sent by certified mail, return
receipt requested, to the Employee's residence or to the principal office of the
Corporation, as the case may be.
21. Waiver of Breach. The waiver by either the Corporation or the
----------------
Employee of a breach of any provision of this Agreement shall not operate or be
construed as a waiver of any subsequent breach by either the Corporation or the
Employee.
22. Assignment. Sale or Merger. The Employee acknowledges that the
--------------------------
services to be rendered by him or her are unique and personal. Accordingly, the
Employee may not assign any of his or her rights or delegate any of his or her
duties or obligations under this Agreement. The rights and obligations of the
Corporation under this Agreement shall inure to the benefit of, and shall be
binding upon, the successors and assigns of the Corporation. The parties
contemplate and intend that this Agreement shall be assumed without material
change by GlobalTel as part of its acquisition of GFP Group and that it will be
fully enforceable by GlobalTel and the Employee without the need of any
additional agreement. In the event of a sale or merger of the Corporation to
any other entity, the successor to the Corporation shall assume the
Corporation's obligations pursuant to this Agreement. In the event that a sale,
merger or corporate restructure results in a 50 percent or greater change of
ownership or control of the Corporation's affairs, except as a result of the
GlobalTel acquisition, the Employee may terminate this Agreement and require
that the Corporation redeem the Employees stock pursuant to the formula and
method of valuation stated in the Shareholder Agreement, and pay the other
amounts as provided in paragraph 14 above.
7
<PAGE>
23. Entire Agreement. This Agreement and any addenda attached to
----------------
this Agreement and signed by the parties contain the entire agreement of the
parties. There are no other agreements, oral or written. This Agreement may be
changed only by a written agreement signed by the party against whom enforcement
is sought. In the event of a conflicts the terms of more recently executed
documents supersede those of earlier documents.
24. Severability. The provisions of Section 5 "Extent of Service,"
------------
Section 6 "Ownership of Works Created by Employee," Section 9 "Income from
Services; Accounting and Disclosure of Income and Unrelated Software," Section
15 "Conflict of Interest," Section 16 "Proprietary Information," Section 17
"Restrictive Covenant," and any addendum that concerns the subject matter of any
of those provisions, state obligations of the parties that are independent of
each other, severable, and separately enforceable. To the extent that any
portion of a provision is deemed unenforceable, the balance of that provision
shall be fully enforced. The unenforceability of any provision shall have no
effect on the enforceability of any other provision of this Agreement.
25. Applicable Law. This Agreement shall be construed in accordance
--------------
with the laws of the State of Washington.
Dated: 10/10/95 /s/ German Burtscher
---------- --------------------------------------------
EMPLOYEE
CORPORATION
Dated: 10 October 1995 By /s/ Ronald P. Erickson
--------------- ------------------------------------------
Its Chairman
------------------------------------------
8
<PAGE>
EMPLOYMENT AGREEMENT
Effective as of the ___ day of _______________, 19__, FRANK KRENTZMAN
(the "Employee") and GFP GROUP, INC., a Washington corporation (the
"Corporation"), in consideration of the mutual covenants and conditions
contained in this Agreement, agree as follows:
1. Employment. The Corporation hereby employs the Employee and the
----------
Employee hereby accepts employment upon the terms and conditions set forth in
this Agreement.
2. Term. The term of this Agreement shall begin on the effective
----
date set forth above and shall continue on a rolling three year term, renewing
daily. The parties acknowledge the Corporation's intention to be acquired by
GlobalTel Resources, Inc. ("GlobalTel") in a manner that will require that
GlobalTel assume the Corporation's obligations pursuant to this Agreement, in
which case GlobalTel will automatically assume GFP Group's rights and
obligations and the term of this Agreement shall continue without requiring any
action by either party, or GlobalTel.
3. Compensation. For all services rendered by the Employee under this
------------
Agreement, the Corporation shall compensate the Employee as determined by the
Board of Directors. The Employee shall receive a one-time payment of $10,000,
half on execution of this Agreement and half on completion of GlobalTel's
Acquisition of GFP Group. Starting compensation of $5,000 per month.
Compensation shall be increased to $10,000 per month on the earlier of -March 1,
1996 or receipt of significant institutional funding for operations.
Compensation shall be increased to a minimum of $12,500 per month at the
beginning of the second year of employment and to $15,000 per month at the
beginning of the third year of employment. The Corporation and the Employee
contemplate significant increases in salary and benefits if target goals for
corporate financing and expansion are met. Employee shall receive increases in
compensation equal to any increases in the compensation of the Corporation's
other comparable officers, currently Curtis Lew and Alan Chin. Compensation may
also be increased in the discretion of the Board of Directors and additional
bonuses may be paid to the Employee at the discretion of the Board of Directors.
4. Duties. The Corporation employs the Employee as Vice President to
------
perform work in connection with marketing, sales, network operations or such
other projects or products that are being undertaken by the Corporation, as
directed by the President of the Corporation. The Employee shall also continue
duties as an officer of the Corporation's GFP Group subsidiary, including
administration of the SITA/SCITOR Agreement. The employee shall report directly
to the Chief Executive Officer of the
1
<PAGE>
Corporation. Any duties of the Employee as a director or an officer of the
Corporation shall be without further compensation.
5. Extent Of Service. The Employee shall devote his or her time,
-----------------
attention and energies to the Corporation's business on a full time basis,
unless a different basis is provided in an addendum to this Agreement, and shall
not become involved in any other business activity that would in any way detract
from, limit, or impair the Employee's performance of his work for the
Corporation or may adversely impact the Corporation's business interests,
whether or not such outside business activity is pursued for gain, profit, or
other pecuniary advantage. The Employee must request written consent of the
Corporation's Board of Directors to engage in any such outside business activity
which writing shall specify the outside business activity in detail, and shall
be attached to this Agreement. As to any request for consent, the Board of
Directors shall not unreasonably withhold consent, taking into account the
nature of the outside business activity, its relationship to the Corporation's
business, the relative time that the Employee would be required to devote to the
Corporation's business and to the outside business activity, and whether the
effect on the Employee's work performance would have an adverse impact on the
Corporation's business. The Corporation has no obligation to consent to an
outside business activity that, in its sole opinion, could adversely impact
conduct of the Corporation's business. The Corporation may condition consent
upon a reasonable compensation adjustment reflecting the impact on the
Corporation. The Corporation acknowledges that the Employee operated a
consulting business prior to becoming an employee and agrees that the Employee
may continue to service existing customers described in Exhibit A for a
transition period of six months. The Employee represents that time devoted to
such consulting work shall not prevent him from working full time for the
Corporation and that such work shall not be in competition with any service or
product of the Corporation. The Employee may invest the Employee's assets
without restriction so long as the investment does not require the Employee to
devote his or her services to operation of the companies in which the
investments are made and so long as the subject of the investment is not
inconsistent with the Corporation's business interests.
6. Ownership of Works Created By Employee. The Employee acknowledges
--------------------------------------
that the Corporation shall have exclusive ownership of all inventions,
technology, and know-how that the Employee creates or modifies during the term
of this Agreement and any previous agreement. The Corporation shall have the
exclusive copyright rights in such, works and related materials and shall be
considered the author and owner of any such copyrightable work created by the
Employee during the term of this Agreement, as authorship is defined in the
Copyright Act, 17 U.S.C. (S) 102. All such work shall be considered "work made
for hire" under 17 U.S.C. (S) 201(b). To the extent that any such work does not
qualify as a "work made for hire" under applicable law, the Employee hereby
irrevocably and exclusively assigns to the Corporation, its successors and
assigns all right, title, and interest in and to such work, including the right
to copyright, patent, trade secret, and other proprietary rights protection. To
the extent that any of the
2
<PAGE>
Employee's rights in such a work are not, or may not be, subject to assignment
or transfer, or the Employee may have a right of avoidance as to any such
assignment or transfer, the Employee hereby irrevocably and unconditionally
waives enforcement of all such rights, including moral rights. The Employee
acknowledges that the transfer, assignment, and waiver of the foregoing rights
and interests are complete and effective as of the date of this Agreement in
consideration of the Corporation's employment of the Employee and execution of
this Agreement and without regard to the time or circumstances under which the
Agreement may be terminated. The Employee agrees to execute any assignments or
other documents and take such other actions as may be necessary or desirable to
assure or verify that ownership of the rights addressed in this section resides
exclusively with the Corporation.
7. Ownership Of Unrelated Works. The Corporation's ownership of
----------------------------
works created by the Employee during the term of this Agreement shall not apply
to Unrelated Works, which is defined as a work that is not created through the
use of any of the Corporation's equipment, supplies, facilities, or trade secret
information, which was developed entirely on the Employee's own time and which
does not relate directly to the Corporation's business or the Corporation's
actual or demonstrably anticipated research or development at the time the
software is created and does not result from any work performed by the Employee
for the Corporation. The Employee's development of Unrelated Works shall not
limit the Corporation's business or prohibit the Corporation from developing
similar or related works. Should all or part of the Employee's Unrelated Work
be incorporated into the Corporation's inventions or other works, the
Corporation shall have a royalty-free license to copy, use, and sell such works
without restriction, unless the Employee and the Corporation have executed a
written agreement providing otherwise in advance of such incorporation, or the
Employee establishes that the Corporation wrongfully obtained the Unrelated
Works through no fault of the Employee.
8. Fringe Benefits. The relationship between the Corporation and the
---------------
Employee is that of an employer and employee. The parties acknowledge that the
nature of the Employee's work requires substantial technological expertise and
the consistent exercise of substantial discretion and judgment. The Employee is
a professional, salaried, full-time employee who shall be entitled to
participate in the Senior Management Benefit Package. "Senior Management
Benefit Package" means the retirement, ISOP, bonus, expense allowance, profit
sharing, vacation, and similar plans adopted by the Corporation for the
President and Vice-Presidents having the same full-time status and length of
service as the Employee. The Corporation anticipates having the package in
place within six months after execution of this Agreement.
9. Income From Services; Accounting And Disclosure Of Income And
-------------------------------------------------------------
Unrelated Software. Income generated by the Employee from the creation,
- ------------------
maintenance, or modification, use, license, sale, or any other transfer of
Unrelated Works, and from outside business activities permitted by this
Agreement shall belong to the Employee.
3
<PAGE>
While employed by the Corporation and for three years thereafter, the Employee
agrees upon request of the Corporation to render a true account of all
information and transactions concerning Unrelated Works and/or outside business
activities should the Corporation receive information reasonably suggesting that
the such Works or outside business activity violates the terms of this
Agreement. The Corporation shall require that those employees and agents of the
Corporation having access to this information shall keep confidential all
information disclosed pursuant to this section and the Corporation shall limit
access to such information to the members of the Board of Directors and the
management-level employee conducting the accounting.
10. Working Facilities. The Corporation will furnish the Employee
------------------
with working space, hardware, technical and secretarial assistance, and other
facilities and services suitable to Employee's position and adequate for the
performance of the Employee's duties. Any automobile allowance or payment of
relocation expenses shall be as provided in the Senior Management Benefit
Package. The Corporation shall provide the Employee with an office in Los
Angeles, California, near the SCITOR switch facility. The Employee shall have a
full time administrative assistant in the Los Angeles office.
11. Expenses. The Corporation shall pay for or reimburse the
--------
Employee for travel, lodging, and all reasonable and necessary expenses for the
promotion of the business of the Corporation, including expenses for
entertainment, dues, and other expenses that the Employee reasonably and
necessarily incurs in the performance of the duties for the Corporation covered
by this Agreement.
12. Vacations. The Employee shall be entitled each calendar year to
---------
a vacation consisting of two two-week periods, which may be increased by the
Corporation's business and subject to any policies adopted prospectively by the
Board of Directors, during which time the Employee's salary shall be paid in
full. The Employee may carry over no more than one two-week period to the next
calendar year (for a total of six weeks). The Employee shall take the vacation
at such time or times as shall be approved by the Corporation. Vacation time
may not be accrued from year to year without the advance written consent of the
Corporation, but the Corporation shall pay the Employee for any vacation days
lost.
13. Leave Of Absence. Leaves of absence with full payment of salary
----------------
may be granted to the Employee for attendance at professional conventions,
seminars, and other professional or business activities approved by the
Corporation. All expenses reasonably and necessarily incurred by the employee
in these activities shall be paid for or reimbursed by the Corporation. The
Corporation may from time to time approve leaves of absence with full or partial
payment of salary and other expenses for other reasons in its sole discretion.
4
<PAGE>
14. Termination. This Agreement may be terminated by either party
-----------
upon 30 days written notice, if for cause, and upon 60 days advance written
notice, if without' cause. The term "cause" means any material breach of the
employee's duty of loyalty to the Corporation; material failure to perform his
corporate duties for a period of 30 days on a consistent basis after written
notice of such failure, regardless of the cause; any act of criminal fraud,
whether or not involving the Corporation; or any material breach of the terms of
this Agreement, the Acquisition and Management Agreement, Shareholder Agreement,
or any other written agreement between the Employee and the Corporation or its
subsidiary, GFP Group, Inc. Termination of this Agreement for cause shall
automatically terminate for cause all other agreements between the Corporation
or its subsidiary and the Employee. In the case of termination for cause,
unless the Employee contests the grounds stated in the notice and demands
arbitration, all rights of the Employee under such agreements and all rights
under this Agreement, including salary, benefits, and Board representation shall
automatically be extinguished as of the termination date stated in the notice
and the Employee's stock, including vested options, shall be redeemed by the
Corporation at 75 per cent of the value calculated pursuant to the method stated
in the shareholder agreement, so long as the Corporation's stock is not then
publicly traded, in which case there shall be no redemption. If the Employee
demands arbitration of the termination grounds, the parties will immediately
proceed to arbitration and all compensation, benefits, and stock voting rights
of the Employee shall be suspended pending the decision of the arbitrator, which
shall take place within six months from the commencement of arbitration unless
delay is caused by the Employee. If the Corporation terminates this Agreement
without cause, the Corporation shall be obligated to continue to provide the
Employee with the full salary and compensation benefits required by this
Agreement until the expiration of the rolling three-year term. Unless the
Corporation's stock is then publicly traded, the Corporation shall redeem the
Employee's stock, including vested options, at market value determined by the
method stated in the Shareholder Agreement. All stock acquisition rights shall
cease as of the termination date stated in the written notice of termination,
whether the stock is publicly traded or not. Unless otherwise agreed, the
redemption amount shall be paid as follows: in 12 equal monthly installments if
the amount is less than $500,000; in 24 equal monthly installments if the
redemption amount is between $500,000 and $1,000,000 and in equal quarterly
installments over a five-year period if the redemption amount is $1,000,000 or
more. Each installment shall include interest on the declining balance at 6%
per annum, compounded monthly.
15. Conflict Of Interest. Except as provided in Section 5, above,
--------------------
the Employee warrants and represents that: (1) the Employee has no conflict of
interest in performing the duties for which the Corporation is hiring the
Employee; (2) that the Employee is not under any legal disability regarding
these duties and is not prohibited by any employment agreement or covenant not
to compete from performing these duties; (3) that the work the Employee is
performing and will perform for the Corporation does not to the knowledge of the
Employee, breach any contract or infringe upon any existing patent or copyright
or
5
<PAGE>
contain any proprietary information or trade secrets of any former employer or
other person or entity.
16. Proprietary Information. The Employee acknowledges that the list
-----------------------
of Corporation's contracts, suppliers, customers, material information on the
business of those customers, and the Corporation's telecommunication technology,
work in progress,' know-how, techniques, and current and anticipated research
and development activities, as well as the related printed and tangible
materials, as these may exist from time to time, constitute Proprietary Trade
Secrets of the Corporation that are valuable, special and unique assets of the
Corporation's business and which the Corporation takes reasonable steps to
safeguard from disclosure to persons that do not owe a duty of confidentiality
to the Corporation. The Employee also acknowledges that conducting the
Employee's duties for Corporation's business may require that the Employee come
into contact with information belonging to the Corporation's customers which
information is disclosed to the Employee pursuant to the Corporation's agreement
to keep the information confidential ("Customer Confidences"). The employee
will not, during or after the term of employment, disclose any Proprietary Trade
Secrets or Customer Confidences, directly or indirectly, in whole or in part, to
any person, firm, corporation, association, or other entity for any reason or
purpose whatsoever. Nor shall the Employee include any know-how, or techniques
that constitute Proprietary Trade Secrets of the Corporation or Customer
Confidences, in any invention or work unless it is owned by the Corporation.
Information shall cease being Proprietary Trade Secrets or Customer Confidences
if the Corporation or the Customer has permitted the information to enter the
public domain without any involvement of the Employee. The scope and
enforceability of this section shall be determined in accordance with Washington
law. In the event that the Corporation establishes the Employee's breach or
threatened breach of this section's provisions, the Corporation shall be
entitled to an injunction restraining the Employee from disclosing any
Proprietary Trade Secrets or Customer Confidences and/or restraining the
Employee from rendering any services to any person, firm, corporation,
association or other entity to whom any Proprietary Trade Secret or Customer
Confidence, in whole or in part, either has been disclosed or is threatened to
be disclosed. Nothing contained in this section shall be construed as
prohibiting the Corporation from pursuing any other remedies available to the
Corporation for breach or threatened breach of this provision, including the
recovery of damages from the Employee, as well as reasonable attorneys fees and
costs.
17. Restrictive Covenant. During the term of this Agreement and for
--------------------
a period of 12 months after termination or expiration of this Agreement, the
Employee will not (a) directly or indirectly, own, manage, operate, control, be
employed by, participate in, or be connected in any manner with any business
that derives income from providing the same or similar services or products as
those of the Corporation, or is in competition with any business that the
Corporation is conducting or demonstrably anticipates conducting as of the
Employee's termination date; (b) solicit business or perform work for any
6
<PAGE>
customer of the Corporation, which work is similar to the type of work performed
by the Corporation for it-s customers, regardless of whether the Employee would
be performing the work on his or her own behalf or on behalf of some other
business; (c) solicit, recruit, or attempt to induce any employee to leave the
Corporation's employment or hire any employee whose employment with the
Corporation was terminated less than six months before the date of hire. If, at
any time during the term of this Agreement, the Employee's outside business
activity or Unrelated Work business conflicts with or competes with the
Corporation's then existing business, the Employee agrees either to merge the
competing or conflicting part of the outside business into the Corporation for
its fair market value on mutually agreed terms, permit the Corporation to
acquire the competing or conflicting portion of the employee's business for its
fair market value on mutually agreed terms, or terminate employment with the
Corporation. After termination of this Agreement for any reason, the Employee
may request written consent from the Corporation's Board of Directors to permit
the Employee to become associated with a competitor prior to expiration of the
12-month period stated above. The Board of Directors shall not unreasonably
withhold consent and shall base any denial of consent upon its determination
that the former Employee's requested business activity would significantly
impair the Corporation's operations, market position, proposals in progress, or
relationship with existing customer(s). In the event that the Corporation
establishes the Employee's actual or threatened breach of this section's
provisions, the Corporation shall be entitled to an injunction restraining the
Employee from the action or threatened action. Nothing in this section shall be
construed as prohibiting the Corporation from pursuing any other available
remedies for the breach or threatened breach, including the recovery of damages
from the Employee, as well as reasonable attorneys fees and costs.
18. Arbitration. Any controversy or claim arising out of, or
-----------
relating to, the meaning or enforceability of any provision of this Agreement,
the terms of employment, the work performed by the Employee, or ownership of any
product or right created during or after the terms of this Agreement, shall be
settled by binding arbitration before a single arbitrator of the Judicial
Arbitration and Mediation Service in the city of Seattle, Washington, or as
agreed-upon by the parties or selected by the King County Presiding Judge. The
arbitration shall be conducted in accordance with the then existing Washington
Civil Court Rules and judgment upon the award shall be rendered within six
months of commencement of arbitration, if practicable, and shall be final and
enforceable in any court of competent jurisdiction.
19. Attorneys Fees. In the event of any dispute arising out of this
--------------
Agreement or the employment relationship, the substantially prevailing party in
such dispute shall be entitled, in addition to any other relief, to an award of
attorneys fees and actual costs, including expert fees and arbitration fees.
The award shall include fees and costs incurred before any proceeding or
arbitration is commenced. If a proceeding is commenced and neither party wholly
prevails, the party receiving substantially greater relief shall be considered
the prevailing party as to all fees and costs relating to the
7
<PAGE>
dispute. The actual attorneys fees and costs incurred by the substantially
prevailing party shall be presumptively reasonable, which presumption is
rebuttable.
20. Notices. Any notice required or desired to be given under this
-------
Agreement shall be sufficient if in writing and sent by certified mail, return
receipt requested, to the Employee's residence or to the principal office of the
Corporation, as the case may be.
21. Waiver Of Breach. The waiver by either the Corporation or the
----------------
Employee of a breach of any provision of this Agreement shall not operate or be
construed as a waiver of any subsequent breach by either the Corporation or the
Employee.
22. Assignment, Sale or Merger. The Employee acknowledges that the
--------------------------
services to be rendered by him or her are unique and personal. Accordingly, the
Employee may not assign any of his or her rights or delegate any of his or her
duties or obligations under this Agreement. The rights and obligations of the
Corporation under this Agreement shall inure to the benefit of, and shall be
binding upon, the successors and assigns of the Corporation. The parties
contemplate and intend that this Agreement shall be assumed without material
change by GlobalTel as part of its acquisition of GFP Group and that it will be
fully enforceable by GlobalTel and the Employee without the need of any
additional agreement. In the event of a sale or merger of the Corporation to
any other entity, the successor to the Corporation shall assume the
Corporation's obligations pursuant to this Agreement. In the event that a sale,
merger or corporate restructure results in a 50 percent or greater change of
ownership or control of the Corporation's affairs, except as a result of the
GlobalTel acquisition, the Employee may terminate this Agreement and require
that the Corporation redeem the Employees stock pursuant to the formula and
method of valuation stated in the Shareholder Agreement, and pay the other
amounts as provided in paragraph 14, above.
23. Entire Agreement. This Agreement and any addenda attached to
----------------
this Agreement and signed by the parties contain the entire agreement of the
parties. There are no other agreements, oral or written. This Agreement may be
changed only by a written agreement signed by the party against whom enforcement
is sought. In the event of a conflict, the terms of more recently executed
documents supersede those of earlier documents.
24. Severability. The provisions of Section 5 "Extent of Service,"
------------
Section 6 "Ownership of Works Created by Employee," Section 9 "Income from
Services; Accounting and Disclosure of Income and Unrelated Software," Section
15 "Conflict of Interest," Section 16 "Proprietary Information," Section 17
"Restrictive Covenant,' and any addendum that concerns the subject matter of any
of those provisions, state obligations of the parties that are independent of
each other, severable, and separately enforceable. To the extent that any
portion of a provision is deemed unenforceable, the
8
<PAGE>
balance of that provision shall be fully enforced. The unenforceability of any
provision shall have no effect on the enforceability of any other provision of
this Agreement.
25. Applicable Law. This Agreement shall be construed in accordance
--------------
with the laws of the State of Washington.
Dated: ------------------------
EMPLOYEE
CORPORATION
By----------------------
Its---------------------
9
<PAGE>
EXHIBIT B
Scitor International Telecommunications Services, INC.
A SITA Group Company
Agreement for managed Scitor ITS
data network services
See Exhibit 10.l2
<PAGE>
EXHIBIT C
SECTION 4.5 - RESTRICTIONS ON SHARE TRANSFERS. Notwithstanding Section
---------------------------------------------
4.4, the shares of the corporation are restricted shares and may not be sold,
resold, assigned, pledged, gifted, or otherwise transferred (collectively
"transferred") except in full compliance with federal and state securities laws,
which may require registration of such stock or an exemption from registration.
Shares thus may not be transferred by a shareholder unless that shareholder has
first obtained written assurance from the corporation's attorney, at the expense
of the shareholder, that such sale would not violate any federal or state law or
regulation. After receiving such an assurance, the transferring shareholder may
then freely transfer shares in a transaction in which no consideration is given
or received for those shares, including without limitation transfers by bequest,
by gift, in trust for estate planning purposes, and similar transfers.
After receiving such an assurance in the case of a sale of the shares,
if the proposed purchaser is not an existing shareholder, the selling
shareholder shall deliver to the corporation and the other shareholders an offer
in writing to sell all of those shares, at the price to be paid by the proposed
purchaser, to the corporation and the other shareholders, in that order. The
offer shall state the name of the prospective purchaser and shall include a copy
of the corporation's counsel's opinion that no federal or state law or
regulation would be violated by such sale to the other shareholders. The
corporation shall have ten (10) days after receipt of the offer within which to
accept or reject the offer, which may be accepted or rejected only as to all the
shares offered.
If the corporation rejects the offer, it shall immediately so notify
the other shareholders in writing. The other shareholders of the corporation
shall each have the right to purchase the same proportion of those offered
shares as their beneficially-owned shares bear to the beneficial ownership of
all issued and outstanding shares of the corporation, excluding those
beneficially owned by the selling shareholder. The other shareholders shall
have thirty (30) days after receipt of notice of the corporation's rejection of
the selling shareholder's offer to accept or reject the offer, as to all of the
shares offered, by a written notice delivered to the other shareholders
including the selling shareholder. If an individual shareholder rejects the
offer, the remaining shareholders may, within ten (10) days after receipt of
that notice, accept the offer as to that shareholder's proportionate share, in
the same proportion as their beneficial share ownership bears to the aggregate
beneficial ownerships of all shareholders electing to purchase that share.
Unless otherwise agreed, the purchase price to be paid for shares
purchased as provided for above shall be paid within ten (10) days after
delivery of the purchaser's acceptance of the offer to sell.
<PAGE>
All stock certificates of the corporation will bear legends stating
the foregoing restrictions.
SECTION 7.4 - AMENDMENTS. The Bylaws may be amended, altered or repealed,
------------------------
at any regular or special meeting of the Board, by a vote of the majority of the
whole Board, provided that a written statement of the proposed action shall have
been delivered personally or by facsimile transmission or mailed to all
directors with the notice of the meeting. Section 4. 5 of the Bylaws may be
amended by the shareholders of the corporation only by the affirmative vote of
the holders of two-thirds (2/3) of the issued and outstanding shares of the
corporation.
<PAGE>
EXHIBIT D
ACQUISITION AND MANAGEMENT AGREEMENT
A. PARTIES.
-------
The parties to this Agreement are RATSTEN INTERNATIONAL TELECOMMUNICATIONS,
INC., ("Ratsten"), a California corporation, GFP GROUP, INC., ("GFP Group"), a
Washington corporation, GERMAN BURTSCHER, FRANK KRENTZMAN, and SIRIUS
INTERNATIONAL TELECOMMUNICATIONS, a California partnership composed of Burtscher
and Krentzman.
B. PURPOSE OF THIS AGREEMENT.
-------------------------
The purpose of this Agreement is to provide for GFP Group's acquisition of
Ratsten, and to state GFP Group's commitment to provide certain working capital
necessary to meet the GFP Group's obligations to SCITOR International
Telecommunications Services, Inc., a SITA Group Company, pursuant to a contract
between SCITOR and Ratsten, d/b/a Netstar Telecommunications Services, Inc.,
("SITA/SCITOR Agreement"), a copy of which is attached to this Agreement as
Exhibit A. A statement of the working capital requirements of the SITA/SCITOR
Agreement is attached to this agreement as Exhibit B. Finally, this Agreement
sets forth the terms by which GFP Group shall negotiate the acquisition of GFP
Group (after its acquisition of Ratsten) by GlobalTel Resources, Inc., a
Washington corporation.
C. GFP GROUP'S PURCHASE OF SELECTNET SHARES.
----------------------------------------
Selectnet Telemanagement, Inc. owns 14,948 shares of common stock in
Ratsten. GFP Group shall purchase all Selectnet shares by cash payment of
$100,000 to the Selectnet Telemanagement, Inc. The purchase of the Selectnet
shares shall be completed within 30 days after the effective date of this
Agreement.
D. WORKING CAPITAL FOR SITA/SCITOR CONTRACT.
----------------------------------------
GFP Group shall provide interim working capital to fulfill the requirements
of the SITA/SCITOR Agreement pending acquisition by GlobalTel. Burtscher and
Krentzman shall prepare a detailed list of expenditures needed to sustain the
contract, which expenditures shall be listed in Exhibit B and approved by GFP
Group. GFP Group shall provide a loan in the amount, stated in Exhibit B, not
to exceed $100,000 by December 1, 1995 and $50,000 per month, thereafter until
the acquisition by GlobalTel is completed. The loaned funds shall also provide
for necessary travel, including travel to, Mexico, Russia, and the Ukraine, to
establish various joint venture and license agreements for the facsimile service
on the SITA network.
1
<PAGE>
E. CONTRIBUTION OF SIRIUS STOCK IN RATSTEN TO GFP GROUP STOCK FOR GFP GROUP
------------------------------------------------------------------------
STOCK AND OTHER CONSIDERATION.
-----------------------------
Burtscher and Krentzman represent that they own all interest in a
partnership known as Sirius Telecommunications. The principal asset of Sirius
is 14,948 shares of common stock in Ratsten. Krentzman and Burtscher shall
cause Sirius to transfer all of these shares to GFP Group. In consideration of
such transfer, GFP Group shall issue 250,000 of shares of common stock to
Krentzman and 250,000 shares of common stock to Burtscher and obtain agreement
from GlobalTel to exchange such shares for the same number of shares of
GlobalTel common stock and to issue 75,000 additional shares of GlobalTel common
stock to each at the beginning of the second and third years of employment with
GlobalTel and provide Krentzman and Burtscher with the compensation package
provided in this Agreement.
F. TERMS FOR ACQUISITION OF GFP GROUP BY GLOBALTEL.
-----------------------------------------------
GFP Group shall immediately commence negotiations with GlobalTel for
GlobalTel's acquisition of GFP Group after GFP Group successfully acquires
Ratsten and Ratsten's interest in the SITA/SCITOR contract. Acquisition of GFP
Group by GlobalTel shall be accomplished by GlobalTel's acquisition of all
shares of GFP Group and GlobalTel's issuance to GFP Group of 1,250,000 shares,
including the 500,000 shares initially issued to Krentzman and Burtscher
collectively.
G. OBLIGATIONS IN CONNECTION WITH GLOBALTEL ACQUISITION.
----------------------------------------------------
1. GENERAL OBLIGATIONS AND CONDITIONS. GFP Group shall structure the
----------------------------------
acquisition of GFP Group by GlobalTel so that Burtscher and Krentzman receive
the stock interest, compensation package and operational duties generally
described in this Agreement. The primary reason for GlobalTel's interest in
acquiring GFP Group after GFP Group acquires Ratsten is to the benefit of the
SITA/SCITOR contract and the services of Burtscher and Krentzman. The parties
to this Agreement acknowledge that the terms and conditions of the final
acquisition of GFP Group by GlobalTel have yet to be determined. The parties,
further acknowledge that additional agreements among them, such as a Shareholder
Agreement and agreements with funding sources, will need to be prepared and
executed. Nonetheless, the parties agree that any acquisition by GlobalTel must
meet the minimal requirements stated in this Agreement and that any material
deviation from these requirements must be agreed upon in writing by the party
adversely affected. The parties also agree that it is GFP Group's
responsibility to conduct negotiations with GlobalTel and to obtain GlobalTel's
agreement to structure the acquisition of GFP Group to meet the requirements of
this Agreement.
2. BENEFITS TO KRENTZMAN AND BURTSCHER. As part of the acquisition by
-----------------------------------
GlobalTel, Krentzman and Burtscher shall each personally receive the following:
a. SHARES IN GLOBALTEL. GlobalTel shall restructure its stock so
-------------------
that there is only a single class of voting common stock. GlobalTel shall issue
250,000 shares of GlobalTel voting common stock and enter into a binding
obligation to issue additional
2
<PAGE>
stock to each of Burtscher and Krentzman at the first anniversary and second
anniversary of employment with GlobalTel. Issuance of these shares shall be
sufficient to cause Krentzman and Burtscher to achieve stock parity with Alan
Chin and Curtis Lew. Stock parity includes all stock that represents an equity
interest in GlobalTel, or convertible to an equity interest, but does not
include debt instruments. The Corporation shall make financing available on
renewable terms to Krentzman and Burtscher to purchase any instruments or rights
possessed by Chin or Lew that are convertible to equity. Stock parity may be
achieved either by direct issuance of stock to Krentzman and Burtscher or
pursuant to the terms of an ISOP, or by any other means that accomplishes stock
parity. GFP Group agrees to increase its capitalization by 40,000 shares and to
issue 25,000 shares to Peter Gust and 15,000 shares to Donald Kovaks or a
nominee identified by October 31, 1995, with the parties to this Agreement
retaining the proxy rights to vote these shares until the acquisition by
GlobalTel is complete, at which time these shares shall be exchanged for a like
number of GlobalTel shares. Issuance of these shares is subject to, and
conditioned on, the shareholders: (a) executing appropriate investment letters
required by applicable securities laws and meeting the legal requirements for
investing in GFP Group or GlobalTel; (b) executing the appropriate shareholder
agreement restricting resale of such shares, voting, redemption and similar
matters; and (c) acknowledging in writing that issuance of these shares
satisfies the obligations of Krentzman and Burtscher to each of them. The
parties shall select a means that will have the least overall adverse tax impact
upon the parties as a whole. The parties shall execute a shareholder agreement
by no later than October 28, 1995 that provides in part that these stock
acquisition rights terminate, and all issued shares redeemed by the Corporation
pursuant to the valuation methods detailed in the shareholder agreement, upon
termination of employment by the employee or by GlobalTel, material breach of
the employment agreements, material failure to perform operational duties to
GlobalTel for any reason, or termination by SCITOR of the SITA/SCITOR contract,
for any reason, within 135 days from the effective date of this Agreement.
b. DUTIES, COMPENSATION AND EMPLOYMENT AGREEMENTS. Krentzman and
----------------------------------------------
Burtscher shall each become officers of GlobalTel and, to the extent necessary
or. desirable under the SITA/SCITOR contract, officers of GFP Group. Burtscher
and Krentzman shall have operational responsibilities for managing the
relationship with SCITOR and supervising compliance with the SITA/SCITOR
contract and GlobalTel's growth in relation to such services, under the
direction of Ronald P. Erickson, who shall become GlobalTel's President and
Chief Executive Officer. Krentzman and Burtscher shall also alternate one of
them serving as a member of the seven-person Board of Directors of GlobalTel
each calendar year and shall have the right to nominate one outside Board
member, subject to approval of the Board as to qualifications. Krentzman shall
serve on the Board during the initial 1995 term and Burtscher shall serve on the
Board during 1996. Krentzman and Burtscher shall each receive notice of, and
have the right to attend, meetings of the Board of Directors whether or not he
is a member of the Board at the time the meeting is held. Krentzman and
Burtscher hereby nominate Donald Sledge as the first outside director, which
nomination is acceptable to GFP Group. Each shall execute an employment
agreement in substantially the form attached to this Agreement as Exhibit C-1
and C-2. The duration of the obligations stated in this section and the term of
the employment agreements shall be a rolling three years. Krentzman
3
<PAGE>
and Burtscher shall each, be officers of the Corporation of equal rank with Alan
Chin and Curtis Lew, who are currently vice-presidents. Their initial monthly
compensation shall equal the monthly compensation provided to Mr. Chin and Mr.
Lew. Krentzman and Burtscher shall receive the same regular retirement, health,
stock, and expense benefits ("Senior Management Benefit Package), that GlobalTel
provides to Alan Chin and Curtis Lew during, the term of the employment
agreement. This parity arrangement shall not apply to merit bonuses tied to
performance of the corporation which will be available.
c. LOANS FOR PRIOR RATSTEN AND PERSONAL EXPENSES. Krentzman and
---------------------------------------------
Burtscher have each borrowed funds to pay for Ratsten operating expenses and to
pay for living expenses during Ratsten's startup phase. After the GlobalTel
acquisition has been completed and at such time as GlobalTel receives
significant institutional financing, GlobalTel shall loan Burtscher $14,500 and
shall loan Krentzman $31,500, to repay personal loans, upon presentation of
documents evidencing such loans and the outstanding balance of each. GlobalTel
shall have the option of making payments directly to the creditors. These loans
shall be evidenced by a note in the usual form, shall be at 6 percent per annum
interest, compounded monthly and shall be repaid by deductions from net merit or
operating bonuses payable to Krentzman or Burtscher during, the first three
years of employment. Each loan shall be fully repaid before any portion of a
bonus is paid the employee borrowing the funds. The loans shall not, however,
be payable from or chargeable against merit or operating bonuses earned after
the third anniversary of this Agreement. Termination of employment at GlobalTel
for cause shall cause the entire loan balance to become due and payable in four
equal quarterly installments. In addition to and at the same time as these
loans, GlobalTel shall pay up to an aggregate of $30,000 to repay person who
have advanced funds to Krentzman and Burtscher for Ratsten operations. The
identities of these persons and amount that each advanced for Ratsten operations
is stated in Exhibit D to be prepared by Krentzman and Burtscher and approved by
GFP Group. Payments shall be made directly to the persons identified in Exhibit
D upon execution of a release acknowledging that the amount paid fully satisfies
the repayment obligation of Ratsten and Burtscher or Krentzman.
3. REIMBURSEMENT OF ACQUISITION EXPENSES AND WORKING CAPITAL CONTRIBUTED
---------------------------------------------------------------------
BY GFP GROUP. As part of the acquisition of GFP Group, in addition to transfer
- ------------
of stock, GlobalTel shall make cash payments to GFP Group or to any lender to
GFP Group sufficient to repay working capital provided by GFP Group as part of
its acquisition of Ratsten and sufficient cash to reimburse GFP Group, or pay
for, GFP Group's expenses in acquiring Ratsten and in negotiating and obtaining
GFP Group's acquisition by GlobalTel.
H. WARRANTIES.
----------
1. WARRANTIES CONCERNING SITA/SCITOR AGREEMENT. Krentzman, Burtscher,
-------------------------------------------
and Ratsten each warrant that Ratsten obtained the SITA/SCITOR Agreement under
the name Netstar International Telecommunications, Inc., a corporation to be
formed, and that such corporation was subsequently formed under the name Ratsten
International Telecommunications, Inc. Ratsten, Krentzman and Burtscher warrant
that no other party has an interest of any nature in the SITA/SCITOR Agreement
and that the
4
<PAGE>
SITA/SCITOR Agreement does not prevent, prohibit, or place conditions upon the
transactions contemplated by this Agreement or that, if so, any necessary
consent from SCITOR has been obtained or will be obtained within 45 days after
the effective date of this Agreement.
2. WARRANTY CONCERNING SIRIUS. Krentzman and Burtscher warrant that they
--------------------------
are the sole partners of Sirius International Telecommunications, a partnership,
and that no other party has any interest in, or rights to, any asset of Sirius
International Communications.
3. WARRANTY AS TO OWNERSHIP OF RATSTEN INTERNATIONAL TELECOMMUNICATIONS,
---------------------------------------------------------------------
INC. Krentzman and Burtscher warrant that Sirius International
- ---
Telecommunications and Selectnet Telemanagement, Inc. are the sole shareholders
of Ratsten International Telecommunications, Inc. and that Selectnet's sole
interest in and to the assets of Ratsten is by virtue of its 14,948 shares of
stock.
4. WARRANTIES AS TO BOOKS OF ACCOUNT. Krentzman and Burtscher warrant
---------------------------------
that they have provided GFP Group with a full accounting of Ratsten's assets and
obligations and, to the best of their ability, set forth the interim
requirements for carrying out Ratsten's obligations under the SITA/SCITOR
contract, which obligations are stated in Exhibit B to this Agreement.
I. GENERAL PROVISIONS.
------------------
1. EXCLUSIVE DEALING. The parties to this Agreement shall not, directly
-----------------
or indirectly, through any representative or otherwise, solicit or entertain
offers from, negotiate with, or in manner encourage, discuss, accept, or
consider proposals relating to the SITA/SCITOR contract, the acquisition of GFP
Group or Ratsten or any of its assets, with any person, group, or entity that is
not a party to this Agreement, except GlobalTel, during the term of this
Agreement.
2. NONDISCLOSURE. Except as required by law, no party shall make any
-------------
public comment, statement, or communication with respect to the transactions
contemplated by this Agreement, nor shall a party permit an agent to disclose
the existence of this Agreement or discussions concerning this Agreement without
the prior Written consent of the other parties to this Agreement. This
obligation shall survive termination of this Agreement for any reason.
3. CONFIDENTIALITY. No party shall disclose or use any confidential
---------------
information furnished by a party to this Agreement in contemplation of this
Agreement. This confidentiality obligation shall extend to the representatives
of the parties, their agents, and assign. Confidential information includes any
information that is valuable and unique to the supplying party, is not generally
known outside of the supplying party's organization, and is either stamped
"confidential" or the party has taken other reasonable precautions to keep
confidential. Confidential information does not include information that the
disclosing party can demonstrate is generally available to the public, other
than as a result of improper disclosure, or was obtained by the receiving party
from a third
5
<PAGE>
party who owed no duty of confidentiality to the disclosing party. If this
Agreement is terminated for any reason, the parties shall promptly return all
confidential information to the supplying parties. The confidentiality
obligation shall survive termination of this Agreement for a period of two
years.
4. COSTS. Except as provided by this Agreement and exhibits, each party
-----
shall be responsible for and bear all of that party's expenses incurred in
connection with this Agreement and the actions contemplated by this Agreement.
5. AUTHORITY. Each signator on behalf of a corporation or partnership
---------
warrants that he has authority to bind that entity to this Agreement. Each
married signator shall obtain the written consent of the signator's spouse to
this Agreement.
6. CONSENTS AND REGULATORY APPROVAL. Each party shall cooperate to
--------------------------------
obtain the consent of any third party or regulatory agency that is necessary to
complete the transactions contemplated by this Agreement.
7. COMPLIANCE WITH LAWS. Each party shall comply with all state and
--------------------
federal securities laws and regulations in connection with any of the
transactions contemplated by this Agreement. To the extent that any such laws
or regulations require that the transactions contemplated by this Agreement be
accomplished in a different manner or modified, this Agreement shall be amended
to comply with such laws or regulations and such amendment shall not be deemed
an event that permits any party to terminate this Agreement.
8. TERM AND TERMINATION. The parties shall have 45 days from the date of
--------------------
this Agreement to accomplish the acquisition of Ratsten by GFP Group, and 90
days from the date that the Ratsten/GFP Group acquisition is complete to
complete the acquisition of GFP Group by GlobalTel. The term may be extended by
mutual written agreement of the parties. This Agreement may be terminated by
any of the following
a. TERMINATING EVENTS.
(1) Mutual written consent of the parties;
(2) As to a party, by material breach by the party after written
notice stating nature of the breach and a 30-day opportunity to
cure;
(3) Failure by GFP Group to provide the interim funding contemplated
by this Agreement;
(4) Failure of Burtscher or Krentzman to obtain SCITOR's consent to
assignment of the SITA/SCITOR Agreement to GFP Group or any
approval that May be required to assure GFP Group that
transactions contemplated by this Agreement do not violate the
SITA/SCITOR contract;
6
<PAGE>
(5) Notice from GlobalTel that GlobalTel does not intend to acquire
Ratsten or GFP Group after GFP Group acquires Ratsten.
b. OBLIGATIONS ON TERMINATION. The parties shall have the following
obligations on termination:
(1) In the event that this Agreement is terminated by GFP Group
because of Krentzman's and Burtscher's failure to obtain the
benefit of the SITA/SCITOR contract for GFP Group and GlobalTel,
Krentzman and Burtscher agree to reimburse GFP Group for all
funds devoted by GFP Group to maintenance of the SITA/SCITOR
Agreement and all expenses incurred by GFP Group in connection
with the transactions contemplated by this Agreement, unless
otherwise agreed in writing. Such amounts shall be determined by
application of GAAP and shall be repaid over a three-year period
at 6 percent per annum interest, compounded monthly, and shall be
evidenced by a note. The full repayment obligation shall be an
independent, joint and several obligation of Krentzman and of
Burtscher. The expenses to be repaid shall not include attorneys
fees incurred in preparation or negotiation of this Agreement or
amounts paid to purchase shares in Ratsten from Selectnet.
(2) If the Agreement terminates because GFP Group fails to provide
sufficient interim funding in excess of that required by this
Agreement, if the benefit of the SITA/SCITOR contract is not
available through no fault of Burtscher or Krentzman, or for any
reason other than a material beach of this Agreement, Krentzman
and Burtscher shall return all stock to GFP Group and GFP Group
shall return Krentzman's and Burtscher's Ratsten stock and the
parties shall have no further obligation to each other, except
the nondisclosure and confidentiality obligations which survive
termination of the Agreement.
(3) If GlobalTel decides not to acquire GFP Group, Palmer and
Erickson shall arrange for alternative financing for the
operations contemplated by this Agreement within 120 days from
the date that GFP Group receives notice of GlobalTel's decision.
This Agreement shall continue in force during the 120 day time
period and thereafter if suitable financing is achieved. If
suitable financing is not located within that time, Krentzman
and Burtscher shall have the right to repurchase the Selectnet
shares for a cash payment of $100,000.
9. GOVERNING LAW. This Agreement shall be construed, interpreted, and
-------------
governed by the laws of the State of Washington.
10. ARBITRATION OF DISPUTES. Any controversy or claim arising out of,
-----------------------
or relating to, the meaning or enforceability of any provision of this Agreement
shall be
7
<PAGE>
settled by binding arbitration before a single arbitrator of the Judicial
Arbitration and Mediation Service in the city of Seattle, Washington, or any
other arbitrator that is agreed upon by the parties or selected by the King
County Presiding Judge. The arbitration shall be conducted in accordance with
the then existing Washington Civil Court Rules and judgment upon the award shall
be final and enforced in any court of competent jurisdiction.
11. ATTORNEYS FEES. In the event of any dispute arising out of this
--------------
Agreement or the employment relationship, the substantially prevailing party in
such dispute shall be entitled, in addition to any other relief, to an award of
attorneys fees and actual costs, including expert fees and arbitration fees. The
award shall include fees and costs incurred before any proceeding or arbitration
is commenced. If a proceeding is commenced and neither party wholly prevails,
the party receiving substantially greater relief shall be considered the
prevailing party as to all fees and costs relating to the dispute. The actual
attorneys fees and costs incurred by the substantially prevailing party shall be
presumptively reasonable, which presumption is rebuttable.
12. ENTIRE AGREEMENT. The terms and provisions of this Agreement constitute
----------------
the entire agreement between the parties and supersede all previous
communications, negotiations, proposals, representations, conditions, or
agreements, either oral or written. In the event of any, conflict between the
provisions of this Agreement and the Proposal, this Agreement shall control.
This Agreement may not be enlarged, modified or altered except in writing signed
by the duly authorized officer or representative of each party. To the extent
that this Agreement contemplates that other agreements are necessary to carry
out the transactions required by this Agreement, such further agreements shall
be consistent with the terms of this agreement and with the requirements for
those transactions stated in this Agreement.
13. EXECUTION OF SHAREHOLDER AGREEMENT AND OTHER DOCUMENTS. The parties
------------------------------------------------------
shall execute such further agreements, documents, and consents, as are
reasonable and necessary to carry out the undertakings contemplated by this
Agreement. The parties shall also execute a shareholder agreement that will
prohibit the transfer of shares except upon approval of the corporation and
compliance with applicable law, will prohibit disposition of shares in event of
divorce, death or bankruptcy, and will provide for redemption of shares, upon
termination of employment at a fair and reasonable market value, if termination
is without cause, pursuant to a valuation formula stated in the agreement, and
will state terms for permitting continuation as shareholders if GlobalTel shares
become publicly traded.
14. EFFECTIVE DATE. This Agreement is effective and binding, as of the
--------------
date executed by the last party to execute it.
15. COUNTERPARTS. This Agreement may be signed in counterparts, each of
------------
which shall be as effective as an original.
IN WITNESS WHEREOF, each party has executed this Agreement in
duplicate, as of the dates stated below:
8
<PAGE>
GFP GROUP, INC. RATSTEN INTERNATIONAL
TELECOMMUNICATIONS, INC.
By /s/ Ronald P. Erickson By /s/ German Burtscher
---------------------- --------------------
RONALD P. ERICKSON, CHP. GERMAN BURTSCHER, President
Dated 10 October 1995 Dated 10/10/95
--------------- --------
/s/ German Burtscher /s/ Frank Krentzman
- ------------------------------ -----------------------------
GERMAN BURTSCHER, Individually FRANK KRENTZMAN, Individually
Dated 10/10/95 Dated 10/10/95
-------- --------
- -------------------------------- ------------------------------
Spouse Spouse
Name ___________________________ Name _________________________
Dated __________________________ Dated ________________________
SIRIUS INTERNATIONAL
TELECOMMUNICATIONS, a California
Partnership
/s/ German Burtscher
- -------------------------
GERMAN BURTSCHER, Partner
Dated 10/10/95
--------
/s/ Frank Krentzman
- ------------------------
FRANK KRENTZMAN, Partner
Dated 10/10/95
--------
9
<PAGE>
AMENDMENT TO ACQUISITION & MANAGEMENT AGREEMENT
FOR
GFP GROUP, INC., FRANK KRENTZMAN & GERMAN BURTSCHER
GFP Group, Inc. ("GFP Group"), Frank Krentzman ("Krentzman"), and
German Burtscher ("Burtscher") are parties to the Acquisition and Management
Agreement for GFP Group, Inc., Frank Krentzman, and German Burtscher, signed
October 10, 1995 ("A&M Agreement"). The following amendments are necessary to
conform the A&M Agreement to the intent of the parties at the time the A&M
Agreement was signed. As the parties intended, these amendments give Krentzman
and Burtscher the bargained for shares they expected in the exchange.
The parties agree that the A&M Agreement is amended as follows:
1. Krentzman and Burtscher at no cost to either shall each receive
150,000 additional shares of GlobalTel Resources, Inc. ("GlobalTel") common
stock at such time as GlobalTel receives significant funding, or other
significant developments in GlobalTel's operations and plans such that the Board
of Directors of GlobalTel deems it appropriate to issue the shares, distribution
not to be unreasonably withheld (the "date of significant funding"). The
issuance of the 150,000 shares each shall satisfy the obligation in Section E of
the A&M Agreement to issue 75,000 additional shares of GlobalTel common stock
each to Krentzman and Burtscher beginning in the second and third years of
employment with GlobalTel.
2. Krentzman and Burtscher shall, at the closing of the share
exchange under which GlobalTel is acquiring Krentzman and Burtscher's GFP shares
(the "closing"), receive sufficient GlobalTel shares to give Krentzman and
Burtscher the share parity with Alan Chin and Curtis Lew required by Section
G.2(a) of the A&M Agreement. Krentzman and Burtscher each agree to pay $1.10
per share for these parity shares, payable without interest at the earlier of
(i) the date of significant funding (as stated in paragraph 1 above) or (ii) the
date upon which they individually receive a raise in salary under their
employment agreement.
3. Except for those shares being paid for as set forth in section 2
above, all shares issued pursuant to the A&M Agreement, including as amended by
this Amendment, are part of the exchange unrelated to any compensation due
Krentzman and Burtscher under their employment agreements.
1
<PAGE>
EFFECTIVE this day 10th day of October 1995.
GFP GROUP, INC., a Washington
Corporation
By /s/ Ronald P. Erickson
---------------------------- --------------------------------
Ronald P. Erickson, President German Burtscher
Dated December 29, 1995
------------------------------- -------------------------------
Spouse
-------------------------------
Frank Krentzman, a Single Person
2
<PAGE>
EXHIBIT E
1. Carrier Agreements with MCI and Hi-Rim.
2. Month-to-month lease of headquarters building.
3. Lease agreement for office copier.
4. Stock Purchase Agreement, Promissory Note, Purchase Money Security
Agreement and Pledge of Shares Agreement, all with Okunuki, Nakamura, Wong,
HBICC, Inc. and Sato, or their agents, and Agreement and Release of Claims with
Ken Sato, all dated October 19, 1995.
<PAGE>
Exhibit 10.17
GLOBALTEL RESOURCES, INC.
1997 EMPLOYEE STOCK PURCHASE PLAN
1. Purpose of the Plan. This 1997 Employee Stock Purchase Plan (the
-------------------
"Plan") is intended to encourage stock ownership by all eligible employees of
GLOBALTEL RESOURCES, INC., a Washington corporation (the "Company") and
participating subsidiaries so that they may share in the fortunes of the Company
by acquiring or increasing their proprietary interests in the Company. It is
intended that the Plan shall constitute an "employee stock purchase plan" within
the meaning of Section 423 of the Internal Revenue Code of 1986, as amended (the
"Code").
2. Definitions.
-----------
2.1 "Account" shall mean an account to which amounts deducted from a
participant's paycheck for the purpose of purchasing stock under the Plan are
credited. Amounts credited to an employee's account shall remain the property
of the respective participant at all times but may be commingled with for any
proper corporate purpose.
2.2 "Common Stock" shall mean shares of common stock of the Company,
$0.01 par value.
2.3 "Compensation" shall mean all earnings required to be reported on
a participant's Form W-2 (or any analogous tax form for foreign-based employees)
plus any amounts not included on Form W-2 by reason of deferral into a tax-
qualified employee benefit plan (such as 401(k) or cafeteria plan salary
deferrals).
2.4 "Enrollment Date" shall mean the first day of each Offering
Period. A different date may be set by resolution of the Plan Administrator.
2.5 "Exercise Date" shall mean the last Trading Day each Offering
Period.
2.6 "Fair Market Value" shall mean the value of the Common Stock, as
of any date, determined as follows:
(a) If the Common Stock is listed on the National Market System
("NMS") of the National Association of Securities Dealers, Inc. Automated
Quotation ("NASDAQ") System, its Fair Market Value shall be its closing sales
price (or the average of its closing bid and asked prices, if no sales were
reported) on the date of determination, as reported in The Wall Street Journal
or such other source as the Plan Administrator deems reliable; or
(b) If the Common Stock is quoted on the NASDAQ System (but not
on the NMS) or is regularly quoted by a recognized securities dealer, but
selling prices are not reported, its Fair Market Value shall be the average of
its closing bid and asked prices, as reported in The Wall Street Journal or such
other source as the Plan Administrator deems reliable; or
1
<PAGE>
(c) If the Common Stock is listed for trading on any national
securities exchange, its Fair Market Value shall be its closing sales price (or
the average of its closing bid and asked prices, if no sales were reported) on
the date of determination, as reported in The Wall Street Journal or such other
source as the Plan Administrator deems reliable; or
(d) By any other reasonable method as the Plan Administrator may
determine.
2.7 "Offering Period" shall mean each of successive six (6) month
periods during which an option granted pursuant to the Plan may be exercised,
commencing on January 1 and July 1 of each year and terminating on the following
June 30 and December 31, respectively, until the Plan is terminated by the
Board or no additional shares of Common Stock of the Company are available for
purchase under the Plan; provided, however, that the first Offering Period shall
-------- -------
begin __________, 1998, and shall terminate June 30, 1998. The Board shall have
the power to change the duration of any Offering Period (including the
commencement date thereof) without shareholder approval if such change is
announced to Eligible Employees at least thirty-five (35) days before the
Enrollment Date of the Offering Period to be affected.
2.8 "Participating Subsidiary" shall mean any Subsidiary of the
Company that is designated by the Plan Administrator to participate in the Plan.
The Plan Administrator shall have the power to make such designation before or
after the Plan is approved by the shareholders.
2.9 "Plan Administrator" shall mean the Board of Directors of the
Company or a committee designated by the Board to administer the Plan pursuant
to Section 19.
2.10 "Purchase Price" shall mean an amount equal to eighty-five
percent (85%) of the Fair Market Value of the Common Stock on the Enrollment
Date or the Exercise Date, whichever is lower.
2.11 "Section" unless the context clearly indicates otherwise, shall
refer to a Section of the Plan.
2.12 "Subsidiary" shall mean a "subsidiary corporation" of the
Company, whether now or hereafter existing, within the meaning of Section 424(f)
of the Code.
2.13 "Trading Day" shall mean a day on which the NASDAQ System (or
such national stock exchange as the Company's Common Stock may be listed for
trading) is open for trading.
3. Eligible Employees. Subject to any express limitations contained
------------------
herein or otherwise imposed by law, any individual who has been a full or part-
time regular employee, within the meaning of Section 3401(c) of the Code and the
Treasury Regulations thereunder, of the Company or any Participating Subsidiary
for at least one hundred and eighty (180) consecutive days, and whose customary
employment with the Company or any Participating Subsidiary is not less than
twenty (20) hours per week is eligible to receive options under the Plan,
provided, however, that no person shall be granted an option under the
- -------- -------
Plan if, immediately after the grant, such person would own directly or
indirectly (including all shares which may be attributed to such person under
the rules of Section 424(d) of the Code) or hold options or rights to acquire
stock representing five percent (5%) or more of the total combined voting power
or value of all classes of shares of the Company or of its parent or subsidiary
corporations. For purposes of the Plan, an employee on sick leave or other leave
of absence approved by the Company shall retain eligibility for participation in
the Plan for a period of ninety (90) days, or such longer period as the
participant's right to reemployment after such leave is guaranteed by statute
or contract.
2
<PAGE>
4. Offering Periods. Until the Plan is terminated pursuant to Section
----------------
20, options shall be offered under the Plan during consecutive Offering Periods
commencing on January 1 and July 1 of each year, or such other date as the Board
shall determine, provided, however, that the first Offering Period shall
-------- -------
begin __________, 1998, and shall terminate on June 30, 1998.
5. Enrollment.
----------
5.1 An eligible employee may enroll in an Offering Period under the
Plan by completing, signing, and filing a Subscription Agreement in the form of
Exhibit A with the Plan Administrator at least fifteen (15) business days prior
- ---------
to the applicable Enrollment Date, unless a longer or shorter period is
prescribed by the Plan Administrator.
5.2 Payroll deductions for a participant shall commence on the
Enrollment Date and shall end on the termination date of such Offering Period
unless participation in the Plan is earlier terminated by the participant as
provided in Section 14 of the Plan or unless automatically transferred to a new
Offering Period pursuant to Section 15.
5.3 Participation in one offering under the Plan shall neither limit,
nor require, participation in any other offering; provided, however, that
-------- -------
participants may not participate in more than one Offering Period at any time,
and provided, further, that unless participants submit a Withdrawal Notice as
-------- -------
provided in Section 14 before the end of the Offering Period in which they are
participating, such participants shall be automatically re-enrolled in the next
succeeding Offering Period.
6. Payroll Deductions.
------------------
6.1 At the time a participant files his or her Subscription Agreement,
he or she shall elect to have deductions made from his or her Compensation on
each payday during the Offering Period at a rate of between one percent (1%) and
ten percent (10%) of his or her Compensation (in whole percentages only) or such
lesser percentage as the Plan Administrator may determine from time to time
before an Enrollment Date.
6.2 All payroll deductions made for a participant shall be credited
to his or her Account. A participant may not make any separate cash payment
into such Account nor may payment for shares be made other than by payroll
deduction.
6.3 A participant may decrease, but not increase, the rate of his or
her payroll deductions at any time during an Offering Period by submitting to
the Company a revised Subscription Agreement indicating the desired rate at
least five (5) business days before the beginning of the applicable pay period.
A participant may only increase his or her deduction rate for the next
succeeding Offering Period, by delivering a revised Subscription Agreement to
the Company at least fifteen (15) business days prior to the beginning of such
Offering Period. The Plan Administrator may limit the number of rate changes
during any Offering Period.
6.4 Notwithstanding the foregoing, a participant's payroll deductions
may be reduced during any Offering Period to the extent necessary to comply with
Section 423(b)(8) of the Code and Section 7. Payroll deductions shall resume at
the beginning of the first
3
<PAGE>
Offering Period scheduled to end in the following calendar year at the rate
indicated in such participant's Subscription Agreement, unless terminated or
modified by the participant as provided above.
7. Granting of Option.
------------------
7.1 On the Enrollment Date of each Offering Period, the Company shall
grant to each participant an option to purchase, on each Exercise Date during
the applicable Offering Period, that number of full shares of Common Stock equal
to the amount in the participant's Account as of the Exercise Date divided by
the applicable Purchase Price, provided, however, that such participant remains
-------- -------
eligible to participate in the Plan at all times during the Offering Period up
to and including the applicable Exercise Date; and provided, further, that no
-------- -------
participant shall be granted an option to purchase during any single Offering
Period more than that number of shares determined by dividing twelve thousand
five hundred dollars ($12,500) by the Fair Market Value of one share of Common
Stock on the Enrollment Date.
7.2 Notwithstanding the foregoing, no participant shall be granted an
option which permits his or her rights to purchase Common Stock under the Plan
and any similar employee stock purchase plan of the Company or any parent or
subsidiary corporations to accrue at a rate which exceeds twenty-five thousand
dollars ($25,000) of Fair Market Value of such stock (determined at the time
such option is granted) for each calendar year in which any such option is
outstanding at any time. The purpose of the limitation in the preceding
sentence is to comply with Section 423(b)(8) of the Code, and it does not limit
the amount of stock which an employee may purchase pursuant to any plan other
than an employee stock purchase plan under Section 423 of the Code.
7.3 Whether or not all shares have been purchased thereunder, options
granted under the Plan will expire on the earliest to occur of (i) the
completion of the purchase of shares on the last Exercise Date occurring within
six (6) months of the date of grant of such option, or such shorter period as
may be established by from time to time before an Enrollment Date for all
options to be granted on such Enrollment Date, or (ii) the date on which
participation of such participant in the Plan terminates for any reason other
than death or disability.
8. Exercise of Option.
------------------
8.1 The option of each participant on an applicable Exercise
Date shall be exercised on such Exercise Date, and the maximum number of full
shares subject to such option shall be purchased for such participant with the
accumulated payroll deductions in his or her Account (subject to the maximum
number of shares allowable under Section 7). No fractional shares
will be purchased, and any accumulated funds not sufficient to purchase a full
share shall remain in the participant's Account for the subsequent Offering
Period, subject to withdrawal by the participant pursuant to Section 14.
8.2 If on any Exercise Date, the total number of shares available
under the Plan as provided in Section 17 (after deduction of all shares for
which options have been exercised or are then outstanding) is less than the
number all participants would otherwise be entitled to purchase on such date the
Company shall make a pro rata allocation of the shares remaining available in as
nearly a uniform manner as shall be practical and as the Plan Administrator
shall determine to be equitable. Any funds that cannot be applied to the
purchase of shares due to such reduction shall be refunded to participants.
8.3 Participants who are subject to the reporting requirements and
"short-swing" liability provisions of Section 16 of the Securities Exchange Act
of 1934, as amended (the "Exchange Act") and rules thereunder (generally
including officers, directors and
4
<PAGE>
holders of more than ten percent (10%) of any class of equity security of the
Company) may be required to hold stock acquired pursuant to the Plan for a
period of time in order to avoid a violation of Section 16 of the Exchange Act.
9. Tax Withholding. Upon disposition of shares acquired by exercise of
---------------
an option, the participant shall pay, or make provision adequate to the Company
for payment of, all federal, state, and other tax (and similar) withholdings
that the Company determines, in its sole discretion, are required due to the
disposition, including any such withholding that the Company determines in its
sole discretion is necessary to allow the Company to claim tax deductions or
other benefits in connection with the disposition. A participant shall make such
similar provision for payment that the Company determines, in its sole
discretion, is required due to the exercise of an option, including such
provision as is necessary to allow the Company to claim tax deductions or other
benefits in connection with the exercise of the option, and the Company shall
not be obligated to issue, transfer or deliver a certificate of Common Stock to
any participant, or to his personal representative, until adequate provision has
been made by the participant for such withholding obligations. The Company may,
but is not obligated to, withhold from the participant's Compensation any amount
necessary for the Company to meet such withholding obligations.
10. Delivery. Certificates for stock issued to participants will be
--------
delivered as soon as practicable after the Exercise Date. Shares to be
delivered to a participant under the Plan will be registered in the name of the
participant, or, if the participant so directs, by written notice to the Company
prior to the termination date of the pertinent offering, in the names of the
participant and one such other person as may be designated by the participant,
as joint tenants with right of survivorship or as community property, to the
extent and in the manner permitted by applicable law.
11. Participant's Rights as a Shareholder. No participant shall have any
-------------------------------------
right as a shareholder with respect to any shares under the Plan until the
shares have been purchased in accordance with Section 8.
12. Rights Not Transferable. No participant shall be permitted to sell,
-----------------------
assign, transfer, pledge, or otherwise dispose of or encumber either the payroll
deductions credited to his or her account or any rights with her account or any
rights with regard to the exercise of an option or to receive shares under the
Plan other than by will or the laws of descent and distribution. Further, such
right and interest shall not be liable for, or subject to, the debts, contracts,
or liabilities of the participant. During a participant's lifetime, an option
granted under the Plan is exercisable only by the participant.
13. Interest. No interest will be paid or allowed on any money in the
--------
Accounts of participants.
14. Withdrawal.
----------
14.1 A participant may withdraw from the Plan, in whole but not in
part, at any time prior to the last business day of each Offering Period by
delivering a Withdrawal Notice to the Company in the form of Exhibit B to the
---------
Plan, in which event the Company will refund the entire balance of his or her
Account as soon as practicable thereafter.
5
<PAGE>
14.2 A participant who has withdrawn may re-enroll in the Plan by
filing a new Subscription Agreement in accordance with Section 5; provided,
--------
however, that participants may not re-enroll in the Plan prior to the beginning
- -------
of the next Offering Period.
14.3 A participant may elect to discontinue his or her payroll
deductions during the course of a particular offering, at any time prior to the
last business day preceding the final payday during such offering by delivering
to the Company a revised Subscription Agreement indicating a deduction rate of
zero percent (0%). Such election shall not constitute a withdrawal for the
purposes of this Section 14, and the participant shall remain a
participant in such offering and shall be entitled to purchase from the Company
such number of full shares of Common Stock as set forth in and in accordance
with Section 8.
15. Automatic Transfer to New Offering Period. To the extent permitted by
-----------------------------------------
Rule 16b-3 under the Exchange Act ("Rule 16b-3"), if the Fair Market value of
the Common Stock on any Exercise Date in an Offering Period is lower than the
Fair Market Value of the Common Stock on the Enrollment Date of such Offering
Period, then all participants in such Offering Period shall be withdrawn
immediately after the exercise of their option on such Exercise Date and
automatically re-enrolled in the immediately following Offering Period.
16. Termination of Participant's Rights. A participant's rights under the
-----------------------------------
Plan shall terminate when he or she ceases to be an eligible employee because of
resignation, retirement, layoff, discharge, or change of status. The Company
shall treat the date a participant's employment ceases as a withdrawal date, and
all payroll deductions not used will be refunded. If a participant's employment
is terminated by reason of death or disability prior to the end of an Offering
Period in which he or she is participating, he or she (his or her designated
beneficiary, in the event of his or her death, or if none, his or her legal
representative) shall have the right, within ninety (90) days thereafter, to
elect to have the balance in his or her account either paid to him or her in
cash or applied at the end of such Offering Period toward the purchase of Common
Stock. Each participant may designate one or more beneficiaries in the event of
death, and may, in his or her sole discretion, change such designation at any
time. Any such designation shall be effective upon receipt by the Company and
shall control over any disposition by will or otherwise.
17. Stock Subject to the Plan. Subject to changes in the Company's
-------------------------
capitalization as provided in Section 18, the maximum number of shares that may
be issued pursuant to the Plan in the aggregate shall be Three Hundred Thousand
(300,000). The stock subject to the options shall be shares of the Company's
authorized but unissued Common Stock or shares of Common Stock reacquired by the
Company, including shares purchased in the open market.
18. Changes in Capital Structure. Except as expressly provided herein, no
----------------------------
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect the number or price
of shares of Common Stock subject to the Plan.
18.1 If the outstanding shares of Common Stock of the Company are
increased or decreased or changed into or exchanged for a different number or
kind of shares or other securities of the Company or of another corporation, by
reason of any reorganization, merger, consolidation, recapitalization,
reclassification, stock split-up, combination of shares, dividend payable in
shares or other similar change in the capital structure of the Company,
appropriate adjustment shall be made by the Plan Administrator in the number and
kind of shares as to which an option granted under the Plan shall be
exercisable, and the purchase price of such options to the end
6
<PAGE>
that the participant's proportionate interest shall be maintained as before the
occurrence of such event. Any such adjustment made by the Plan Administrator
shall be conclusive.
18.2 If the Company is not the survivor or resulting corporation in
any reorganization, merger, consolidation or recapitalization, each outstanding
option shall be assumed by the surviving or resulting corporation and shall
continue in full force and effect, and each option shall apply to the same
number and class of securities of the surviving corporation as a holder of the
number of shares of Common Stock subject to the option would be entitled to
under the terms of the reorganization, merger, consolidation or capitalization.
19. Administration of the Plan. The Plan shall be administered by the
--------------------------
Board of Directors of the Company (the "Board") or by a committee designated by
the Board composed of one or more members of the Board and such other persons as
the Board shall designate. Any such committee shall have the powers and
authority vested in the Board hereunder as the Board shall designate. The
members of any such committee shall serve at the pleasure of the Board. A
majority of the members of the committee shall constitute a quorum, and all
actions of such committee shall be taken by a majority of the members present.
Any action may be taken by a written instrument signed by all of the members of
such committee and any action so taken shall be fully as effective as if it had
been taken at a meeting. The Board, or any committee thereof appointed to
administer the Plan, is referred to herein as the "Plan Administrator."
Subject to the provisions of the Plan and the overall supervision of and
limitations imposed by the Board, the Plan Administrator shall have sole
authority, in its absolute discretion, (a) to construe and interpret the Plan;
(b) to define the terms used herein; (c) to prescribe, amend, and rescind rules
and regulations relating to the Plan; (d) to determine all of the other terms
and conditions of options granted under the Plan; and (e) to make all other
determinations necessary or advisable for the administration of the Plan and do
everything necessary or appropriate to administer the Plan. All decisions,
determinations, and interpretations made by the Plan Administrator shall be
binding and conclusive on all participants in the Plan and on their legal
representatives, heirs, and beneficiaries.
20. Termination and Amendments to Plan. The Board may terminate the Plan at
----------------------------------
any time and may elect to terminate all outstanding options either immediately
or upon completion of the purchase of shares on the next Exercise Date. If not
terminated by act of the Board, the Plan will terminate on the earlier of (a)
the date on which all or substantially all of the unissued shares of Common
Stock reserved for the purpose of the Plan have been purchased, or (b) ten (10)
years from the date the Plan is adopted by the Board. Upon such termination or
any other termination of the Plan, all payroll deductions not used to purchase
stock will be refunded.
The Board may amend the Plan from time to time in any respect including
amendments to outstanding options; provided, however, that any amendment for
-------- -------
which shareholder approval is required by Rule 16b-3 or under Section 423 of the
Code (or any successor rule or provision or any other applicable law or
regulation), shall be subject to approval of the shareholders.
21. Conditions Upon Issuance of Shares. Shares shall not be issued with
----------------------------------
respect to an option unless the exercise of such option and the issuance and
delivery of such shares pursuant
7
<PAGE>
thereto shall comply with all applicable provisions of law, domestic or foreign,
including, without limitation, the Exchange Act, the Securities Act of 1933, as
amended, the rules and regulations promulgated thereunder, and the requirements
of any stock exchange upon which the Company's stock may then be listed, and
shall be further subject to the approval of counsel for the Company with respect
to such compliance.
As a condition to the exercise of an option, the Company may require a
participant to represent and warrant at the time of exercise that the shares are
being purchased only for investment and without any present intention to sell or
distribute such shares if, in the opinion of counsel for the Company, such a
representation is required by any applicable law.
22. Reports. Statements of individual accounts, setting forth the amounts
-------
of payroll deductions, the number of shares purchased, the Purchase Price and
the remaining cash balance, if any, will be delivered to participants at least
annually.
23. Equal Rights and Privileges. All eligible employees shall have equal
---------------------------
rights and privileges with respect to the Plan so that the Plan qualifies as an
"employee stock purchase plan" within the meaning of Section 423 or any
successor provision of the code and the related Treasury Regulations. Any
provision of the Plan that is inconsistent with Section 423 or any successor
provision of the Code shall without further act or amendment by the Company or
the Plan Administrator be reformed to comply with the requirements of Section
423. This Section 23 shall take precedence over all other provisions of the
Plan.
24. Approval of Shareholders. The Plan is being implemented by action of
------------------------
the Board of Directors with the understanding that approval of the Plan by the
shareholders of the Company will be sought. Options granted hereunder before
the date of the first meeting of the shareholders of the Company duly convened
following the effective date of the Plan shall be granted subject to
ratification of the Plan by the shareholders of the Company at such duly
convened meeting, and if shareholder ratification is not obtained at such
meeting, each and every option granted under the Plan shall be null and void and
shall convey no rights to the holder thereof and all payroll deductions will be
refunded promptly, without interest.
Approved by the Corporation's Board of Directors as of __________, 1997.
Approved by the Corporation's Shareholders as of __________, 1997.
GLOBALTEL RESOURCES, INC.
By _______________________________
Its President
8
<PAGE>
EXHIBIT A
---------
GLOBALTEL RESOURCES, INC.
1997 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
___ Original Application Enrollment Date: _______
___ Change in Payroll Deduction Rate
___ Change of Beneficiary(ies)
1. ______________________________ hereby elects to participate in the
GLOBALTEL RESOURCES, INC. 1997 Employee Stock Purchase Plan (the "Employee
Stock Purchase Plan") and subscribes to purchase shares of the Company's
Common Stock in accordance with this Subscription Agreement and the
Employee Stock Purchase Plan.
2. I hereby authorize payroll deductions from each paycheck in the amount of
__________ percent ( _____%) of my Compensation on each payday during the
Offering Period in accordance with the Employee Stock Purchase Plan.
(Please note that no fractional percentages are permitted.)
3. I understand that said payroll deductions shall be accumulated for the
purchase of shares of Common Stock at the applicable Purchase Price
determined in accordance with the Employee Stock Purchase Plan. I
understand that if I do not withdraw from an Offering Period, any
accumulated payroll deductions will be used automatically to exercise my
option.
4. I have received a copy of the complete memorandum to participants
summarizing the "GLOBALTEL RESOURCES, INC. 1997 Employee Stock Purchase
Plan." I understand that my participation in the Employee Stock Purchase
Plan is in all respects subject to the terms of the Plan. I understand that
the grant of the option by the Company under this Subscription Agreement is
subject to obtaining shareholder approval of the Employee Stock Purchase
Plan.
5. Shares purchased for me under the Employee Stock Purchase Plan should be
issued in the name(s) of (Employee or Employee and spouse only):
________________________________________________________________
___________________________.
6. I understand that if I dispose of any shares received by me pursuant to the
Plan within two years after the Enrollment Date (the first day of the
Offering Period during which I purchased such shares) or one year after the
Exercise Date, I will be treated for federal income tax
1
<PAGE>
purposes as having received ordinary income at the time of such disposition
in an amount equal to the excess of the Fair Market Value of the shares at
the time such shares were delivered to me over the price which I paid for
the shares. I HEREBY AGREE TO NOTIFY THE COMPANY IN WRITING WITHIN THIRTY
-------------------------------------------------------------
(30) DAYS AFTER THE DATE OF ANY DISPOSITION OF MY SHARES AND I WILL MAKE
------------------------------------------------------------------------
ADEQUATE PROVISION FOR FEDERAL, STATE OR OTHER TAX WITHHOLDING OBLIGATIONS,
---------------------------------------------------------------------------
IF ANY, WHICH ARISE UPON THE DISPOSITION OF THE COMMON STOCK. The Company
------------------------------------------------------------
may, but will not be obligated to, withhold from my compensation the amount
necessary to meet any applicable withholding obligation including any
withholding necessary to make available to the Company any tax deductions
or benefits attributable to sale or early disposition of Common Stock by
me.
7. I hereby agree to be bound by the terms of the Employee Stock Purchase
Plan. The effectiveness of this Subscription Agreement is dependent upon my
eligibility to participate in the Employee Stock Purchase Plan.
8. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due me under the
Employee Stock Purchase Plan:
NAME: (Please print) __________________________________________________________
(First) (Middle) (Last)
__________________________ _______________________________________________
Relationship
_______________________________________________
(Address)
Employee's Social
Security Number: _______________________________________________
I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT THROUGHOUT
SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY ME.
Dated: _________________________________________________________________________
Signature of Employee
_________________________________________________________________________
Spouse's Signature (If beneficiary other than spouse)
2
<PAGE>
EXHIBIT B
---------
GLOBALTEL RESOURCES, INC.
1997 EMPLOYEE STOCK PURCHASE PLAN
WITHDRAWAL NOTICE
The undersigned participant in the GLOBALTEL RESOURCES, INC. 1997 Employee
Stock Purchase Plan (the "Plan") hereby notifies the Company that he or she
hereby withdraws from the Plan. He or she hereby directs the Company to pay to
the undersigned as promptly as practicable all the payroll deductions credited
to his or her account under the Plan. The undersigned understands and agrees
that his or her option for the current Offering Period under the Plan will be
automatically terminated. The undersigned understands further that no further
payroll deductions will be made for the purchase of shares in the current
Offering Period and the undersigned shall be eligible to participate in
succeeding Offering Periods only by delivering to the Company a new Subscription
Agreement in accordance with the terms of the Plan.
Name and Address of Participant:
__________________________________________________
__________________________________________________
__________________________________________________
Signature:
__________________________________________________
Date: ____________________________________________
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
(and to all references to our Firm) included in or made a part of this
registration statement.
/s/ ARTHUR ANDERSEN LLP
Seattle, Washington
December 19, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF GLOBALTEL RESOURCES, INC. FOR EACH OF THE
TWO YEARS ENDED DECEMBER 31, 1996 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C> <C>
<PERIOD-TYPE> 9-MOS YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996 DEC-31-1995
<PERIOD-START> JAN-01-1997 JAN-01-1996 JAN-01-1995
<PERIOD-END> SEP-30-1997 DEC-31-1996 DEC-31-1995
<CASH> 237,428 446,257 715,987
<SECURITIES> 0 0 0
<RECEIVABLES> 1,417,472 1,828,228 538,542
<ALLOWANCES> 180,000 207,000 62,000
<INVENTORY> 0 0 0
<CURRENT-ASSETS> 1,621,856 2,216,663 1,259,419
<PP&E> 1,617,252 794,182 365,364
<DEPRECIATION> 230,135 123,470 55,272
<TOTAL-ASSETS> 4,001,904 3,701,487 1,878,354
<CURRENT-LIABILITIES> 7,444,654 7,464,952 2,093,546
<BONDS> 0 0 0
0 0 0
987,027 0 0
<COMMON> 2,388,647 64,783 150,033
<OTHER-SE> 3,184,410<F1> 1,571,693<F1> 1,444,888<F2>
<TOTAL-LIABILITY-AND-EQUITY> 4,001,904 3,701,487 1,878,354
<SALES> 10,639,495 9,135,935 2,113,047
<TOTAL-REVENUES> 10,639,495 9,135,935 2,113,047
<CGS> 9,006,799 8,229,546 1,928,396
<TOTAL-COSTS> 9,671,220 8,911,878 2,166,564
<OTHER-EXPENSES> 4,799,422 5,871,421 1,647,277
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 587,442 224,964 33,681
<INCOME-PRETAX> (4,418,589) (5,872,328) (1,734,475)
<INCOME-TAX> 0 0 0
<INCOME-CONTINUING> (4,418,589) (5,872,328) (1,734,475)
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> (4,418,589) (5,872,328) (1,734,475)
<EPS-PRIMARY> 0 0 0
<EPS-DILUTED> 0 0 0
<FN>
<F1>OTHER-SE INCLUDES COMMON STOCK SUBJECT TO RESCISSION OF $1,850,004 FOR 1997
AND $1,519,387 FOR 1996 AND COMMON STOCK WARRANTS OF $1,334,406 FOR 1997 AND
$52,306 FOR 1996.
<F2>OTHER-SE INCLUDES $1,434,137 OF COMMON STOCK SUBJECT TO RESCISSION AND
$10,751 OF COMMON STOCK WARRANTS AT 12-31-1995.
</FN>
</TABLE>
